SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended SEPTEMBER 30, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-12866
GST TELECOMMUNICATIONS, INC.
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(Exact Name of Registrant as Specified in its Charter)
Canada N/A
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(State or other jurisdiction of (IRS Employer Identification
incorporation or organization Number)
4317 N.E. Thurston Way, Vancouver, Washington 98662
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (360) 254-4700
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Shares, without par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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. Yes X No
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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 the 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 at December 27, 1996 of the
Registrant's Common Shares, without par value (based upon the closing price of
$8 5/16 per share of such Shares on the American Stock Exchange), held by
non-affiliates of the Registrant was approximately $158,925,416. Solely for the
purposes of this calculation, shares held by directors and officers of the
Registrant have been excluded. Such exclusion should not be deemed a
determination or an admission by the Registrant that such individuals are, in
fact, affiliates of the Registrant.
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date: At December
20, 1996, there were outstanding 22,045,638 of the Registrant's Common Shares,
without par value.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's definitive proxy
statement to be filed not later than January 28, 1997 pursuant to Regulation 14A
are incorporated by reference in Items 10 through 13 of Part III of this Annual
Report on Form 10-K.
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ITEM 1. BUSINESS
OVERVIEW
GST Telecommunications, Inc. (the "Company") provides a broad range of
integrated telecommunications products and services, primarily to customers
located in the western continental United States and Hawaii. Since inception as
a facilities-based competitive access provider ("CAP"), the Company has
constructed and operated digital interconnected telecommunications networks that
provide an alternative to local exchange carriers ("LECs"). The Company has
expanded beyond the scope of traditional CAP operations into competitive local
exchange carrier ("CLEC") services and currently provides, through its
established sales channels, a range of enhanced telecommunications services that
include long distance, Internet access and data services. In addition, the
Company provides switched access and recently began to offer local dial tone
services to complement its existing telecommunications service offerings. The
Company also provides advanced telecommunications switching platforms with
integrated applications software and network telemanagement capabilities through
its subsidiary, NACT Telecommunications, Inc. ("NACT").
The Company's fiber optic networks currently serve 24 cities in
Arizona, California, New Mexico and Washington and its digital microwave
networks serve four of the Hawaiian Islands. In addition, the Company has 18
networks under construction and other networks in various stages of development.
The Telecommunications Act of 1996 (the "Telecommunications Act") and
state regulatory initiatives have substantially changed the telecommunications
regulatory environment in the United States. As a result of these regulatory
changes, the Company is permitted in certain states to provide local dial tone
in addition to its existing telecommunications service offerings. In order to
capitalize on these opportunities, the Company has accelerated the development
and construction of additional networks within its region. In addition, to
facilitate the provision of local services, the Company has deployed four high
capacity digital switches and intends to deploy additional switches in the first
half of 1997.
TELECOMMUNICATIONS NETWORKS
The Company's network strategy is to continue to develop and expand its
network infrastructure to ultimately assemble, through a combination of owned
and leased facilities and joint ventures, an integrated regional network for the
on-net provision of CLEC services, including local, long distance, Internet
access and data services. The Company will continue to focus on the western
United States in order to take advantage of its strategically advantageous
position in California and Hawaii and the substantial telecommunications traffic
that exists among the western United States, Mexico, the Pacific Rim and western
Canada.
The Company's networks comprise fiber optic cables, microwave or other
wireless facilities, integrated switching facilities, advanced electronics, data
switching equipment, transmission equipment and associated wiring and equipment.
The Company typically designs a ring architecture with connectivity to LEC
central offices, points-of-presence ("POPs") of long distance carriers and large
concentrations of telecommunication intensive end-users.
At December 15, 1996, (i) in California, the Company had operational
networks in Northern California (Concord, Hayward, Pleasanton, San Ramon, Mare
Island and Walnut Creek), Southern California (Bloomington, Loma Linda, Rialto,
Riverside, San Bernardino, City of Industry, Monterey Park, Anaheim and Ontario)
and the San Joaquin Valley (Coalinga, Fresno, Bakersfield and Taft); (ii) in
Hawaii, the Company had operational networks on Hawaii, Maui, Molokai and Oahu;
(iii) in Arizona, the Company had an operational network in Tucson and owned 50%
of Phoenix Fiber Access, Inc. ("Phoenix Fiber") which had an operational network
in Phoenix; (iv) in New Mexico, the Company had an operational
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network in Albuquerque; and (v) in Washington, the Company had operational
networks in Spokane and Vancouver. In addition, the Company is constructing an
inter-island fiber optic network that will connect six of the Hawaiian Islands
and fiber optic networks on the islands of Hawaii, Maui and Oahu.
The Company's decision to construct a network in a particular locale is
preceded by a review of the area's demographic, economic, competitive and
telecommunications requirements. The characteristics examined include location
and concentration of potential business, governmental and institutional
end-users, the locale's economic prospects, information regarding demand for the
various services offered by the Company and actual and potential LECs, CLEC and
other competitors. Market demand is estimated using market research conducted by
the Company and from information such as demand sets provided by interexchange
carriers ("IXCs").
If the locale's characteristics are deemed to warrant development
activities, the Company, with the assistance of engineering consultants, designs
a network that will connect the largest practicable concentration of potential
end-users, IXCs, POPs and LEC central offices. The Company initiates discussions
simultaneously with municipal officials, rights-of-way providers, IXCs and
potential end-users and prepares estimates of the costs of fiber optic cable,
transmission, switching and other electronic equipment, engineering design and
construction, rights-of-way and structural access. Concurrently, estimates of
potential network revenues and profitability are prepared and are compared with
estimated costs to determine whether the projected rate of return justifies
construction. If the projected rate of return meets the Company's guidelines, a
detailed financial and business plan is prepared.
The construction of a network requires that the Company obtain
municipal franchise and other permits. These rights are frequently the subject
of non-exclusive agreements of finite duration providing for the payment of
fees. In addition, the Company must secure rights-of-way and other access which
are typically provided under non-exclusive multi-year agreements, which
generally contain renewal options. Generally, these rights are obtained from
utilities, LECs, other CLECs, railroads and IXCs. The Telecommunications Act
requires most utilities to afford access to rights-of-way to CLECs on
non-discriminatory terms and conditions and at reasonable costs.
The Company's requirements for a planned network are communicated to an
engineering firm that finalizes the route and completes the network's design.
Independent construction and installation contractors are selected through a
competitive bidding process. The Company's own personnel supervise the
construction, negotiate required contracts, and test and verify the network
components. Cable, equipment and supplies required for the networks are
available from a variety of sources at competitive rates.
The construction period of a new network varies depending upon such
factors as the number of backbone route miles to be installed, the initial
number of buildings targeted for connection to the network backbone and the
general deployment of the network backbone. Construction is planned to allow
revenue-generating operations to commence prior to the completion of the entire
network backbone. After installing the network backbone, extensions to
additional buildings and expansions to other regions of a metropolitan area are
evaluated, based on detailed assessments of market potential. Based upon the
Company's experience with its operational networks, the Company believes that
generally a new fiber optic network can be commercially operational within four
to five months after construction commences.
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The successful implementation of the Company's network strategy is best
evidenced in the States of California and Hawaii. In California, the Company
holds two Certificates of Public Convenience and Necessity ("CPCNs") from the
California Public Utilities Commission ("CPUC"), which allows the Company to
install its fiber optic cable along existing public utility corridors, and has a
statewide pole attachment agreement, which enables the Company to expand its
infrastructure without the delays typically experienced in obtaining individual
licenses and rights-of-way. The Company has begun to interconnect each of its
operational California and Hawaiian networks to allow the on-net provision of
the Company's services throughout each State. In Hawaii, the Company operates a
digital microwave network and has recently entered into a network
interconnection agreement with GTE Hawaiian Telephone Company ("GTE"), the
dominant service provider in the Hawaiian Islands, that is subject to regulatory
approval. The Company is the only authorized provider of statewide full local
dial tone services other than GTE. The Company is also supplementing its
microwave network with terrestrial fiber optic facilities and has begun
deployment of an inter-island fiber network to extend its services throughout
the State. The Hawaii Public Utilities Commission (the "HPUC") has authorized a
subsidiary of the Company to expand its authority to include local exchange
services in competition with GTE. Deployment of local exchange services on other
than a resale basis or through the purchase from GTE of unbundled network
elements are dependent upon HPUC approval of the interconnection agreement
recently entered into between the Company and GTE and the installation of
necessary facilities and equipment. The Company has also recently completed pole
attachment and audit occupancy agreements with GTE. The Company recently
completed a rights-of-way agreement with Hawaiian Electric Company relating to
all islands other than Kauai, which will facilitate this network deployment.
TELECOMMUNICATIONS SERVICES
In conjunction with its network expansion, the Company has developed a
strategy to leverage its existing infrastructure by providing a wide range of
integrated local and long distance telecommunications services to meet the voice
and data needs of its end-user customers. The Company intends to continue to
primarily focus on business, government and academic end-users within its region
that have significant telecommunications requirements. To meet these customers'
needs, the Company offers a number of CLEC services including:
LOCAL SERVICES
Local services involve the transmission of voice, video or data to long
distance carrier-specified or end- user-specified termination sites (by manually
or electronically dialing a telephone number). By contrast, the special access
services currently provided by the Company and other CLECs involve a fixed
communications link or "pipe," usually between a specific end-user and a
specific long distance carrier's POP. With a switch, it is possible for the
Company to direct a long distance carrier's traffic to any end-user whether or
not the end-user is connected to the Company's network. Under current federal
regulations, the Company is permitted to provide a full range of interstate
switched access and enhanced services. In addition, a switch gives the Company
the technological capability to provide the full range of local telephone
services, although state authority may be necessary for intrastate service
offerings.
To facilitate the provision of local services, the Company has deployed
four switches for switched access as well as local dial tone and enhanced
services and intends to deploy additional switches in the first half of 1997.
The Company plans to continue to install switching equipment in its operational
networks, in markets where it is constructing networks and in certain other
cities where the Company will rely on LEC facilities for transmission. Once each
switch is operational, the Company expects to begin providing, where regulatory
conditions permit, local dial tone, in addition to enhanced services such as
ISDN, Centrex, voice mail and other custom calling features.
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LONG DISTANCE SERVICES
The Company offers enhanced long distance services, such as toll free,
private line, calling card, prepaid calling card and international call back
services to end-users, agents and other carriers. The Company supplies long
distance services pursuant to resale agreements that enable it to utilize the
network facilities of major long distance carriers such as AT&T Corp. ("AT&T")
and MCI Communications Corporation ("MCI"). The Company's current customer base
encompasses primarily business customers purchasing between $200 and $15,000 of
service per month. The Company has recently expanded its long distance products
and services through the acquisition of Call America Business Communications
Corporation and its affiliated companies (collectively "Call America"), TotalNet
Communications Inc. ("TotalNet") and certain assets of Texas-Ohio
Communications, Inc. and affiliated companies (collectively, "Texas-Ohio").
CALL AMERICA. The Company has entered into an agreement and plan of
merger with Call America, pursuant to which the Company would acquire 100% of
Call America by means of a merger, for a purchase price of 1,307,692 common
shares with no par value of the Company (the "Common Shares"), subject to a post
closing adjustment of additional Common Shares if, 180 days after the effective
time of the merger, the market price of the Common Shares is less than $12.50
per share. The maximum number of additional Common Shares to be issued pursuant
to the post closing adjustment is 114,489. The consummation of the merger is
contingent upon obtaining certain required consents and approvals, including
regulatory approvals, which are expected to be received by the end of 1996. Call
America, which is based in San Luis Obispo, California, is a facilities-based
long distance reseller that provides switched long distance, voice mail,
operator services, paging, Internet access, wireless messaging, e-mail and other
services to approximately 8,000 customers in the three-county area of San Luis
Obispo, Santa Barbara and Ventura counties.
TOTALNET. The Company acquired TotalNet for a purchase price of
approximately $8.7 million, payable entirely in Common Shares to the former
shareholders of TotalNet in two installments. Sixty percent of the purchase
price (approximately $5.2 million), for a total of 481,391 Common Shares valued
at $10.90 per share, was paid on October 17, 1996 and the remaining 40% of the
purchase price (approximately $3.5 million) is payable in Common Shares on
October 17, 1997, based on the market value of the Common Shares at such time
but in no event less than $7.63 per share, or more than $20.00 per share.
TotalNet, which is based in Houston, Texas, is both a facilities-based carrier
and a switchless reseller of long distance services. TotalNet provides 1+,
toll-free "800," operator-assisted and calling card services to approximately
3,500 small to medium sized businesses in the Houston metropolitan area.
TEXAS-OHIO. The Company acquired certain assets of Texas-Ohio in
exchange for $589,704 and the assumption of certain liabilities. Texas-Ohio is a
full-service long distance reseller that provides its customers with 1+,
toll-free "800," operator-assisted and calling card services. Texas-Ohio
specializes in enhanced calling card services. Texas Ohio provides its long
distance services to 26 agents and resellers nationwide who market these
products to over 2,500 customers. Texas Ohio's electronic order entry system is
unique to the industry and allows agents to enroll and service its customers
on-line. Additionally, the Company has an experienced customer service
department that is fully operational 24 hours a day, seven days a week.
INTERNET SERVICES
In March 1996, the Company acquired Reservations, Inc. d/b/a Hawaii On
Line ("Hawaii On Line"), the largest Internet access provider in Hawaii, and has
since increased the number of Hawaii On Line's customers from approximately
4,900 to approximately 12,000. The Company is also presently providing Internet
services to customers in Portland and Vancouver (Washington). In addition to
providing Internet access, the Company offers electronic interchange services
through its recently acquired LightYear
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division, WorldWide Web development and hosting and other Internet services and
is also developing various Internet software applications. Management believes
that these services will become an important component of the Company's overall
product offerings and will permit the Company to leverage its existing
infrastructure. The Company intends to continue to expand its Internet access
and service business to other markets.
DATA SERVICES
The Company offers national and international frame relay services on
its own frame relay network and through an interconnection agreement with
Intermedia Communications Inc. ("Intermedia"). Under this agreement, the Company
and Intermedia have agreed to link their data networks and terminate one
another's traffic. The Company currently offers frame relay services in most
major markets in the United States, with a focus on the markets located in the
western part of the country.
The Company is developing metropolitan area networks leveraging off its
fiber, wireless, microwave and other transport facilities. These networks will
be used to offer services such as high speed LAN connectivity service with
access rates ranging from 10 to 100 Mbps, video conferencing, multi-media
networking and high capacity access to the Internet.
The Company's data networks are monitored by its network control
center, 24 hours a day, 7 days a week. The Company intends to provide its
customers monthly network management reports that would allow users to track the
performance of their virtual private network. Customer network management
support will permit customers to monitor and tailor their virtual network as
desired with a communication link into the Company's network management systems.
National and international frame relay connectivity are achieved with
individual network-to-network interface ("NNI") agreements with Intermedia and
other telecommunications carriers. In addition to dedicated local loop access to
the Company's frame relay network, the Company has established frame relay NNIs
with PacBell, U S West Communications, Inc. ("U S West"), SBC Communications
Corporation and GTE Corporation and its affiliated companies (collectively, the
"GTE Companies") to provide frame relay services.
SHARED TENANT SERVICES
The Company offers shared tenant services to large apartment
communities in New Mexico, Oregon, Utah and Washington. Shared tenant services
include resold dial tone, long distance, voice mail, calling features, calling
cards, cable television, home alarm service and Internet access. The Company
recently expanded its shared tenant services business through the acquisition of
Tri-Star Residential Communication Corp. ("Tri-Star"), a Washington-based shared
tenant services provider. The Company acquired Tri-Star on September 19, 1996
for a purchase price of $2,417,150, payable entirely in Common Shares, in eight
quarterly installments.
The Company provides dial tone service through on-site PBX telephone
systems located within each apartment complex that are connected to the LEC. As
the Company expands its network and central office switching facilities, PBXs
will be replaced with central office access nodes originating from the Company's
own dial tone facilities, thereby resulting in significant cost savings to the
Company. In addition, the Company is in the process of connecting apartment
communities to its own fiber network.
MANUFACTURING
The Company, through its subsidiary, NACT, provides advanced
telecommunications switching platforms with integrated applications software and
network telemanagement capabilities. As a single
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source provider, NACT believes that it is the only company in its market that
designs, develops and manufactures all hardware and software elements necessary
for a fully integrated turnkey telecommunications switching solution. Because
NACT provides a complete integrated solution, its customers do not require the
multiple suppliers of hardware and value added resellers of software that would
otherwise be necessary to provide a wide range of services and applications.
NACT's customers include long distance carriers, prepaid debit card and prepaid
cellular network operators, international call back/reorigination providers and
other specialty service providers.
NACT's products and services include the STX application switching
platform (the "STX"), the NTS telemanagement and billing system (the "NTS") and
facilities management services. In May 1996, NACT introduced the STX, an
integrated digital tandem switching system that currently supports up to 1,024
ports per switch and can be combined with three additional STXs to provide a
total capacity of 4,096 ports per system. The STX includes proprietary systems
software that enables standard applications such as 1+ and optional advanced
applications such as international call/back reorigination, prepaid debit card
and prepaid cellular. NACT has targeted the STX, with its enhanced features and
scaleable capacity, to an expanded group of customers, including independent
telephone companies, CAPs/CLECs, shared tenant service providers, Fortune 1000
corporations and local telephone companies outside the United States. NACT
believes that the STX offers value added features and capacity at price points
typically lower than those offered by its competitors. The NTS performs call
rating, accounting, switch management, invoicing and traffic engineering for
multiple switches that may be NACT switches or other industry switches. In
conjunction with the sale of a system, NACT offers a facilities management
service whereby NACT will operate and maintain a customer's switch for a fee. In
providing this service, NACT enables its customers to direct their attention
toward marketing their products rather than focusing on the technical aspects of
operating a switch.
COMPETITION
The telecommunications industry is highly competitive. In most markets,
the Company's networks' principal competitor is the Regional Bell Operating
Company ("RBOC") or the GTE Companies. Additional competitors may include other
CAPs, CLECs, microwave and satellite carriers, wireless telecommunications
providers and private networks built by large end-users. Potential competitors
(using similar or different technologies) include cable television companies,
utilities and LECs outside their current local service area. In addition, the
Company anticipates future competition from large long distance carriers, such
as AT&T, MCI and Sprint Corporation ("Sprint"), which have announced plans to
offer integrated local and long distance telecommunications services as
regulations allow. Consolidation of telecommunications companies and the
formation of strategic alliances within the telecommunications industry as well
as the development of new technologies could give rise to significant new
competitors to the Company.
As a recent entrant in the integrated telecommunications services
industry, the Company has not achieved and does not expect to achieve a
significant market share for any of its services. In particular, the RBOCs, the
GTE Companies and other local telephone companies have long-standing
relationships with their customers, have financial, technical and marketing
resources substantially greater than those of the Company, have the potential to
subsidize competitive services with revenues from a variety of businesses and
currently benefit from certain existing regulations that favor the LECs over the
Company in certain respects. While recent regulatory and legislative initiatives
allow CLECs such as the Company to interconnect with LEC facilities and provide
increased business opportunities for the Company, such interconnection
opportunities have been accompanied by increased pricing flexibility for, and
relaxation of regulatory oversight of, the LECs. Local telephone companies also
may enter the long distance market, subject to certain conditions. For example,
the Federal Communications Commission (the "FCC") granted LECs additional
flexibility in pricing their interstate special and switched access services on
a central office
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specific basis. Under this pricing scheme, LECs may establish pricing zones
based on access traffic density and charge different prices for central offices
in each zone.
In California, the Company has selected cities where it was or expects
to be the first entrant into a market. Although the Company expects that other
CLECs will develop networks in cities where the Company is developing or
operating networks, currently the Company's only competitors in its California
markets are the LECs, although Brooks Fiber Properties ("Brooks") has begun to
construct networks in Fresno and Bakersfield.
Currently, in Hawaii, the Company is the only authorized provider of
statewide full local dial tone services other than GTE.
In Tucson, the Company competes with the LEC, U S West, and two other
companies that also have a license agreement with the City of Tucson. These
companies, Brooks Fiber Communications of Tucson, Inc. and American
Communications Services Inc. ("ACSI") and the Company have entered into
agreements with Tucson Electric Power Company ("TEP") for pole attachment and
access to TEP's facilities rights-of-way.
In Phoenix, Phoenix Fiber competes with the LEC. In addition to the
LEC, four other companies (Electric Lightwave, Inc., MFS Communications Company,
MCI and Teleport Communications Group, Inc.) have constructed or intend to
construct fiber optic telecommunication transmission networks in the Phoenix
area. Such companies are expected to offer services that will compete with some
or all of the services to be offered by Phoenix Fiber.
In addition to the Company, ASCI and Brooks have franchise agreements
with the city of Albuquerque.
The long distance telecommunications industry has relatively
insignificant barriers to entry, numerous entities competing for the same
customers and a high average churn rate, as customers frequently change long
distance providers in response to the offering of lower rates or promotional
incentives by competitors. The Company competes with major carriers such as
AT&T, MCI and Sprint, as well as other national and regional long distance
carriers and resellers, many of whom are able to provide services at costs that
are lower than the Company's current costs. As a result of the
Telecommunications Act, the Company believes that RBOCs also will become
competitors in the long distance telecommunications industry. The Company
believes that the principal competitive factors affecting its long distance
operations are pricing, customer service, accurate billing, clear pricing
policies and, to a lesser extent, variety of services. The ability of the
Company to compete effectively will depend upon its continued ability to
maintain high quality market driven services at prices generally equal to or
below those charged by its competitors. The FCC has, on several occasions since
1984, approved or required price reductions by AT&T and, in 1995, the FCC
announced that AT&T will no longer be regulated as a dominant long distance
carrier. This decision is expected to increase AT&T's flexibility in competing
in the long distance services market and, in particular, eliminates the longer
tariff notice requirements previously applicable only to AT&T. Most recently the
FCC has adopted rules that will eliminate the ability or need of long distance
carriers to file tariffs with the FCC. To maintain its competitive posture, the
Company believes that it must be in a position to reduce its prices in order to
meet reductions in rates, if any, by others. Any such reductions could adversely
affect the Company.
The Internet services market is highly competitive. There are no
substantial barriers to entry, and the Company expects that competition will
continue to intensify. The Company's competitors in this market include Internet
access providers, other telecommunications companies, online services providers
and Internet software providers.
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The market for telecommunications products is highly competitive and
subject to rapid technological change. NACT expects competition to increase from
existing competitors in the distributed switching systems market and from other
companies that may enter NACT's existing or future markets, including major
central office switch vendors. In its manufacturing operations, the Company,
through its subsidiary NACT, competes with a number of lower capacity switch
manufacturers such as Communications Product Development, Inc., Integrated
Telephony Products, Inc. and PCS Telecom, Inc. NACT also competes with providers
of open architecture (programmable) hardware switching platforms that are
enhanced by applications providers and value added resellers. Such competitors
include Excel, Inc., which has agreements with software application providers,
which has agreements with software applications providers. As NACT's business
develops and it seeks to market its switches to a broader customer base, NACT's
competitors may include larger switch and telecommunications equipment
manufacturers such as Lucent Technologies Inc., Harris Corporation, Siemens AG,
Alcatel Alsthom Compagnie, Generale D'Electricite, Telefonaktiebolaget, L.M.
Ericcson and Northern Telecom, Ltd.
Most of the Company's actual and potential competitors in its switched
access, long distance, Internet and data services and manufacturing businesses
have substantially greater financial, technical and marketing resources than the
Company. While the Company believes that it is well positioned to compete
effectively, there can be no assurance that it will be able to do so.
MARKETING
The Company markets its telecommunications service offerings through
the use of direct mail, print, radio and television advertising, attendance at
trade shows and open houses, press conferences, newsletters and media releases.
The Company has developed two primary channels of distribution: commercial
channels, which include commercial sales offices, telemarketing and product
specific sales, and target-specific channels, which include carrier sales,
government systems, alternate channels marketing and vertical markets. The
Company has sales offices in 18 cities in which it operates networks.
The Company's commercial distribution channels focus on end-users,
including business customers with telecommunication-intensive needs. The
Company's direct sales agents work in conjunction with its agent and
telemarketing groups to sell value-added services to medium and large business
end-users. The telemarketing group generates qualified leads and schedules
appointments for the Company's regional sales agents as well as consummates
sales to long distance and Internet customers in cities where the Company does
not operate a network. The Company's product specific sales channels market
prepaid debit cards to retail stores and the collector's market.
The Company's target-specific channels focus on customers with more
complex telecommunications requirements. Long distance sales constitute the
largest source of revenues to the Company. The Company takes advantage of
opportunities created by the large IXCs and is working to identify and address
smaller carriers. Larger carriers use the Company's services to augment their
networks and enhance their service offerings, while smaller carriers rely on the
Company to provide services as well as methods to sell services.
REGULATION
The Company's telecommunications services business is subject to
varying degrees of federal, state and local regulation.
FEDERAL REGULATION
The FCC regulates interstate and international telecommunication
transmissions. The allocation of jurisdiction between federal and state
regulators over dedicated circuits that carry both interstate and
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intrastate traffic (including private line and special access services) creates
definitional issues. The FCC, however, has noted that private line, non-switched
telecommunications services can be classified as jurisdictionally interstate
(subject to FCC jurisdiction) if at least 10% of the transmissions are
interstate in nature. The FCC has not ruled specifically as to the
jurisdictional nature of the traffic of the Company's networks.
The Company provides service either on a private carrier basis or on a
common carrier basis. In the interstate market, the primary distinguishing
factor between private carriers and common carriers is that private carriers
provide customized services to select customers pursuant to individually
negotiated contracts and do not file tariffs with the FCC but common carriers
hold themselves out to serve the public generally. The FCC imposes certain
regulations on common carriers such as the RBOCs that have some degree of market
power. The FCC imposes less regulation on common carriers without market power
including, to date, CAPs/CLECs. The FCC requires common carriers to receive an
authorization to construct and operate telecommunication lines between the
United States and international points.
The FCC requires that local telephone companies having annual revenues
exceeding $100.0 million (for example, the RBOCs and the GTE Companies) permit
the interconnection of their facilities with those of CLECs. Interconnection is
the ability of an entity to connect its network to local telephone companies'
central offices, which requires the cooperation of the local telephone company
and facilitates the carrying on of business by CLECs. This requirement aids
CLECs in competing in the interstate, switched and special access service
markets. It allows CLECs to reach a much larger customer base without
significantly increasing their own physical network.
In August 1996, the FCC released its decision implementing the
interconnection portions of the Telecommunications Act (the "Interconnection
Decision"). The Interconnection Decision establishes rules implementing the
Telecommunications Act requirements that incumbent local exchange carriers
negotiate interconnection agreements and provides guidelines for review of such
agreements by state public utilities commissions. In October 1996, the Eighth
Circuit stayed effectiveness of certain portions of the Interconnection
Decision, including provisions establishing a pricing methodology and a
procedure permitting new entrants to "pick and choose" among various provisions
of existing or negotiated interconnection agreements. Although the judicial stay
of the Interconnection Decision does not prevent the Company from negotiating
interconnection agreements with local exchange carriers, it does create
uncertainty about the rules governing pricing, terms and conditions of
interconnection agreements, and could make negotiating such agreements more
difficult and protracted. On November 12, 1996, the U.S. Supreme Court refused
to vacate the Eighth Circuit's judicial stay. The Eighth Circuit is expected to
hear oral arguments in this case in January 1997 and further appeals are
possible. There can be no assurance that the Company will be able to obtain
interconnection agreements on terms acceptable to the Company.
On October 29, 1996, the FCC adopted an order (the "Order") in which it
eliminated the requirement that non-dominant interstate carriers such as the
Company maintain tariffs on file with the FCC for domestic interstate services.
The Order applies to all non-dominant interstate carriers, including AT&T. The
Order does not apply to the RBOCs or other local exchange providers. The Order
was issued pursuant to authority granted to the FCC in the Telecommunications
Act to "forbear" from regulating any telecommunications services provider if the
FCC determines that the public interest will be served. After a nine-month
transition period, relationships between interstate carriers and their customers
will be set by contract. At that point long distance companies may no longer
file with the FCC tariffs for interstate, domestic, interexchange services.
Carriers have the option to immediately cease filing tariffs. Several parties
have filed motions for reconsideration of the Order and MCI has filed a motion
for the FCC to stay the Order. MCI and others have also filed appeals in the
U.S. Court of Appeals for the District of Columbia.
Except in certain designated geographically competitive zones, the
current policy of the FCC for most special access services dictates that LECs
charge all customers the same price for the same service.
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Thus, the LECs generally cannot lower prices to those customers likely to
contract for their services without also lowering charges for the same service
to all customers in the same geographic area, including those whose
telecommunications requirements would not justify the use of such lower prices.
The FCC may, however, alleviate this constraint on the LECs and permit them to
offer special rate packages to very large customers, as it has done in a few
cases, or permit other forms of regulatory rate flexibility. The FCC has adopted
proposals that significantly lessen the regulation of LECs that are subject to
competition in their service areas and provide such LECs with additional
flexibility in pricing their interstate switched and special access on a central
office specific basis.
The Telecommunications Act is intended to increase competition. Because
implementation of the Telecommunications Act is subject to numerous federal and
state policy rulemaking proceedings, it is unknown at this time what impact such
legislation will have on the Company.
Pursuant to authority granted by the FCC, the Company resells the
international message communications services of other common carriers between
the United States and international points. In connection with such authority,
certain of the Company's subsidiaries have filed tariffs stating the rates,
terms and conditions for their international services. The FCC has ruled
international call back services to be legal where the specific countries from
which such calls are placed do not have laws that specifically make call back
illegal. The FCC has stated that it will take action against United States
carriers that violate another country's call back prohibition if that country
has been unable to insure compliance.
With respect to its domestic service offerings, International
Telemanagement Group, Inc. ("ITG"), a subsidiary of the Company, has filed
tariffs with the FCC stating the rates, terms and conditions for its interstate
rates. To the extent that ITG provides intrastate services, it may be required
to obtain authority from state regulatory authorities prior to providing such
services, as well as certificates authorizing ITG to transact business in these
states. There can be no assurance that such state authorizations will be
granted.
To the extent NACT provides international or interstate
telecommunications services, it is required to obtain regulatory authority from
the FCC. Any intrastate telecommunications services provided by NACT may require
authority from state regulatory agencies.
Under the Communications Act of 1934, as amended (the "Communications
Act"), foreign nationals may not own more than 20% of a company, or have more
than a 20% voting interest in a company, that directly holds a common carrier
radio license. The Communications Act also prohibits foreign nationals from
owning 25% or more of a company which in turn controls a company holding a radio
license, unless the FCC permits such alien participation based on a showing of
public interest. The operations of the Company's Hawaiian microwave network
require the use of radio licenses from the FCC. Pacific Network, Inc., an entity
controlled by John Warta, the President and Chief Executive Officer of the
Company holds the licenses for the Hawaii microwave facilities. The FCC also has
the authority, which it is not presently exercising, to impose restrictions on
foreign ownership of communications service providers not utilizing radio
frequencies, which could have a material adverse effect on the Company's
business. In addition, the networks may subsequently need to obtain radio
licenses to "fill in" certain customers in the networks that are not practical
to reach by wire. Should the Company's networks require a common carrier radio
license in the future, they may be prohibited from obtaining such license
because of the foreign ownership restrictions of the Communications Act.
In addition, under the FCC's foreign ownership rules, the Company
cannot hold Personal Communications Services ("PCS") licenses directly. Magnacom
Wireless, LLC ("Magnacom"), a company controlled by John M. Warta, the Chief
Executive Officer of the Company, has applied for various PCS licenses. The
Company is in the process of establishing a non-exclusive 12 year agreement with
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Magnacom whereby the Company will purchase services relating to such licenses
from Magnacom for use or resale.
STATE REGULATION
State regulatory agencies have regulatory jurisdiction when Company
facilities and services are used to provide intrastate services. In particular,
state regulation determines which local telephone services the Company may
offer. Several states, including California and Arizona, have adopted
initiatives that allow competition in various aspects of the local exchange
market. A portion of the Company's current traffic may be classified as
intrastate and therefore subject to state regulation. To provide intrastate
services, the Company generally must obtain a certificate of public convenience
and necessity from the state regulatory agency and comply with state
requirements for telecommunications utilities.
ARIZONA. In Arizona, the Tucson and Phoenix networks and alternate
access transmission services, to the extent that they provide the transmission
of messages or telephone service within Arizona, could be deemed public service
corporations and subject to the jurisdiction of the Arizona Corporation
Commission (the "ACC") for certain purposes. The Company has applied for a
Certificate of Convenience and Necessity from the ACC to provide
jurisdictionally intrastate special access, private line and/or local exchange
services in Arizona. A hearing is currently scheduled for December 20, 1996. The
Company has entered into a license agreement with Pima County (the county in
which Tucson is located) which was officially recorded on July 16, 1996, to
construct, install, maintain and operate a fiber optics communication system in
the public right-of-way.
CALIFORNIA. As of January 1, 1995, the CPUC permits competition on an
interLATA and intraLATA interexchange basis for all toll services. The CPUC has
authorized facilities based local competition as of January 1, 1996 and local
resales as of March 1, 1996. On November 1, 1996, two subsidiaries of the
Company, were granted permanent authority to provide both facilities-based and
resale local exchange services and were certified by the CPUC to provide
interLATA service and certain intraLATA services within the State of California
(specifically including intraLATA interexchange service on a 10XXX access basis
and intraLATA non-switched services at speeds of 1.544 Mbps and above).
HAWAII. In Hawaii, the HPUC has broad jurisdictional powers to regulate
public utility companies that own, control, operate or manage any plant or
equipment or furnish facilities, directly or indirectly for public use, for the
conveyance or transmission of telecommunications messages between points within
Hawaii. The Company is subject to the jurisdiction of the HPUC, which has
granted the Company a CPCN as a carrier of voice and data on a point to point
basis in Hawaii. On June 3, 1996, the HPUC promulgated new rules governing
"Competition in Telecommunication Services." Under the HPUC's new rules, an
application by the Company for an expanded CPCN is no longer necessary. GST
Hawaii, as a telecommunications carrier granted a CPCN before the effective date
of the new rules, files a separate tariff for any proposed, modified, or new
service, unless ordered otherwise by the HPUC. The Hawaii basic CLEC tariff was
filed and became effective on September 4, 1996. The HPUC has allowed the
Company to expand its authority to include local exchange services in
competition with GTE. Deployment of local exchange services on other than a
resale basis or through the purchase of unbundled network elements from GTE are
dependent upon HPUC approval of the interconnection agreement recently entered
into between the Company and GTE (as well as the placement of necessary
facilities and equipment).
NEW MEXICO. In October 1995, the Company was granted a CPCN from the
New Mexico State Corporation Commission to provide intrastate, non-switched
private line services. GST New Mexico is the first CLEC authorized to provide
such services in New Mexico.
WASHINGTON. The Company has applied to the Washington Utilities and
Transportation Commission for registration and "competitive carrier" status in
Washington. The Company's application to register as
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a telecommunications provider was approved on March 27, 1996 and its application
for competitive carrier status is pending.
LOCAL REGULATION
The networks are subject to numerous local regulations such as building
codes and licensing. Such regulations vary on a city by city and county by
county basis. The networks need to obtain rights-of-way over private and
publicly owned land to permit the installation of the fiber optic
telecommunication equipment.
GST GLOBAL TELECOMMUNICATIONS INC.
At the date hereof, the Company had invested approximately Cdn. $4.9
million in a publicly traded Canadian corporation (subsequently renamed GST
Global Telecommunications, Inc. and hereinafter referred to as "Global") and
held approximately 32% of Global's outstanding shares. Global is to issue to the
Company up to an additional 5,000,000 of its common shares (on a fully diluted
basis), subject to approval of the Vancouver Stock Exchange ("VSE"), in
consideration for the transfer by the Company to Global of its rights in and to
the Bestel project described below. The Company's designees comprise a majority
of the members of Global's Board of Directors. The Company intends to conduct
certain of its international activities through Global. Global is to employ its
own operating management and raise in the capital markets the equity and debt
financing required for its proposed activities. At the date hereof, Global had
raised approximately Cdn $22 million through private placements of its common
shares.
Global has the right to subscribe, pursuant to a Subscription Agreement
dated August 20, 1996, for an interest (expected to be approximately 25%) in
Bestel, S.A. de C.V. ("Bestel") for a total consideration of $3,920,000. Bestel
will be a facilities-based CAP that proposes to construct and operate a fiber
optic telecommunications network consisting of approximately 1,375 route miles
connecting certain cities in Mexico, including Nuevo Laredo, Monterrey, Mexico
City, Guadalajara and Manzanillo.
Global has also entered into an Agreement to acquire from a subsidiary
of Cable & Wireless Holding Plc an 80% interest in Vitacom Corporation
("Vitacom"), for a purchase price of $1,500,000 payable in cash. Vitacom is
engaged in the provision of voice, high speed data information and other
services and the manufacture and sale of VSAT (very small aperture satellite
terminal) and other equipment used to access the Internet. Consummation of the
transaction is subject to the receipt of regulatory approvals.
MAGNACOM
Magnacom has been granted 30mhz (C Block) Personal Communications
Services ("PCS") licenses from the FCC for the following cities: Albuquerque and
Santa Fe, New Mexico; Tucson, Arizona; Eugene and Salem, Oregon; and
Guam/Saipan. Magnacom also has submitted bids in the FCC's 10mhz (D, E and F
block) PCS license auctions for the cities of Honolulu, Hilo, Lihue and Kahului,
Hawaii; Portland, Medford and Roseburg, Oregon; Longview, Yakima, Kennewick,
Walla Walla and Spokane, Washington; and Boise and Lewiston, Idaho.
Magnacom and the Company have entered into an agreement pursuant to
which the Company has made payments to the FCC on behalf of Magnacom. The
Company paid $5,997,000 and $2,970,000 during the third and fourth quarters of
Fiscal 1996 and made an additional payment of $5,426,000 after the end of Fiscal
1996. In return, Magnacom agreed to allow the Company to provide switched local
and long distance services and manage Magnacom's networks in markets where the
Company has operational CLEC networks. The Company agreed to purchase a
designated amount of minutes from Magnacom at the most favorable rates offered
to Magnacom customers and the three payments that the Company has
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made will be used as advances against such purchase. In addition, the Company
acquired an option to purchase for nominal consideration a 24% interest (to be
increased to a 99% interest) in Magnacom. The exercise of such option as to such
increased interest is contingent upon, among other things, FCC approval.
Magnacom has acquired licenses and bid for additional licenses in
cities located on or near the Company's existing and planned networks.
Management of the Company believes the capability of the Company to provide a
wireless telecommunications service is consistent with and enhances the
Company's strategy of providing a full array of services to its customers. The
Magnacom agreement will increase product capability with wireless local loop and
wireless Internet access. The Company further believes the agreement with
Magnacom will allow the Company to provide wireless telecommunication services
to its customers at competitive prices.
The provision of wireless telecommunications service by Magnacom will
be dependent upon its ability to obtain the financing necessary to make payments
to the FCC under the terms of its licenses, to obtain working capital, and to
build the required facilities, including the telecommunications equipment,
necessary to provide this service. The Company will not advance any additional
funds to or on behalf of Magnacom or purchase additional minutes or other assets
of Magnacom or make any further loans to or investments in Magnacom. Magnacom
has had discussions with various financing sources and potential users of its
services. It believes that it will be successful in obtaining the necessary
financing from independent financing sources and a combination of joint
ventures, investment and arrangements with independent firms, but no such
arrangements have been concluded and there can be no assurance Magnacom will
succeed with its financing plan and therefore, that it will be able to provide
PCS services. In such event, the Company would probably be unable to recover its
advance payments to Magnacom.
EMPLOYEES
As of November 15, 1996, the Company and its subsidiaries had 686
full-time employees, of which 246 were employed in engineering and operations,
23 in research and development, 154 in sales and marketing, 29 in customer
service, 73 in management, 153 in administration and finance and eight in legal
and regulatory. None of such employees is covered by a collective bargaining
agreement. The Company considers its relationship with its employees to be
satisfactory.
RECENT DEVELOPMENTS
On October 22, 1996, the Company completed a private placement to
non-U.S. investors of 2,000,000 special warrants (the "Special Warrants") at a
purchase price of $11.125 per Special Warrant (the "Special Warrant Offering").
Each Special Warrant is exercisable for one Common Share and one-half of one
underlying warrant (each an "Underlying Warrant"). Each Underlying Warrant
entitles the holder to purchase one additional Common Share for a purchase price
of $13.00 for one year from the date of issuance. The Special Warrants become
exercisable by holders for no additional consideration upon the later to occur
of (i) the date upon which approval for a final Canadian prospectus (the
"Canadian Prospectus") qualifying the Common Shares and Underlying Warrants
issuable upon exercise of the Special Warrants is received from the securities
commission of each of the Canadian provinces where the Special Warrants were
sold and (ii) the date that a registration statement (the "U.S. Registration
Statement") filed with the Securities and Exchange Commission (the "Commission")
registering the resale of the Common Shares issuable upon exercise of the
Special Warrants and Underlying Warrants is declared effective, but in any event
no later that September 22, 1997. In the event that the requisite regulatory
approvals for the Canadian Prospectus are not received by the Company and the
U.S. Registration Statement is not declared effective, in each case by February
19, 1997, then each Special Warrant will become exercisable for 1.1 Common
Shares and one-half of one Underlying Warrant.
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The Company received $9,690,000, constituting 50% of the aggregate
purchase price of the Special Warrants (net of placement agency fees and
expenses), on October 22, 1996. The balance of the net purchase price of Special
Warrants ($11,125,000) is being held in escrow and is payable to the Company
upon the earlier to occur of (x) the date of receipt of final regulatory
approval of a preliminary Canadian Prospectus from the securities commissions of
the applicable Canadian provinces and (y) the initial filing of the U.S.
Registration Statement with the Commission, in each case covering the resale of
the Common Shares issuable upon exercise of the Special Warrants and the
Underlying Warrants.
On December 12, 1996, NACT filed a registration statement in respect of
an initial public offering of its common stock (the "NACT Offering") pursuant to
which the Company and NACT will sell one million and two million shares,
respectively, thereby reducing the Company's interest in NACT to approximately
63%.
ITEM 2. PROPERTIES.
The Company owns a building comprising 60,000 square feet, which
contains its principal executive offices, located at 4317 N.E. Thurston Way,
Vancouver, Washington 98662. Its telephone number at that address is (360)
254-4700. Such building, which was purchased in 1995 by the Company.
The Company leases approximately 15,400 square feet of space in Orem,
Utah, pursuant to a month-to-month lease. The current monthly rent is
approximately $14,000. GST Realco, Inc., a subsidiary of the Company ("GST
Realco"), has entered into a construction contract pursuant to which a 40,000
square foot office building is currently being built for NACT in Provo, Utah. To
date, all of the construction costs have been borne by GST Realco. NACT is
currently in the process of securing permanent financing for the purchase of the
land and the building from GST Realco.
The Company also leases offices elsewhere in the United States and in
Vancouver, British Columbia, pursuant to leases which expire on various dates
through March 24, 2007. The Company's current aggregate annual rental expense
pursuant to leases that provide for annual payments exceeding $100,000 is
approximately $2,025,000.
ITEM 3. LEGAL PROCEEDINGS.
On August 24, 1995, Aerotel, Ltd. and Aerotel U.S.A., Inc.
(collectively, "Aerotel") commenced an action against NACT and a customer of
NACT in the United States District Court, Southern District of New York,
alleging that telephone systems manufactured and sold by NACT incorporating
prepaid debit card features infringe upon Aerotel's patent which was issued in
November 1987 (the "Aerotel Patent"). The complaint further alleges defamation
and unfair competition as a result of a Special Report disseminated by NACT to
its customers and tortious interference with prospective business relations,
alleging that NACT induced third parties to abandon licensing negotiations with
Aerotel. Aerotel seeks injunctive relief, damages in an unspecified amount,
damages of up to three times the damages found for willful infringement of the
Aerotel Patent and an order requiring NACT to publish a written apology to
Aerotel. An Answer and Counterclaim has been filed in which NACT denies
infringement of the Aerotel Patent and seeks judgment that the Aerotel Patent is
invalid and that Aerotel has misused its patent in violation of antitrust laws.
NACT also denies that it has committed defamation, unfair competition and
tortious interference with prospective business relations. NACT's patent counsel
believes that NACT has valid defenses to the Aerotel claims. Pretrial discovery
has commenced and is expected to be completed in mid- 1997. On May 3, 1996, NACT
served a motion for summary judgment, which motion is SUB JUDICE. The case is
not expected to be tried until late 1997 at the earliest. An unfavorable
decision in this action could have a material adverse effect on NACT.
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On July 5, 1994, the Tucson City Council (the "Council") awarded GST
Tucson a non-exclusive fiber optic communication license that permits GST
Tucson, for a period of 25 years, to conduct, maintain and operate in and across
designated portions of city-owned rights-of-way. On June 12, 1995, the Council
approved the City of Tucson Competitive Telecommunications Code (the "Tucson
Code"), which was subsequently amended on July 10, 1995. The Tucson Code now
provides, among other things, (i) that the City of Tucson grant licenses for a
period of 15 years, (ii) for an increase from 2% to 5 1/2% of gross revenues to
be paid by licensees and (iii) for cancellation of a license in certain events.
The Council subsequently refused to permit GST Tucson to modify the route plans
previously approved in order to construct connections between its customers and
the network, asserting that GST Tucson's existing license does not permit such
action and requiring GST Tucson Lightwave to receive an amended license under
the Tucson Code to modify its route plans. After trying to negotiate a
settlement with the City of Tucson with respect to its license, GST Tucson
commenced an action in the Superior Court of Arizona, County of Pima, against
the City of Tucson. The Court has ruled in favor of the City that the City
Engineer does not have the authority to grant modifications from the route map,
that such route modifications must be approved by the Council and that the City
could condition GST Tucson's application for a franchise for intrastate service
on a relinquishment of GST Tucson's existing license. Although the City of
Tucson subsequently granted GST Tucson's request to permit access to two
buildings in the downtown area and route modifications to effect service to its
south-side hub site, the City has refused to amend the license to approve other
route modifications. GST Tucson has appealed the Superior Court's rulings to the
Arizona Court of Appeals, which has scheduled oral argument for January 1997.
Absent success in such appeal, GST Tucson could be required to obtain a new
license with less favorable provisions to further expand the Tucson network.
On May 13, 1996, GST Tucson instituted an action in the United States
District Court for the District of Arizona against the City of Tucson seeking a
declaratory judgment and injunctive relief asserting that the City of Tucson, in
violation of the Telecommunications Act, failed to manage its public
rights-of-way in a competitively neutral and nondiscriminatory manner. GST
Tucson has moved for summary judgment on the pleadings. The City of Tucson has
cross moved for summary judgment on the pleadings and U S West, an intervenor in
the proceeding has moved for summary judgment on the pleadings, each arguing
that statewide franchise and state law exempts U S West from having to pay any
local franchise fees. The Court heard the parties' oral arguments on December 4,
1996 and has taken the matter under advisement.
The Company is not a party to any other material legal proceedings,
nor, to the knowledge of the Company, are any material legal proceedings
threatened against the Company. The Company is a party to various proceedings
before the public utilities commissions of the states in which it provides or
proposes to provide telecommunications services. These proceedings typically
relate to licensure of the Company or others and to the regulation of the
provision of telecommunications service.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The Company's Common Shares, without par value, are traded on the
American Stock Exchange (the "AMEX") (ticker symbol: GST) and on the Vancouver
Stock Exchange (the "VSE") (ticker symbol: GST.U).
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The following table sets forth, for the two most recent fiscal years,
the high and low closing sale prices for the Common Shares, as reported by the
AMEX and the VSE. The table also sets forth the average of the monetary exchange
rates on the last day of each month during such period. All prices reported on
the VSE through March 8, 1995 are expressed in Canadian dollars.
American
Stock Vancouver Stock
Exchange Exchange
------------- ---------------
Exchange
High Low High Low Rate (C$/$)
---- ---- ---- ---- ------
Fourth Quarter 5.50 4.13 7.75 5.38 1.4028
CALENDAR YEAR 1995
First Quarter(1) 5.00 3.50 US $4.90 US $4.15 1.3992
Second Quarter 5.94 4.00 5.88 4.00 --
Third Quarter 7.81 5.63 7.63 5.75 --
Fourth Quarter 7.19 5.56 7.13 5.75 --
CALENDAR YEAR 1996
First Quarter 8.75 5.75 8.25 5.75 --
Second Quarter 15.875 7.75 13.75 8.125 --
Third Quarter 13.75 8.75 13.35 11.00 --
- ------------------------
(1) The VSE began reporting trades of listed securities in U.S. dollars on
March 9, 1995. For the first calendar quarter of 1995 through March 8,
1995, the high and low sale prices of the Common Shares on the VSE were
C$6.38 and C$5.00, respectively.
DIVIDENDS
The Company has never declared or paid any dividends on the Common
Shares and does not presently intend to pay dividends on the Common Shares in
the foreseeable future. It intends to retain future earnings, if any, to finance
the development and expansion of its business. The Company's ability to declare
or pay cash dividends, if any, is dependent upon 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 its operations
entirely through subsidiaries. Pursuant to credit agreements with Tomen (the
"Tomen Facility"), the Company's subsidiaries that own and operate the San
Gabriel Valley, Tucson and Albuquerque networks may not pay any dividends or
make any distributions on their capital stock to their shareholders. Subsequent
network financings under the Tomen Facility are expected to include similar
prohibitions. In addition, the Indentures for the 13 7/8% Senior Discount Notes
due 2005 (the "Senior Notes") of GST USA, Inc. ("GST USA"), a subsidiary of the
Company, guaranteed by the Company, and the 13 7/8% Convertible Senior
Subordinated Discount Notes due 2005 of the Company (the "Convertible Notes"
and, together with the Senior Notes, the "1995 Notes") guaranteed by GST USA,
limit, and, for the foreseeable future, effectively prohibit, the ability of the
Company to declare or pay cash dividends.
NUMBER OF SHAREHOLDERS
As of December 20, 1996, there were 244 holders of record of the
Company's Common Shares. The Company believes that there are in excess of 3,500
beneficial owners of the Company's Common Shares additional to such holders of
record.
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ITEM 6. SELECTED FINANCIAL DATA.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following management's discussion and analysis of financial
condition and results of operations contains forward looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward looking statements as a
result of certain factors discussed herein.
OVERVIEW
The Company provides a broad range of integrated telecommunications
products and services, primarily to customers located in the western continental
United States and Hawaii. Since inception as a facilities-based CAP, the Company
has constructed and operated digital interconnected telecommunications networks
that provide an alternative to LECs. The Company has expanded beyond the scope
of traditional CAP operations into CLEC services and currently provides, through
its established sales channels, a range of enhanced telecommunications services
that include long distance, Internet access and data services. In addition, the
Company provides switched access and recently began to offer local dial tone
services to complement its existing telecommunications service offerings. The
Company also provides advanced telecommunications switching platforms with
integrated applications software and network telemanagement capabilities through
its subsidiary, NACT.
The Company's fiber optic networks currently serve 24 cities in
Arizona, California, New Mexico and Washington and its digital microwave
networks serve four of the Hawaiian Islands. In addition, the Company has 18
networks under construction and other networks in various stages of development.
The Telecommunications Act and state regulatory initiatives have
substantially changed the telecommunications regulatory environment in the
United States. As a result of these regulatory changes, the Company is permitted
in certain states to provide local dial tone in addition to its existing
telecommunications service offerings. In order to capitalize on these
opportunities, the Company has accelerated the development and construction of
additional networks within its region. In addition, to facilitate the provision
of local services, the Company has deployed four high capacity digital switches
and intends to deploy additional switches in the first half of 1997.
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUES. Total revenues for Fiscal 1996 increased $22.6 million, or
121.0% to $41.3 million from $18.7 million for Fiscal 1995. Telecommunications
services revenues for Fiscal 1996 increased $20.6 million, or 185%, to $31.7
million from $11.1 million for Fiscal 1995. The increase in telecommunications
services revenues resulted from an acceleration of revenue growth in CLEC
operations and continuing growth of long distance, Internet and data services,
including revenues associated with Fiscal 1995 and 1996 strategic acquisitions.
Telecommunications products revenues for Fiscal 1996 increased $2.0 million, or
26.6% over Fiscal 1995 results. The increase in telecommunications product
revenues resulted from the introduction by NACT of its new STX product line in
the third quarter of Fiscal 1996.
OPERATING EXPENSES. Total operating expenses for Fiscal 1996 increased
$53.6 million, or 176.8%, to $83.9 million from $30.3 million for Fiscal 1995.
Network expenses, which include direct local and long distance circuit costs,
increased $16.7 million to $26.6 million from $10.1 million for Fiscal 1995,
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due to an expanded customer base and increased usage. As a percentage of
telecommunications services revenues, network expenses decreased from 90.9% for
Fiscal 1995 to 83.8% for Fiscal 1996. Facilities administration and maintenance
expenses for Fiscal 1996 increased $8.2 million to $10.3 million from $2.1
million for Fiscal 1995. As a percent of telecommunications services revenues,
facilities administration and maintenance expenses increased from 18.9% for
Fiscal 1995 to 32.5% for Fiscal 1996. The increase relates to additional
personnel and facility costs required by continuing network expansion, a
substantial portion of which are incurred before the realization of revenues.
Cost of product revenues at NACT for Fiscal 1996 increased $0.9 million
to $4.0 million from $3.1 million for Fiscal 1995. As a percentage of
telecommunications products revenues for Fiscal 1996, cost of product revenues
remained relatively constant as compared to Fiscal 1995 results. However, gross
profit on telecommunications product revenues as a percent of telecommunications
product revenues decreased nominally due to initial lower margins resulting from
the discontinuance of the LCX as NACT transitioned to the new STX to existing
customers. Research and development costs increased nominally for Fiscal 1996
relative to Fiscal 1995 as the Company moved to more rapidly develop an improved
billing system and to maintain ongoing research and development of the Company's
existing hardware and software product lines.
Selling, general and administrative expenses increased $22.0 million,
or 193.5%, to $33.4 million from $11.4 million for Fiscal 1995. The increase is
due to the expansion of the Company's CLEC and enhanced services operations,
including, to a lesser extent, the acquisitions during Fiscal 1996 of Call
America, certain assets of Texas-Ohio, Hawaii On Line and Tri-Star. The
implementation of the Company's integrated services strategy has resulted in
additional marketing, management information and sales staff dedicated to
network expansion and increased service offerings.
Depreciation and amortization for Fiscal 1996 increased $5.9 million to
$8.3 million from $2.4 million for Fiscal 1995 due to increased depreciation
resulting from newly constructed networks becoming operational. To a lesser
extent, the increase in depreciation and amortization was also due to increased
amortization of intangible assets resulting from acquisitions.
OTHER EXPENSES. Other expenses for Fiscal 1996 increased $16.1 to $18.0
million from $1.9 million for Fiscal 1995. The increase was principally the
result of additional interest expense associated with the Company's sale in
December 1995 of units consisting in the aggregate of $312.4 million principal
amount at maturity of the Senior Notes, $39.1 million principal amount at
maturity of the Convertible Notes, receiving gross proceeds of approximately
$180.0 million (the "1995 Notes Offering"). The increase was partially offset by
interest income resulting from the investment of the proceeds of the 1995 Notes
Offering.
FISCAL 1995 COMPARED TO FISCAL 1994
REVENUES. Revenues for Fiscal 1995 increased $12.7 million, or 211.3%,
to $18.7 million from $6.0 million for Fiscal 1994. The increase resulted from a
$11.0 million increase in telecommunications services revenues and a $1.7
million, or 28.4%, increase in product revenues of NACT. Telecommunications
service revenues increased $10.6 million as a result of wholesale carrier
services revenues generated by NACT and WINS, which began to offer such services
during Fiscal 1995, and long distance and other service revenues of ITG, which
was acquired effective May 1, 1995. In addition, an increase of $0.4 million was
the result of revenues generated by the Hawaiian digital microwave and the San
Gabriel Valley networks. The San Gabriel Valley networks became operational in
Fiscal 1995. The increase in manufacturing revenues was due to increased unit
sales of telecommunications switching and network management and billing
systems.
-18-
<PAGE>
OPERATING EXPENSES. Total operating expenses for Fiscal 1995 increased
$23.0 million, or 315.0%, to $30.3 million from $7.3 million for Fiscal 1994.
Network expenses for Fiscal 1995 increased $10.0 million to $10.1 million from
$0.1 million for Fiscal 1994 due to expansion of network operations, the
acquisition of ITG and the commencement of wholesale carrier services at WINS
and NACT. Facilities administration and maintenance expenses totaled $2.1
million for Fiscal 1995, compared to only $26,000 for Fiscal 1994. The increase
was due to significant network expansion in Fiscal 1995, whereas Fiscal 1994
results included only three months of engineering expenses at the Company's
Hawaiian network.
Cost of product revenues at NACT for Fiscal 1995 increased to $3.1
million, or 40.9% of product revenues, for Fiscal 1995 from $2.1 million, or
36.3% of product revenues, for Fiscal 1994. Research and development
expenditures of NACT increased by $0.6 million, or 84.4% to $1.3 million for
Fiscal 1995 from $0.7 million for Fiscal 1994 due to the continuing development
of a new switch that was introduced in Fiscal 1996.
Selling, general and administrative expenses increased $7.4 million to
$11.4 million for Fiscal 1995 from $4.0 million for Fiscal 1994. The increase
was principally the result of higher salary and benefit costs incurred in Fiscal
1995 as the Company added a significant number of sales, marketing and
management employees in connection with network expansion. Also contributing to
the increase in selling, general and administrative expenses were higher
professional fees and travel costs related to expansion of CLEC operations. In
addition, bad debt expense increased $1.3 million in Fiscal 1995 principally due
to a reserve for doubtful accounts for an ITG customer.
Depreciation and amortization increased $2.0 million to $2.4 million
for Fiscal 1995 from $0.4 million for Fiscal 1994 as a result of amortization of
intangible assets related to acquisitions and depreciation of newly-operational
networks.
OTHER EXPENSES. Other expenses increased $.2 million to $1.9 million
for Fiscal 1995 from $1.7 million for Fiscal 1994. Contributing to the increase
was an $.8 million increase in interest expense resulting from Tomen borrowings
and a $.5 million write-off of investments. Offsetting these increases was a $.4
million decrease in the loss on joint ventures due to improved operating results
at the Phoenix Fiber network. Additionally, in Fiscal 1994 the Company wrote-off
$.7 million in pre-operating costs at GST Telecom. No such losses were realized
in Fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred significant operating and net losses as a
result of the development and operation of its networks. The Company expects
that such losses will continue to increase as the Company emphasizes the
development, construction and expansion of its networks and builds its customer
base and that cash provided by operations will not be sufficient to fund the
expansion of its networks and services.
Net cash provided by financing activities from borrowings and equity
issuances to fund capital expenditures, acquisitions and operating losses was
$194.3 million for Fiscal 1996, $38.0 million for Fiscal 1995 and $10.9 million
for Fiscal 1994. The Company's net cash used in operating and investment
activities was $139.0 million for Fiscal 1996, $36.2 million for Fiscal 1995 and
$11.4 million for Fiscal 1994.
The Company made capital expenditures of $97.6 million in Fiscal 1996,
$33.9 million in Fiscal 1995 and $1.4 million in Fiscal 1994. The Company
estimates capital expenditures of approximately $350.0 million and $150.0
million for fiscal years 1997 and 1998, respectively. These expenditures will be
utilized for the expansion, development and construction of its networks, the
acquisition and deployment of switches and related equipment to facilitate the
offering of advanced telecommunication services and internal management systems.
Continued significant capital expenditures are expected to be made
-19-
<PAGE>
thereafter. In addition, the Company expects to continue to incur increasing
operating losses while it expands its business and builds its customer base.
Actual capital expenditures and operating losses will depend on numerous factors
beyond the Company's control, including the nature of future expansion and
acquisition opportunities, economic conditions, competition, regulatory
developments and the availability of capital.
The Company completed the 1995 Notes offering in December 1995,
consisting of $160.0 million in Senior Notes and $20.0 million in Convertible
Notes. The net proceeds from the issuance of the 1995 Notes, $171.3 million, are
being used to fund network development, capital expenditures and working capital
requirements. The indentures governing the Senior Notes include restrictive
covenants which, among other items, limit or restrict additional indebtedness
incurred by the Company, investment in certain subsidiaries and the payment of
dividends.
The Company has historically funded its capital expenditures,
acquisitions, working capital requirements and operating losses from public and
private offerings of Common Shares, notes and warrants to purchase Common Shares
and notes and from funds made available under the Tomen Facility. Under the
Tomen Facility, Tomen agreed to make up to a total of $100.0 million of
financing available, on a project-by-project basis, for the construction and
development of network projects. At September 30, 1996, Tomen had provided or
agreed to provide, the Company with $34.5 million of financing under the Tomen
Facility and had purchased 1,074,074 Common Shares and warrants to purchase
546,155 additional Common Shares. In November 1996, Tomen agreed in principle to
provide the Company with $41.0 million of additional financing under the Tomen
Facility for the Hawaiian inter-island network and terrestrial fiber optic
facilities and in connection with such financing will purchase additional Common
Shares in an amount to be determined and warrants to purchase 75,000 additional
Common Shares.
On October 22, 1996, the Company completed a private placement to
non-U.S. investors of the Special Warrants. The Special Warrants become
exercisable by holders for no additional consideration upon the later to occur
of (i) the date upon which approval for the Canadian Prospectus is received from
the securities commission of each of the Canadian provinces where the Special
Warrants were sold and (ii) the date that the U.S. Registration Statement is
declared effective, but in any event, no later that September 22, 1997. In the
event that the requisite regulatory approvals for the Canadian Prospectus are
not received by the Company and the U.S. Registration Statement is not declared
effective, in each case by February 19, 1997, then each Special Warrant will
become exercisable for 1.1 Common Shares and one-half of one Underlying Warrant.
The Company received $9,690,000, constituting 50% of the aggregate
purchase price of the Special Warrants (net of placement agency fees and
expenses), on October 22, 1996. The balance of the net purchase price of Special
Warrants ($11,125,000) is being held in escrow and is payable to the Company
upon the earlier to occur of (x) the date of receipt of final regulatory
approval of a preliminary Canadian Prospectus from the securities commissions of
the applicable Canadian provinces and (y) the initial filing of the U.S.
Registration Statement with the Commission, in each case covering the resale of
the Common Shares issuable upon exercise of the Special Warrants and the
Underlying Warrants.
The Company recently entered into an agreement for $50 million of
additional equipment financing (the "NTFC Financing") with the NTFC Capital
Corporation ("NTFC"). The Company expects to use the proceeds from the NTFC
Financing to finance the purchase of equipment and products from Northern
Telecom Inc. ("Nortel"). The Company currently is negotiating the terms of
additional financing to be provided by Nortel.
In September 1996, the Company entered into a Loan and Security
Agreement with Siemens Stromberg-Carlson ("Siemens") (the "Siemens Loan
Agreement") that provides for loans by Siemens of
-20-
<PAGE>
up to an aggregate of $226.0 million to finance the purchase of Siemens
equipment and certain equipment from other suppliers.
The Company proposes to incur significant additional indebtedness to
purchase telecommunications equipment such as switches and fiber optic cable and
to finance related design, development, construction, installation and
integration costs. In such connection, the Company may make public or private
offerings of its debt and equity securities and may negotiate additional credit
facilities, which may be similar to the Tomen Facility or to the NTFC Financing.
At September 30, 1996, the Company had cash, cash equivalents,
restricted cash and marketable securities of $82.5 million, compared to $6.9
million at September 30, 1995. The Company believes that the net proceeds of the
Special Warrant Offering, the NACT Offering and any other offerings, if any, in
the future, together with cash on hand and borrowings expected to be available
under both the Tomen Facility and the equipment financing arranged with Siemens
and NTFC, will provide sufficient funds for the Company to expand its business
as presently planned and to fund its operating expenses through the first half
of fiscal 1997. Thereafter, the Company expects to require additional financing.
However, in the event that the Company's plans or assumptions change or prove to
be inaccurate, or the foregoing sources of funds prove to be insufficient to
fund the Company's growth and operations, or if the Company consummates
additional acquisitions, the Company may be required to seek additional capital
sooner than currently anticipated. Sources of financing may include public or
private debt or equity financing by the Company or its subsidiaries, sales of
assets or other financing arrangements. There can be no assurance that such
additional financing would be available to the Company or, if available, that it
could be obtained on acceptable terms or within the limitations contained in the
Company's financing arrangements. Failure to obtain such financing could result
in the delay or abandonment of some or all of the Company's development and
expansion plans and expenditures and could have a material adverse effect on the
Company. Such failure could also limit the ability of the Company to make
principal and interest payments on its outstanding indebtedness. The Company has
no working capital or other credit facility under which it may borrow for
working capital and other general corporate purposes. There can be no assurance
that such a facility will be available to the Company in the future or that if
such a facility were available, that it would be available on terms and
conditions acceptable to the Company.
Although the Company's liquidity substantially improved as a result of
the 1995 Notes Offering, because the 1995 Notes do not require the payment of
cash interest prior to June 2001 and the 1995 Notes and the Notes do not require
payment of principal until maturity in 2005 and 2007, respectively, a portion of
the indebtedness under the Tomen Facility will, and a portion of the equipment
financing may, mature prior to 2005. Accordingly, the Company may need to
refinance a substantial amount of indebtedness. In addition, the Company
anticipates that cash flow from operations may be insufficient to repay the 1995
Notes in full at maturity and that the 1995 Notes may need to be refinanced.
There can be no assurance that the Company will be able to improve its earnings
before fixed charges or that the Company will be able to meet its debt service
obligations, including its obligations under the Tomen Facility, the 1995 Notes
or equipment financing. Because the Company does not currently have a revolving
credit facility, if a shortfall occurs, alternative financing would be necessary
in order for the Company to meet its liquidity requirements and there can be no
assurance that such financing would be available. In such event, the Company
could face substantial liquidity problems. The ability of the Company to meet
its obligations and effect such refinancings will be dependent upon the future
performance of the Company, which will be subject to prevailing economic
conditions and to financial, business and other factors, including factors
beyond the control of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
-21-
<PAGE>
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than January 28,
1997 pursuant to Regulation 14A of the General Rules and Regulations under the
Securities Exchange Act of 1934 ("Regulation 14A").
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than January 28,
1997 pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than January 28,
1997 pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than January 28,
1997 pursuant to Regulation 14A.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K.
(a)(1) Consolidated Financial Statements: see the Index to Consolidated
Financial Statements.
(2) Financial Statement Schedules: see the Index to Consolidated Financial
Statements.
(3) Exhibits:
*3(a) Certificate of Incorporation of the Company, as amended to date.
*3(b) By-Laws of the Company as amended to date.
4(a) Senior Notes Indenture dated as of December 19, 1995, by and among GST
USA, Inc., the Company and United States Trust Company of New York,
incorporated by reference to Exhibit 2.3 to the Company's Form 20-F for
the fiscal year ended September 30, 1995 (the "1995 Form 20- F").
4(b) Convertible Notes Indenture dated as of December 19, 1995, by and among
the Company, GST USA, Inc. and United States Trust Company of New York,
incorporated by reference to Exhibit 2.4 to the 1995 Form 20-F.
*10(a) 1995 Stock Option Plan of the Company, as amended to date.
*10(b) 1996 Stock Option Plan of the Company, as amended to date.
*10(c) 1996 Employee Stock Purchase Plan of the Company.
*10(d) 1996 Senior Executive Officer Stock Option Plan of the Company.
*10(e) 1996 Senior Operating Officer Stock Option Plan of the Company.
10(f) Amended and Restated Credit Agreement dated as of April 26, 1995, by
and between GST Pacific Lightwave, Inc. and Tomen America Inc.,
incorporated by reference to Exhibit 1.2 to the 1995 Form 20-F
10(g) Stock Purchase Agreement dated as of May 1, 1995, by and between GST
Net, Inc. and Stanley M. Nolte, incorporated by reference to Exhibit
2.1 to the 1995 Form 20-F
-22-
<PAGE>
10(h) Senior Notes Registration Rights Agreement dated December 19, 1995, by
and among GST USA, Inc., the Company, the Specified Subsidiaries named
therein and Morgan Stanley & Co. Incorporated, incorporated by
reference to Exhibit 2.5 to the 1995 Form 20-F
10(i) Convertible Notes Registration Rights Agreement dated December 19,
1995, by and among GST USA, Inc., the Company, the Specified
Subsidiaries named therein and Morgan Stanley & Co. Incorporated,
incorporated by reference to Exhibit 2.6 to the 1995 Form 20-F
10(j) Agreement and Plan of Merger, dated September 27, 1996 (the "Merger
Agreement"), by and among TotalNet Communications Inc. ("TotalNet"),
GST Newco of Texas, Inc. and the Company, incorporated by reference to
Exhibit 2.1 to the Company's Form 8-K dated October 17, 1996 (the "Form
8-K")
10(k) Letter dated October 17, 1996 amending the Merger Agreement among the
Company, GST Newco of Texas, Inc., and TotalNet, incorporated by
reference to Exhibit 2.2 to the Form 8-K
*10(l) Amended and Restated Master Agreement dated as of May 24, 1996, by and
among Tomen America Inc., the Company, GST Telecom Inc., GST Pacific
Lightwave, Inc., Pacwest Network L.L.C., Pacwest Network Inc., GST
Tucson Lightwave, Inc. and GST New Mexico Lightwave, Inc.
*10(m) Amendment No. 2 to GST Telecommunications, Inc. Common Stock Purchase
Agreement dated as of May 24, 1996, by and among the Company, Tomen
America Inc. and Tomen Corporation.
*10(n) Credit Agreement dated as of May 24, 1996, by and between GST New
Mexico Lightwave, Inc. and TM Communications LLC.
*10(o) Credit Agreement dated as of May 24, 1996, by and between GST Tucson
Lightwave, Inc. and TM Communications LLC.
*10(p) Amended and Restated Consulting Agreement dated as of September 1,
1995, by and between Sunwest Ventures, Inc. and GST USA, Inc. and GST
Telecom.
*10(q) Personal Services Agreement dated as of October 1, 1995, by and between
GST USA, Inc. and GST Telecom Inc. and Stephen Irwin.
*10(r) Restated and Amended Employment Agreement dated as of September 1,
1995, by and between GST USA, Inc. and GST Telecom Inc. and John Warta.
*10(s) Restated and Amended Employment Agreement dated as of September 1,
1995, by and between GST USA, Inc. and GST Telecom Inc. and Robert H.
Hanson.
*10(t) Amended and Restated Employment Agreement dated as of September 1,
1995, by and between GST USA, Inc. and GST Telecom Inc. and Clifford V.
Sander.
*10(u) Agreement and Plan of Merger dated as of September 26, 1996 by and
among Call America Business Communications Corporation, Call America
Business Communications of Fresno, Inc., Call America Business
Communications of Bakersfield, Inc., the shareholders of such
companies, GST Newco of California, Inc., and the Company.
*10(v) Equipment Loan and Security Agreement dated December 19, 1996 by and
between NTFS Capital Corporation and GST Equipco.
*21 Subsidiaries of the Company.
*23 Consent to the incorporation by reference in the Company's Registration
Statements on Forms S-3 and S-8 of the independent auditors' report
included herein.
*27 Financial Data Schedule.
- -----------------------------------------------------
* Filed herewith.
(b) Reports on Form 8-K: The Registrant filed a Current Report on Form 8-K
dated October 31, 1996 reporting under Item 2 thereof the acquisition
by merger of TotalNet and under Item 5 thereof the Special Warrant
Offering.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Vancouver, State of Washington, on the 30th day of December, 1996.
GST TELECOMMUNICATIONS, INC.
By: /S/ W. GORDON BLANKSTEIN
----------------------------------------
W. Gordon Blankstein,
Chairman of the Board
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John Warta, Stephen Irwin, Robert H.
Hanson and Clifford V. Sander his true and lawful attorney-in-fact, each acting
alone, 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 report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-fact or their
substitutes, each acting alone, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been duly signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/W. GORDON BLANKSTEIN Chairman of the Board
- ----------------------------------------
(W. Gordon Blankstein) December 30, 1996
/S/JOHN WARTA President, Chief Executive Officer (Principal
- ----------------------------------------
(John Warta) Executive Officer) and Director December 30, 1996
/S/ROBERT H. HANSON Senior Vice President - Corporate
- ----------------------------------------
(Robert H. Hanson) Development, Chief Financial Officer December 30, 1996
(Principal Financial Officer) and Director
/S/CLIFFORD V. SANDER Senior Vice President, Treasurer and Chief December 30, 1996
- ----------------------------------------
(Clifford V. Sander) Accounting Officer (Principal Accounting
Officer)
/S/STEPHEN IRWIN Vice Chairman of the Board, Secretary and
- ----------------------------------------
(Stephen Irwin) Director December 30, 1996
/S/IAN WATSON Director
- ----------------------------------------
(Ian Watson) December 30, 1996
Director
- ----------------------------------------
(Peter E. Legault) December 30, 1996
/S/JACK G. ARMSTRONG Director
- ----------------------------------------
(Jack G. Armstrong) December 30, 1996
/S/TAKASHI YOSHIDA Director
- ----------------------------------------
(Takashi Yoshida) December 30, 1996
/S/THOMAS E. SAWYER Director
- ----------------------------------------
(Thomas E. Sawyer) December 30, 1996
</TABLE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page(s)
GST TELECOMMUNICATIONS, INC.
Independent Auditors' Reports................................................F-2
Consolidated Balance Sheets at
September 30, 1996 and 1995................................................F-4
Consolidated Statements of Operations for the
years ended September 30, 1996 and
1995 and the thirteen months ended
September 30, 1994.........................................................F-5
Consolidated Statements of
Shareholders' Equity at
September 30, 1994, 1995 and 1996..........................................F-7
Consolidated Statements of Cash Flows for the
years ended September 30, 1996 and
1995 and the thirteen months ended
September 30, 1994.........................................................F-8
Notes to Consolidated Financial Statements...................................F-9
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
GST Telecommunications, Inc.:
We have audited the accompanying consolidated balance sheets of GST
Telecommunications, Inc. as of September 30, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity , and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of GST
Telecommunications, Inc. as of September 30, 1996 and 1995, and the results of
its operations and cash flows for the years then ended in conformity with
generally accepted accounting principles in the United States.
Accounting principles generally accepted in the United States vary in certain
significant respects from accounting principles generally accepted in Canada.
Application of accounting principles generally accepted in Canada would have
affected results of operations for the year ended September 30, 1996 and 1995,
and shareholders' equity as of September 30, 1996 and 1995, to the extent
summarized in note 10 to the consolidated financial statements.
KPMG PEAT MARWICK LLP
Portland, Oregon
November 22, 1996
F - 2
<PAGE>
KPMG
Chartered Accountants Telephone (604) 691-3000
Box 10426, 777 Dunsmuir Street Telefax (604) 691-3031
Vancouver, BC V7Y 1K3 Canada
AUDITORS' REPORT
To the Board of Directors
GST Telecommunications, Inc.
We have audited the consolidated statements of operations, shareholders equity,
and cash flows of GST Telecommunications, Inc. for the thirteen months ended
September 30, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of the Company for
the thirteen months ended September 30, 1994 in accordance with generally
accepted accounting principles in the United States.
Accounting principles generally accepted in the United States vary in certain
significant respects from accounting principles generally accepted in Canada.
Application of accounting principles generally accepted in Canada would have
affected results of operations for the thirteen months ended September 30, 1994
and shareholders' equity as at September 30, 1994, to the extent summarized in
note 9 to the consolidated financial statements.
KPMG Peat Marwick Thorne
Chartered Accountants
Vancouver, Canada
December 8, 1994
F - 3
<PAGE>
GST TELECOMMUNICATIONS, INC.
Consolidated Balance Sheets
(In thousands, except share amounts)
September 30, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
--------- ---------
(In U.S. Dollars)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 61,343 $ 6,024
Restricted cash 16,000 --
Accounts receivable, net 9,472 4,306
Investments 5,176 871
Inventory 2,406 387
Other current assets 6,151 1,252
--------- ---------
100,548 12,840
--------- ---------
Property and equipment, net 127,575 38,033
Goodwill, net 38,003 13,587
Other assets, net 35,575 8,665
--------- ---------
201,153 60,285
--------- ---------
$ 301,701 $ 73,125
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,443 $ 9,683
Accrued expenses 26,743 3,090
Current portion of capital lease obligations 722 223
Current portion of long-term debt 4,832 736
Other current liabilities 726 512
--------- ---------
45,466 14,244
--------- ---------
Deferred compensation 158 151
Capital lease obligation, less current portion 1,453 658
Long-term debt, less current portion 232,674 19,088
Minority interest 182 3,279
Commitments and contingencies
Shareholders' equity:
Preference shares:
Authorized - 10,000,000 no par shares; none issued or outstanding -- --
Common shares:
Authorized - unlimited number of no par common shares; issued and
outstanding - September 30, 1996 - 21,257,697 shares,
September 30, 1995 - 18,700,290 shares 72,647 50,166
Commitment to issue shares:
September 30, 1996 - 1,922,007 shares,
September 30, 1995 - 336,498 shares 25,454 1,494
Accumulated deficit (76,333) (15,955)
--------- ---------
21,768 35,705
--------- ---------
$ 301,701 $ 73,125
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F - 4
<PAGE>
GST TELECOMMUNICATIONS, INC.
Consolidated Statements of Operations
(In thousands, except per share and share amounts)
Years ended September 30, 1996 and 1995 and
thirteen months ended September 30, 1994
<TABLE>
<CAPTION>
Thirteen
Year ended Year ended months ended
September 30, September 30, September 30,
1996 1995 1994
-------- -------- --------
(In U.S. Dollars)
<S> <C> <C> <C>
Revenues:
Telecommunication services $ 31,726 $ 11,118 $ 112
Product 9,573 7,563 5,889
-------- -------- --------
Total revenues 41,299 18,681 6,001
-------- -------- --------
Operating costs and expenses:
Network expenses 26,580 10,103 149
Facilities administration and maintenance 10,317 2,096 26
Cost of product revenues 3,974 3,096 2,137
Selling, general and administrative 33,375 11,373 3,953
Research and development 1,352 1,270 689
Depreciation and amortization 8,298 2,374 384
-------- -------- --------
Total operating costs and expenses 83,896 30,312 7,338
-------- -------- --------
Loss from operations (42,597) (11,631) (1,337)
-------- -------- --------
Other expenses (income):
Interest income (5,549) (303) (254)
Interest expense, net of amounts capitalized 21,224 838 27
Loss from joint venture 1,495 661 1,099
Write-off of pre-operating costs -- -- 691
Loss on investments 26 526 --
Other 839 160 87
-------- -------- --------
18,035 1,882 1,650
-------- -------- --------
Loss before minority interest in
income (loss) of subsidiary
and income tax (60,632) (13,513) (2,987)
-------- -------- --------
</TABLE>
(Continued)
F - 5
<PAGE>
GST TELECOMMUNICATIONS, INC.
Consolidated Statements of Operations, Continued
(In thousands, except per share and share amounts)
<TABLE>
<CAPTION>
Thirteen
Year ended Year ended months ended
September 30, September 30, September 30,
1996 1995 1994
-------- -------- --------
(In U.S. Dollars)
<S> <C> <C> <C>
Income tax expense:
Current $ 157 $ 70 $ 487
Deferred -- 96 15
-------- -------- --------
157 166 502
-------- -------- --------
Loss before minority interest
in income (loss) of subsidiaries (60,789) (13,679) (3,489)
Minority interest in (income) loss
of subsidiaries 411 2,364 (2)
-------- -------- --------
Loss for the period $(60,378) (11,315) (3,491)
======== ======== ========
Loss per share $ (3.18) $ (0.82) $ (0.35)
======== ======== ========
Weighted average common and common
equivalents shares outstanding 18,988,127 13,780,796 9,878,704
</TABLE>
See accompanying notes to consolidated financial statements.
F - 6
<PAGE>
GST TELECOMMUNICATIONS, INC.
Consolidated Statements of Shareholders' Equity
(In thousands, except per share amounts)
(In U.S. Dollars)
<TABLE>
<CAPTION>
Commitment to
issue common
shares (Note 6) Common shares Total
------------------------- ------------------------ Accumulated shareholders'
Shares Amount Shares Amount deficit equity
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1993 -- $ -- 9,003,421 $ 10,511 $ (1,149) $ 9,362
Issuance of common stock for
services -- -- 48,000 183 -- 183
Issuance of common stock, net -- -- 2,515,479 10,368 -- 10,368
Issuance of common stock under
option plans -- -- 343,750 974 -- 974
Commitment to issues shares for
business combinations 551,536 3,038 -- -- -- 3,038
Net loss -- -- -- -- (3,491) (3,491)
---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 1994 551,536 3,038 11,910,650 22,036 (4,640) 20,434
Issuance of common stock for
services -- -- 34,057 150 -- 150
Issuance of common stock in
business combinations (551,536) (3,038) 1,719,785 8,785 -- 5,747
Issuance of common stock, net -- -- 4,593,598 17,965 -- 17,965
Issuance of common stock under
option plans -- -- 442,200 1,230 -- 1,230
Commitment to issues shares for
business combinations 336,498 1,494 -- -- -- 1,494
Net loss -- -- -- -- (11,315) (11,315)
---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 1995 336,498 1,494 18,700,290 50,166 (15,955) 35,705
Issuance of common stock for
services -- -- 85,627 621 -- 621
Issuance of common stock in
business combinations (168,249) (747) 1,200,873 11,097 -- 10,350
Issuance of common stock, net -- -- 1,189,849 9,672 -- 9,672
Issuance of common stock under
option plans -- -- 67,500 293 -- 293
Commitment to issues shares for
business combinations 1,753,758 24,707 -- -- -- 24,707
Issuance of common stock under
employee stock purchase plan -- -- 13,558 132 -- 132
Accrual of compensation costs for
stock award and option plans -- -- -- 666 -- 666
Net loss -- -- -- -- (60,378) (60,378)
---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 1996 1,922,007 $ 25,454 21,257,697 $ 72,647 $ (76,333) $ 21,768
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F - 7
<PAGE>
GST TELECOMMUNICATIONS, INC.
Consolidated Statements of Cash Flows
(In thousands)
Years ended September 30, 1996 and 1995 and
thirteen months ended September 30, 1994
<TABLE>
<CAPTION>
Thirteen
Year ended Year ended months ended
September 30, September 30, September 30,
1996 1995 1994
-------- -------- --------
(In U.S. Dollars)
<S> <C> <C> <C>
Operations:
Loss for the period $(60,378) $(11,315) $ (3,491)
Items not involving cash:
Minority interest in income (loss) of subsidiary (411) (2,364) 2
Loss from joint ventures 1,495 661 1,099
Write-off of pre-operating costs -- -- 691
Depreciation and amortization 9,496 2,824 557
Deferred income taxes -- 96 15
Deferred compensation 7 151 --
Accretion of interest 19,978 -- --
Write-off of other assets 766 122 --
Issuance of stock for compensation 890 -- --
Issuance of stock for financing commitment 396 150 183
Loss on disposal of fixed assets 246 -- --
Loss on investments 26 526 --
Changes in non-cash operating working capital:
Accounts receivable, net (1,066) (1,549) (882)
Inventory (2,019) (13) (163)
Other current and other assets, net (5,304) (417) (120)
Accounts payable and accrued liabilities 2,387 (190) 2,350
Other current liabilities 185 262 53
-------- -------- --------
Cash provided by (used in) operations (33,306) (11,056) 294
-------- -------- --------
Investments:
Acquisition of subsidiaries, net of cash acquired (1,441) 207 (4,235)
Investment in joint ventures -- -- (35)
Settlement of notes receivable -- 3,367 (5,107)
Purchase of investment in affiliate (294) -- --
Purchase of investments (9,799) 848 (843)
Proceeds from sale of investments 5,493 -- --
Purchase of fixed assets (76,192) (27,730) (906)
Proceeds from sale of fixed assets 8 -- --
Purchase of other assets (7,449) (1,829) (580)
Change in restricted cash (16,000) -- --
-------- -------- --------
Cash used in investing activities (105,674) (25,137) (11,706)
-------- -------- --------
Financing:
Proceeds from long-term debt 196,207 19,857 --
Principal payments on long-term debt (2,112) (816) (387)
Issuance of common shares, net of issuance costs 10,098 19,195 11,342
Deferred debt financing costs (9,894) (853) (70)
Issuance of subsidiary shares -- 615 --
-------- -------- --------
Cash provided by financing activities 194,299 37,998 10,885
-------- -------- --------
Increase (decrease) in cash and cash
equivalents 55,319 1,805 (527)
Cash and cash equivalents, beginning of period 6,024 4,219 4,746
-------- -------- --------
Cash and cash equivalents, end of period $ 61,343 $ 6,024 $ 4,219
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F - 8
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
September 30, 1996 and 1995
(In U.S. Dollars)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF THE COMPANY
GST Telecommunications, Inc. (the Company) is a Canadian company in the
business of providing competitive local exchange services primarily in
the western United States. In addition, the Company provides a range of
telecommunications services which include long distance, Internet
access and data services. The Company also manufactures
telecommunications switching equipment.
The consolidated financial statements for the years ended September 30,
1996 and 1995, and the thirteen months ended September 30, 1994 have
been reported in U.S. dollars, the functional currency of the Company.
The Company changed its fiscal year-end to September 30 effective in
1994 (note 10).
(b) BASIS OF CONSOLIDATION
These consolidated financial statements include the accounts of the
Company and its greater than 50% owned subsidiaries. The Company's
investments in unconsolidated companies owned 20% or more are accounted
for using the equity method. All significant intercompany accounts have
been eliminated.
(c) CASH AND CASH EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments with
original maturities of ninety days or less.
(d) RESTRICTED CASH
Pursuant to an agreement between the Company and a vendor relating to a
construction in progress as of September 30, 1996, the Company is
required to maintain $16 million in a restricted account pending the
completion of the project as collateral against payment. Completion of
the project is anticipated in the next fiscal year. At September 30,
1996, the Company is committed to purchase approximately $20.7 million
relating to this project.
(Continued)
F - 9
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
(e) ACCOUNTS AND NOTES RECEIVABLE
The Company maintains a security interest in the telecommunications
systems it sells until the Company is paid in full. Management provides
an allowance for doubtful accounts and notes based on current customer
information and historical statistics. The allowance for doubtful
accounts was $1,264 and $1,401 at September 30, 1996 and 1995,
respectively.
(f) INVESTMENTS
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES (Statement 115) at October 1, 1994. Under Statement
115, the Company classifies its debt and equity securities in one of
three categories: trading, available-for-sale, or held-to-maturity.
Trading securities are bought and held principally for the purpose of
selling them in the near term. Held-to-maturity securities are those
securities in which the Company has the ability and intent to hold the
security until maturity. All other securities not included in trading
or held-to-maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
All of the Company's investments comprised primarily of U.S. Treasury
Securities and commercial paper, are classified as available-for-sale
and mature in periods ranging from 3 to 9 months. Unrealized holding
gains and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate
component of shareholders' equity until realized. A decline in the
market value of any available-for-sale security below cost that is
deemed other than temporary is charged to earnings resulting in the
establishment of new cost basis for the security. Dividend income is
recognized when earned. Realized gains and losses for securities
classified as available-for-sale are included in earnings and are
derived using the specific-identification method for determining the
cost of securities sold. The amortized cost approximated the market
value of these securities at September 30, 1996 and 1995.
(Continued)
F - 10
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
(g) INVENTORY
Inventory is stated at the lower of cost (first-in, first-out) or
market (net realizable value) and consists of the following:
1996 1995
------ ------
Raw materials $ 378 $ 317
Work in process 346 70
Finished and refurbished goods 1,682 --
------ ------
Total inventory $2,406 $ 387
====== ======
(h) INVESTMENTS IN AFFILIATES
The Company has a 50% interest in Phoenix Fiber Access, Inc., a
competitive access fiber optic telecommunications network in the
Phoenix, Arizona metropolitan area. The carrying value of this
investment, which is included in other assets in the accompanying
consolidated balance sheet was $1,364 and $2,859 at September 30, 1996,
and 1995, respectively.
The Company has an approximate 40% interest in GST Global
Telecommunications, Inc. (GST Global), a publicly traded corporation on
the Vancouver Stock Exchange which intends to conduct
telecommunications operations on a worldwide basis. The carrying value
of this investment, which is included in other assets in the
accompanying consolidated balance sheet, was $3,634 at September 30,
1996 (see note 2).
(i) PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and is depreciated on the
straight-line basis over their estimated useful lives, which are as
follows:
Telecommunications networks 10 years
Electronic and related equipment 10 years
Leasehold improvements 10 years
Furniture, office equipment and other 3 - 7 years
Building 40 years
Construction, engineering and overhead costs directly related to the
development of competitive access networks are capitalized. The Company
begins depreciating these costs when the networks become commercially
operational. Depreciation is provided using the straight-line method
over the estimated useful lives of the assets owned.
(Continued)
F - 11
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
(j) GOODWILL
Goodwill, which represents the excess of the purchase price over the
fair value of net assets acquired, is amortized over periods ranging
from five to twenty years using the straight-line method. The Company
assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining
life can be recovered through discounted projected future cash flows of
the acquired businesses from which the goodwill arose. Amortization
charged to operations was $1,690, $389, and $19 for the years ended
September 30, 1996 and 1995, and the thirteen month period ended
September 30, 1994, respectively.
(k) REVENUE RECOGNITION
For telecommunication services revenue, revenue is recorded upon
placing of calls or rendering of other related services. For
telecommunication product revenue, revenue is recorded upon shipment of
product and is presented in the accompanying consolidated statements of
operations net of product returns.
Deferred revenue, of which $477 and $373 are included in other current
liabilities in the accompanying balance sheet at September 30, 1996 and
1995, respectively, consists of monthly service contract payments
received in advance, warranty payments received in advance and research
and development advances. Advance warranty payments are amortized over
the length of warranty on the system sold, which is typically one year.
(l) LOSS PER SHARE
Loss per share has been calculated using the weighted average number of
common and dilutive common equivalent shares assumed to be outstanding
during the period (using the treasury stock method for dilutive common
equivalent shares). Common equivalent shares consist of options and
warrants to purchase common stock.
Fully diluted loss per share has not been presented for the outstanding
options and warrants as they are anti-dilutive.
(m) ISSUANCE OF SUBSIDIARY STOCK
Issuances of subsidiary stock are accounted for as capital transactions
in the accompanying consolidated financial statements.
(Continued)
F - 12
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
(n) SEGMENTED INFORMATION
Segmented information has not been presented as the Company is
presently operating 100% in the telecommunications industry in the
United States and all revenues and operating profits and losses are
derived from United States operations and substantially all assets
reside in the United States.
(o) INCOME TAXES
The Company accounts for income taxes under the asset and liability
method. Under the asset and liability method, deferred income taxes
reflect the future tax consequences of differences between the tax
bases of assets and liabilities and their financial reporting amounts
at each year-end. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a
change in the tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be
realized.
(p) FOREIGN CURRENCY
The functional currency of all of the Company's operations is the U.S.
dollar. In accordance with Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translation", nonmonetary balance sheet items
recorded in Canadian dollars are remeasured at historical rates and
monetary balance sheet items recorded in Canadian dollars are
remeasured at current rates. Exchange gains and losses from
remeasurement of monetary assets and liabilities are recognized
currently in income.
(q) FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash and cash
equivalents, receivables, short-term investments, short-term borrowings
and accounts payable and accrued liabilities approximate fair values
due to the short maturity of those instruments.
The carrying amount of the Company's long-term debt approximates its
fair value. The fair value of the Company's long-term debt was
determined based on quoted market prices for similar issues or on
current rates available to the Company for debt of the same remaining
maturities and similar terms.
(Continued)
F - 13
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
(r) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(s) RECLASSIFICATIONS
Certain reclassifications have been made in the accompanying
consolidated financial statements for 1995 and 1994 to conform with the
1996 presentation.
(2) ACQUISITIONS
From September 1, 1993 through September 30, 1996, the Company made the
acquisitions set forth below, each of which was accounted for as a
purchase, except for Canadian Programming Concepts, Inc., which was
accounted for as an equity investment. The consolidated financial
statements include the operating results from the effective date of
acquisition.
(a) CALL AMERICA BUSINESS COMMUNICATIONS, INC. (CALL AMERICA)
In the fourth quarter of 1996, the Company acquired 100% of the
outstanding capital stock of Call America. Call America is a California
company that provides long distance and ancillary communications
services. The Company acquired Call America for consideration of
$14,777, consisting of 1,177,692 shares of common stock valued at
$12.50 per share, and $56 in legal fees. An additional 130,000 common
shares have been placed in escrow and will be issued to the former
owners of Call America in one year, subject to certain indemnification
clauses contained in the purchase agreement. Up to an additional
114,489 shares could be issued to the former Call America owners if the
market price of the Company's common stock is less than $12.50 six
months after the closing date. Additionally, $533 in notes receivable
due from the former owners of Call America will be forgiven if certain
operating milestones are met over the next 10 years. In connection with
this acquisition, the Company recorded $21,166 in assets, including
$9,798 in goodwill, and $6,389 in liabilities.
(Continued)
F - 14
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
(b) TOTALNET COMMUNICATIONS, INC. (TOTALNET)
In the fourth quarter of 1996, the Company acquired 100% of the
outstanding capital stock of TotalNet, a long distance service
provider. The Company acquired TotalNet for consideration of $7,911,
consisting of 401,160 common shares valued at $4,373, a commitment to
issue shares valued at $3,498 at the one year anniversary of the
agreement, and $40 in legal fees. The number of shares issuable at the
one year anniversary will be determined by a share price based on the
weighted average market price of the Company's common shares for the
ten days preceding the anniversary providing that in no case will the
anniversary share price be lower than $7.63 or greater than $20. An
additional 80,232 common shares will be issued to the former owners of
TotalNet at the anniversary date, subject to certain indemnification
clauses contained in the purchase agreement. In connection with this
acquisition, the Company recorded $10,149 in assets, including $4,700
in goodwill, and $2,239 in liabilities.
(c) GST TELECOM, INC. (GST TELECOM)
In the third quarter of 1994, the Company acquired 60% of the shares of
GST Telecom in exchange for contributing 60% of the shares of Tucson
Lightwave, Inc. (Tucson) and a commitment to provide at least $11,024
in equity financing. GST Telecom develops, constructs, and operates
competitive local exchange networks and other communications systems.
The shares of Tucson were acquired from Pacwest, LLC (Pacwest) (an
entity controlled by the Chief Executive Officer of the Company) in
exchange for 100,000 common shares of the Company valued at $447. The
Company has made $132,184 in equity contributions to GST Telecom
through September 30, 1996.
In the third quarter of 1995, the Company acquired an additional 20% of
GST Telecom for 1,000,000 common shares valued at $5 per share.
In the first quarter of 1996, the Company acquired the remaining 20% of
GST Telecom for consideration of up to a maximum of 1,000,000 common
shares (valued at $10.00 per share) based upon the fair market value of
a 20% interest in GST Telecom, which was determined by an independent
appraisal during September 1996. Currently, 1,000,000 common shares are
held in escrow pending the release of such shares. In addition, the
parties agreed that the Company has fulfilled all of its obligations
relating to the funding of GST Telecom and its subsidiaries.
In connection with these acquisitions, the Company recorded $40,516 in
net assets, including goodwill of $15,330, and liabilities of $3,478.
(Continued)
F - 15
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
(d) NATIONAL APPLIED COMPUTERS TECHNOLOGIES, INC. (NACT)
In the fourth quarter of 1993, the Company purchased 52% of the common
shares of NACT. Subsequent to September 1, 1993, at various times, the
Company acquired the remaining 48% interest of NACT. NACT is a Utah
manufacturer of telecommunications switching and network management
equipment for the inter-exchange industry.
The consideration paid for 100% of NACT's outstanding common shares
consisted of $3,621 in cash, $466 in notes payable, $160 in legal fees
and 956,283 common shares valued at $4,832. 15% of the stock acquired
from NACT was purchased from NACT's former President, who is also the
Company's Chief Technology Officer and a Director of the Company, for
384,195 common shares of the Company. In connection with these
acquisitions, the Company recorded $10,122 in net assets, including
goodwill of $1,387, and liabilities of $1,203.
(e) INTERNATIONAL TELEMANAGEMENT GROUP, INC. (ITG)
In the third quarter of 1995, the Company acquired 100% of the
outstanding capital stock of ITG. ITG is an Ohio company that provides
a variety of domestic and international long distance services. The
Company acquired ITG for consideration of $75, the assumption of
certain liabilities, and an earn out provision. In connection with this
acquisition, the Company recorded $7,261 in net assets, including
goodwill of $4,025, and liabilities of $7,185.
(f) OTHERS
In May 1996, the Company purchased from Tomen America, Inc. the
remaining 10% interest in the GST Pacific Lightwave, Inc., a GST
Telecom subsidiary which operates a fiber optic competitive local
exchange network in southern California. The consideration paid for
this acquisition consisted of $1,250 in cash, which was recorded as
goodwill.
(Continued)
F - 16
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
In a series of transactions during the third and fourth quarters of
1996, the Company acquired approximately 40% of Canadian Programming
Concepts, Inc. (CPC), a Canadian corporation which is publicly traded
on the Vancouver Stock Exchange, for consideration of $3,659. As a
result of this investment, CPC's name was changed to GST Global.
Concurrent with this investment, four of the Company's directors and
one of the Company's employees were appointed to GST Global's six
member board of directors. The key officers of GST Global are officers
of the Company. Several employees and directors of the Company own
shares in GST Global amounting to approximately 5% of GST Global's
outstanding shares at September 30, 1996. At September 30, 1996, the
market value of GST Global totaled approximately $26,366.
During 1996, the Company acquired the assets of Reservations, Inc. dba
Hawaii Online (HOL), the assets of Texas-Ohio Communications, Inc.
(TOC), and 100% of the outstanding capital stock of Tri-Star
Residential Communications, Inc. (Tri-Star). HOL is an Internet service
provider; TOC is a long distance service provider; and Tri-Star
provides shared tenant services consisting of long distance, cable
television and security service to tenants of multi-dwelling apartment
units. Consideration paid for these acquisitions totaled $3,341 and
consisted of 32,624 common shares valued at $350, a commitment to issue
common shares valued at $2,115 over the next two years, $599 in accrued
payments to be made during 1997, $120 of cash, and $157 in legal fees.
In connection with these acquisitions, the Company recorded $5,529 in
assets, including $1,085 of goodwill, and $2,278 in liabilities.
The pro forma results shown below reflect purchase accounting
adjustments assuming the acquisitions described above occurred as of the
beginning of each of the periods presented:
Year Year
ended ended
September 30, September 30,
1996 1995
(Unaudited) (Unaudited)
---- ----
Revenues $ 71,600 54,762
Net loss (65,196) (22,918)
Net loss per share (3.05) (1.34)
The pro forma results are not necessarily indicative of what actually
would have occurred had the acquisitions been in effect for the entire
periods presented. In addition, they are not intended to be a
projection of future results that may be achieved from the combined
operations.
(Continued)
F - 17
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
(3) PROPERTY AND EQUIPMENT
September 30, September 30,
1996 1995
--------- ---------
Telecommunications networks $ 25,551 $ 9,577
Electronic and related equipment 31,547 10,058
Leasehold improvements 3,619 300
Furniture, office equipment and other 8,746 2,201
Building 2,134 2,134
Construction in progress 62,763 15,313
--------- ---------
134,360 39,583
Less accumulated depreciation (6,785) (1,550)
--------- ---------
$ 127,575 $ 38,033
========= =========
Property and equipment includes $62,763 and $15,313 of equipment which had
not been placed in service at September 30, 1996 and 1995, respectively,
and accordingly, is not being depreciated. During the year ended September
30, 1996 and 1995, $2,316 and $291 of interest, respectively, was
capitalized as part of telecommunications networks and networks in
progress.
(4) ACCRUED EXPENSES
September 30, September 30,
1996 1995
--------- ---------
Fixed asset purchases $ 14,153 796
Accrued acquisition costs 4,213 --
Carrier costs 4,057 680
Other 4,320 1,614
--------- ---------
Total $ 26,743 3,090
========= =========
(Continued)
F - 18
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
(5) FINANCING ARRANGEMENTS
(a) DEBT
The Company's long-term debt at September 30, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Note payable to Tomen, quarterly interest payments at the LIBOR
rate plus 3% (8.7% at September 30, 1996) with quarterly
principal payments (together with interest) beginning in
fiscal 1998 through 2005, collateralized by equipment. The
Company has the option to convert the interest rate to a
fixed rate equal to the Treasury index rate
plus 3% during the term of the loan $ 31,771 16,674
Senior discount notes, 13-7/8% effective interest with
semi-annual interest payments due beginning June 15,
2001 on a total maturity value of $312,448, principal
due December 15, 2005 177,760 --
Convertible senior subordinated discount notes 13-7/8%
effective interest with semi-annual interest payments
due beginning June 15, 2001 on a total maturity value
of $39,056, principal due December 15, 2005 22,220 --
Other 5,755 3,150
-------- --------
237,506 19,824
Less current portion of long-term debt 4,832 736
-------- --------
$232,674 19,088
======== ========
</TABLE>
(Continued)
F - 19
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
The schedule of future principal payments on long-term debt is as
follows:
1997 $ 4,832
1998 3,474
1999 4,567
2000 5,438
2001 5,295
Thereafter 213,900
-------------
$ 237,506
=============
(b) ISSUANCE OF DEBT AND CONVERTIBLE DEBT SECURITIES
In the first quarter of 1996, the Company issued approximately $180
million in 39,056 Units (the Units) each consisting of eight 13.875%
(effective interest rate) Senior Discount Notes (the senior notes) and
one 13.875% (effective interest rate) Convertible Senior Subordinated
Discount Note (the convertible notes) maturing on December 15, 2005.
The Units were sold at a substantial discount and there will be no
accrual of cash interest prior to December 15, 2000 or payment of
interest until June 15, 2001. The Units accrete to a total principal
amount of approximately $351.5 million by December 15, 2000. The senior
notes will rank in right of payment with all unsubordinated
indebtedness of the Company while the convertible notes will be junior
to all senior Company debt. The senior and convertible notes are
subject to certain debt covenants.
Each of the convertible notes is convertible at the option of the
holder into common shares any time after December 15, 1996. The number
of shares to be issued upon conversion is based on an accreted value on
the conversion date divided by $7.536. In addition, after December 15,
1996, all of the convertible notes may be automatically converted to
common shares by the Company if the Company's common shares sustain
certain market value levels for 30 consecutive trading days.
On or after December 15, 2000, the senior and convertible notes will be
redeemable at the option of the Company.
(Continued)
F - 20
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
(c) TOMEN AMERICA, INC. FACILITY
In the first quarter of 1995, the Company entered into a master
financing agreement with Tomen America, Inc. (Tomen). Under the
agreement, Tomen will loan up to $100 million to subsidiaries of the
Company for development and construction of network projects. An
upfront fee of 1.50% of the aggregate principal amount of each project
loan and a commitment fee of 0.50% per annum on the unused portion of
each project loan is payable to Tomen. Tomen will evaluate each network
project separately to determine if it will participate in financing the
project. The agreement originally provided Tomen the right to purchase
a 10% equity interest in each network project it financed. Pursuant to
such right, in 1995 Tomen purchased a 10% interest in the Company's
southern California project. In May 1996, the Company repurchased the
10% interest in the project and the agreement was amended to cancel
Tomen's right to purchase an equity interest in funded projects. As of
September 30, 1996, Tomen has agreed to provide a total of $34.45
million in debt financing to the Company's subsidiaries ($31.8 million
of which has been drawn down as of September 30, 1996) for construction
and operation of its fiber optic networks in Southern California, New
Mexico, and Arizona. The Tomen financing agreements are subject to
certain debt covenants. Subsequent to September 30, 1996, Tomen has
agreed to provide an additional $41 million in debt financing for the
Company's Hawaiian network.
Concurrent with the signings of the master financing agreement and
subsidiary credit agreements, the Company has also signed stock
purchase agreements with Tomen wherein Tomen purchased shares of common
stock and received warrants to purchase additional shares of common
stock. Pursuant to such agreements, through September 30, 1996, Tomen
has purchased 1,074,074 shares of common stock at prices ranging from
$4.60 to $10.80 per share for total cash consideration of $6,955. Tomen
also holds warrants to purchase up to 546,155 additional shares of
common stock at prices ranging from $5.52 to $12.96 per share. Such
warrants expire at various times between October 1996 and May 1998.
Subsequent to September 30, 1996, Tomen exercised a warrant and
purchased 250,000 shares of common stock at $5.52 per share for total
cash consideration of $1,380.
The Company's Chief Executive Officer serves as a consultant to Tomen
for which he is paid a fee. Simultaneous with the execution of the June
21, 1994 purchase of 60% of GST Telecom from Pacwest. Pacwest
contracted with the Company to receive a fee equal to 1% of the
aggregate debt and equity financing provided by Tomen to the Company.
(Continued)
F - 21
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
(d) SIEMENS STROMBERG-CARLSON AGREEMENT
In the fourth quarter of 1996, the Company entered into a loan and
security agreement with Siemens Stromberg-Carlson (Siemens). Under the
terms of the agreement, Siemens will loan up to $226 million to the
Company for the purchase and installation of telecommunications
switching and related equipment. Amounts borrowed under the agreement
will initially bear interest at LIBOR plus 4.5% and will be secured by
the equipment. Such interest will decrease to LIBOR plus 3.5% at the
time each initial loan is converted to a term loan, which conversion
will occur at the first calendar quarter following the initial loan.
Upon making the first loan request, the Company will be committed to
purchase a minimum of $16.5 million in equipment over 3 years. Amounts
borrowed under the agreement will be repaid in 24 quarterly
installments beginning 5 quarters after the initial loan is converted
to a term loan. At September 30, 1996, no amount had been borrowed
pursuant to this agreement.
(e) NORTHERN TELECOM, INC. PURCHASE AGREEMENT
In the fourth quarter of 1996, the Company entered into a purchase
agreement with Northern Telecom, Inc. (Nortel), pursuant to which the
Company is committed to purchase a minimum of $50 million, of which
$1.9 million has been purchased as of September 30, 1996, in
telecommunications switching equipment over the next three years. The
Company is currently negotiating an agreement to finance such equipment
purchases with a third party.
(f) LINE OF CREDIT
At September 30, 1996, the Company was contingently liable under
repurchase agreements for a maximum of $1,035 to a financial
institution. The financial institution provides lease financing to NACT
customers on a recourse basis. The Company has established a $1,000
line of credit with the financial institution to provide funding for
payment of these leases, if required. No balance was outstanding under
the line of credit at September 30, 1996.
(Continued)
F - 22
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
(6) SHAREHOLDERS' EQUITY
(a) COMMITMENT TO ISSUE SHARES
Pursuant to a final agreement dated January 5, 1995, the Company is
committed to issue 168,249 common shares at a fair value of $4.44 per
share ($747) to former shareholders of NACT on January 5, 1997.
Additionally, pursuant to the terms of the purchase agreements
discussed in note 2, the Company is committed to issue a minimum of
1,753,758 shares valued at $24,707 at various times throughout 1997.
(b) PREFERENCE SHARES
The Company's Board of Directors has the authority, without any further
vote or action by the Company's shareholders, to issue up to 10,000,000
Preference Shares, without par value (the Preference Shares), in one or
more series and to determine the designations, powers, preferences and
relative, participating, optional or other rights thereof, including
without limitation, the dividend rate (and whether dividends are
cumulative), conversion rights, voting rights, rights and terms of
redemption, redemption price and liquidation preference.
(c) ESCROW AGREEMENTS
Of the 21,257,697 shares currently outstanding, 750,000 are held
pursuant to an escrow agreement, their release being subject to the
approval of regulatory authorities. These common shares have been
issued by the Company and have rights equal to those of all other
common shares except that the holders may not exercise voting rights on
a resolution to cancel shares, and have waived their rights to receive
dividends or to participate in the assets and property of the Company
on a winding-up or dissolution of the Company. In accordance with the
escrow provisions of this agreement, these shares cannot be sold or
traded by the owner until they are released by the regulatory
authorities in accordance with a formula adopted by the regulatory
authorities. If the Company has not met the conditions set for the
release of these shares by January 16, 2001, these shares will be
canceled.
Pursuant to the Company acquiring the remaining 20% interest in GST
Telecom during 1996, 1,000,000 common shares were put in escrow pending
a valuation of GST Telecom. An independent appraisal of GST Telecom was
received in September 1996 allowing the release of such shares from
escrow (see note 2). On November 7, 1996, such shares were released
from escrow.
(Continued)
F - 23
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
(d) 1996 EMPLOYEE STOCK PURCHASE PLAN
In July 1996, the Company adopted the 1996 Employee Stock Purchase Plan
(the Stock Purchase Plan) which provides eligible employees of the
Company with an opportunity to acquire common shares of the Company. It
is the intention of the Company that the Stock Purchase Plan qualify as
an "Employee Stock Purchase Plan" under Section 423 of the Internal
Revenue Code. Under this Stock Purchase Plan, the Company authorized
the issuance of 500,000 common shares to be issued to employees of the
Company.
Employees who own 5% or more of the voting rights of the Company's
outstanding common shares may not participate in the Plan.
(e) STOCK OPTION PLANS
EMPLOYEE STOCK OPTION PLANS
In January 1995, the Company created a Stock Incentive Plan (the 1995
Plan) which provides for the granting to employees (including officers
and employee directors) of incentive stock options within the meaning
of Section 422A of the Internal Revenue Code of 1986, and for the
granting of non-statutory stock options to employees (including
officers and employee directors), directors and consultants. The
options have a term of five years and vest and become exercisable at
the discretion of the Board of Directors. Under the plan, no options
vest until at least six months after the date of grant.
In January 1996, the Company created an additional Stock Incentive Plan
(the 1996 Plan) in which the Board of Directors approved and authorized
the issuance of 400,000 stock options to be granted to employees of the
Company. The terms of the 1996 Plan are identical to that of the 1995
Plan. In January 1996, the Board of Directors also authorized a 1
million increase in the number of common shares reserved for issuance
under the Company's 1995 Stock Option Plan.
(Continued)
F - 24
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
1996 SENIOR OPERATING AND EXECUTIVE OFFICER STOCK OPTION PLANS
In May 1996, the Company adopted the 1996 Senior Operating Officer
Stock Option Plan (the Senior Operating Plan) and the 1996 Senior
Executive Officer Stock Option Plan (the Senior Executive Plan) in
which the Board of Directors approved and authorized the issuance of up
to 900,000 and 600,000 options, respectively, to be awarded to senior
operating and executive management of the Company, at a $10 option
exercise price. The options have a term of six years and vest and
become exercisable at the discretion of the Board of Directors. All
stock options granted under the Senior Executive Plan as of September
30, 1996 vest upon the achievement of certain milestones as were
determined by the Board of Directors. It is the intention of the
Company that certain options granted pursuant to these Plans shall
constitute incentive stock options under Section 422 of the Internal
Revenue Code, while certain other options granted pursuant to these
Plans shall be nonqualified stock options.
The exercise price of all incentive stock options granted under these
four Plans must be at least equal to the fair market value of the
shares on the date of grant. With respect to any participant who owns
stock possessing more than 10% of the voting rights of the Company's
outstanding share capital, the exercise price of any incentive stock
option granted must equal at least 110% of the fair market value on the
grant date. The exercise price of all nonqualified stock options
granted under the 1995 and 1996 Plans and the Senior Operating and
Executive Plans must be at least 80% and 50%, respectively, of the fair
market value of the common stock on the date of grant.
(Continued)
F - 25
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
Activity under the various stock option plans is as follows:
Number of Price
Shares Range
---------- ---------------
Options outstanding at August 31, 1993 785,250 $ 1.00 - 3.00
Options:
Granted 435,000 4.25 - 5.00
Exercised (343,750) 1.00 - 3.00
Canceled - -
---------- ---------------
Options outstanding at September 30, 1994 876,500 1.00 - 5.00
Options:
Granted 1,190,035 3.55 - 6.75
Exercised (442,200) 1.00 - 4.25
Canceled (30,042) 3.55 - 5.00
---------- ----------------
Options outstanding at September 30, 1995 1,594,293 3.55 - 6.75
Options:
Granted 1,563,373 5.00 - 10.00
Exercised (67,500) 3.55 - 6.75
Canceled (32,447) 6.75 - 10.00
---------- ----------------
Options outstanding at September 30, 1996 3,057,719 $ 3.55 - 10.00
========== ================
Of the 3,057,719 options outstanding, 1,208,843 options were vested and
exercisable and 966,089 options were available for future grant.
(f) 1996 STOCK BONUS AGREEMENT
In September 1994, the Company's Board of Directors adopted a Stock
Award Plan which provides for the awarding of up to 70,000 common
shares of the Company to a certain member of management upon the
achievement of certain milestones.
(Continued)
F - 26
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
(g) WARRANTS OUTSTANDING
Warrants outstanding and exercisable at September 30, 1996:
Number of
common shares Exercise Exercise
Issuable Price Expiration Date
-------- ----- ---------------
250,000 $5.52 October 23, 1996
125,000 $5.62 April 26, 1997
171,155 $12.96 May 23, 1998
50,000 $10.00 April 29, 1999
300,000 $6.75 September 30, 2000
The 546,155 warrants expiring October 23, 1996 through May 23, 1998
were granted to Tomen in conjunction with the Tomen financing
agreements (see note 5), of which the 250,000 warrants expiring October
23, 1996 were exercised during October 1996. The 50,000 warrants
expiring April 29, 1999 were granted in conjunction with a private
placement of common stock during fiscal year ending 1994. The 300,000
warrants expiring September 30, 2000 were granted to a director of the
Company. No value has been assigned to any granted warrants as the
exercise price exceeded the common stock market price at the time of
grant.
(Continued)
F - 27
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
(7) INCOME TAXES
The provision for income taxes differs from the amount computed by
applying the Canadian statutory income tax rate to net income before
taxes as follows:
Thirteen
month
Year ended Year ended period ended
September 30, September 30, September 30,
1996 1995 1994
--- --- ---
Computed expected income tax
expense (benefit) at Canadian
statutory rate (39)% (39)% (39)%
Expected state/province income tax
expense (benefit) (4) (6) (5)
Increase (decrease) in valuation
allowance 21 38 56
Amortization of goodwill 1 5 5
Minority interest -- (7) --
Effect of difference in United
States statutory rate 5 5 6
Effect of acquisition of new subsidiaries 10 1 --
Non-deductible interest 2 -- --
Other 4 4 (6)
--- --- ---
Income tax expense (benefit) - % 1% 17%
=== === ===
(Continued)
F - 28
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The tax
effects of significant items comprising the Company's deferred tax asset
and liability are as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
United States Federal and state
net operating loss carryforwards $ 16,378 $ 3,325
Canadian net operating loss carryforwards 3,065 2,533
Non-deductible interest 4,608 --
Canadian non-deductible interest 798 --
Canadian capital loss carryforward 128 --
Other 2,063 1,633
-------- --------
Total gross deferred tax assets 27,040 7,491
Less valuation allowance (19,429) (6,734)
-------- --------
Deferred tax liabilities:
Furniture, fixtures and equipment,
due to differences in depreciation 2,110 693
Capitalized software/intangibles 5,501 64
-------- --------
Total gross deferred tax liabilities 7,611 757
-------- --------
Net deferred taxes $ -- $ --
======== ========
</TABLE>
The valuation allowance for deferred tax assets as of September 1, 1993
was $593. The net change in total valuation allowance for the years ended
September 30, 1996 and 1995, and the thirteen month period ended September
30, 1994 was an increase of $12,695, $4,346, and $1,795 respectively.
(Continued)
F - 29
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
The Company has non-capital losses for income tax purposes of
approximately Canadian $6,811 available to reduce Canadian taxable income
of future years, expiring as follows:
1999 $ 686
2000 2,072
2002 1,597
2003 2,456
------
$6,811
======
Based on a history of recurring losses, it is questionable whether the
Company will be allowed to utilize these Canadian losses if the tax
authority determines that the Company has no reasonable expectation of
profit. As of September 30, 1996, the Company also has a Canadian net
capital loss carryforward of $389. Net capital losses can be carried
forward indefinitely but can only be utilized to offset taxable capital
gain.
The Company has net operating losses for income tax purposes of
approximately $44,985 available to reduce United States taxable income of
future years, expiring as follows:
2007 $ 405
2008 455
2009 2,717
2010 4,939
2011 36,469
-------
$44,985
=======
For United States income tax purposes, utilization of net operating losses
may be subject to limitation in the event a change in ownership of the
Company has occurred pursuant to IRC Section 382. No analysis has been
performed by the Company to determine whether such ownership change has
occurred.
(Continued)
F - 30
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
(8) LEASES
The Company is obligated under capital leases for equipment which expire
at various dates during the next five years. At September 30, 1996 and
1995, the gross amounts of equipment and related accumulated amortization
recorded under capital leases were as follows:
1996 1995
------- -------
Equipment $ 2,068 853
Less accumulated amortization (291) 67
------- -------
$ 1,777 786
======= =======
The Company also has noncancelable operating leases, primarily for
facilities, which expire over the next five years. Rental expense under
operating leases was $1,501, $866 and $253 for the years ended September
30, 1996 and 1995, and the thirteen month period ended September 30, 1994,
respectively.
(Continued)
F - 31
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
Future minimum lease payments under noncancelable leases (with initial or
remaining lease terms in excess of one year) and future minimum capital
lease payments as of September 30, 1996 are:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- -------
<S> <C> <C>
Year ending September 30:
1997 $ 980 2,777
1998 900 2,902
1999 494 2,797
2000 235 1,960
2001 4 1,493
Thereafter -- 7,335
------- -------
Total minimum lease payments 2,613 $19,264
=======
Less amount representing interest (at rates ranging
from 8.7 to 18.6%) 438
-------
Net minimum lease payments 2,175
Less current installments of obligations under capital leases 722
-------
Obligations under capital leases, excluding
current installments $ 1,453
=======
</TABLE>
Under the terms of two noncancelable subleases, the Company will receive
$220 over the next ten years.
(Continued)
F - 32
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
(9) COMMITMENTS AND CONTINGENCIES
(a) PENSION AND PROFIT SHARING PLANS
In 1995, the Company adopted a defined contribution 401(k) plan (the
Plan). Employees are eligible to participate in the Plan upon
commencement of service. Participants may defer up to 15% of eligible
compensation. Currently, the Company does not provide matching
contributions for the Plan.
NACT also sponsors a defined contribution 401(k) plan for employees who
have completed one year of service and attained the age of 21.
Participants may defer up to 15% of eligible compensation. The Company,
at its discretion, may match 50% of participant contributions up to
7.5% of participant compensation. NACT made employer contributions to
this plan of $60, $51 and $32 in the years ending September 30, 1996,
1995 and 1994, respectively.
Through September 30, 1996, NACT provided a discretionary profit
sharing program for full time employees who had completed one full year
of employment. Under the plan, 10% of the increase in profits based on
NACT's previous highest retained earnings balance were allocated among
employees determined on length of employment and salary level at the
discretion of the Board of Directors. Contributions to the program were
$132, $171 and $105 for the years ended September 30, 1996 and 1995,
and the thirteen month period ended September 30, 1994, respectively.
The program was terminated on September 30, 1996.
(b) LONG DISTANCE CARRIERS
The Company is party to various contracts with long distance carriers
pursuant to which the Company is committed to minimum service fees. The
average monthly minimum commitments range from $1.6 million to $5.1
million per month over the next three years. The Company must pay the
carriers for differences between the commitment amounts and the actual
amounts billed.
(Continued)
F - 33
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
(c) LEGAL PROCEEDINGS
On August 24, 1995, Aerotel, Ltd. and Aerotel U.S.A., Inc.
(collectively, "Aerotel") filed a patent infringement suit against NACT
alleging that telephone systems manufactured and sold by NACT
incorporate prepaid calling features which infringe upon a patent
issued to Aerotel in November 1987. The complaint further alleges
defamation and unfair competition by NACT and seeks various damages.
NACT has filed an Answer and Counterclaim denying patent infringement,
committing defamation or unfair competition and seeks judgment that the
Aerotel patent is invalid and that Aerotel has misused its patent in
violation of antitrust laws. Based on information currently available,
NACT's management is of the opinion that there will be no material
impact of NACT's financial position or results of operations as a
result of this suit. Accordingly, no provision for loss has been
provided in the accompanying financial statements.
On April 24, 1996, C.W. Holdings (formerly Martin Holdings Ltd.) filed
a damages suit against the Company alleging negligence in failing to
safely deliver to C.W. Holdings a share certificate representing
209,738 common shares of the Company. C.W. Holdings has commenced an
action in the Supreme Court of British Columbia against the Company,
the Company's registrar and transfer agent, and other parties unrelated
to the Company. The Company's legal counsel believes that it is
improbable that there will be an outcome unfavorable to the Company in
the legal proceedings.
The Company is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a
material effect on the Company's financial position.
(d) EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with key members of
management. These agreements provide for payments based upon death,
disability and change of control. The agreements also contain covenants
not to compete.
(10) RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
IN THE UNITED STATES AND IN CANADA
These financial statements have been prepared by management in accordance
with generally accepted accounting principles in the United States (U.S.
GAAP). Except for the earnings/loss per share calculations as noted below,
these financial statements also conform, in all material respects, with
those accounting principles that are generally accepted in Canada
(Canadian GAAP).
(Continued)
F - 34
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
For U.S. GAAP purposes, the 750,000 escrow shares disclosed in note 6 are
considered contingent shares and are not included in the loss per share
calculations. For U.S. GAAP purposes, when these shares are released from
escrow, to the extent their fair market value exceeds their issuance
price, compensation expense will be recognized by the Company. The loss
per share determined in accordance with accounting principles generally
accepted in Canada is $(3.06), $(0.78) and $(0.33) for the years ended
September 30, 1996, 1995 and the thirteen month period ended September 30,
1994, respectively.
The Company changed its fiscal year-end to September 30 effective in 1994.
Accordingly, amounts reported in the consolidated financial statements are
for the thirteen-month period ended September 30, 1994. Selected financial
information as at and for the year ended August 31, 1994 is as follows:
Selected information from statement of operations:
Revenues $ 5,253
Operating expenses 6,147
--------
Loss from operations 894
Other expenses 1,681
--------
Loss before minority interest and income tax 2,575
Income tax expense 470
--------
Loss before minority interest 3,045
Minority interest in income of subsidiaries 126
--------
Loss for the year $ 3,171
========
Selected information from statement of cash flows:
Operations:
Loss for the year (3,171)
Items not involving cash 2,420
Changes in non-cash operating working capital (154)
--------
Cash used in operations (905)
Financing 14,040
Investing (12,846)
--------
Increase in cash and cash equivalents 289
Cash and cash equivalents, beginning of year 4,745
--------
Cash and cash equivalents, end of year $ 5,034
========
(Continued)
F - 35
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
(11) INFORMATION RELATING TO CONSOLIDATED STATEMENTS OF CASH FLOWS
"Net cash provided (used) by operating activities" includes cash payments
for interest of $1,813, $364 and $24 and cash payments for taxes of $-0-,
$264 and $253, for the years ended September 30, 1996 and 1995, and the
thirteen month period ended September 30, 1994, respectively.
NON-CASH INVESTING AND FINANCING ACTIVITIES WHICH AFFECT THE
CONSOLIDATED STATEMENTS OF CASH FLOWS
Effective May 1, 1995, the Company acquired a 100% interest in ITG. See
note 2 for a discussion of the assets and liabilities acquired.
On January 5, 1995, the Company acquired the remaining 20% of National
Applied Computer Technologies, Inc. (see note 2). As a result of this
transaction, the Company recorded $2,137 in other assets, $521 in
liabilities, $747 in common stock, $1,494 in a commitment to issue common
shares and a reduction of $886 to its non-controlling interest in
subsidiaries account.
Effective June 1, 1995, the Company acquired an additional 20% of GST
Telecom (see note 2). The Company recorded $5,000 in common stock, $3,226
in other assets, and a reduction of $1,774 to its non-controlling interest
in subsidiaries account related to this transaction.
As a result of capital contributions made to GST Telecom, Inc. throughout
the year ending September 30, 1995, the Company recorded $4,457 in other
assets and an increase of $4,457 to its non-controlling interest in
subsidiaries account.
During the year ending September 30, 1995, the Company recorded a $200
reduction in notes receivable and a $200 increase to deferred financing
costs pursuant to a loan agreement and promissory note dated July 7, 1994,
whereby the Company loaned $200 to Pacwest Network, L.L.C. (Pacwest) which
was repaid in full by crediting against fees payable to Pacwest in respect
of financing provided by Tomen America, Inc.
Property and equipment includes amounts in accounts payable and accrued
liabilities of $18,291, $4,363 and $-0- at September 30, 1996, 1995 and
1994, respectively.
(Continued)
F - 36
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
In September 1996, the Company acquired an additional 1.5 million common
shares of GST Global, for consideration of $3,364 (see note 2). The
Company recorded $3,364 in other assets and accrued liabilities relating
to this transaction.
During the year ending September 30, 1996, the Company recorded $45,478 in
assets, $11,665 in liabilities, a reduction of $2,686 to minority
interest, $29,444 in common stock and $5,613 in commitments to issue
common stock as a result of the 1996 acquisitions discussed in note 2.
(12) RELATED PARTY TRANSACTIONS
During the third and fourth quarters of 1996, the Company made payments of
$5,997 and $2,970 to the FCC for 5 PCS licenses on behalf of Magnacom
Wireless, LLC (Magnacom), a company controlled by the Chief Executive
Officer of the Company. The $2,970 payment is included as an other current
asset in the accompanying balance sheet, whereas the $5,997 payment is
included as an other asset in the accompanying balance sheet. The Company
is in the process of establishing a non-exclusive twelve year agreement
with Magnacom; whereby, the Company will purchase services relating to
such licenses from Magnacom for use or resale. As consideration for
services provided by Magnacom to the Company, the Company will make annual
lump sum payments to Magnacom in accordance with an agreed to schedule
(with the $5,997 payment being the first of such payments) as advanced
payments for the services to be provided by Magnacom. Subsequent to
September 30, 1996, the Company made an additional payment of $5,426 to
the FCC on behalf of Magnacom.
The operations of the Company's Hawaiian microwave network require the use
of radio licenses from the FCC. Such licenses are owned by PNI, a company
controlled by the Company's Chief Executive Officer. Under agreements
between the Company and PNI, (1) the Company pays a monthly fee to PNI to
utilize PNI's licenses for its communications traffic and (2) PNI pays an
equal monthly fee to the Company for the right to utilize the Company's
facilities for other communications traffic using up to 10% of PNI's
license capacity.
A bridge loan that was obtained and paid back by the Company during 1995
was guaranteed by five executive officers of the Company. In consideration
for the guarantee, such officers were issued 25,000 shares of common stock
of the Company.
(Continued)
F - 37
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
The Company paid approximately $2,264, $770 and $396 in legal fees in
1996, 1995 and 1994, respectively, to a firm having a member who is also a
director of the Company.
Under the Tomen facility, Tomen has the right to act as procurement agent
for each network project it finances. The Company has purchased equipment
through Tomen at competitive prices.
(13) GST USA
In August 1994, the Company formed a wholly-owned subsidiary, GST USA, and
transferred all U.S. assets, liabilities and operations into GST USA.
Selected financial information as at and for the years ended September 30,
1996 and 1995 are as follows:
Selected balance sheet information:
Year Year
ended ended
September 30, September 30,
1996 1995
--------- ---------
Current assets $ 77,506 $ 11,415
Non-current assets 168,882 60,006
--------- ---------
$ 246,388 $ 71,421
========= =========
Current liabilities $ 34,286 $ 13,712
Non-current liabilities 210,243 19,646
Minority interest 182 3,279
Share capital 66,520 44,471
Accumulated deficit (64,843) (9,687)
--------- ---------
$ 246,388 $ 71,421
========= =========
(Continued)
F - 38
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
Selected information from statement of operations:
Year Year
ended ended
September 30, September 30,
1996 1995
--------- ---------
Revenues $ 37,721 $ 18,681
Operating costs and expenses (77,590) (28,942)
--------- ---------
Loss from operations (39,869) (10,261)
Other expenses 15,625 (1,384)
--------- ---------
Loss before minority interest in loss
of subsidiaries and income tax (55,494) (11,645)
Income tax expense (72) (166)
--------- ---------
Loss before minority interest in loss
of subsidiaries (55,566) (11,811)
Minority interest in loss of subsidiaries 411 2,364
--------- ---------
Net loss $ (55,155) (9,447)
========= =========
(Continued)
F - 39
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
Selected information from statement of cash flows:
Year Year
ended ended
September 30, September 30,
1996 1995
--------- ---------
Operations:
Loss for the year $ (55,155) $ (9,447)
Items not involving cash 29,256 1,590
Changes in non-cash operating working capital (6,400) (3,419)
--------- ---------
Cash used in operations (32,299) (11,276)
Investing (105,090) (29,684)
Financing 174,915 43,544
--------- ---------
Increase in cash and cash equivalent s 37,526 2,584
Cash and cash equivalents, beginning of year 3,894 1,310
--------- ---------
Cash and cash equivalents, end of year $ 41,420 $ 3,894
========= =========
(Continued)
F - 40
<PAGE>
GST TELECOMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
(In U.S. Dollars)
(14) SUBSEQUENT EVENTS
SPECIAL WARRANTS OFFERING
On October 22, 1996, the Company completed a private placement to non-U.S.
investors of 2,000,000 Special Warrants at a purchase price of U.S.
$11.125 per Special Warrant. The Special Warrants become exercisable by
holders for no additional consideration upon the later to occur of (i) the
date upon which approval for a final Canadian prospectus qualifying the
common shares and share purchase warrants (the Underlying Warrants)
issuable upon exercise of the Special Warrants is received from the
securities commission of each of the Canadian provinces where the Special
Warrants were sold and (ii) the date that a registration statement filed
with the Securities and Exchange Commission registering the resale of the
common shares issuable upon exercise of the Special Warrants and
Underlying Warrants is declared effective, but in any event, no later than
September 22, 1997. Each Special Warrant is exercisable for one common
share and one-half of one Underlying Warrant. Each full Underlying Warrant
entitles the holder to purchase one additional common share for a purchase
price of U.S. $13.00 for one year from the date of issuance. In the event
that the requisite regulatory approvals of the Canadian Prospectus are not
received by the Company and the U.S. Registration Statement is not
declared effective, in each case by February 19, 1997, then each Special
Warrant will become exercisable for 1.1 common shares and one-half of one
Underlying Warrant.
The Company received U.S. $9,690,000, constituting 50% of the aggregate
purchase price of the Special Warrants (net of placement agency fees and
expenses), on October 22, 1996. The balance of the net purchase price of
Special Warrants (U.S. $11,125,000) is being held in escrow and is payable
to the Company upon the earlier to occur of (x) the date of receipt of
final regulatory approval of a preliminary Canadian Prospectus from the
securities commissions of the applicable Canadian provinces and (y) the
initial filing of the U.S. Registration Statement with the Commission, in
each case covering the resale of the Common Shares issuable upon exercise
of the Special Warrants and the Underlying Warrants.
NACT PUBLIC OFFERING
The Board of Directors of NACT has authorized the filing of a registration
statement with the Securities and Exchange Commission permitting NACT to
sell shares of its common stock to the public.
F - 41
<PAGE>
EXHIBIT INDEX
EXHIBIT
*3(a) Certificate of Incorporation of the Company, as amended to date.
*3(b) By-Laws of the Company as amended to date.
4(a) Senior Notes Indenture dated as of December 19, 1995, by and among GST
USA, Inc., the Company and United States Trust Company of New York,
incorporated by reference to Exhibit 2.3 to the Company's Form 20-F for
the fiscal year ended September 30, 1995 (the "1995 Form 20- F").
4(b) Convertible Notes Indenture dated as of December 19, 1995, by and among
the Company, GST USA, Inc. and United States Trust Company of New York,
incorporated by reference to Exhibit 2.4 to the 1995 Form 20-F.
*10(a) 1995 Stock Option Plan of the Company, as amended to date.
*10(b) 1996 Stock Option Plan of the Company, as amended to date.
*10(c) 1996 Employee Stock Purchase Plan of the Company.
*10(d) 1996 Senior Executive Officer Stock Option Plan of the Company.
*10(e) 1996 Senior Operating Officer Stock Option Plan of the Company.
10(f) Amended and Restated Credit Agreement dated as of April 26, 1995, by
and between GST Pacific Lightwave, Inc. and Tomen America Inc.,
incorporated by reference to Exhibit 1.2 to the 1995 Form 20-F
10(g) Stock Purchase Agreement dated as of May 1, 1995, by and between GST
Net, Inc. and Stanley M. Nolte, incorporated by reference to Exhibit
2.1 to the 1995 Form 20-F
10(h) Senior Notes Registration Rights Agreement dated December 19, 1995, by
and among GST USA, Inc., the Company, the Specified Subsidiaries named
therein and Morgan Stanley & Co. Incorporated, incorporated by
reference to Exhibit 2.5 to the 1995 Form 20-F
10(i) Convertible Notes Registration Rights Agreement dated December 19,
1995, by and among GST USA, Inc., the Company, the Specified
Subsidiaries named therein and Morgan Stanley & Co. Incorporated,
incorporated by reference to Exhibit 2.6 to the 1995 Form 20-F
10(j) Agreement and Plan of Merger, dated September 27, 1996 (the "Merger
Agreement"), by and among TotalNet Communications Inc. ("TotalNet"),
GST Newco of Texas, Inc. and the Company, incorporated by reference to
Exhibit 2.1 to the Company's Form 8-K dated October 17, 1996 (the "Form
8-K")
10(k) Letter dated October 17, 1996 amending the Merger Agreement among the
Company, GST Newco of Texas, Inc., and TotalNet, incorporated by
reference to Exhibit 2.2 to the Form 8-K
*10(l) Amended and Restated Master Agreement dated as of May 24, 1996, by and
among Tomen America Inc., the Company, GST Telecom Inc., GST Pacific
Lightwave, Inc., Pacwest Network L.L.C., Pacwest Network Inc., GST
Tucson Lightwave, Inc. and GST New Mexico Lightwave, Inc.
*10(m) Amendment No. 2 to GST Telecommunications, Inc. Common Stock Purchase
Agreement dated as of May 24, 1996, by and among the Company, Tomen
America Inc. and Tomen Corporation.
*10(n) Credit Agreement dated as of May 24, 1996, by and between GST New
Mexico Lightwave, Inc. and TM Communications LLC.
*10(o) Credit Agreement dated as of May 24, 1996, by and between GST Tucson
Lightwave, Inc. and TM Communications LLC.
*10(p) Amended and Restated Consulting Agreement dated as of September 1,
1995, by and between Sunwest Ventures, Inc. and GST USA, Inc. and GST
Telecom.
*10(q) Personal Services Agreement dated as of October 1, 1995, by and between
GST USA, Inc. and GST Telecom Inc. and Stephen Irwin.
*10(r) Restated and Amended Employment Agreement dated as of September 1,
1995, by and between GST USA, Inc. and GST Telecom Inc. and John Warta.
*10(s) Restated and Amended Employment Agreement dated as of September 1,
1995, by and between GST USA, Inc. and GST Telecom Inc. and Robert H.
Hanson.
<PAGE>
*10(t) Amended and Restated Employment Agreement dated as of September 1,
1995, by and between GST USA, Inc. and GST Telecom Inc. and Clifford V.
Sander.
*10(u) Agreement and Plan of Merger dated as of September 26, 1996 by and
among Call America Business Communications Corporation, Call America
Business Communications of Fresno, Inc., Call America Business
Communications of Bakersfield, Inc., the shareholders of such
companies, GST Newco of California, Inc., and the Company.
*10(v) Equipment Loan and Security Agreement dated December 19, 1996 by and
between NTFS Capital Corporation and GST Equipco.
*21 Subsidiaries of the Company.
*23 Consent to the incorporation by reference in the Company's Registration
Statements on Forms S-3 and S-8 of the independent auditors' report
included herein.
*27 Financial Data Schedule.
- -----------------------------------------------------
* Filed herewith.
<TABLE>
<CAPTION>
<S> <C>
Consumer and FORM 7
Corporate Affairs Canada RESTATED ARTICLES OF
ORIGINAL FORWARDED FOR INCORPORATION
Canada Business FILING ON: APR 2 1996 (SECTION 180)
Corporations Act BY:
- -----------------------------------------------------------------------------------------------------------------------------------
1 - Name of Corporation
GST TELECOMMUNICATIONS, INC. Corporation No. 218171-1
- -----------------------------------------------------------------------------------------------------------------------------------
2 - The place in Canada where the registered office is situated
Greater Vancouver Regional District
- -----------------------------------------------------------------------------------------------------------------------------------
3 - The classes and any maximum number of shares that the Corporation is authorized to issue
An unlimited number of Common Shares and 10,000,000 Preference Shares
- -----------------------------------------------------------------------------------------------------------------------------------
4 - Restrictions if any on share transfers
None
- -----------------------------------------------------------------------------------------------------------------------------------
5 - Number (or minimum or maximum number) of directors
Minimum of three - Maximum of 15
- -----------------------------------------------------------------------------------------------------------------------------------
6 - Restrictions if any on business the corporation may carry on
None
- -----------------------------------------------------------------------------------------------------------------------------------
7 - Other provisions if any
The Common Shares entitle holders to:
(a) vote at all meetings of shareholders except at meetings at which only
holders of Preference Shares are entitled to vote;
(b) receive the remaining property of the Corporation upon dissolution or
winding-up of the Corporation.
The Board of Directors, in their sole discretion and without further shareholder
approval, may:
(a) divide the Preference Shares into series and to fix the number of
shares in each series and the rights, privileges, restrictions and conditions of
the shares in each series; and
(b) change the rights, privileges, restrictions and conditions attached to
the unissued shares of any series of Preference Shares if none of the shares of
that series have been issued.
The Board of Directors may appoint, between annual general meetings, up to that
number of additional directors as is equal to one-third of the number of
directors elected at the previous annual general meeting.
Without in any way limiting the powers confered upon the Corporation and its
directors by the Canada Business Corporations Act, the directors may, from time
to time, in such amounts and on such terms as they deem expedient, charge,
mortgage, hypothecate, pledge, or grant any form of security interest in, all or
any of the currently owned or subsequently acquired property of the Corporation,
real or personal, moveable or immoveable, including its undertaking, book debts,
rights, powers and franchises, to secure any debt obligation or any money
borrowed or other debt or liability of the Corporation.
The Corporation may purchase or otherwise acquire shares issued by it.
- -----------------------------------------------------------------------------------------------------------------------------------
The foregoing restated articles of incorporation correctly set out, without
substantive change, the corresponding provisions of the articles of
incorporation, as amended and supercede the original articles of incorporation.
- -----------------------------------------------------------------------------------------------------------------------------------
Signature Date FOR DEPARTMENTAL USE ONLY -
/s/ Michael F. Provenzano March 26, 1996 Filed
- -------------------------------------------------------------------------------------------------------
Description of Office
Assistant Secretary
===================================================================================================================================
<PAGE>
Consumer and FORM 4
Corporate Affairs Canada ARTICLES OF AMENDMENT
ORIGINAL FORWARDED FOR (SECTION 27 OR 171)
Canada Business FILING ON: APR 2 1996
Corporations Act BY:
- -----------------------------------------------------------------------------------------------------------------------------------
1 - Name of Corporation 2 - Corporation No.
GST TELECOMMUNICATIONS, INC. 218171-1
- -----------------------------------------------------------------------------------------------------------------------------------
3 - The articles of the above-named corporation are amended as follows:
Replace paragraph 3 with the following:
An unlimited number of Common Shares and
10,000,000 Preference Shares.
Replace paragraph 5 with the following:
Minimum of three - Maximum of 15.
Add to the existing paragraph 7:
The Board of Directors, in their sole discretion and without further shareholder approval, may:
(a) divide the Preference Shares into series and to fix the number of shares in each series and the rights,
privileges, restrictions and conditions of the shares in each series;
(b) change the rights, privileges, restrictions and conditions attached to the unissued shares of any series
of Preference Shares if none of the shares of that series have been issued:
- ----------------------------------------------------------------------------------------------------------------------------------
Date Signature Description of Office
March 26, 1996 /s/ Michael F. Provenzano Assistant Secretary
- ----------------------------------------------------------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY
Filed
---------------------------------
</TABLE>
BY-LAW NO. 1
of
GREENSTAR RESOURCES LTD.
TABLE OF CONTENTS
HEADING SECTION PAGE
------- ------- ----
INTERPRETATION 1 1
DIRECTORS 2 - 6 2
MEETINGS OF DIRECTORS 7 - 11 4
RENUMERATION OF DIRECTORS 12 5
SUBMISSION OF CONTRACTS OR 13 5
TRANSACTIONS TO SHAREHOLDERS
FOR APPROVAL
FOR THE PROTECTION OF 14 - 15 6
DIRECTORS AND OFFICERS
INDEMNITIES TO DIRECTORS 16 7
AND OFFICERS
OFFICERS 17 - 30 8
SHAREHOLDERS' MEETINGS 31 - 40 11
SHARES 41 - 42 15
TRANSFER OF SECURITIES 43 - 46 16
DIVIDENDS 47 17
VOTING SHARES AND 48 18
SECURITIES IN OTHER COMPANIES
INFORMATION AVAILABLE TO 49 - 50 18
SHAREHOLDERS
NOTICES 51 - 57 19
CHEQUES, DRAFTS AND NOTES 58 20
CUSTODY OF SECURITIES 59 21
EXECUTION OF INSTRUMENTS 60 21
FINANCIAL YEAR 61 23
<PAGE>
BY-LAW NO. 1
A by-law relating generally to the conduct of the
affairs of GREENSTAR RESOURCES LTD.
BE IT ENACTED AND IT IS HEREBY ENACTED as a
by-law of GREENSTAR RESOURCES LTD.
(hereinafter called the *Corporation") as
follows:
INTERPRETATION
1. In this by-law and all other by-laws of the Corporation, unless the
context otherwise specifies or requires:
(a) "Act" means the Canada Business Corporations Act, S.C. 1985, c.44
as from time to time amended and every statute that may be substituted therefor
and, in the case of such substitution, any references in the by-laws of the
Corporation to provisions of the Act shall be read as references to the
substituted provisions therefor in the new statute or statutes;
(b) "Regulations" means the Regulations under the Act as published or
from time to time amended and every regulation that may be substituted therefor
and, in the case of such substitution, any references in the by-laws of the
Corporation to provisions of the Regulations shall be read as references to the
substituted provisions therefor in the new regulations;
(c) "by-laws" means any by-law of the Corporation from time to time in
force and effect;
(d) all terms which are contained in the by-laws of the Corporation and
which are defined in the Act or the Regulations shall have the meanings given to
such terms in the Act or the Regulations; and
(e) the singular shall include the plural and the plural shall include
the singular; the masculine shall include the feminine; and the word "person"
shall include bodies corporate, corporations, companies, partnerships,
syndicates, trusts and any number or aggregate of persons.
<PAGE>
-2-
DIRECTORS
2. Number: Subject to the articles of the Corporation and any unanimous
shareholder agreement, the business and affairs of the Corporation shall be
managed by a board of directors consisting of not less than one nor more than
fifteen directors except if any of the issued securities of the Corporation are
or were a part of a distribution to the public, the board of directors shall
consist of not less than three directors, at least two of whom are not officers
or employees of the Corporation or any affiliate of the Corporation.
3. Term of Office: A director's term of office (subject to the
provisions, if any, of the articles of the Corporation and to the provisions of
the Act) shall be from the date on which he is elected or appointed until the
annual meeting next following.
4. Vacation of Office: The office of a director shall ipso facto be
vacated: (a) if he becomes bankrupt or suspends payments of his debts generally
or compounds with his creditors or makes an authorized assignment or is declared
insolvent; (b) if he is found to be a mentally incompetent person; or (c) if by
notice in writing to the Corporation he resigns his office. Any such resignation
shall be effective at the time it is sent to the Corporation or at the time
specified in the notice, whichever is later.
5. Election and Removal: Directors shall be elected by the shareholders
on a show of hands unless a ballot is demanded in which case such election shall
be by ballot. The whole board shall retire at the annual meeting at which the
yearly election of directors is to take place but, if qualified, any retiring
director shall be eligible for re-election provided always that the shareholders
of the Corporation may, by ordinary resolution passed at a special meeting of
shareholders, remove any director or directors from office and a vacancy created
by the removal of a director may be filled at the meeting of the shareholders at
which the director is removed.
5(a). Filling a vacancy: Subject to the Act, a quorum of the board may
fill a vacancy in the board, except a vacancy resulting from an increase in the
minimum number of directors or from a failure of the shareholders to elect the
minimum number of directors. In the absence of a quorum of the board, or if the
vacancy has arisen from a failure of the shareholders to elect the minimum
number of directors, the board shall forthwith call a special meeting of
shareholders to fill the vacancy. If the board fails to call such meeting or if
there are no directors then in office, any shareholder may call the meeting.
<PAGE>
-3-
6. Committee of Directors: The directors may appoint from among their,
number a committee of directors and subject to section 115 of the Act may
delegate to such committee any of the powers of the directors.
6(a). Alternate Directors. Any Director may by instrument in writing
delivered to the Corporation appoint any person to be his alternate to act in
his place at meetings of the Directors at which he is not present unless the
Directors shall have reasonably disapproved the appointment of such person as an
alternate Director and shall have given notice to that effect to the Director
appointing the alternate Director within a reasonable time after delivery of
such instrument to the Corporation. Every such alternate shall be entitled to
notice of meetings of the Directors and to attend and vote as a Director at a
meeting at which the person appointing him is not personally present. A person
may be appointed as an alternate Director by more than one Director, and an
alternate Director shall be counted separately in determining the quorum for,
and having a separate vote on behalf of, each Director he is representing, in
addition to being so counted and voting where he is himself a Director. Every
alternate Director, if authorized by the instrument appointing them, may sign in
place of the Director who appointed him resolutions submitted to the Directors
to be consented to in writing as referred to in paragraph 11 of this by-law.
Every alternate Director shall be deemed not to be the agent of a Director
appointing him. An alternate Director shall be deemed to be a Director for all
purposes of this by-Law in the performance of any function authorized under this
paragraph 6(a), but shall not otherwise be deemed to be a Director or to have
power to act as a Director. A Director may at any time by instrument, telegram,
telex or any method of transmitting legibly recorded messages delivered to the
Corporation revoke the appointment of an alternate appointed by him. An
alternate Director may be repaid by the Corporation such expenses as might
properly be repaid to him if he were a Director and he shall be entitled to
receive from the Corporation such proportion, if any, of the remuneration
otherwise payable to the Director appointing him as such Director may from time
to time direct.
<PAGE>
-4-
MEETINGS OF DIRECTORS
7. Place of Meeting: Meetings of the board of directors and of the
committee of directors (if any) may be held within or outside Canada.
8. Notice: A meeting of directors may be convened by the Chairman of
the Board, the Vice-Chairman of the Board, the Managing Director, the President
if he is a director, a Vice-President who is a director or any two directors at
any time, when directed or authorized by any of such officers or any two
directors, shall convene a meeting of directors. Subject to subsection 114(5) of
the Act the notice of any such meeting need not specify the purpose of or the
business to be transacted at the meeting. Notice of any such meeting shall be
served in the manner specified in paragraph 51 of this by-law not less than two
days (exclusive of the day on which the notice is delivered or sent but
inclusive of the day for which notice is given) before the meeting is to take
place; provided always that a director may in any manner waive notice of a
meeting of directors and attendance of a director at a meeting of directors
shall constitute a waiver of notice of the meeting except where a director
attends a meeting for the express purpose of objecting to the transaction of any
business on the grounds that the meeting is not lawfully called.
For the first meeting of the board of directors to be held immediately
following the election of directors by the shareholders for a meeting of the
board of directors at which a director is appointed to fill a vacancy in the
board, no notice of such meeting shall be necessary to the newly elected or
appointed director or directors in order to legally constitute the meeting,
provided that a quorum of the directors is present.
9. Quorum: A majority of the directors shall form a quorum for the
transaction of business and, notwithstanding any vacancy among the directors, a
quorum of directors may exercise all the powers of directors. No business shall
be transacted at a meeting of directors, unless a quorum of the board is
present.
<PAGE>
-5-
A director may, if all the directors of the Corporation consent,
participate in a meeting of directors or of the committee of directors (if any)
by means of such telephone or other communications facilities as permit all
persons participating in the meeting to hear each other and a director
participating in such a meeting by such means is deemed to be present at that
meeting.
10. Voting: Questions arising at any meeting of the Board of directors
shall be decided by a majority of votes. In case of an equality of votes the
chairman of the meeting in addition to his original vote shall not have a second
or casting vote.
11. Resolution in lieu of meeting: Notwithstanding any of the foregoing
provisions of this by-law a resolution in writing signed by all the directors
entitled to vote on that resolution at a meeting of the directors or the
committee of directors (if any) is as valid as if it had been passed at a
meeting of the directors or the committee of directors (if any).
REMUNERATION OF DIRECTORS
12. The remuneration to be paid to the directors shall be such as the
board of directors shall from time to time determine and such remuneration shall
be in addition to the salary paid to any officer or employee of the Corporation
who is also a member of the board of directors. The directors may also award
special remuneration to any director undertaking any special services on the
Corporation's behalf other than the routine work ordinarily required of a
director by the Corporation and the confirmation of any such resolution or
resolutions by the shareholders shall not be required. The directors shall also
be entitled to be paid their travelling and other expenses properly incurred by
them in connection with the affairs of the Corporation.
SUBMISSION OF CONTRACTS OR TRANSACTIONS
TO SHAREHOLDERS FOR APPROVAL
13. The board of directors in its discretion may submit any contract,
act or transaction for approval or ratification at any annual meeting of the
shareholders or at any special meeting of the shareholders called for the
purpose of considering the same and, subject to the provisions of section 120 of
the Act, any such contract, act or transaction that shall be approved or
ratified or confirmed by a resolution passed by a majority of the votes cast at
any such meeting (unless any different or additional requirement is imposed by
the Act or by the Corporation's articles or any other by-law) shall be as valid
and as binding upon the Corporation and upon all the shareholders as though it
had been approved, ratified or confirmed by every shareholder of the
Corporation.
<PAGE>
-6-
FOR THE PROTECTION OF DIRECTORS AND OFFICERS
14. In supplement of and not by way of limitation upon any rights
conferred upon directors by section 120 of the Act, it is declared that no
director shall be disqualified by his office from, or vacate his office by
reason of, holding any office or place of profit under the Corporation or under
any body corporate in which the Corporation shall be a shareholder or by reason
of being otherwise in any way directly or indirectly interested or contracting
with the Corporation either as vendor, purchaser or otherwise or being concerned
in any contract or arrangement made or proposed to be entered into with the
Corporation in which he is in any way directly or indirectly interested either
as vendor, purchaser or otherwise nor shall any director be liable to account to
the Corporation or any of its shareholders or creditors for any profit arising
from any such office or place of profit; and, subject to the provisions of
section 120 of the Act, no contract or arrangement entered into by or on behalf
of the Corporation in which any director shall be in any way directly or
indirectly interested shall be avoided or voidable and no director shall be
liable to account to the Corporation or any of its shareholders or creditors for
any profit realized by or from any such contract or arrangement by reason of any
fiduciary relationship. Subject to the provisions of section 120 of the Act, no
director or officer shall be obliged to make any declaration of interest in
respect of a contract or proposed contract with the Corporation in which such
director or officer is in any way directly or indirectly interested nor shall
any director be obliged to refrain from voting in respect of any such contract.
<PAGE>
-7-
15. Except as otherwise provided in the Act, no director or officer for
the time being of the Corporation shall be liable for the acts, receipts,
neglects or defaults of any other director or officer or employee or for joining
in any receipt or act for conformity or for any loss, damage or expense
happening to the Corporation through the insufficiency or deficiency of title to
any property acquired by the Corporation or for or on behalf of the Corporation
or for the insufficiency or deficiency of any security in or upon which any of
the moneys of or belonging to the Corporation shall be placed out or invested or
for any loss or damage arising from the bankruptcy, insolvency or tortious act
of any person, firm or corporation including any person, firm or corporation
with whom or which any moneys, securities or effects shall be lodged or
deposited or for any loss, conversion, misapplication or misappropriation of or
any damage resulting from any dealings with any moneys, securities or other
assets belonging to the Corporation or for any other loss, damage or misfortune
whatever which may happen in the execution of the duties of his respective
office or trust or in relation thereto unless the same shall happen by or
through his failure to exercise the powers and to discharge the duties of his
office honestly and in good faith with a view to the best interests of the
Corporation and in connection therewith to exercise the care, diligence and
skill that a reasonably prudent person would exercise in comparable
circumstances. The directors for the time being of the Corporation shall not be
under any duty or responsibility in respect of any contract, act or transaction
whether or not made, done or entered into in the name or on behalf of the
Corporation, except such as shall have been submitted to and authorized or
approved by the board of directors. If any director or officer of the
Corporation shall be employed by or shall perform services for the Corporation
otherwise than as a director or officer or shall be a member of a firm or a
shareholder, director or officer of a company which is employed by or performs
services for the Corporation, the fact of his being a director or officer of the
Corporation shall not disentitle such director or officer or such firm or
company, as the case may be, from receiving proper remuneration for such
services.
INDEMNITIES TO DIRECTORS AND OFFICERS
16. Subject to section 124 of the Act, every director and officer of
the Corporation and his heirs, executors, administrators and other legal
personal representatives, shall from time to time be indemnified and saved
harmless by the Corporation from and against,
(a) any liability and all costs, charges and expenses that he sustains
or incurs in respect of any action, suit or proceeding that is proposed or
commenced against him for or in respect of anything done or permitted by him in
respect of the execution of the duties of his office; and
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(b) all other costs, charges and expenses that he sustains or incurs in
respect of the affairs of the Corporation.
OFFICERS
17. Appointment: The board of directors shall annually or as often as
may be required appoint a President and a Secretary and, if deemed advisable,
may annually or as often as may be required appoint a Chairman of the Board, a
Vice-Chairman of the Board, a Managing Director, one or more Vice-Presidents,
a Treasurer, one or more Assistant Secretaries and/or one or more Assistant
Treasurers. A Director may be appointed to any office of the Corporation but
none of the officers except the Chairman of the Board, the Vice-Chairman of the
Board and the Managing Director need be a member of the board of directors. Two
or more of the aforesaid offices may be held by the same person. In case and
whenever the same person holds the offices of Secretary and Treasurer he may but
need not be known as the Secretary-Treasurer. The board may from time to time
appoint such other officers and agents as it shall deem necessary who shall have
such authority and shall perform such duties as may from time to time be
prescribed by the board of directors.
18. Remuneration and Removal: The remuneration of all officers
appointed by the board of directors shall be determined from time to time by
resolution of the board of directors. The fact that any officer or employee is a
director or shareholder of the Corporation shall not disqualify him from
receiving such remuneration as may be determined. All officers, in the absence
of agreement to the contrary, shall be subject to removal by resolution of the
board of directors at any time, with or without cause.
19. Powers and Duties: All officers shall sign such contracts,
documents or instruments in writing as require their respective signatures and
shall respectively have and perform all powers and duties incident to their
respective offices and such other powers and duties respectively as may from
time to time be assigned to them by the board.
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20. Duties may be delegated: In case of the absence or inability to act
of any officer of the Corporation except the Managing Director or for any other
reason that the board of directors may deem sufficient the board of directors
may delegate all or any of the powers of such officer to any other officer or to
any director for the time being.
21. Chairman of the Board: The Chairman of the Board (if any) shall,
when present, preside at all meetings of the board of directors, the committee
of directors (if any) and the shareholders.
22. Vice-Chairman of the Board: If the Chairman of the Board is absent
or is unable or refuses to act, the Vice-Chairman of the Board (if any) shall,
when present, preside at all meetings of the board of directors, the committee
of directors (if any) and the shareholders.
23. Managing Director: The Managing Director shall be a resident
Canadian and shall exercise such powers and have such authority as may be
delegated to him by the board of directors in accordance with the provisions of
section 115 of the Act.
24. President: The President shall be the chief executive officer of
the Corporation. He shall be vested with and may exercise all the powers and
shall perform all the duties of the Chairman of the Board and/or Vice-Chairman
of the Board if none be appointed or if the Chairman of the Board and the
Vice-Chairman of the Board are absent or are unable or refuse to act; provided,
however, that unless he is a director he shall not preside as chairman at any
meeting of directors or of the committee of directors (if any) or, subject to
paragraph 37 of this by-law, at any meeting of shareholders.
25. Vice-President: The Vice-President or, if more than one, the
Vice-Presidents, in order of seniority, shall be vested with all the powers and
shall perform all the duties of the President in the absence or inability or
refusal to act of the President; provided, however, that a Vice-President who is
not a director shall not preside as chairman at any meeting of directors or of
the committee of directors (if any) or, subject to paragraph 37 of this by-law,
at any meeting of shareholders.
26. Secretary: The Secretary shall give or cause to be given notices
for all meetings of the board of directors, the committee of directors (if any)
and the shareholders when directed to do so and shall have charge of the minute
books of the Corporation and, subject to the provisions of paragaph 43 of this
by-law, of the records (other than accounting records) referred to in section 20
of the Act.
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27. Treasurer: Subject to the provisions of any resolution of the board
of directors, the Treasurer shall have the care and custody of all the funds and
securities of the Corporation and shall deposit the same in the name of the
Corporation in such bank or banks or with such other depositary or depositories
as the board of directors may direct. He shall keep or cause to be kept the
accounting records referred to in section 20 of the Act. He may be required to
give such bond for the faithful performance of his duties as the board of
directors in its uncontrolled discretion may require but no director shall be
liable for failure to require any such bond or for the insufficiency of any such
bond or for any loss by reason of the failure of the Corporation to receive any
indemnity thereby provided.
28. Assistant Secretary and Assistant Treasurer: The Assistant
Secretary or, if more than one, the Assistant Secretaries in order of seniority,
and the Assistant Treasurer or, if more than one, the Assistant Treasurers in
order of seniority, shall respectively perform all the duties of the Secretary
and the Treasurer, respectively, in the absence or inability or refusal to act
of the Secretary or the Treasurer, as the case may be.
29. General Manager or Manager: The board of directors may from time to
time appoint one or more General Managers or Managers and may delegate to him or
them full powers to manage and direct the business and affairs of the
Corporation (except such matters and duties as by-law must be transacted or
performed by the board of directors and/or by the shareholders) and to employ
and discharge agents and employees of the Corporation or may delegate to him or
them any lesser authority. A General Manager or Manager shall conform to all
lawful orders given to him by the board of directors of the Corporation and
shall at all reasonable times give to the directors or any of them all
information they may require regarding the affairs of the Corporation. Any agent
or employee appointed by a General Manager or Manager shall be subject to
discharge by the board of directors.
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30. Vacancies: If the office of any officer of the Corporation shall be
or become vacant by reason of death, resignation, disqualification or otherwise,
the directors by resolution shall, in the case of the President or the
Secretary, and may, in the case of any other office, appoint a person to fill
such vacancy.
SHAREHOLDERS' MEETINGS
31. Annual Meeting: Subject to the provisions of section 132 of the
Act, the annual meeting of the shareholders shall be held on such day in each
year and at such time as the directors may by resolution determine at any place
within Canada or, if all the shareholders entitled to vote at such meeting so
agree, outside Canada.
32. Special Meetings: Special meetings of the shareholders may be
convened by order of the Chairman of the Board, the Vice-Chairman of the Board,
the Managing Director, the President if he is a director, a Vice-President who
is a director or by the board of directors at any date and time and at any place
within Canada or, if all the shareholders entitled to vote at such meeting so
agree, outside Canada.
33. Notice: A printed, written or typewritten notice stating the day,
hour and place of meeting shall be given by serving such notice on each
shareholder entitled to vote at such meeting, on each director and on the
auditor of the Corporation in the manner specified in paragraph 51 of this
by-law, not less than twenty-one days or more than fifty days (in each case
exclusive of the day on which the notice is delivered or sent and of the day for
which notice is given) before the date of the meeting. Notice of a meeting at
which special business is to be transacted shall state (a) the nature of that
business in sufficient detail to permit the shareholder to form a reasoned
judgment thereon, and (b) the text of any special resolution to be submitted to
the meeting.
34. Waiver of Notice: A shareholder and any other person entitled to
attend a meeting of shareholders may in any manner waive notice of a meeting of
shareholders and attendance of any such person at a meeting of shareholders
shall constitute a waiver of notice of the meeting except where such person
attends a meeting for the express purpose of objecting to the transaction of any
business on the grounds that the meeting is not lawfully called.
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35. Omission of Notice: The accidental omission to give notice of any
meeting or any irregularity in the notice of any meeting or the non-receipt of
any notice by any shareholder or shareholders, director or directors or the
auditor of the Corporation shall not invalidate any resolution passed or any
proceedings taken at any meeting of shareholders.
36. Votes: Every question submitted to any meeting of shareholders
shall be decided in the first instance by a show of hands unless a person
entitled to vote at the meeting has demanded a ballot and in the case of an
equality of votes the chairman of the meeting shall neither on a show of hands
nor on a ballot have a second or casting vote in addition to the vote or votes
to which he may be otherwise entitled.
At any meeting unless a ballot is demanded, a declaration by the
chairman of the meeting that a resolution has been carried or carried
unanimously or by a particular majority or lost or not carried by a particular
majority shall be conclusive evidence of the fact.
In the event that the Chairman of the Board and the Vice-Chairman of
the Board are absent and the President is absent or is not a director and there
is no Vice-President present who is a director, the persons who are present and
entitled to vote shall choose another director as chairman of the meeting and if
no director is present or if all the directors present decline to take the chair
then the persons who are present and entitled to vote shall choose one of their
number to be chairman.
A ballot may be demanded either before or after any vote by show of
hands by any person entitled to vote at the meeting. If at any meeting a ballot
is demanded on the election of a chairman or on the question of adjournment it
shall be taken forthwith without adjournment. If at any meeting a ballot is
demanded on any other question or as to the election of directors, the vote
shall be taken by ballot in such manner and either at once, later in the meeting
or after adjournment as the chairman of the meeting directs. The result of a
ballot shall be deemed to be the resolution of the meeting at which the ballot
was demanded. A demand for a ballot may be withdrawn.
Where two or more persons hold the same share or shares jointly one of
those holders present at a meeting of shareholders may, in the absence of the
other or others, vote the share or shares but if two or more of those persons
who are present, in person or by proxy, vote, they shall vote as one on the
share or shares jointly held by them.
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37. Proxies: Votes at meetings of shareholders may be given either
personally or by proxy or, in the case of a shareholder who is a body corporate
or association, by an individual authorized by a resolution of the board of
directors or governing body of the body corporate or association to represent it
at meetings of shareholders of the Corporation. At every meeting at which he is
entitled to vote, every shareholder and/or person appointed by proxy and/or
individual so authorized to represent a shareholder who is present in person
shall have one vote on a show of hands. Upon a ballot at which he is entitled to
vote, every shareholder present in person or represented by proxy or by an
individual so authorized shall (subject to the provisions, if any, of the
articles of the Corporation) have one vote for every share held by him.
A proxy shall be executed by the shareholder or his attorney authorized
in writing and is valid only at the meeting in respect of which it is given or
any adjournment thereof.
A person appointed by proxy need not be a shareholder.
Subject to the provisions of Part IV of the Regulations, a proxy may be
in the following form:
The undersigned shareholder of...............
............................................. hereby
appoints.............................. of
........................., or failing him,
.......................................... of
.......................................... as the nominee
of the undersigned to attend and act for the undersigned
and on behalf of the undersigned at the
.......................... ..............................
meeting of the shareholders of the said Corporation to be
held on the ...... day of............ 19 ... and at any
adjournment or adjournments thereof in the same manner, to
the same extent and with the same powers as if the
undersigned were present at the said meeting or such
adjournment or adjournments thereof.
DATED this ............. day of ..........., 19 ...
.............................
Signature of Shareholder
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The directors may from time to time make regulations regarding the
lodging of proxies at some place or places other than the place at which a
meeting or adjourned meeting of shareholders is to be held and for particulars
of such proxies to be cabled or telegraphed or sent by telex or in writing
before the meeting or adjourned meeting to the Corporation or any agent of the
Corporation for the purpose of receiving such particulars and providing that
proxies so lodged may be voted upon as though the proxies themselves were
produced at the meeting or adjourned meeting and votes given in accordance with
such regulations shall be valid and shall be counted. The chairman of any
meeting of shareholders may, subject to any regulations made as aforesaid, in
his discretion accept telegraphic or cable or telex or written communication as
to the authority of any person claiming to vote on behalf of and to represent a
shareholder notwithstanding that no proxy conferring such authority has been
lodged with the Corporation, and any votes given in accordance with such
telegraphic or cable or telex or written communication accepted by the chairman
of the meeting shall be valid and shall be counted.
38. Adjournment: The chairman of any meeting may with the consent of
the meeting adjourn the same from time to time to a fixed time and place and no
notice of such adjournment need to given to the shareholders unless the meeting
is adjourned by one or more adjournments for an aggregate of thirty days or more
in which case notice of the adjourned meeting shall be given as for an original
meeting. Any business may be brought before or dealt with at any adjourned
meeting for which no notice is required which might have been brought before or
dealt with at the original meeting in accordance with the notice calling the
same.
39. Quorum: A quorum at any meeting of shareholders (unless a greater
number of persons are required to be present or a greater number of shares are
required to be represented by the Act or by the articles or any other by-law)
shall be persons present not being less than two in number and holding or
representing not less than five per cent of the total number of the issued
shares of the Corporation for the time being enjoying voting rights at such
meeting. No business shall be transacted at any meeting unless the requisite
quorum be present at the time of the transaction of such business. If a quorum
is not present at the opening of a meeting of shareholders, the persons present
and entitled to vote may adjourn the meeting to a fixed time and place but may
not transact any other business.
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40. Resolution in lieu of meeting: Notwithstanding any of the foregoing
provisions of this by-law a resolution in writing signed by all the shareholders
entitled to vote on that resolution at a meeting of the shareholders is, subject
to section 142 of the Act, as valid as if it had been passed at a meeting of the
shareholders.
SHARES
41. Allotment and Issuance: Subject to the provisions of section 25 of
the Act, shares in the capital of the Corporation may be allotted and issued by
resolution of the board of directors at such times and on such terms and
conditions and to such persons or class of persons as the board of directors
determines.
42. Certificates: Share certificates and the form of stock transfer
power on the reverse side thereof shall (subject to section 49 of the Act) be in
such form as the board of directors may by resolution approve and such
certificates shall be signed by the Chairman of the Board or the Vice-Chairman
of the Board or the Managing Director or the President or a Vice-President and
the Secretary or an Assistant Secretary holding office at the time of signing.
The signature of the Chairman of the Board, the Vice-Chairman of the
Board, the Managing Director, the President or a Vice-President may be printed,
engraved, lithographed or otherwise mechanically reproduced upon certificates
for shares of the Corporation. Certificates so signed shall be deemed to have
been manually signed by the Chairman of the Board, the Vice-Chairman of the
Board, the Managing Director, the President or the Vice-President whose
signature is so printed, engraved, lithographed or otherwise mechanically
reproduced thereon and shall be as valid to all intents and purposes as if they
have been signed manually. Where the Corporation has appointed a registrar,
transfer agent or branch transfer agent for the shares (or for the shares of any
class or classes) of the Corporation the signature of the Secretary or Assistant
Secretary may also be printed, engraved, lithographed or otherwise mechanically
reproduced on certificates representing the shares (or the shares of the class
or classes in respect of which any such appointment has been made) of the
Corporation and when countersigned by or on behalf of a registrar, transfer
agent or branch transfer agent such certificates so signed shall be as valid to
all intents and purposes as if they had been signed manually. A share
certificate containing the signature of a person which is printed, engraved,
lithographed or otherwise mechanically reproduced thereon may be issued
notwithstanding that the person has ceased to be an officer of the Corporation
and shall be as valid as if he were an officer at the date of its issue.
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42(a). If a share certificate
(i) is worn out or defaced, the Directors shall, upon production to
them of the said certificate and upon such other terms, if any, as they may
think fit, order the said certificate to be cancelled and shall issue a new
certificate in lieu thereof;
(ii) is lost, stolen or destroyed, then, upon proof thereof to the
satisfaction of the Directors and upon such indemnity, if any, as the Director
deem adequate being given, a new share certificate in lieu thereof shall be
issued to the person entitled to such lost, stolen or destroyed certificate; or
(iii) represents more than one share and the registered owner thereof
surrenders it to the Corporation with a written request that the Corporation
issue in his name two or more certificates each representing a specified number
of shares and in the aggregate representing the same number of shares as the
certificate so surrendered, the Corporation shall cancel the certificate so
surrendered and issue in lieu thereof certificates in accordance with such
request.
Such sum as the Directors may from time to time fix shall be paid to
the Corporation for each certificate to be issued as aforesaid.
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TRANSFER OF SECURITIES
43. Transfer Agent and Registrar: The directors may from time to time
by resolution appoint or remove one or more transfer agents and/or branch
transfer agents and/or registrars and/or branch registrars (which may or may not
be the same individual or body corporate) for the securities issued by the
Corporation in registered form (or for such securities of any class or classes)
and may provide for the registration of transfers of such securities (or such
securities of any class or classes) in one or more places and such transfer
agents and/or branch transfer agents and/or registrars and/or branch registrars
shall keep all necessary books and registers of the Corporation for the
registering of such securities (or such securities of the class or classes in
respect of which any such appointment has been made). In the event of any such
appointment in respect of the shares (or the shares of any class or classes) of
the Corporation, all share certificates issued by the Corporation in respect of
the shares (or the shares of the class or classes in respect of which and such
appointment has been made) of the Corporation shall be countersigned by or on
behalf of one of the said transfer agents and/or branch transfer agents and by
or on behalf of one of the said registrars and/or branch registrars, if any.
44. Securities Registers: A central securities register of the
Corporation shall be kept at the registered office of the Corporation or at such
other office or place in Canada as may from time to time be designated by
resolution of the board of directors and a branch securities register or
registers may be kept at such office or offices of the Corporation or other
place or places, either in or outside Canada, as may from time to time be
designated by resolution of the directors.
45. Surrender of Certificates: Subject to subparagraph 42(a)(ii) of
this by-law no transfer of shares shall be recorded or registered unless or
until the certificate representing the shares to be transferred has been
surrendered and cancelled.
46. Shareholder indebted to the Corporation: If so provided in the
articles of the Corporation, the Corporation has a lien on a share registered in
the name of a shareholder or his legal representative for a debt of that
shareholder to the Corporation. By way of enforcement of such lien the directors
may refuse to permit the registration of a transfer of such share.
DIVIDENDS
47. The directors may from time to time by resolution declare and the
Corporation may pay dividends on the issued and outstanding shares in the
capital of the Corporation subject to the provisions (if any) of the articles of
the Corporation.
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In case several persons are registered as the joint holders of any
shares, any one of such Persons may give effectual receipts for all dividends
and payments on account of dividends and/or redemption of shares (if any)
subject to redemption.
VOTING SHARES AND SECURITIES IN OTHER COMPANIES
48. All of the shares or other securities carrying voting rights of
any other body corporate held from time to time by the Corporation may be voted
at any and all meetings of shareholders, bondholders, debenture holders or
holders of other securities (as the case may be) of such other body corporate
and in such manner and by such person or persons as the board of directors of
the Corporation shall from time to time determine. The proper signing officers
of the Corporation may also from time to time execute and deliver for and on
behalf of the Corporation proxies and/or arrange for the issuance of voting
certificates and/or other evidence of the right to vote in such names as they
may determine without the necessity of a resolution or other action by the board
of directors.
INFORMATION AVAILABLE TO SHAREHOLDERS
49. Except as provided by the Act, no shareholder shall be entitled to
discovery of any information respecting any details or conduct of the
Corporation's business which in the opinion of the directors it would be
inexpedient in the interests of the Corporation to communicate to the public.
50. The directors may from time to time, subject to rights conferred by
the Act, determine whether and to what extent and at what time and place and
under what conditions or regulations the documents, books and registers and
accounting records of the Corporation or any of them shall be open to the
inspection of shareholders and no shareholder shall have any right to inspect
any document or book or register or accounting record of the Corporation except
as conferred by statute or authorized by the board of directors or by a
resolution of the shareholders.
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NOTICES
51. Service: Any notice or other document required by the Act, the
Regulations, the articles or the by-laws to be sent to any shareholder or
director or to the auditor shall be delivered personally or sent by prepaid mail
or by telegram or cable or telex to any such shareholder at his latest address
as shown in the records of the Corporation or its transfer agent and to any such
director at his latest address as shown in the records of the Corporation or in
the last notice filed under section 106 or 113 of the Act, and to the auditor at
his business address; provided always that notice may be waived or the time for
the notice may be waived or abridged at any time with the consent in writing of
the person entitled thereto. If a notice or document is sent to a shareholder by
prepaid mail in accordance with this paragraph and the notice or document is
returned on three consecutive occasions because the shareholder cannot be found
it shall not be necessary to send any further notices or documents to the
shareholder until he informs the Corporation in writing of his new address.
52. Shares registered in more than one name: All notices or other
documents with respect to any shares registered in more than one name shall be
given to whichever of such persons is named first in the records of the
Corporation and any notice or other document so given shall be sufficient notice
or delivery to all the holders of such shares.
53. Persons becoming entitled to operation of law: Subject to section
51 of the Act, every person who by operation of law, transfer or by any other
means whatsoever shall become entitled to any share or shares shall be bound by
every notice or other document in respect of such share or shares which,
previous to his name and address being entered in the records of the
Corporation, shall be duly given to the person or persons from whom he derives
his title to such share or shares.
54. Deceased Shareholders: Subject to section 51 of the Act, any notice
or other document delivered or sent by post, telegram or telex or left at the
address of any shareholder as the same appears in the records of the Corporation
shall, notwithstanding that such shareholder be then deceased, and whether or
not the Corporation has notice of his decease, be deemed to have been duly
served in respect of the shares held by such shareholder (whether held solely or
with any other person or persons) until some other person be entered in his
stead in the records of the Corporation as the holder or one of the holders
thereof and such sevice shall for all purposes be deemed a sufficient service of
such notice or document on his heirs, executors or administrators and on all
persons, if any, interested with him in such shares.
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55. Signature to notices: The signature of any director or officer of
the Corporation to any notice or document to be given by the Corporation may be
written, stamped, typewritten or printed or partly written, stamped, typewritten
or printed.
56. Computation of time: Where a given number of days' notice or notice
extending over a period is required to be given under any provisions of the
articles or by-laws of the Corporation the day of service or posting of the
notice or document shall, unless it is otherwise provided, be counted in such
number of days or other period.
57. Proof of service: With respect to every notice or other document
sent by post it shall be sufficient to prove that the envelope or wrapper
containing the notice or other document was properly addressed as provided in
paragraph 51 of this by-law and put into a post office or into a letter box. A
certificate of an officer of the Corporation in office at the time of the making
of the certificate or of a transfer officer of any transfer agent or branch
transfer agent of shares of any class of the Corporation as to facts in relation
to the sending or delivery of any notice or other document to any shareholder,
director, officer or auditor or publication of any notice or other document
shall be conclusive evidence thereof and shall be binding on every shareholder,
director, officer or auditor of the Corporation as the case may be.
CHEQUES, DRAFTS AND NOTES
58. All cheques, drafts or orders for the payment of money and all
notes and acceptances and bills of exchange shall be signed by such officer or
officers or person or persons, whether or not officers of the Corporation, and
in such manner as the board of directors may from time to time designate by
resolution.
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CUSTODY OF SECURITIES
59. All shares and securities owned by the Corporation shall be lodged
(in the name of the Corporation) with a chartered bank or trust company or in a
safety deposit box or, if so authorized by resolution of the board of directors,
with such other depositaries or in such other manner as may be determined from
time to time by the board of directors.
All share certificates, bonds, debentures, notes or other obligations
belonging to the Corporation may be issued or held in the name of a nominee or
nominees of the Corporation (and if issued or held in the names of more than one
nominee shall be held in the names of the nominees jointly with the right of
survivorship) and shall be endorsed in blank with endorsement guaranteed in
order to enable transfer to be completed and registration to be effected.
EXECUTION OF INSTRUMENTS
60. Contracts, documents or instruments in writing requiring the
signature of the Corporation may be signed by:
(a) The Chairman of the Board, the Vice-Chairman of the Board, the
Managing Director, the President or a Vice-President together with the Secretary
or the Treasurer, or
(b) any two directors
and all contracts, documents and instruments in writing so signed shall be
binding upon the Corporation without any further authorization or formality.
The board of directors shall have power from time to time by resolution to
appoint any officer or officers, or any person or persons, on behalf of the
Corporation either to sign contracts, documents and instruments in writing
generally or to sign specific contracts, documents or instruments in writing.
The corporate seal (if any) of the Corporation may be affixed to
contracts, documents and instruments in writing signed as aforesaid or by any
officer or officers, person or persons, appointed as aforesaid by resolution of
the board of directors, but any such contract, document or instrument is not
invalid merely because the corporate seal is not affixed thereto.
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The term "contracts, documents or instruments in writing" as used in
this by-law shall include deeds, mortgages, hypothecs, charges, conveyances,
transfers and assignments of property real or personal, immovable or movable,
agreements, releases, receipts and discharges for the payment of money or other
obligations, conveyances, transfers and assignments of shares, share warrants,
stocks, bonds, debentures or other securities and all paper writings.
In particular without limiting the generality of the foregoing
(a) The Chairman of the Board, the Vice-Chairman of the Board, the
Managing Director, the President or a Vice-President together with the Secretary
or the Treasurer, or
(b) any two directors
shall have authority to sell, assign, transfer, exchange, convert or convey
any and all shares, stocks, bonds, debentures, rights, warrants or other
securities owned by or registered in the name of the Corporation and to sign and
execute (under the seal of the Corporation or otherwise) all assignments,
transfers, conveyances, powers of attorney and other instruments that may be
necessary for the purpose of selling, assigning, transferring, exchanging,
converting or conveying any such shares, stocks, bonds, debentures, rights,
warrants or other securities.
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The signature or signatures of the Chairman of the Board, the
Vice-Chairman of the Board, the Managing Director, the President, a
Vice-President, the Secretary, the Treasurer, an Assistant Secretary or an
Assistant Treasurer or any director of the Corporation and/or of any other
officer or officers, person or persons, appointed as aforesaid by resolution of
the board of directors may, if specifically authorized by resolution of the
directors, be printed, engraved, lithographed or otherwise mechanically
reproduced upon any contracts, documents or instruments in writing or bonds,
debentures or other securities of the Corporation executed or issued by or on
behalf of the Corporation and all contracts, documents or instruments in writing
or bonds, debentures or other securities of the Corporation on which the
signature or signatures of any of the foregoing officers or persons authorized
as aforesaid shall be so reproduced pursuant to special authorization by
resolution of the directors shall be deemed to have been manually signed by such
officers or persons whose signature or signatures is or are so reproduced and
shall be as valid to all intents and purposes as if they had been signed
manually and notwithstanding that the officers or persons whose signature or
signatures is or are so reproduced may have ceased to hold office at the date of
the delivery or issue of such contracts, documents or instruments in writing or
bonds, debentures or other securities of the Corporation.
FINANCIAL YEAR
61. The financial year of the Corporation shall terminate on such date
in each year as the directors may from time to time by resolution determine.
ENACTED this 29th day of April, 1987.
(WITNESS the corporate seal of the Corporation).
Corporate
Seal
- ------------------------------ -------------------------------------
President Secretary
GST TELECOMMUNICATIONS, INC.
1995 STOCK OPTION PLAN
1. Purpose of the Plan.
This 1995 Stock Option Plan (the "Plan") is intended as an incentive, to
retain in the employ of and as consultants and advisors to GST
TELECOMMUNICATIONS, INC., a Canadian corporation with its principal office at
4317 N.E. Thurston Way, Vancouver, Washington 98662 (the "Company") and any
Subsidiary of the Company, within the meaning of Section 425(f) of the United
States Internal Revenue Code of 1986, as amended (the "Code"), persons of
training, experience and ability, to attract new employees, directors, advisors
and consultants whose services are considered valuable, to encourage the sense
of proprietorship and to stimulate the active interest of such persons in the
development and financial success of the Company and its Subsidiaries.
It is further intended that certain options granted pursuant to the Plan
shall constitute incentive stock options within the meaning of Section 422 of
the Code (the "Incentive Options") while certain other options granted pursuant
to the Plan shall be nonqualified stock options (the "Nonqualified Options").
Incentive Options and Nonqualified Options are hereinafter referred to
collectively as "Options."
2. Administration of the Plan.
The Board of Directors of the Company (the "Board") shall appoint and
maintain as administrator of the Plan a Committee (the "Committee"), which shall
serve at the pleasure of the Board. The Committee, subject to Sections 3 and 5
hereof, shall have full power and authority to designate recipients of Options,
to determine the terms and conditions of respective Option agreements (which
need not be identical) and to interpret the provisions and supervise the
administration of the Plan. The Committee shall have the authority, without
limitation, to designate which Options granted under the Plan shall be Incentive
Options and which shall be Nonqualified Options. To the extent any Option does
not qualify as an Incentive Option, it shall constitute a separate Nonqualified
Option.
Subject to the provisions of the Plan, the Committee shall interpret the
Plan and all Options granted under the Plan, shall make such rules as it deems
necessary for the proper administration of the Plan, shall make all other
determinations necessary or advisable for the administration of the Plan and
shall correct any defects or supply any omission or reconcile any inconsistency
in the Plan or in any Options granted under the Plan in the manner and to the
extent that the Committee deems desirable to carry into effect the Plan or any
<PAGE>
Options. The act or determination of a majority of the Committee shall be the
act or determination of the Committee and any decision reduced to writing and
signed by all of the members of the Committee shall be fully effective as if it
had been made by a majority at a meeting duly held. Subject to the provisions of
the Plan, any action taken or determination made by the Committee pursuant to
this and the other Sections of the Plan shall be conclusive on all parties.
3. Designation of Optionees.
The persons eligible for participation in the Plan as recipients of Options
(the "Optionees") shall include employees, officers and directors of, and
consultants and advisors to, the Company or any Subsidiary; provided that
Incentive Options may only be granted to employees of the Company and the
Subsidiaries. In selecting Optionees, and in determining the number of shares to
be covered by each Option granted to Optionees, the Committee may consider the
office or position held by the Optionee or the Optionee's relationship to the
Company, the Optionee's degree of responsibility for and contribution to the
growth and success of the Company or any Subsidiary, the Optionee's length of
service, age, promotions, potential and any other factors that the Committee may
consider relevant. An Optionee who has been granted an Option hereunder may be
granted an additional Option or Options, if the Committee shall so determine.
4. Stock Reserved for the Plan.
Subject to adjustment as provided in Section 7 hereof, a total of 1,750,000
shares of the Company's Common Shares (the "Stock") shall be subject to the
Plan. The shares of Stock subject to the Plan shall consist of unissued shares
or previously issued shares held by any Subsidiary of the Company, and such
amount of shares of Stock shall be and is hereby reserved for such purpose. Any
of such shares of Stock that may remain unsold and that are not subject to
outstanding Options at the termination of the Plan shall cease to be reserved
for the purposes of the Plan, but until termination of the Plan the Company
shall at all times reserve a sufficient number of shares of Stock to meet the
requirements of the Plan. Should any Option expire or be cancelled prior to its
exercise in full or should the number of shares of Stock to be delivered upon
the exercise in full of an Option be reduced for any reason, the shares of Stock
theretofore subject to such Option may be subject to future Options under the
Plan.
5. Terms and Conditions of Options.
Options granted under the Plan shall be subject to the following conditions
and shall contain such additional terms and conditions, not inconsistent with
the terms of the Plan, as the Committee shall deem desirable:
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<PAGE>
(a) Option Price. The purchase price of each share of Stock
purchasable under an Incentive Option shall be determined by the Committee
at the time of grant, but shall not be less than 100% of the Fair Market
Value (as defined below) of such share of Stock on the date the Option is
granted; provided, however, that with respect to an Optionee who, at the
time such Incentive Option is granted, owns (within the meaning of Section
424(d) of the Code) more than 10% of the total combined voting power of all
classes of stock of the Company or of any Subsidiary, the purchase price
per share of Stock shall be at least 110% of the Fair Market Value per
share of Stock on the date of grant. The purchase price of each share of
Stock purchasable under a Nonqualified Option shall not be less than 80% of
the Fair Market Value of such share of Stock on the date the Option is
granted; provided, however, that an Optionee who is a Canadian taxpayer may
require that any Nonqualified Option granted to him provide for the
purchase of shares of Stock upon exercise thereof at a price equal to the
Fair Market Value per share of Stock on the date of grant. The exercise
price for each Option shall be subject to adjustment as provided in Section
7 below. Fair Market Value means the closing price of publicly traded
shares of Stock on the principal United States securities exchange on which
shares of Stock are listed (if the shares of Stock are so listed), or on
the NASDAQ Stock Market (if the shares of Stock are regularly quoted on the
NASDAQ Stock Market), or, if not so listed or regularly quoted, the mean
between the closing bid and asked prices of publicly traded shares of Stock
in the over-the-counter market, or, if such bid and asked prices shall not
be available, as reported by any nationally recognized quotation service
selected by the Company, or as determined by the Committee in a manner
consistent with the provisions of the Code. Anything in this Section 5(a)
to the contrary notwithstanding, in no event shall the purchase price of a
share of Stock be less than the minimum price permitted under rules and
policies of the American Stock Exchange and the Vancouver Stock Exchange.
(b) Option Term. The term of each Option shall be fixed by the
Committee, but no Option shall be exercisable more than five years after
the date such Option is granted.
(c) Exercisability. Subject to Section 5(j) hereof, Options shall be
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee at the time of grant, provided,
however, that no Option shall be exercisable until at least six months have
elapsed after the date of grant of such Option.
(d) Method of Exercise. Options to the extent then exercisable may be
exercised in whole or in part at any time during the option period, by
giving written notice to the Company specifying the number of shares of
Stock to be purchased, accompanied by payment in full of the purchase
price, in cash, by check or such other instrument as may be acceptable to
-3-
<PAGE>
the Committee. As determined by the Committee, in its sole discretion, at
or after grant, payment in full or in part may also be made in the form of
Stock owned by the Optionee (based on the Fair Market Value of the Stock on
the trading day before the Option is exercised). An Optionee shall have the
right to dividends and other rights of a stockholder with respect to shares
of Stock purchased upon exercise of an Option after (i) the Optionee has
given written notice of exercise and has paid in full for such shares and
(ii) becomes a stockholder of record with respect thereto.
(e) Non-transferability of Options. Options are not transferable and
may be exercised solely by the Optionee during his lifetime or after his
death by the person or persons entitled thereto under his will or the laws
of descent and distribution. Any attempt to transfer, assign, pledge or
otherwise dispose of, or to subject to execution, attachment or similar
process, any Option contrary to the provisions hereof shall be void and
ineffective and shall give no right to the purported transferee.
(f) Termination by Death. Unless otherwise determined by the Committee
at grant, if any Optionee's employment with or service to the Company or
any Subsidiary terminates by reason of death, the Option may thereafter be
exercised, to the extent then exercisable (or on such accelerated basis as
the Committee shall determine at or after grant), by the legal
representative of the estate or by the legatee of the Optionee under the
will of the Optionee, for a period of one year after the date of such death
or until the expiration of the stated term of such Option as provided under
the Plan, whichever period is shorter.
(g) Termination by Reason of Disability. Unless otherwise determined
by the Committee at grant, if any Optionee's employment with or service to
the Company or any Subsidiary terminates by reason of total and permanent
disability, any Option held by such Optionee may thereafter be exercised,
to the extent it was exercisable at the time of termination due to
Disability (or on such accelerated basis as the Committee shall determine
at or after grant), but may not be exercised after 30 days after the date
of such termination of employment or service or the expiration of the
stated term of such Option, whichever period is shorter; provided, however,
that, if the Optionee dies within such 30 day period, any unexercised
Option held by such Optionee shall thereafter be exercisable to the extent
to which it was exercisable at the time of death for a period of one year
after the date of such death or for the stated term of such Option,
whichever period is shorter.
(h) Termination by Reason of Retirement. Unless otherwise determined
by the Committee at grant, if any Optionee's employment with or service to
the Company or any Subsidiary terminates by reason of Normal or Early
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<PAGE>
Retirement (as such terms are defined below), any Option held by such
Optionee may thereafter be exercised to the extent it was exercisable at
the time of such Retirement (or on such accelerated basis as the Committee
shall determine at or after grant), but may not be exercised after 30 days
after the date of such termination of employment or service or the
expiration of the stated term of such Option, whichever period is shorter;
provided, however, that, if the Optionee dies within such 30 day period,
any unexercised Option held by such Optionee shall thereafter be
exercisable, to the extent to which it was exercisable at the time of
death, for a period of one year after the date of such death or for the
stated term of such Option, whichever period is shorter.
For purposes of this paragraph (h), Normal Retirement shall mean
retirement from active employment with the Company or any Subsidiary on or
after the normal retirement date specified in the applicable Company or
Subsidiary pension plan or if no such pension plan, age 65. Early
Retirement shall mean retirement from active employment with the Company or
any Subsidiary pursuant to the early retirement provisions of the
applicable Company or Subsidiary pension plan or if no such pension plan,
age 55.
(i) Other Termination. Unless otherwise determined by the Committee at
grant, if any Optionee's employment with or service to the Company or any
Subsidiary terminates for any reason other than death, Disability or Normal
or Early Retirement, the Option shall thereupon terminate, except that the
portion of any Option that was exercisable on the date of such termination
of employment may be exercised for the lesser of 30 days after the date of
termination or the balance of such Option's term if the Optionee's
employment or service with the Company or any Subsidiary is terminated by
the Company or such Subsidiary without cause (the determination as to
whether termination was for cause to be made by the Committee). The
transfer of an Optionee from the employ of the Company to a Subsidiary, or
vice versa, or from one Subsidiary to another, shall not be deemed to
constitute a termination of employment for purposes of the Plan.
(j) Limit on Value of Incentive Option. The aggregate Fair Market
Value, determined as of the date the Incentive Option is granted, of Stock
for which Incentive Options are exercisable for the first time by any
Optionee during any calendar year under the Plan (and/or any other stock
option plans of the Company or any Subsidiary) shall not exceed $100,000.
(k) Transfer of Incentive Option Shares. The stock option agreement
evidencing any Incentive Options granted under this Plan shall provide that
if the Optionee makes a disposition, within the meaning of Section 424(c)
of the Code and regulations promulgated thereunder, of any share or shares
of Stock issued to him upon exercise of an Incentive Option granted under
-5-
<PAGE>
the Plan within the two-year period commencing on the day after the date of
the grant of such Incentive Option or within a one-year period commencing
on the day after the date of transfer of the share or shares to him
pursuant to the exercise of such Incentive Option, he shall, within 10 days
after such disposition, notify the Company thereof and immediately deliver
to the Company any amount of United States federal income tax withholding
required by law.
(l) Limitation on Options Held by One Person. The aggregate number of
shares of Stock subject to options held by any one person shall not exceed
that number of shares as equals 5% of the outstanding shares of the
Company.
6. Term of Plan.
No Option shall be granted pursuant to the Plan on or after January 10,
2005, but Options theretofore granted may extend beyond that date.
7. Capital Change of the Company.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Stock, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares reserved for issuance under the Plan
and in the number and option price of shares subject to outstanding Options
granted under the Plan, to the end that after such event each Optionee's
proportionate interest shall be maintained as immediately before the occurrence
of such event.
8. Purchase for Investment.
Unless the Options and shares covered by the Plan have been registered
under the United States Securities Act of 1933, as amended (the "Securities
Act"), or the Company has determined that such registration is unnecessary, each
person exercising an Option under the Plan may be required by the Company to
give a representation in writing that he is acquiring the shares for his own
account for investment and not with a view to, or for sale in connection with,
the distribution of any part thereof.
9. Taxes.
The Company may make such provisions as it may deem appropriate, consistent
with applicable law, in connection with any Options granted under the Plan with
respect to the withholding of any United States or Canadian taxes or any other
tax matters.
-6-
<PAGE>
10. Effective Date of Plan.
The Plan shall be effective on January 10, 1995, provided however that the
Plan shall subsequently be approved by majority vote of the Company's
shareholders not later than January 9, 1996.
11. Amendment and Termination.
The Board may amend, suspend, or terminate the Plan, except that no
amendment shall be made that would impair the rights of any Optionee under any
Option theretofore granted without his consent, and except that no amendment
shall be made which, without the approval of the shareholders of the Company
would:
(a) materially increase the number of shares that may be issued under
the Plan, except as is provided in Section 7;
(b) materially increase the benefits accruing to the Optionees under
the Plan;
(c) materially modify the requirements as to eligibility for
participation in the Plan;
(d) decrease the exercise price of an Incentive Option to less than
100% of the Fair Market Value per share of Stock on the date of grant
thereof or the exercise price of a Nonqualified Option to less than 80% of
the Fair Market Value per share of Stock on the date of grant thereof; or
(e) extend the term of any Option beyond that provided for in Section
5(b).
The Committee may amend the terms of any Option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Optionee without his consent. The Committee may also substitute new Options
for previously granted Options, including options granted under other plans
applicable to the participant and previously granted Options having higher
option prices, upon such terms as the Committee may deem appropriate.
12. Government Regulations.
The Plan, and the grant and exercise of Options hereunder, and the
obligation of the Company to sell and deliver shares under such Options, shall
be subject to all applicable laws, rules and regulations, and to such approvals
by any governmental agencies or national securities exchanges (including the
American Stock Exchange and Vancouver Stock Exchange) as may be required.
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<PAGE>
13. General Provisions.
(a) Certificates. All certificates for shares of Stock delivered under the
Plan shall be subject to such stop transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations and other requirements
of the Securities and Exchange Commission, or other securities commission having
jurisdiction, any applicable Federal, provincial or state securities law, any
stock exchange upon which the Stock is then listed and the Committee may cause a
legend or legends to be placed on any such certificates to make appropriate
reference to such restrictions.
(b) Employment Matters. The adoption of the Plan shall not confer upon any
Optionee of the Company or any Subsidiary, any right to continued employment or,
in the case of an Optionee who is a director, continued service as a director,
with the Company or a Subsidiary, as the case may be, nor shall it interfere in
any way with the right of the Company or any Subsidiary to terminate the
employment of any of its employees, the service of any of its directors or the
retention of any of its consultants or advisors at any time.
(c) Limitation of Liability. No member of the Board or the Committee, or
any officer or employee of the Company acting on behalf of the Board or the
Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Board or the Committee and each and any officer or employee of
the Company acting on their behalf shall, to the extent permitted by law, be
fully indemnified and protected by the Company in respect of any such action,
determination or interpretation.
(d) Registration of Stock. Notwithstanding any other provision in the Plan,
no Option may be exercised unless and until the Stock to be issued upon the
exercise thereof has been registered under the Securities Act and applicable
state securities laws, or are, in the opinion of counsel to the Company, exempt
from such registration in the United States or exempt from the prospectus and
registration requirements under applicable provincial legislation. The Company
shall not be under any obligation to register under applicable federal or state
securities laws any Stock to be issued upon the exercise of an Option granted
hereunder, or to comply with an appropriate exemption from registration under
such laws or the laws of any province in order to permit the exercise of an
Option and the issuance and sale of the Stock subject to such Option however,
the Company may in its sole discretion register such Stock at such time as the
Company shall determine. If the Company chooses to comply with such an exemption
from registration, the Stock issued under the Plan may, at the direction of the
Committee, bear an appropriate restrictive legend restricting the transfer or
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<PAGE>
pledge of the Stock represented thereby, and the Committee may also give
appropriate stop transfer instructions to the Company's transfer agents.
GST TELECOMMUNICATIONS, INC.
January 10, 1995, as amended
through September 21, 1995
-9-
GST TELECOMMUNICATIONS, INC.
1996 STOCK OPTION PLAN
1. Purpose of the Plan.
This 1996 Stock Option Plan (the "Plan") is intended as an incentive, to
retain in the employ of and as consultants and advisors to GST
TELECOMMUNICATIONS, INC., a Canadian corporation with its principal office at
4317 N.E. Thurston Way, Vancouver, Washington 98662 (the "Company") and any
Subsidiary of the Company, within the meaning of Section 425(f) of the United
States Internal Revenue Code of 1986, as amended (the "Code"), persons of
training, experience and ability, to attract new employees, directors, advisors
and consultants whose services are considered valuable, to encourage the sense
of proprietorship and to stimulate the active interest of such persons in the
development and financial success of the Company and its Subsidiaries.
It is further intended that certain options granted pursuant to the Plan
shall constitute incentive stock options within the meaning of Section 422 of
the Code (the "Incentive Options") while certain other options granted pursuant
to the Plan shall be nonqualified stock options (the "Nonqualified Options").
Incentive Options and Nonqualified Options are hereinafter referred to
collectively as "Options."
2. Administration of the Plan.
The Board of Directors of the Company (the "Board") shall appoint and
maintain as administrator of the Plan a Committee (the "Committee"), which shall
serve at the pleasure of the Board. The Committee, subject to Sections 3 and 5
hereof, shall have full power and authority to designate recipients of Options,
to determine the terms and conditions of respective Option agreements (which
need not be identical) and to interpret the provisions and supervise the
administration of the Plan. The Committee shall have the authority, without
limitation, to designate which Options granted under the Plan shall be Incentive
Options and which shall be Nonqualified Options. To the extent any Option does
not qualify as an Incentive Option, it shall constitute a separate Nonqualified
Option.
Subject to the provisions of the Plan, the Committee shall interpret the
Plan and all Options granted under the Plan, shall make such rules as it deems
necessary for the proper administration of the Plan, shall make all other
determinations necessary or advisable for the administration of the Plan and
shall correct any defects or supply any omission or reconcile any inconsistency
in the Plan or in any Options granted under the Plan in the manner and to the
extent that the Committee deems desirable
<PAGE>
to carry into effect the Plan or any Options. The act or determination of a
majority of the Committee shall be the act or determination of the Committee and
any decision reduced to writing and signed by all of the members of the
Committee shall be fully effective as if it had been made by a majority at a
meeting duly held. Subject to the provisions of the Plan, any action taken or
determination made by the Committee pursuant to this and the other Sections of
the Plan shall be conclusive on all parties.
3. Designation of Optionees.
The persons eligible for participation in the Plan as recipients of Options
(the "Optionees") shall include employees, officers and directors of, and
consultants and advisors to, the Company or any Subsidiary; provided that
Incentive Options may only be granted to employees of the Company and the
Subsidiaries. In selecting Optionees, and in determining the number of shares to
be covered by each Option granted to Optionees, the Committee may consider the
office or position held by the Optionee or the Optionee's relationship to the
Company, the Optionee's degree of responsibility for and contribution to the
growth and success of the Company or any Subsidiary, the Optionee's length of
service, age, promotions, potential and any other factors that the Committee may
consider relevant. An Optionee who has been granted an Option hereunder may be
granted an additional Option or Options, if the Committee shall so determine.
4. Stock Reserved for the Plan.
Subject to adjustment as provided in Section 7 hereof, a total of 400,000
shares of the Company's Common Shares (the "Stock") shall be subject to the
Plan. The shares of Stock subject to the Plan shall consist of unissued shares
or previously issued shares held by any Subsidiary of the Company, and such
amount of shares of Stock shall be and is hereby reserved for such purpose. Any
of such shares of Stock that may remain unsold and that are not subject to
outstanding Options at the termination of the Plan shall cease to be reserved
for the purposes of the Plan, but until termination of the Plan the Company
shall at all times reserve a sufficient number of shares of Stock to meet the
requirements of the Plan. Should any Option expire or be cancelled prior to its
exercise in full or should the number of shares of Stock to be delivered upon
the exercise in full of an Option be reduced for any reason, the shares of Stock
theretofore subject to such Option may be subject to future Options under the
Plan.
5. Terms and Conditions of Options.
Options granted under the Plan shall be subject to the following conditions
and shall contain such additional terms and conditions, not inconsistent with
the terms of the Plan, as the Committee shall deem desirable:
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<PAGE>
(a) Option Price. The purchase price of each share of Stock
purchasable under an Incentive Option shall be determined by the Committee
at the time of grant, but shall not be less than 100% of the Fair Market
Value (as defined below) of such share of Stock on the date the Option is
granted; provided, however, that with respect to an Optionee who, at the
time such Incentive Option is granted, owns (within the meaning of Section
424(d) of the Code) more than 10% of the total combined voting power of all
classes of stock of the Company or of any Subsidiary, the purchase price
per share of Stock shall be at least 110% of the Fair Market Value per
share of Stock on the date of grant. The purchase price of each share of
Stock purchasable under a Nonqualified Option shall not be less than 80% of
the Fair Market Value of such share of Stock on the date the Option is
granted; provided, however, that an Optionee who is a Canadian taxpayer may
require that any Nonqualified Option granted to him provide for the
purchase of shares of Stock upon exercise thereof at a price equal to the
Fair Market Value per share of Stock on the date of grant. The exercise
price for each Option shall be subject to adjustment as provided in Section
7 below. Fair Market Value means the closing price of publicly traded
shares of Stock on the principal United States securities exchange on which
shares of Stock are listed (if the shares of Stock are so listed), or on
the NASDAQ Stock Market (if the shares of Stock are regularly quoted on the
NASDAQ Stock Market), or, if not so listed or regularly quoted, the mean
between the closing bid and asked prices of publicly traded shares of Stock
in the over-the-counter market, or, if such bid and asked prices shall not
be available, as reported by any nationally recognized quotation service
selected by the Company, or as determined by the Committee in a manner
consistent with the provisions of the Code. Anything in this Section 5(a)
to the contrary notwithstanding, in no event shall the purchase price of a
share of Stock be less than the minimum price permitted under rules and
policies of the American Stock Exchange and the Vancouver Stock Exchange.
(b) Option Term. The term of each Option shall be fixed by the
Committee, but no Option shall be exercisable more than five years after
the date such Option is granted.
(c) Exercisability. Subject to Section 5(j) hereof, Options shall be
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee at the time of grant, provided,
however, that no Option shall be exercisable until at least six months have
elapsed after the date of grant of such Option.
(d) Method of Exercise. Options to the extent then exercisable may be
exercised in whole or in part at any time during the option period, by
giving written notice to the Company specifying the number of shares of
Stock to be purchased, accompanied by payment in full of the purchase
price, in cash, by check or such other instrument as may be acceptable to
the
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<PAGE>
Committee. As determined by the Committee, in its sole discretion, at or
after grant, payment in full or in part may also be made in the form of
Stock owned by the Optionee (based on the Fair Market Value of the Stock on
the trading day before the Option is exercised). An Optionee shall have the
right to dividends and other rights of a stockholder with respect to shares
of Stock purchased upon exercise of an Option after (i) the Optionee has
given written notice of exercise and has paid in full for such shares and
(ii) becomes a stockholder of record with respect thereto.
(e) Non-transferability of Options. Options are not transferable and
may be exercised solely by the Optionee during his lifetime or after his
death by the person or persons entitled thereto under his will or the laws
of descent and distribution. Any attempt to transfer, assign, pledge or
otherwise dispose of, or to subject to execution, attachment or similar
process, any Option contrary to the provisions hereof shall be void and
ineffective and shall give no right to the purported transferee.
(f) Termination by Death. Unless otherwise determined by the Committee
at grant, if any Optionee's employment with or service to the Company or
any Subsidiary terminates by reason of death, the Option may thereafter be
exercised, to the extent then exercisable (or on such accelerated basis as
the Committee shall determine at or after grant), by the legal
representative of the estate or by the legatee of the Optionee under the
will of the Optionee, for a period of one year after the date of such death
or until the expiration of the stated term of such Option as provided under
the Plan, whichever period is shorter.
(g) Termination by Reason of Disability. Unless otherwise determined
by the Committee at grant, if any Optionee's employment with or service to
the Company or any Subsidiary terminates by reason of total and permanent
disability, any Option held by such Optionee may thereafter be exercised,
to the extent it was exercisable at the time of termination due to
Disability (or on such accelerated basis as the Committee shall determine
at or after grant), but may not be exercised after 30 days after the date
of such termination of employment or service or the expiration of the
stated term of such Option, whichever period is shorter; provided, however,
that, if the Optionee dies within such 30 day period, any unexercised
Option held by such Optionee shall thereafter be exercisable to the extent
to which it was exercisable at the time of death for a period of one year
after the date of such death or for the stated term of such Option,
whichever period is shorter.
(h) Termination by Reason of Retirement. Unless otherwise determined
by the Committee at grant, if any Optionee's employment with or service to
the Company or any Subsidiary
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<PAGE>
terminates by reason of Normal or Early Retirement (as such terms are
defined below), any Option held by such Optionee may thereafter be
exercised to the extent it was exercisable at the time of such Retirement
(or on such accelerated basis as the Committee shall determine at or after
grant), but may not be exercised after 30 days after the date of such
termination of employment or service or the expiration of the stated term
of such Option, whichever period is shorter; provided, however, that, if
the Optionee dies within such 30 day period, any unexercised Option held by
such Optionee shall thereafter be exercisable, to the extent to which it
was exercisable at the time of death, for a period of one year after the
date of such death or for the stated term of such Option, whichever period
is shorter.
For purposes of this paragraph (h), Normal Retirement shall mean
retirement from active employment with the Company or any Subsidiary on or
after the normal retirement date specified in the applicable Company or
Subsidiary pension plan or if no such pension plan, age 65. Early
Retirement shall mean retirement from active employment with the Company or
any Subsidiary pursuant to the early retirement provisions of the
applicable Company or Subsidiary pension plan or if no such pension plan,
age 55.
(i) Other Termination. Unless otherwise determined by the Committee at
grant, if any Optionee's employment with or service to the Company or any
Subsidiary terminates for any reason other than death, Disability or Normal
or Early Retirement, the Option shall thereupon terminate, except that the
portion of any Option that was exercisable on the date of such termination
of employment may be exercised for the lesser of 30 days after the date of
termination or the balance of such Option's term if the Optionee's
employment or service with the Company or any Subsidiary is terminated by
the Company or such Subsidiary without cause (the determination as to
whether termination was for cause to be made by the Committee). The
transfer of an Optionee from the employ of the Company to a Subsidiary, or
vice versa, or from one Subsidiary to another, shall not be deemed to
constitute a termination of employment for purposes of the Plan.
(j) Limit on Value of Incentive Option. The aggregate Fair Market
Value, determined as of the date the Incentive Option is granted, of Stock
for which Incentive Options are exercisable for the first time by any
Optionee during any calendar year under the Plan (and/or any other stock
option plans of the Company or any Subsidiary) shall not exceed $100,000.
(k) Transfer of Incentive Option Shares. The stock option agreement
evidencing any Incentive Options granted under this Plan shall provide that
if the Optionee makes a disposition, within the meaning of Section 424(c)
of the Code and regulations promulgated thereunder, of any share or shares
of Stock issued to him upon exercise of an Incentive Option granted under
the Plan
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<PAGE>
within the two-year period commencing on the day after the date of the
grant of such Incentive Option or within a one-year period commencing on
the day after the date of transfer of the share or shares to him pursuant
to the exercise of such Incentive Option, he shall, within 10 days after
such disposition, notify the Company thereof and immediately deliver to the
Company any amount of United States federal income tax withholding required
by law.
(l) Limitation on Options Held by One Person. The aggregate number of
shares of Stock subject to options held by any one person shall not exceed
that number of shares as equals 5% of the outstanding shares of the
Company.
6. Term of Plan.
No Option shall be granted pursuant to the Plan on or after January 5,
2006, but Options theretofore granted may extend beyond that date.
7. Capital Change of the Company.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Stock, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares reserved for issuance under the Plan
and in the number and option price of shares subject to outstanding Options
granted under the Plan, to the end that after such event each Optionee's
proportionate interest shall be maintained as immediately before the occurrence
of such event.
8. Purchase for Investment.
Unless the Options and shares covered by the Plan have been registered
under the United States Securities Act of 1933, as amended (the "Securities
Act"), or the Company has determined that such registration is unnecessary, each
person exercising an Option under the Plan may be required by the Company to
give a representation in writing that he is acquiring the shares for his own
account for investment and not with a view to, or for sale in connection with,
the distribution of any part thereof.
9. Taxes.
The Company may make such provisions as it may deem appropriate, consistent
with applicable law, in connection with any Options granted under the Plan with
respect to the withholding of any United States or Canadian taxes or any other
tax matters.
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10. Effective Date of Plan.
The Plan shall be effective on January 5, 1996, provided however that the
Plan shall subsequently be approved by majority vote of the Company's
shareholders not later than January 4, 1997.
11. Amendment and Termination.
The Board may amend, suspend, or terminate the Plan, except that no
amendment shall be made that would impair the rights of any Optionee under any
Option theretofore granted without his consent, and except that no amendment
shall be made which, without the approval of the shareholders of the Company
would:
(a) materially increase the number of shares that may be issued under
the Plan, except as is provided in Section 7;
(b) materially increase the benefits accruing to the Optionees under
the Plan;
(c) materially modify the requirements as to eligibility for
participation in the Plan;
(d) decrease the exercise price of an Incentive Option to less than
100% of the Fair Market Value per share of Stock on the date of grant
thereof or the exercise price of a Nonqualified Option to less than 80% of
the Fair Market Value per share of Stock on the date of grant thereof; or
(e) extend the term of any Option beyond that provided for in Section
5(b).
The Committee may amend the terms of any Option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Optionee without his consent. The Committee may also substitute new Options
for previously granted Options, including options granted under other plans
applicable to the participant and previously granted Options having higher
option prices, upon such terms as the Committee may deem appropriate.
12. Government Regulations.
The Plan, and the grant and exercise of Options hereunder, and the
obligation of the Company to sell and deliver shares under such Options, shall
be subject to all applicable laws, rules and regulations, and to such approvals
by any governmental agencies or national securities exchanges (including the
American Stock Exchange and Vancouver Stock Exchange) as may be required.
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<PAGE>
13. General Provisions.
(a) Certificates. All certificates for shares of Stock delivered under
the Plan shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange
Commission, or other securities commission having jurisdiction, any
applicable Federal, provincial or state securities law, any stock exchange
upon which the Stock is then listed and the Committee may cause a legend or
legends to be placed on any such certificates to make appropriate reference
to such restrictions.
(b) Employment Matters. The adoption of the Plan shall not confer upon
any Optionee of the Company or any Subsidiary, any right to continued
employment or, in the case of an Optionee who is a director, continued
service as a director, with the Company or a Subsidiary, as the case may
be, nor shall it interfere in any way with the right of the Company or any
Subsidiary to terminate the employment of any of its employees, the service
of any of its directors or the retention of any of its consultants or
advisors at any time.
(c) Limitation of Liability. No member of the Board or the Committee,
or any officer or employee of the Company acting on behalf of the Board or
the Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and
all members of the Board or the Committee and each and any officer or
employee of the Company acting on their behalf shall, to the extent
permitted by law, be fully indemnified and protected by the Company in
respect of any such action, determination or interpretation.
(d) Registration of Stock. Notwithstanding any other provision in the
Plan, no Option may be exercised unless and until the Stock to be issued
upon the exercise thereof has been registered under the Securities Act and
applicable state securities laws, or are, in the opinion of counsel to the
Company, exempt from such registration in the United States or exempt from
the prospectus and registration requirements under applicable provincial
legislation. The Company shall not be under any obligation to register
under applicable federal or state securities laws any Stock to be issued
upon the exercise of an Option granted hereunder, or to comply with an
appropriate exemption from registration under such laws or the laws of any
province in order to permit the exercise of an Option and the issuance and
sale of the Stock subject to such Option however, the Company may in its
sole discretion register such Stock at such time as the Company shall
determine. If the Company chooses to comply with such an exemption from
registration, the Stock issued under the Plan may, at the direction of the
Committee, bear an appropriate restrictive legend restricting the transfer
or pledge of the Stock represented
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<PAGE>
thereby, and the Committee may also give appropriate stop transfer
instructions to the Company's transfer agents.
GST TELECOMMUNICATIONS, INC.
January 5, 1996
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GST TELECOMMUNICATIONS, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
The following are the provisions of the 1996 Employee Stock Purchase Plan
of GST Telecommunications, Inc.
1. Purpose. The purpose of the Plan is to provide eligible employees of the
Company and its Designated Subsidiaries with an opportunity to share in the
fortunes of the Company by acquiring or increasing their holdings of the Common
Shares of the Company, at a discount, through accumulated payroll deductions.
The Plan is also designed to encourage eligible employees to remain in the
employ of the Company. It is the intention of the Company that the Plan qualify
as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend or limit
participation in a manner consistent with the requirements of Section 423 of the
Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company or a
committee thereof duly authorized to administer the Plan in accordance with
Section 13 hereof.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Shares" shall mean the Common Shares of the Company as
more fully described in Section 25 hereof.
(d) "Company" shall mean GST Telecommunications, Inc., a federally
chartered Canadian corporation, with its principal offices at 4317 N.E.
Thurston Way, Vancouver, Washington 98662.
(e) "Compensation" shall mean all regular gross earnings, including
payments for overtime, shift premium, incentive compensation, incentive
payments, bonuses, commissions or other compensation.
(f) "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be considered interrupted in the case of a leave of
absence agreed to in writing by the Company, provided that such leave is
for a period of not more than 90 days or reemployment upon the expiration
of such leave is guaranteed by contract or statute.
<PAGE>
(g) "Designated Subsidiaries" shall mean the Subsidiaries that have
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(h) "Dollars" or "$" shall mean U.S. Dollars.
(i) "Employee" shall have the meaning set forth in Section 3 hereof.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(k) "Exercise Date" shall mean the last day of each Offering Period of
the Plan if such date is a regular business day or the first regular
business day thereafter. A different date may be set by resolution of the
Board.
(l) "Fair Market Value" of the Common Shares on a given date shall
mean the closing price of publicly traded Common Shares on the principal
United States securities exchange on which the Common Shares are listed (if
the Common Shares are so listed), or on the Nasdaq Stock Market (if the
Common Shares are regularly quoted on the Nasdaq Stock Market), or, if not
so listed or regularly quoted, the mean between the closing bid and asked
prices of publicly traded Common Shares in the over-the-counter market, or,
if such bid and asked prices shall not be available, as reported by any
nationally recognized quotation service selected by the Company, or as
determined by the Board in a manner consistent with the provisions of the
Code.
(m) "Offering Date" shall mean the first day of each Offering Period
of the Plan if such date is a regular business day or the first regular
business day thereafter. A different date may be set by resolution of the
Board.
(n) "Offering Period" shall have the meaning set forth in Section 4
hereof.
(o) "Option" shall mean an option granted to a Participant to purchase
Common Shares under the Plan.
(p) "Participant" shall mean an Employee who participates in this Plan
in accordance with Section 5 hereof.
(q) "Plan" shall mean the 1996 Employee Stock Purchase Plan of the
Company.
(r) "Reserves" shall have the meaning set forth in Section 18 hereof.
(s) "SEC" shall mean the Securities and Exchange Commission.
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(t) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(u) "Subsidiary" shall mean a corporation of which not less than 50%
of the voting shares are held by the Company or a Subsidiary, whether or
not such corporation now exists or is hereafter organized or acquired by
the Company or a Subsidiary.
3. Eligibility.
(a) Any person who is regularly in the employ of the Company (an
"Employee") or any of its Designated Subsidiaries is eligible to receive
Options except (a) employees whose customary employment is less than 20
hours per week and (b) employees whose customary employment is not more
than five months in any calendar year.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an Option (i) if, immediately after the grant,
such Employee (or any other person whose stock would be attributed to such
Employee pursuant to Section 425(d) of the Code) would own stock and/or
hold outstanding Options to purchase stock possessing 5% or more of the
total combined voting power or value of all classes of stock of the Company
or of any subsidiary of the Company, or (ii) that permits his rights to
purchase stock under all employee stock purchase plans (as described in
Section 423 of the Code) of the Company and its subsidiaries to accrue at a
rate that exceeds $25,000 of Fair Market Value of such stock (determined at
the time such Option is granted) for each calendar year in which such
Option is outstanding at any time.
4. Offering Periods.
(a) The Plan shall be implemented by one offering during each
six-month period (each an "Offering Period"). Offering Periods shall
commence on or about April 1 and October 1 of each year as determined by
the Board; provided, however, that the first Offering Period under the Plan
may be less than six months.
(b) The Board shall have the power to change the duration of Offering
Periods with respect to future offerings without shareholder approval if
such change is announced at least 15 days prior to the scheduled beginning
of the first Offering Period to be affected.
5. Participation.
(a) An Employee may become a Participant in the Plan by completing a
subscription agreement authorizing payroll deduction on the form provided
by the Company and filing it with
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the Company's Human Resources Manager on or prior to an Offering Date or
such other date as may be specified by the Board.
(b) Payroll deductions for a Participant shall commence on the first
payroll following the Offering Date and shall end on the Exercise Date of
the Offering Period to which such authorization is applicable, unless
sooner terminated by the Participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a Participant files his subscription agreement, he
shall elect to have payroll deductions made on each payday during the
Offering Period in an amount not exceeding 10% of the Compensation that he
receives on each payday during the Offering Period, and the aggregate of
such payroll deductions during the Offering Period shall not exceed 10% of
his aggregate Compensation during such Offering Period.
(b) The total number of Common Shares purchased by any Participant
shall in no event exceed, in any Offering Period, the number of Common
Shares that $12,500 could purchase at the Fair Market Value of a Common
Share on the Offering Date.
(c) All payroll deductions made by a Participant shall be credited to
his account under the Plan. A Participant may not make any additional
payments into such account.
(d) A Participant may discontinue his participation in the Plan as
provided in Section 10 hereof, or may decrease (but not increase) the rate
of his payroll deductions one time during the Offering Period by completing
or filing with the Human Resources Manager of the Company a new
authorization for payroll deduction. The change in rate shall be effective
15 days following the Company's receipt of the new authorization. If a
Participant decreases the rate of his payroll deductions more than one time
during an Offering Period, such Participant will be deemed to have
terminated his participation in the Plan in accordance with Section 10
hereof.
7. Grant of Option.
(a) On the Offering Date of each Offering Period, each Participant
shall be granted an Option to purchase (at the per share Option price) up
to a number of Common Shares determined by dividing such Participant's
payroll deductions to be accumulated during such Offering Period (not to
exceed an amount equal to 10% of his Compensation as of the date of the
commencement of the applicable Offering Period) by the lower of (i) 85% of
the Fair Market Value of a Common Share on the Offering Date, or (ii) 85%
of the Fair Market Value of a Common Share on the Exercise Date; provided
that in no event shall an Employee be permitted to
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<PAGE>
purchase during any Offering Period more than a number of Common Shares
determined by dividing $12,500 by the Fair Market Value of a Common Share
on the Offering Date, and provided further that such purchase shall be
subject to the limitations set forth in Sections 3(b) and 12 hereof. Fair
Market Value of a share of the Company's Common Shares shall be determined
as provided in Section 7(b) hereof.
(b) The option price per Common Share of the Shares offered in a given
Offering Period shall be the lower of: (i) 85% of the Fair Market Value of
a Common Share on the Offering Date; or (ii) 85% of the Fair Market Value
of a Common Share on the Exercise Date.
8. Exercise of Option. Unless a Participant withdraws from the Plan as
provided in Section 10 hereof, his Option shall be exercised automatically on
the Exercise Date of the Offering Period and the maximum number of full Common
Shares subject to such Option shall be purchased for him at the applicable
option price with the accumulated payroll deductions in his account. The Common
Shares purchased upon exercise of an Option hereunder shall be deemed to be
transferred to the Participant on the Exercise Date. During his lifetime, an
Option to purchase Common Shares hereunder is exercisable only by the
Participant to whom such Option is granted.
9. Delivery. Common Shares purchased upon exercise of the Participants'
Options shall be represented by one or more global certificates registered in
the name of a custodian from time to time selected by the Committee. Beneficial
interests in the global certificate(s) will be shown on, and transfers thereof
will be effected through records maintained by the Human Resources Manager of
the Company. Upon request of a Participant, the Company shall arrange for the
delivery to such Participant of a certificate representing the number of Common
Shares requested by such participant; provided that such Participant has
purchased at least that number of Common Shares pursuant to the Plan.
Certificated Common Shares delivered to a Participant shall not constitute a
portion of the global certificates. In the case of a Participant who has
requested that certificated Common Shares be delivered to him, any cash
remaining to the credit of such Participant's account that is insufficient to
purchase a full share of a Common Share of the Company shall be returned to said
Participant. In addition, no fractional Common Shares shall be delivered to such
Participant; he shall instead receive the cash value of such fractional Common
Shares.
10. Withdrawal; Termination of Employment.
(a) An employee's participation in the Plan may be terminated by
signing and delivering to the Human Resources Manager of the Company a
notice of withdrawal from the Plan. Such
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<PAGE>
withdrawal may be elected at any time prior to the Exercise Date of the
applicable Offering Period.
(b) Any withdrawal from a given Offering Period automatically
terminates the Participant's interest in that offering. A Participant
withdrawing from an offering must wait at least 90 days until executing a
subscription agreement for subsequent offerings.
(c) A Participant may withdraw all but not less than all the payroll
deductions credited to his account under the Plan at any time prior to the
Exercise Date of the Offering Period by giving written notice to the
Company. All of the Participant's payroll deductions credited to his
account shall be paid to him promptly after receipt of his notice of
withdrawal and his Option for the current period shall be automatically
terminated, and no further payroll deductions for the purchase of Common
Shares shall be made during the Offering Period.
(d) Upon termination of the Participant's Continuous Status as an
Employee prior to the Exercise Date of the Offering Period for any reason,
including retirement or death, the payroll deductions credited to his
account shall be returned to him or, in the case of his death, to the
person or persons entitled thereto under Section 14, and his Option shall
be automatically terminated.
(e) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least 20 hours per week during the
Offering Period in which the employee is a Participant, he shall be deemed
to have elected to withdraw from the Plan and the payroll deductions
credited to his account shall be returned to him and his Option terminated.
(f) A Participant may discontinue his participation in the Plan, and
may decrease but not increase the rate of payroll deductions one time
during the Offering Period. Payroll deductions commence on the first payday
following the beginning of the employee's participation in the Offering
Period, and continue at the same rate until terminated or decreased.
11. Interest. No interest shall accrue on the payroll deductions of a
Participant in the Plan.
12. Stock.
(a) The maximum number of Common Shares that shall be made available
for sale under the Plan shall be 500,000, subject to adjustment upon
changes in capitalization of the Company as provided in Section 18 hereof.
If the total number of Common Shares that would otherwise be subject to
Options granted pursuant to Section 7(a) hereof on the Offering Date of an
Offering Period
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<PAGE>
exceeds the number of Common Shares then available under the Plan (after
deduction of all Common Shares for which Options have been exercised or are
then outstanding), the Company shall make a pro rata allocation of the
Common Shares remaining available for Option grants in as uniform a manner
as shall be practicable and as it shall determine to be equitable. In such
event, the Company shall give written notice of such reduction of the
number of Common Shares subject to the Option to each Participant affected
thereby and shall similarly reduce the rate of payroll deductions, if
necessary.
(b) The Participant shall have no interest or voting right in Common
Shares covered by his Option until such Option has been exercised.
(c) Common Shares to be delivered to a Participant under the Plan
shall be registered in the form of one or more global certificates in the
name of the Committee. Upon request of a Participant, Common Shares shall
be registered in the name of the Participant or in the name of the
Participant and his spouse, in which event they shall no longer be
evidenced by the global certificates.
13. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The administration,
interpretation or application of the Plan by the Board or its committee shall be
final, conclusive and binding upon all Participants. Members of the Board who
are eligible Employees are permitted to participate in the Plan, provided that:
(a) Members of the Board who are eligible to participate in the Plan
may not vote on any matter affecting the administration of the Plan or the
grant of any Option.
(b) If a Committee is established to administer the Plan, no member of
the Board who is eligible to participate in the Plan may be a member of the
Committee.
14. Designation of Beneficiary.
(a) A Participant may file a written designation of a beneficiary who
is to receive any Common Shares and cash, if any, from the Participant's
account under the Plan in the event of such Participant's death subsequent
to the end of the Offering Period but prior to entry of such Common Shares
on the records maintained by the Company's Human Resources Manager and
delivery to him of such cash. In addition, a Participant may file a written
designation of a beneficiary who is to receive any cash from the
Participant's account under the Plan in the event of such Participant's
death prior to the Exercise Date of the Offering Period.
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<PAGE>
(b) Such designation of beneficiary may be changed by the Participant
at any time by written notice. In the event of the death of a Participant
and in the absence of a beneficiary validly designated under the Plan who
is living at the time of such Participant's death, the Company shall
deliver such Common Shares and/or cash to the executor or administrator of
the estate of the Participant, or if no such executor or administrator has
been appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such Common Shares and/or cash to the spouse or to
any one or more dependents or relatives of the Participant, or if no
spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a Participant's
account, nor any rights with regard to the exercise of an Option, may be
assigned, transferred, pledged or otherwise disposed of in any way (other than
by will, the laws of descent and distribution or as provided in Section 14
hereof) by the Participant. Any such attempt at assignment, transfer, pledge or
other disposition shall be without affect, except that the Company may treat
such act as an election to withdraw funds in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts shall be maintained for each Participant.
Statements of account shall be given to Participants promptly following the
Exercise Date, which statements shall set forth the amounts of payroll
deductions, the per share purchase price, the number of Common Shares purchased
and the remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization. Subject to any required
action by the shareholders of the Company, the number of Common Shares covered
by each Option that has not yet been exercised and the number of Common Shares
that have been authorized for issuance under the Plan but have not yet been
placed under option (collectively, the "Reserves"), as well as the price per
Common Share covered by each Option that has not yet been exercised, shall be
proportionately adjusted for any increase or decrease in the number of issued
Common Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Shares, or any other increase or
decrease in the number of Common Shares 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
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<PAGE>
expressly provided herein, no issue 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 Shares subject to an Option.
19. Effect of Liquidation, Dissolution, Sale of Assets or Merger. In the
event of the proposed dissolution or liquidation of the Company, all Options
shall terminate immediately prior to the consummation of such proposed action,
unless otherwise provided by the Board. The Board may, in the exercise of its
sole discretion in such instances, declare that all Options shall terminate as
of a date fixed by the Board and give each Participant the right to exercise his
Option as to all or any part thereof, including shares as to which an Option
would not otherwise be exercisable. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, an Option shall be assumed or an equivalent
Option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation. In the event that such successor
corporation refuses to assume the Options or to substitute an equivalent option,
the Board shall, in lieu of such assumption or substitution, provide for the
Participant to have the right to exercise the Options in full, including as to
Common Shares that would not otherwise then be purchasable. If the Board makes
an Option fully exercisable in lieu of assumption or substitution in the event
of a merger or sale of assets, the Board shall notify the Participant that the
Option shall be fully exercisable for a period of 30 days after the date of such
notice, and the Option shall terminate upon the expiration of such period.
The Board may, if it so determines in the exercise of its sole discretion,
also make provisions for adjusting the Reserves, as well as the price per Common
Share covered by each outstanding Option, in the event that the Company effects
one or more reorganizations, recapitalizations, rights offerings or other
increases or reductions of its outstanding Common Shares, and in the event of
the Company being consolidated with or merged into any other corporation.
20. Amendment or Termination. The Board may at any time terminate or amend
the Plan. Except as provided in Section 18, no such termination can affect
Options previously granted, nor may an amendment make any change in any Option
theretofore granted which adversely affects the rights of any Participant, nor
may an amendment be made without prior approval of the shareholders of the
Company (obtained in a manner consistent with the provisions of the Code and all
other applicable law) if such amendment would:
(a) Increase the number of Common Shares that may be issued under the
Plan;
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(b) Permit payroll deductions at a rate in excess of 10% of the
Participant's Compensation;
(c) Change the designation of the employees (or class of employees)
eligible for participation in the Plan; or
(d) If the Company has a class of equity securities registered under
Section 12 of the Exchange Act at the time of such amendment, materially
increase the benefits that may accrue to Participants under the Plan.
(e) To the extent necessary and desirable to comply with Rule 16b-3
under the Exchange Act, or with Section 423 of the Code (or any other
applicable law or regulation, including requirements of the NASD or any
established stock exchange), the Company shall obtain stockholder approval
of any amendment to the Plan in the requisite manner.
21. Notices. All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Shareholder Approval. The Plan was approved by the affirmative vote of
the holders of a majority of the outstanding Common Shares at the Company's
Annual Meeting of Shareholders held on February 15, 1996.
23. Conditions Upon Issuance of Common Shares. Common Shares shall not be
issued with respect to an Option unless the exercise of such Option and the
issuance and delivery of such Common Shares pursuant thereto shall comply with
all applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Common Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Common Shares are being purchased only for investment and
without any present intention to sell or distribute such Common Shares if, in
the opinion of counsel for the Company, such a representation is required by any
of the aforementioned applicable provisions of law.
24. Restrictions on Resale. Certain officers and directors of the Company
may be deemed to be "affiliates" of the Company as that term is defined under
the Securities Act. Common Shares acquired under the Plan by an affiliate may
only be re-
-10-
<PAGE>
offered or resold pursuant to an effective registration statement or pursuant to
Rule 144 promulgated under the Securities Act or another exemption from the
registration requirements of the Securities Act. Such reoffers or resales may
not be made in reliance on the Registration Statement filed in connection with
the offer to Participants of the Common Shares issuable hereunder.
25. Securities to be Purchased. The security to be purchased under the Plan
is Common Shares, without par value, of the Company. Each Common Share entitles
the holder to one vote on matters submitted to a vote of the stockholders, a pro
rata share of such dividends as may be declared on the Common Shares and a pro
rata share of assets remaining available for distribution to stockholders upon a
liquidation of the Company. The Common Shares are not convertible and have no
preemptive rights. While the Board has authority, within certain limitations, to
issue shares of preference stock that would have one or more preferences over
the Common Shares, no preference stock is currently outstanding and the Company
has no present plans to issue any preference stock.
26. Term of Plan. The Plan became effective on February 15, 1996 and shall
continue in effect for a term of 20 years unless sooner terminated under Section
20.
-11-
GST TELECOMMUNICATIONS, INC.
SENIOR EXECUTIVE OFFICER STOCK OPTION PLAN
1. Purpose of the Plan.
This Senior Executive Officer Stock Option Plan (the "Plan") is intended as
an incentive, to retain in the employ of GST TELECOMMUNICATIONS, INC., a
federally chartered Canadian corporation with its principal office at 4317 N.E.
Thurston Way, Vancouver, Washington 98662 (the "Company") and any Subsidiary of
the Company, within the meaning of Section 425(f) of the United States Internal
Revenue Code of 1986, as amended (the "Code"), as senior executive officers,
persons of training, experience and ability, to attract new senior executive
officers whose services are considered valuable, to encourage the sense of
proprietorship and to stimulate the active interest of such persons in the
development and financial success of the Company and its Subsidiaries.
It is further intended that certain options granted pursuant to the Plan
shall constitute incentive stock options within the meaning of Section 422 of
the Code (the "Incentive Options"), while certain other options granted pursuant
to the Plan shall be nonqualified stock options (the "Nonqualified Options").
Incentive Options and Nonqualified Options are hereinafter referred to
collectively as "Options."
2. Administration of the Plan.
The Board of Directors of the Company (the "Board") shall appoint and
maintain as administrator of the Plan a Committee (the "Committee"), which shall
serve at the pleasure of the Board. The Committee, subject to Sections 3 and 5
hereof, shall have full power and authority to designate recipients of Options,
to determine the terms and conditions of respective Option agreements (which
need not be identical) and to interpret the provisions and supervise the
administration of the Plan. The Committee shall have the authority, without
limitation, to designate which Options granted under the Plan shall be Incentive
Options and which shall be Nonqualified Options. To the extent any Option does
not qualify as an Incentive Option, it shall constitute a separate Nonqualified
Option.
Subject to the provisions of the Plan, the Committee shall interpret the
Plan and all Options granted under the Plan, shall make such rules as it deems
necessary for the proper administration of the Plan, shall make all other
determinations necessary or advisable for the administration of the Plan and
shall correct any defects or supply any omission or reconcile any inconsistency
in the Plan or in any Options granted under the Plan
<PAGE>
in the manner and to the extent that the Committee deems desirable to carry into
effect the Plan or any Options. The act or determination of a majority of the
Committee shall be the act or determination of the Committee and any decision
reduced to writing and signed by all of the members of the Committee shall be
fully effective as if it had been made by a majority at a meeting duly held.
Subject to the provisions of the Plan, any action taken or determination made by
the Committee pursuant to this and the other Sections of the Plan shall be
conclusive on all parties.
3. Designation of Optionees.
The persons eligible for participation in the Plan as recipients of Options
(the "Optionees") shall comprise senior executive officers of the Company or any
Subsidiary; provided that Incentive Options may only be granted to senior
executive officers who are employees of the Company and the Subsidiaries. In
selecting Optionees, and in determining the number of shares to be covered by
each Option granted to Optionees, the Committee may consider the office or
position held by the Optionee or the Optionee's relationship to the Company, the
Optionee's degree of responsibility for and contribution to the growth and
success of the Company or any Subsidiary, the Optionee's length of service, age,
promotions, potential and any other factors that the Committee may consider
relevant. An Optionee who has been granted an Option hereunder may be granted an
additional Option or Options, if the Committee shall so determine.
4. Stock Reserved for the Plan.
Subject to adjustment as provided in Section 7 hereof, a total of 600,000
of the Company's Common Shares (the "Stock") shall be subject to the Plan. The
shares of Stock subject to the Plan shall consist of unissued shares or
previously issued shares held by any Subsidiary of the Company, and such amount
of shares of Stock shall be and is hereby reserved for such purpose. Any of such
shares of Stock that may remain unsold and that are not subject to outstanding
Options at the termination of the Plan shall cease to be reserved for the
purposes of the Plan, but until termination of the Plan the Company shall at all
times reserve a sufficient number of shares of Stock to meet the requirements of
the Plan. Should any Option expire or be cancelled prior to its exercise in full
or should the number of shares of Stock to be delivered upon the exercise in
full of an Option be reduced for any reason, the shares of Stock theretofore
subject to such Option may be subject to future Options under the Plan.
5. Terms and Conditions of Options.
Options granted under the Plan shall be subject to the following conditions
and shall contain such additional terms and
-2-
<PAGE>
conditions, not inconsistent with the terms of the Plan, as the Committee shall
deem desirable:
(a) Option Price. The purchase price of each share of Stock
purchasable under an Incentive Option shall be determined by the Committee
at the time of grant, but shall not be less than 100% of the Fair Market
Value (as defined below) of such share of Stock on the date the Option is
granted; provided, however, that with respect to an Optionee who, at the
time such Incentive Option is granted, owns (within the meaning of Section
424(d) of the Code) more than 10% of the total combined voting power of all
classes of stock of the Company or of any Subsidiary, the purchase price
per share of Stock shall be at least 110% of the Fair Market Value per
share of Stock on the date of grant. The purchase price of each share of
Stock purchasable under a Nonqualified Option shall not be less than 50% of
the Fair Market Value of such share of Stock on the date the Option is
granted; provided, however, that an Optionee who is a Canadian taxpayer may
require that any Nonqualified Option granted to him provide for the
purchase of shares of Stock upon exercise thereof at a price equal to the
Fair Market Value per share of Stock on the date of grant. The exercise
price for each Option shall be subject to adjustment as provided in Section
7 below. Fair Market Value means the closing price of publicly traded
shares of Stock on the principal United States securities exchange on which
shares of Stock are listed (if the shares of Stock are so listed), or on
the NASDAQ Stock Market (if the shares of Stock are regularly quoted on the
NASDAQ Stock Market), or, if not so listed or regularly quoted, the mean
between the closing bid and asked prices of publicly traded shares of Stock
in the over-the-counter market, or, if such bid and asked prices shall not
be available, as reported by any nationally recognized quotation service
selected by the Company, or as determined by the Committee in a manner
consistent with the provisions of the Code. Anything in this Section 5(a)
to the contrary notwithstanding, in no event shall the purchase price of a
share of Stock be less than the minimum price permitted under rules and
policies of the American Stock Exchange and the Vancouver Stock Exchange.
(b) Option Term. The term of each Option shall be fixed by the
Committee, but no Option shall be exercisable more than six years after the
date such Option is granted.
(c) Exercisability. Subject to Section 5(j) hereof, Options shall be
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee at the time of grant. No option may
be exercised to the extent that such exercise will cause the Company to
issue, upon exercise of options to purchase shares of Stock granted by the
Company without shareholder approval, that number of shares of Stock as
equals or exceeds (i) 5% of the number of outstanding shares of Stock in
any 12-month period, or (ii) 10% of the number of outstanding shares of
Stock in any five-year period.
-3-
<PAGE>
(d) Method of Exercise. Options to the extent then exercisable may be
exercised in whole or in part at any time during the option period, by
giving written notice to the Company specifying the number of shares of
Stock to be purchased, accompanied by payment in full of the purchase
price, in cash, by check or such other instrument as may be acceptable to
the Committee. As determined by the Committee, in its sole discretion, at
or after grant, payment in full or in part may also be made in the form of
Stock owned by the Optionee (based on the Fair Market Value of the Stock on
the trading day before the Option is exercised). An Optionee shall have the
right to dividends and other rights of a stockholder with respect to shares
of Stock purchased upon exercise of an Option after (i) the Optionee has
given written notice of exercise and has paid in full for such shares and
(ii) becomes a stockholder of record with respect thereto.
(e) Non-transferability of Options. Options are not transferable and
may be exercised solely by the Optionee during his lifetime or after his
death by the person or persons entitled thereto under his will or the laws
of descent and distribution. Any attempt to transfer, assign, pledge or
otherwise dispose of, or to subject to execution, attachment or similar
process, any Option contrary to the provisions hereof shall be void and
ineffective and shall give no right to the purported transferee.
(f) Termination by Death. Unless otherwise determined by the Committee
at grant, if any Optionee's employment with or service to the Company or
any Subsidiary terminates by reason of death, the Option may thereafter be
exercised, to the extent then exercisable (or on such accelerated basis as
the Committee shall determine at or after grant), by the legal
representative of the estate or by the legatee of the Optionee under the
will of the Optionee, for a period of one year after the date of such death
or until the expiration of the stated term of such Option as provided under
the Plan, whichever period is shorter.
(g) Termination by Reason of Disability. Unless otherwise determined
by the Committee at grant, if any Optionee's employment with or service to
the Company or any Subsidiary terminates by reason of total and permanent
disability, any Option held by such Optionee may thereafter be exercised,
to the extent it was exercisable at the time of termination due to
Disability (or on such accelerated basis as the Committee shall determine
at or after grant), but may not be exercised after 30 days after the date
of such termination of employment or service or the expiration of the
stated term of such Option, whichever period is shorter; provided, however,
that, if the Optionee dies within such 30 day period, any unexercised
Option held by such Optionee shall thereafter be exercisable to the extent
to which it was exercisable at the time of death for a period of one year
after the date of
-4-
<PAGE>
such death or for the stated term of such Option, whichever period is
shorter.
(h) Termination by Reason of Retirement. Unless otherwise determined
by the Committee at grant, if any Optionee's employment with or service to
the Company or any Subsidiary terminates by reason of Normal or Early
Retirement (as such terms are defined below), any Option held by such
Optionee may thereafter be exercised to the extent it was exercisable at
the time of such Retirement (or on such accelerated basis as the Committee
shall determine at or after grant), but may not be exercised after 30 days
after the date of such termination of employment or service or the
expiration of the stated term of such Option, whichever period is shorter;
provided, however, that, if the Optionee dies within such 30 day period,
any unexercised Option held by such Optionee shall thereafter be
exercisable, to the extent to which it was exercisable at the time of
death, for a period of one year after the date of such death or for the
stated term of such Option, whichever period is shorter.
For purposes of this paragraph (h), Normal Retirement shall mean
retirement from active employment with the Company or any Subsidiary on or
after the normal retirement date specified in the applicable Company or
Subsidiary pension plan or if no such pension plan, age 65. Early
Retirement shall mean retirement from active employment with the Company or
any Subsidiary pursuant to the early retirement provisions of the
applicable Company or Subsidiary pension plan or if no such pension plan,
age 55.
(i) Other Termination. Unless otherwise determined by the Committee at
grant, if any Optionee's employment with or service to the Company or any
Subsidiary terminates for any reason other than death, Disability or Normal
or Early Retirement, the Option shall thereupon terminate, except that the
portion of any Option that was exercisable on the date of such termination
of employment may be exercised for the lesser of 30 days after the date of
termination or the balance of such Option's term if the Optionee's
employment or service with the Company or any Subsidiary is terminated by
the Company or such Subsidiary without cause (the determination as to
whether termination was for cause to be made by the Committee). The
transfer of an Optionee from the employ of the Company to a Subsidiary, or
vice versa, or from one Subsidiary to another, shall not be deemed to
constitute a termination of employment for purposes of the Plan.
(j) Limit on Value of Incentive Options. The aggregate Fair Market
Value, determined as of the date the Incentive Option is granted, of Stock
for which Incentive Options are exercisable for the first time by any
Optionee during any calendar year under the Plan (and/or any other stock
option plans of the Company or any Subsidiary) shall not exceed $100,000.
-5-
<PAGE>
(k) Transfer of Incentive Option Shares. The stock option agreement
evidencing any Incentive Options granted under this Plan shall provide that
if the Optionee makes a disposition, within the meaning of Section 424(c)
of the Code and regulations promulgated thereunder, of any share or shares
of Stock issued to him upon exercise of an Incentive Option granted under
the Plan within the two-year period commencing on the day after the date of
the grant of such Incentive Option or within a one-year period commencing
on the day after the date of transfer of the share or shares to him
pursuant to the exercise of such Incentive Option, he shall, within 10 days
after such disposition, notify the Company thereof and immediately deliver
to the Company any amount of United States federal income tax withholding
required by law.
(l) Limitation on Options Held by One Person. The aggregate number of
shares of Stock subject to options held by any one person shall not exceed
that number of shares as equals 5% of the outstanding shares of the
Company.
6. Term of Plan.
No Option shall be granted pursuant to the Plan on or after May 21, 2006,
but Options theretofore granted may extend beyond that date.
7. Capital Change of the Company.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Stock, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares reserved for issuance under the Plan
and in the number and option price of shares subject to outstanding Options
granted under the Plan, to the end that after such event each Optionee's
proportionate interest shall be maintained as immediately before the occurrence
of such event.
8. Purchase for Investment.
Unless the Options and shares covered by the Plan have been registered
under the United States Securities Act of 1933, as amended (the "Securities
Act"), or the Company has determined that such registration is unnecessary, each
person exercising an Option under the Plan may be required by the Company to
give a representation in writing that he is acquiring the shares for his own
account for investment and not with a view to, or for sale in connection with,
the distribution of any part thereof.
-6-
<PAGE>
9. Taxes.
The Company may make such provisions as it may deem appropriate, consistent
with applicable law, in connection with any Options granted under the Plan with
respect to the withholding of any United States or Canadian taxes or any other
tax matters.
10. Effective Date of Plan.
The Plan shall be effective on May 22, 1996.
11. Amendment and Termination.
The Board may amend, suspend, or terminate the Plan, except that no
amendment shall be made that would impair the rights of any Optionee under any
Option theretofore granted without his consent, and except that no amendment
shall be made which, without the approval of the shareholders of the Company
would:
(a) materially increase the number of shares that may be issued under
the Plan, except as is provided in Section 7;
(b) materially increase the benefits accruing to the Optionees under
the Plan;
(c) materially modify the requirements as to eligibility for
participation in the Plan;
(d) decrease the exercise price of an Incentive Option to less than
100% of the Fair Market Value per share of Stock on the date of grant
thereof or the exercise price of a Nonqualified Option to less than 80% of
the Fair Market Value per share of Stock on the date of grant thereof; or
(e) extend the term of any Option beyond that provided for in Section
5(b).
The Committee may amend the terms of any Option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Optionee without his consent. The Committee may also substitute new Options
for previously granted Options, including options granted under other plans
applicable to the participant and previously granted Options having higher
option prices, upon such terms as the Committee may deem appropriate.
-7-
<PAGE>
12. Government Regulations.
The Plan, and the grant and exercise of Options hereunder, and the
obligation of the Company to sell and deliver shares under such Options, shall
be subject to all applicable laws, rules and regulations, and to such approvals
by any governmental agencies or national securities exchanges (including the
American Stock Exchange and Vancouver Stock Exchange) as may be required.
13. General Provisions.
(a) Certificates. All certificates for shares of Stock delivered under
the Plan shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange
Commission, or other securities commission having jurisdiction, any
applicable Federal, provincial or state securities law, any stock exchange
upon which the Stock is then listed and the Committee may cause a legend or
legends to be placed on any such certificates to make appropriate reference
to such restrictions.
(b) Employment Matters. The adoption of the Plan shall not confer upon
any Optionee of the Company or any Subsidiary, any right to continued
employment or, in the case of an Optionee who is a director, continued
service as a director, with the Company or a Subsidiary, as the case may
be, nor shall it interfere in any way with the right of the Company or any
Subsidiary to terminate the employment of any of its employees, the service
of any of its directors or the retention of any of its consultants or
advisors at any time.
(c) Limitation of Liability. No member of the Board or the Committee,
or any officer or employee of the Company acting on behalf of the Board or
the Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and
all members of the Board or the Committee and each and any officer or
employee of the Company acting on their behalf shall, to the extent
permitted by law, be fully indemnified and protected by the Company in
respect of any such action, determination or interpretation.
(d) Registration of Stock. Notwithstanding any other provision in the
Plan, no Option may be exercised unless and until the Stock to be issued
upon the exercise thereof has been registered under the Securities Act and
applicable state securities laws, or are, in the opinion of counsel to the
Company, exempt from such registration in the United States or exempt from
the prospectus and registration requirements under applicable provincial
legislation. The Company shall not be under any obligation to register
under applicable federal or state securities laws any Stock to be issued
upon the exercise of an Option granted
-8-
<PAGE>
hereunder, or to comply with an appropriate exemption from registration
under such laws or the laws of any province in order to permit the exercise
of an Option and the issuance and sale of the Stock subject to such Option
however, the Company may in its sole discretion register such Stock at such
time as the Company shall determine. If the Company chooses to comply with
such an exemption from registration, the Stock issued under the Plan may,
at the direction of the Committee, bear an appropriate restrictive legend
restricting the transfer or pledge of the Stock represented thereby, and
the Committee may also give appropriate stop transfer instructions to the
Company's transfer agents.
GST TELECOMMUNICATIONS, INC.
May 22, 1996
-9-
GST TELECOMMUNICATIONS, INC.
SENIOR OPERATING OFFICER STOCK OPTION PLAN
1. Purpose of the Plan.
This Senior Operating Officer Stock Option Plan (the "Plan") is intended as
an incentive, to retain in the employ of GST TELECOMMUNICATIONS, INC., a
federally chartered Canadian corporation with its principal office at 4317 N.E.
Thurston Way, Vancouver, Washington 98662 (the "Company") and any Subsidiary of
the Company, within the meaning of Section 425(f) of the United States Internal
Revenue Code of 1986, as amended (the "Code"), as senior executive officers,
persons of training, experience and ability, to attract new senior executive
officers and directors whose services are considered valuable, to encourage the
sense of proprietorship and to stimulate the active interest of such persons in
the development and financial success of the Company and its Subsidiaries.
It is further intended that certain options granted pursuant to the Plan
shall constitute incentive stock options within the meaning of Section 422 of
the Code (the "Incentive Options"), while certain other options granted pursuant
to the Plan shall be nonqualified stock options (the "Nonqualified Options").
Incentive Options and Nonqualified Options are hereinafter referred to
collectively as "Options."
2. Administration of the Plan.
The Board of Directors of the Company (the "Board") shall appoint and
maintain as administrator of the Plan a Committee (the "Committee"), which shall
serve at the pleasure of the Board. The Committee, subject to Sections 3 and 5
hereof, shall have full power and authority to designate recipients of Options,
to determine the terms and conditions of respective Option agreements (which
need not be identical) and to interpret the provisions and supervise the
administration of the Plan. The Committee shall have the authority, without
limitation, to designate which Options granted under the Plan shall be Incentive
Options and which shall be Nonqualified Options. To the extent any Option does
not qualify as an Incentive Option, it shall constitute a separate Nonqualified
Option.
Subject to the provisions of the Plan, the Committee shall interpret the
Plan and all Options granted under the Plan, shall make such rules as it deems
necessary for the proper administration of the Plan, shall make all other
determinations necessary or advisable for the administration of the Plan and
shall correct any defects or supply any omission or reconcile any inconsistency
in the Plan or in any Options granted under the Plan
<PAGE>
in the manner and to the extent that the Committee deems desirable to carry into
effect the Plan or any Options. The act or determination of a majority of the
Committee shall be the act or determination of the Committee and any decision
reduced to writing and signed by all of the members of the Committee shall be
fully effective as if it had been made by a majority at a meeting duly held.
Subject to the provisions of the Plan, any action taken or determination made by
the Committee pursuant to this and the other Sections of the Plan shall be
conclusive on all parties.
3. Designation of Optionees.
The persons eligible for participation in the Plan as recipients of Options
(the "Optionees") shall comprise senior operating officers and directors of the
Company or any Subsidiary; provided that Incentive Options may only be granted
to senior operating officers and directors who are employees of the Company and
the Subsidiaries. In selecting Optionees, and in determining the number of
shares to be covered by each Option granted to Optionees, the Committee may
consider the office or position held by the Optionee or the Optionee's
relationship to the Company, the Optionee's degree of responsibility for and
contribution to the growth and success of the Company or any Subsidiary, the
Optionee's length of service, age, promotions, potential and any other factors
that the Committee may consider relevant. An Optionee who has been granted an
Option hereunder may be granted an additional Option or Options, if the
Committee shall so determine.
4. Stock Reserved for the Plan.
Subject to adjustment as provided in Section 7 hereof, a total of 900,000
of the Company's Common Shares (the "Stock") shall be subject to the Plan. The
shares of Stock subject to the Plan shall consist of unissued shares or
previously issued shares held by any Subsidiary of the Company, and such amount
of shares of Stock shall be and is hereby reserved for such purpose. Any of such
shares of Stock that may remain unsold and that are not subject to outstanding
Options at the termination of the Plan shall cease to be reserved for the
purposes of the Plan, but until termination of the Plan the Company shall at all
times reserve a sufficient number of shares of Stock to meet the requirements of
the Plan. Should any Option expire or be cancelled prior to its exercise in full
or should the number of shares of Stock to be delivered upon the exercise in
full of an Option be reduced for any reason, the shares of Stock theretofore
subject to such Option may be subject to future Options under the Plan.
5. Terms and Conditions of Options.
Options granted under the Plan shall be subject to the following conditions
and shall contain such additional terms and conditions, not inconsistent with
the terms of the Plan, as the
-2-
<PAGE>
Committee shall deem desirable:
(a) Option Price. The purchase price of each share of Stock
purchasable under an Incentive Option shall be determined by the Committee
at the time of grant, but shall not be less than 100% of the Fair Market
Value (as defined below) of such share of Stock on the date the Option is
granted; provided, however, that with respect to an Optionee who, at the
time such Incentive Option is granted, owns (within the meaning of Section
424(d) of the Code) more than 10% of the total combined voting power of all
classes of stock of the Company or of any Subsidiary, the purchase price
per share of Stock shall be at least 110% of the Fair Market Value per
share of Stock on the date of grant. The purchase price of each share of
Stock purchasable under a Nonqualified Option shall not be less than 50% of
the Fair Market Value of such share of Stock on the date the Option is
granted; provided, however, that an Optionee who is a Canadian taxpayer may
require that any Nonqualified Option granted to him provide for the
purchase of shares of Stock upon exercise thereof at a price equal to the
Fair Market Value per share of Stock on the date of grant. The exercise
price for each Option shall be subject to adjustment as provided in Section
7 below. Fair Market Value means the closing price of publicly traded
shares of Stock on the principal United States securities exchange on which
shares of Stock are listed (if the shares of Stock are so listed), or on
the NASDAQ Stock Market (if the shares of Stock are regularly quoted on the
NASDAQ Stock Market), or, if not so listed or regularly quoted, the mean
between the closing bid and asked prices of publicly traded shares of Stock
in the over-the-counter market, or, if such bid and asked prices shall not
be available, as reported by any nationally recognized quotation service
selected by the Company, or as determined by the Committee in a manner
consistent with the provisions of the Code. Anything in this Section 5(a)
to the contrary notwithstanding, in no event shall the purchase price of a
share of Stock be less than the minimum price permitted under rules and
policies of the American Stock Exchange and the Vancouver Stock Exchange.
(b) Option Term. The term of each Option shall be fixed by the
Committee, but no Option shall be exercisable more than six years after the
date such Option is granted.
(c) Exercisability. Subject to Section 5(j) hereof, Options shall be
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee at the time of grant. No option may
be exercised to the extent that such exercise will cause the Company to
issue, upon exercise of options to purchase shares of Stock granted by the
Company without shareholder approval, that number of shares of Stock as
equals or exceeds (i) 5% of the number of outstanding shares of Stock in
any 12-month period, or (ii) 10% of the number of outstanding shares of
Stock in any five-year period.
-3-
<PAGE>
(d) Method of Exercise. Options to the extent then exercisable may be
exercised in whole or in part at any time during the option period, by
giving written notice to the Company specifying the number of shares of
Stock to be purchased, accompanied by payment in full of the purchase
price, in cash, by check or such other instrument as may be acceptable to
the Committee. As determined by the Committee, in its sole discretion, at
or after grant, payment in full or in part may also be made in the form of
Stock owned by the Optionee (based on the Fair Market Value of the Stock on
the trading day before the Option is exercised). An Optionee shall have the
right to dividends and other rights of a stockholder with respect to shares
of Stock purchased upon exercise of an Option after (i) the Optionee has
given written notice of exercise and has paid in full for such shares and
(ii) becomes a stockholder of record with respect thereto.
(e) Non-transferability of Options. Options are not transferable and
may be exercised solely by the Optionee during his lifetime or after his
death by the person or persons entitled thereto under his will or the laws
of descent and distribution. Any attempt to transfer, assign, pledge or
otherwise dispose of, or to subject to execution, attachment or similar
process, any Option contrary to the provisions hereof shall be void and
ineffective and shall give no right to the purported transferee.
(f) Termination by Death. Unless otherwise determined by the Committee
at grant, if any Optionee's employment with or service to the Company or
any Subsidiary terminates by reason of death, the Option may thereafter be
exercised, to the extent then exercisable (or on such accelerated basis as
the Committee shall determine at or after grant), by the legal
representative of the estate or by the legatee of the Optionee under the
will of the Optionee, for a period of one year after the date of such death
or until the expiration of the stated term of such Option as provided under
the Plan, whichever period is shorter.
(g) Termination by Reason of Disability. Unless otherwise determined
by the Committee at grant, if any Optionee's employment with or service to
the Company or any Subsidiary terminates by reason of total and permanent
disability, any Option held by such Optionee may thereafter be exercised,
to the extent it was exercisable at the time of termination due to
Disability (or on such accelerated basis as the Committee shall determine
at or after grant), but may not be exercised after 30 days after the date
of such termination of employment or service or the expiration of the
stated term of such Option, whichever period is shorter; provided, however,
that, if the Optionee dies within such 30 day period, any unexercised
Option held by such Optionee shall thereafter be exercisable to the extent
to which it was exercisable at the time of death for a period of one year
after the date of
-4-
<PAGE>
such death or for the stated term of such Option, whichever period is
shorter.
(h) Termination by Reason of Retirement. Unless otherwise determined
by the Committee at grant, if any Optionee's employment with or service to
the Company or any Subsidiary terminates by reason of Normal or Early
Retirement (as such terms are defined below), any Option held by such
Optionee may thereafter be exercised to the extent it was exercisable at
the time of such Retirement (or on such accelerated basis as the Committee
shall determine at or after grant), but may not be exercised after 30 days
after the date of such termination of employment or service or the
expiration of the stated term of such Option, whichever period is shorter;
provided, however, that, if the Optionee dies within such 30 day period,
any unexercised Option held by such Optionee shall thereafter be
exercisable, to the extent to which it was exercisable at the time of
death, for a period of one year after the date of such death or for the
stated term of such Option, whichever period is shorter.
For purposes of this paragraph (h), Normal Retirement shall mean retirement
from active employment with the Company or any Subsidiary on or after the normal
retirement date specified in the applicable Company or Subsidiary pension plan
or if no such pension plan, age 65. Early Retirement shall mean retirement from
active employment with the Company or any Subsidiary pursuant to the early
retirement provisions of the applicable Company or Subsidiary pension plan or if
no such pension plan, age 55.
(i) Other Termination. Unless otherwise determined by the Committee at
grant, if any Optionee's employment with or service to the Company or any
Subsidiary terminates for any reason other than death, Disability or Normal
or Early Retirement, the Option shall thereupon terminate, except that the
portion of any Option that was exercisable on the date of such termination
of employment may be exercised for the lesser of 30 days after the date of
termination or the balance of such Option's term if the Optionee's
employment or service with the Company or any Subsidiary is terminated by
the Company or such Subsidiary without cause (the determination as to
whether termination was for cause to be made by the Committee). The
transfer of an Optionee from the employ of the Company to a Subsidiary, or
vice versa, or from one Subsidiary to another, shall not be deemed to
constitute a termination of employment for purposes of the Plan.
(j) Limit on Value of Incentive Options. The aggregate Fair Market
Value, determined as of the date the Incentive Option is granted, of Stock
for which Incentive Options are exercisable for the first time by any
Optionee during any calendar year under the Plan (and/or any other stock
option plans of the Company or any Subsidiary) shall not exceed $100,000.
-5-
<PAGE>
(k) Transfer of Incentive Option Shares. The stock option agreement
evidencing any Incentive Options granted under this Plan shall provide that
if the Optionee makes a disposition, within the meaning of Section 424(c)
of the Code and regulations promulgated thereunder, of any share or shares
of Stock issued to him upon exercise of an Incentive Option granted under
the Plan within the two-year period commencing on the day after the date of
the grant of such Incentive Option or within a one-year period commencing
on the day after the date of transfer of the share or shares to him
pursuant to the exercise of such Incentive Option, he shall, within 10 days
after such disposition, notify the Company thereof and immediately deliver
to the Company any amount of United States federal income tax withholding
required by law.
(l) Limitation on Options Held by One Person. The aggregate number of
shares of Stock subject to options held by any one person shall not exceed
that number of shares as equals 5% of the outstanding shares of the
Company.
6. Term of Plan.
No Option shall be granted pursuant to the Plan on or after May 21, 2006,
but Options theretofore granted may extend beyond that date.
7. Capital Change of the Company.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Stock, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares reserved for issuance under the Plan
and in the number and option price of shares subject to outstanding Options
granted under the Plan, to the end that after such event each Optionee's
proportionate interest shall be maintained as immediately before the occurrence
of such event.
8. Purchase for Investment.
Unless the Options and shares covered by the Plan have been registered
under the United States Securities Act of 1933, as amended (the "Securities
Act"), or the Company has determined that such registration is unnecessary, each
person exercising an Option under the Plan may be required by the Company to
give a representation in writing that he is acquiring the shares for his own
account for investment and not with a view to, or for sale in connection with,
the distribution of any part thereof.
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<PAGE>
9. Taxes.
The Company may make such provisions as it may deem appropriate, consistent
with applicable law, in connection with any Options granted under the Plan with
respect to the withholding of any United States or Canadian taxes or any other
tax matters.
10. Effective Date of Plan.
The Plan shall be effective on May 22, 1996.
11. Amendment and Termination.
The Board may amend, suspend, or terminate the Plan, except that no
amendment shall be made that would impair the rights of any Optionee under any
Option theretofore granted without his consent, and except that no amendment
shall be made which, without the approval of the shareholders of the Company
would:
(a) materially increase the number of shares that may be issued under
the Plan, except as is provided in Section 7;
(b) materially increase the benefits accruing to the Optionees under
the Plan;
(c) materially modify the requirements as to eligibility for
participation in the Plan;
(d) decrease the exercise price of an Incentive Option to less than
100% of the Fair Market Value per share of Stock on the date of grant
thereof or the exercise price of a Nonqualified Option to less than 80% of
the Fair Market Value per share of Stock on the date of grant thereof; or
(e) extend the term of any Option beyond that provided for in Section
5(b).
The Committee may amend the terms of any Option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Optionee without his consent. The Committee may also substitute new Options
for previously granted Options, including options granted under other plans
applicable to the participant and previously granted Options having higher
option prices, upon such terms as the Committee may deem appropriate.
-7-
<PAGE>
12. Government Regulations.
The Plan, and the grant and exercise of Options hereunder, and the
obligation of the Company to sell and deliver shares under such Options, shall
be subject to all applicable laws, rules and regulations, and to such approvals
by any governmental agencies or national securities exchanges (including the
American Stock Exchange and Vancouver Stock Exchange) as may be required.
13. General Provisions.
(a) Certificates. All certificates for shares of Stock delivered under
the Plan shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange
Commission, or other securities commission having jurisdiction, any
applicable Federal, provincial or state securities law, any stock exchange
upon which the Stock is then listed and the Committee may cause a legend or
legends to be placed on any such certificates to make appropriate reference
to such restrictions.
(b) Employment Matters. The adoption of the Plan shall not confer upon
any Optionee of the Company or any Subsidiary, any right to continued
employment or, in the case of an Optionee who is a director, continued
service as a director, with the Company or a Subsidiary, as the case may
be, nor shall it interfere in any way with the right of the Company or any
Subsidiary to terminate the employment of any of its employees, the service
of any of its directors or the retention of any of its consultants or
advisors at any time.
(c) Limitation of Liability. No member of the Board or the Committee,
or any officer or employee of the Company acting on behalf of the Board or
the Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and
all members of the Board or the Committee and each and any officer or
employee of the Company acting on their behalf shall, to the extent
permitted by law, be fully indemnified and protected by the Company in
respect of any such action, determination or interpretation.
(d) Registration of Stock. Notwithstanding any other provision in the
Plan, no Option may be exercised unless and until the Stock to be issued
upon the exercise thereof has been registered under the Securities Act and
applicable state securities laws, or are, in the opinion of counsel to the
Company, exempt from such registration in the United States or exempt from
the prospectus and registration requirements under applicable provincial
legislation. The Company shall not be under any obligation to register
under applicable federal or state securities laws any Stock to be issued
upon the exercise of an Option granted
-8-
<PAGE>
hereunder, or to comply with an appropriate exemption from registration
under such laws or the laws of any province in order to permit the exercise
of an Option and the issuance and sale of the Stock subject to such Option
however, the Company may in its sole discretion register such Stock at such
time as the Company shall determine. If the Company chooses to comply with
such an exemption from registration, the Stock issued under the Plan may,
at the direction of the Committee, bear an appropriate restrictive legend
restricting the transfer or pledge of the Stock represented thereby, and
the Committee may also give appropriate stop transfer instructions to the
Company's transfer agents.
GST TELECOMMUNICATIONS, INC.
May 22, 1996
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AMENDED AND RESTATED
MASTER AGREEMENT
Among
Tomen America Inc.,
GST Telecommunications Inc.,
GST Telecom Inc.,
Pacwest Network, Inc.,
Pacwest Network L.L.C.,
GST New Mexico Lightwave, Inc.,
GST Pacific Lightwave, Inc., and
GST Tucson Lightwave, Inc.
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Page
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1. Interpretation......................................................................................... 2
1.1 Definitions................................................................................... 2
1.2 Monetary Denomination......................................................................... 2
2. Tomen Participation in GSI and GST Network Projects.................................................... 2
2.1 Exclusive Right............................................................................... 2
2.2 Termination of Exclusive Right................................................................ 3
2.3 Other Cooperation............................................................................. 3
3. Participation as Procurement Agent; Equipment Purchase Agreements...................................... 3
4. Debt Financing for Network Projects.................................................................... 4
5. Rights Related to Development Company Fundings......................................................... 5
5.1 GSI Equity Securities Purchase................................................................ 6
5.2 Contractor and Construction Manager........................................................... 6
6. Purchase of GSI Shares; Grant of Options and Warrants.................................................. 6
7. Network Project Financings............................................................................. 7
8. Access to Information.................................................................................. 7
9. No Restrictions........................................................................................ 7
10. Expenses............................................................................................... 7
11. Public Announcements................................................................................... 8
12. Representations and Warranties......................................................................... 8
12.1 Organization.................................................................................. 8
12.2 Authorization; Binding Agreement.............................................................. 8
12.3 Proceedings................................................................................... 8
12.4 No Brokers.................................................................................... 8
12.5 Agreement Will Not Cause Breach............................................................... 8
12.6 Disclosure.................................................................................... 9
13. Indemnification........................................................................................ 9
14. Miscellaneous.......................................................................................... 10
14.1 Notices....................................................................................... 10
14.2 Successors and Assigns........................................................................ 11
14.3 Waiver........................................................................................ 11
14.4 Governing Law................................................................................. 11
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Page
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14.5 Counterparts.................................................................................. 11
14.6 Effect of Section Headings.................................................................... 11
14.7 Amendments.................................................................................... 11
14.8 Entire Agreement.............................................................................. 11
14.9 No Third Party Beneficiaries.................................................................. 11
14.10 Further Assurances............................................................................ 11
14.11 Partial Invalidity............................................................................ 12
14.12 Plural Terms.................................................................................. 12
14.13 Interpretation................................................................................ 12
14.14 Arbitration................................................................................... 12
14.15 Attorneys' Fees............................................................................... 13
14.16 Confidential Information...................................................................... 13
SCHEDULE 1 - DEFINITIONS........................................................................................1-1
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED
MASTER AGREEMENT
THIS AMENDED AND RESTATED MASTER AGREEMENT
("Agreement") is made and entered into as of May 24, 1996 by the parties set
forth on the signature page hereof and amends that certain Master Agreement
dated October 24, 1994 by and among Tomen America Inc., a New York corporation
("Tomen America"), GST Telecommunications, Inc., a Canadian corporation
(formerly known as "Greenstar Telecommunications Inc.") ("GSI"), GST Telecom
Inc., a Delaware corporation and wholly-owned subsidiary of GSI ("GST"), GST
Pacwest Network L.L.C., an Oregon limited liability company, Pacwest Network
Inc., a Washington corporation (Pacwest Network L.L.C. and Pacwest Network, Inc.
are referred to collectively herein as "Pacwest") and GST Pacific Lightwave,
Inc., a Washington corporation (formerly known as "Pacific Lightwave, Inc.")
("PLI"), with respect to the following facts and circumstances.
A. GSI and GST have or are developing plans to develop alternative
access network telecommunications projects or expand existing alternative access
network telecommunication projects ("Network Projects") in North, Central and
South America (the "Territory");
B. Tomen is willing to: (1) provide up to one hundred million dollars
($100,000,000) of debt financing (including amounts previously disbursed with
respect to the PLI Project defined below) to Affiliates of GSI and GST which
will develop the Network Projects (the "Development Companies"); and (2) act as
equipment and materials procurement agent ("Procurement Agent") for such Network
Projects.
C. GSI and GST are willing to grant Tomen the exclusive right to
participate in financing and procurement for each of the Network Projects in the
Territory.
D. The Network Project developed by PLI (the "PLI Project"), was the
initial Network Project developed pursuant to these arrangements and serves as
the model for the parties' other joint Network Projects.
E. The parties wish to make certain changes in the terms and conditions
of Tomen Corporation's and its Affiliates' ("Tomen's") rights to acquire equity
interests in Greenstar.
Subject to the terms and conditions of this Agreement and the
other Related Documents, and in reliance upon the representations, warranties,
covenants and agreements of the parties in this Agreement and the other Related
Documents, the parties hereto agree as follows:
<PAGE>
1. Interpretation.
1.1 Definitions. Unless otherwise indicated in this
Agreement or any other Related Document, each term set forth in Schedule 1, when
used in this Agreement or any other Related Document, shall have the respective
meaning given to that term in Schedule 1 or in the provision of this Agreement
or other Related Document referenced in Schedule 1.
1.2 Monetary Denomination. All references to
"dollars" or "$" mean the lawful currency of the United States of America.
2. Tomen Participation in GSI and GST Network Projects.
2.1 Exclusive Right.
(a) Commencing as of October 24, 1994, in each case
prior to providing any such information to any other party, GSI and GST and
their Affiliates (collectively, "Greenstar") will submit to Tomen for
consideration information concerning each Network Project Greenstar intends to
undertake in the Territory. Such information shall contain all necessary and
relevant terms and conditions regarding the Network Project including (without
limitation) a description of the proposed geographic location, a full business
plan (including information with respect to marketing, network facilities,
regulatory considerations, competitors and financial plans), operating budget,
historical information, financial information, any special considerations, the
proposed terms of Tomen's participation, and all other information required by
Tomen (in Tomen's reasonable judgment) to enable Tomen to determine whether to
participate in such Network Project. If additional information ("Additional
Information") shall be requested by Tomen, it shall be requested if practicable,
within forty-five (45) days of receipt of the information described in the
preceding sentence, and if not practicable, the period described in the
succeeding sentence to review and request information shall be extended up to
ten (10) days after receipt by Tomen of the Additional Information. Subject to
the terms of the preceding sentence, Tomen shall provide GSI and GST with notice
within forty-five (45) days of Tomen's receipt of adequate information
concerning a proposed Network Project whether, subject to completion of due
diligence and obtaining all approvals of Tomen and its Affiliates, it will
provide financing and participate as Procurement Agent for such Network Project.
During the period from Greenstar's conception of the proposed Network Project to
the expiration of Tomen's review period described in the preceding two
sentences, Greenstar shall keep the information concerning the proposed Network
Project and Tomen's potential participation confidential from all other parties.
Tomen's decision to participate in any proposed Network Project shall be subject
to, in each case, Tomen's satisfaction in its sole discretion with the Network
Project and with the terms of its participation. In this connection, Tomen may
propose debt financing terms different from those set forth in Section 4 with
respect to a particular Network Project proposed by Greenstar; provided that, if
the parties cannot agree on any such different terms and Tomen is unwilling to
participate on the terms set forth in Section 4, such Network Project shall be
considered a declined project under Subsection 2.2(b).
2
<PAGE>
(b) This Subsection 2.1 shall not apply to: (i) the
existing joint venture arrangement of Greenstar with IntelCom Group Inc. with
respect to the development of an alternative access fiber optic
telecommunication transmission network in the Phoenix, Arizona Metropolitan Area
through Phoenix Fiber Access, Inc.; (ii) the existing joint venture arrangements
of Greenstar with Starcom International Optics Corporation with respect to the
Fiber One network proposed to be constructed between Vancouver, British Columbia
and Seattle, Washington; (iii) the proposed joint venture, Kentucky Fiberlink,
Co., to provide telecommunications services to the Commonwealth of Kentucky; and
(iv) any other project or joint venture in which: (A) Greenstar is a passive
investor with no ability to control the financing of the project, or (B) the
participation of Tomen as contemplated by this Agreement is prohibited by
Canadian law, including without limitation, that the participation of Tomen
would render the proposed Network Project ineligible for any necessary Permits
from Canadian authorities. No Greenstar entity is subject to any agreement or
bound in any way (by means of a noncompetition agreement or otherwise) from
developing Network Projects with Tomen in any geographic area in the Territory
other than the Phoenix Arizona Metropolitan Area.
2.2 Termination of Exclusive Right. The obligation of
Greenstar to provide to Tomen the exclusive right set forth in Subsection 2.1
will terminate on the earlier to occur of:
(a) such time as Tomen has provided a total of debt
financing in the principal amount (such principal amount to include interest
during the construction period) of one hundred million dollars ($100,000,000) to
Network Projects; and
(b) such time as Tomen has declined to provide
financing for three Network Projects submitted by Greenstar, provided that such
rejected Network Projects are similar to those previously undertaken by
Greenstar and Greenstar is fully committed to pursuit of such Network Projects
and closes the financing for each such Network Project. Tomen's decision not to
provide financing for three such Network Projects shall terminate Tomen's
obligation hereunder to make available any further debt financing.
2.3 Other Cooperation. GSI and Tomen shall consult with
one another periodically with respect to GSI's business activities in areas
other than alternative access telecommunications networks to determine whether
Tomen and GSI may work together in such other areas.
3. Participation as Procurement Agent; Equipment Purchase
Agreements.
(a) With respect to each Network Project in which Tomen elects
to participate, Tomen or an Affiliate of Tomen shall act as Procurement Agent.
In connection with serving as Procurement Agent: (i) Tomen has the right to
charge a commission negotiated with each supplier; (ii) the materials and
equipment provided for the Network Project will satisfy specifications provided
by the Development Company and the suppliers will be recognized suppliers of
such materials and equipment, provided that the Development
3
<PAGE>
Company has the reasonable right to reject a particular supplier if the
Development Company or an Affiliate has had difficulty with the supplier or the
supplier's materials or equipment are known in the market to be substandard,
provided further that GSI or GST provides written notice to Tomen of its
objection to a particular supplier within five Business Days of the date Tomen
proposes such supplier, and (iii) the price charged to the Development Company,
including the commission payable to Tomen, will be competitive with the prices
available from other suppliers (understanding that competitive does not mean
lowest in each case or that it will be higher in each case, but rather means
reasonable compared to the prices available from other suppliers, considering
the features of such other equipment and materials and the terms, including
warranty and payment terms and timing of delivery, available from other
suppliers). To check that prices available through Tomen are competitive, not
more than once each year commencing as of October 23, 1995, GSI and GST have the
right to obtain independent quotes for materials and equipment (which subject to
any confidentiality restrictions shall be made available to Tomen), and Tomen
has the right to revise its pricing based on such other quotes, which revised
price shall be accepted by Greenstar if it is competitive as described above.
(b) From time to time the Procurement Agent may enter
into agreements with equipment vendors with respect to the equipment to be
purchased by a Development Company, and the Development Company and/or GST,
subject to its/their review and approval of such agreements, shall enter into
reciprocal agreements with the Procurement Agent on the same terms and
conditions. If GST shall be a party to any such agreements with Tomen or
equipment vendors, it shall enter into reciprocal agreements with the
Development Company on the same terms and conditions.
4. Debt Financing for Network Projects. (a) With respect to
each Network Project in which Tomen elects to participate, Tomen shall provide a
loan in the amount of 75% of the Project Costs of a Network Project (a "Project
Loan") on the following terms, subject to agreement otherwise with respect to a
particular Network Project: (i) extension of the Project Loan will be subject to
conditions, including those set forth in Article 3 of the PLI Credit Agreement;
(ii) the Project Loan will cover a construction and term period, with the
construction period not to exceed three years and the total term of the Project
Loan not to exceed nine years; (iii) interest will be calculated and payable
quarterly, with interest during the construction period to be paid from draws
under the Project Loan (except to the extent that the Development Company has
revenue from operations during the construction period, in which event interest
will be paid currently from such revenue); (iv) the interest rate for the
Project Loan will be 3 month LIBOR plus 300 basis points, subject to the
Development Company having the option to convert to a fixed interest rate during
the term period on any interest payment date, with the fixed rate being equal to
the Treasury index rate for a term nearest to the remaining loan term, plus 300
basis points plus the swap cost associated with the conversion to the fixed
interest rate; (v) principal repayment will commence at the beginning of the
fourth year of the term of the Project Loan, with principal repayment based on
amortization to be agreed on with respect to each Network Project over 24
quarterly payments and any outstanding principal and interest paid on the date
of the scheduled 24th payment; (vi) GST will make an equity contribution equal
to the 25% of the Project Costs prior to or at the same time as the initial
funding under the Project Loan;
4
<PAGE>
(vii) at the initial funding under the Network Project Credit Agreement Tomen
will be paid an upfront fee equal to 1.5% of the amount of the Project Loan;
(viii) Tomen will be paid a commitment fee of .5% per annum of the unused
principal portion of the committed amount of the Project Loan, payable quarterly
in arrears together with each quarterly interest payment; (ix) the security for
the Project Loan will include all of the assets of the Development Company and
all ownership interests in the Development Company; (x) the Project Loan may be
prepaid at any time without Tomen's consent, provided that (A) Tomen shall have
a right of first refusal to provide any refinancing, (B) at the time of the
prepayment Tomen shall be paid an amount equal to one-third of the net present
value of the interest rate savings, if any, of the refinancing loan compared to
the Project Loan, which if Tomen provides the refinancing loan will be added to
the principal amount thereof, and (C) if the Project Loan has variable interest,
the prepayment is on the last day of a LIBOR Interest Period, and if the
Development Company has elected to convert to a fixed interest loan, the
Development Company pays any costs or expenses in connection with the
prepayment; and (xi) any management fees payable by the Development Company will
be subordinated to the Development Company's obligations to Tomen with respect
to the Project Loan and the pledge agreement described in Subsection 4(b).
(b) At any time Tomen provides debt financing to more
than one Network Project, Greenstar shall cause each Development Company
involved in such Network Projects, at the time of the closing of the debt
financing of the second Network Project funded by Tomen and the closing of each
subsequent Network Project funded by Tomen, to enter into pledge agreements
pledging the Net Cash Flow of such Development Company to support the
Obligations of each other Development Company to Tomen and its Affiliates in the
event of a default of any other Development Company; provided however, that a
default or event of default on the part of one Development Company with respect
to its Network Project Credit Agreement by itself shall not constitute a default
or event of default with respect to the Network Project Credit Agreement between
any other Development Company and Tomen but rather the Net Cash Flow of such
second Development Company shall be available to cure the default or event of
default of the first Development Company.
(c) GST shall have the right to make additional
capital contributions to Development Companies. GST may also make loans to
Development Companies; provided that the maximum aggregate amount of such loans
shall be equal to twenty percent (20%) of the Project Budget of the Development
Company and such loans shall be unsecured and deeply subordinated to any
Obligations to Tomen and its Affiliates.
5. Rights Related to Development Company Fundings.
With respect to each Network Project in which Tomen elects to participate, Tomen
shall have the following rights.
5
<PAGE>
5.1 GSI Equity Securities Purchase.
(a) Tomen or an Affiliate shall have the right (but
not the obligation), at the time of the initial funding of the initial Project
Loans for the Network Projects in Albuquerque, New Mexico and Tucson, Arizona,
to purchase, for a total purchase price of $800,000.00: (i) the number of shares
of GSI Common Stock, no par value ("GSI Common Stock") equal to the quotient of
the purchase price referred to in the preceding clause divided by the average of
the per share closing price for the GSI Common stock quoted on the AMEX as
published in the Western edition of the Wall Street Journal for the thirty (30)
market trading days preceding the date of the Credit Agreement between GST New
Mexico Lightwave, Inc. and GST Tucson Lightwave, Inc., respectively, as borrower
and Tomen as lender, and (ii) 46,155 warrants exercisable for one share of GSI
Common Stock.
(b) Tomen or an Affiliate shall have the right (but
not the obligation), at the time of the initial funding of each Project Loan
made after the Project Loans for the Albuquerque, New Mexico and Tucson, Arizona
Project Loans, to purchase for a total purchase price equal to 10% of the total
equity contribution to the Development Company by its shareholder(s): (i) the
number of shares of GSI Common Stock equal to the quotient of the purchase price
referred to in the preceding clause divided by the average of the per share
closing price for the GSI Common stock quoted on the AMEX as published in the
Western edition of the Wall Street Journal for the thirty (30) market trading
days preceding the date of the Credit Agreement between such Development Company
as borrower and Tomen as lender, and (ii) with respect to the Network Project to
be funded in Hawaii, 75,000 warrants, each exerciseable for one share of GSI
Common Stock, and with respect to other Network Projects, a number of such
warrants as shall be mutually agreed by Tomen and GSI.
5.2 Contractor and Construction Manager. Tomen shall have
the right to approve (which approval shall not be unreasonably withheld) the
contractor and construction manager for each Network Project in which Tomen
participates; provided that, Tomen shall approve or disapprove any proposed
contractor or construction manager within ten (10) Business Days after written
notice of such proposed contractor or construction manager is provided to Tomen
by Greenstar in the manner set forth in Section 14. If Tomen does not approve or
disapprove within such time period, the proposed contractor or construction
manager shall be deemed to be approved.
6. Purchase of GSI Shares; Grant of Options and Warrants. As
of October 24, 1994, Tomen and GSI entered into a Greenstar Telecommunications
Inc. Common Stock Purchase Agreement, which was amended by Amendment No. 1 to
Greenstar Telecommunications Inc. Common Stock Purchase Agreement effective as
of October 24, 1994 (the "GSI Stock Purchase Agreement") for: (a) the purchase
of certain GSI Common Stock and warrants exercisable for GSI Common Stock; and
(b) the granting of certain options to purchase GSI Common Stock and warrants
exercisable for GSI Common Stock.
6
<PAGE>
7. Network Project Financings. Concurrently with the execution
of this Agreement, Tomen (as lender) is entering into Credit Agreements with GST
Tucson Lightwave, Inc., an Arizona corporation ("TLI"), and GST New Mexico
Lightwave, Inc., a New Mexico corporation ("NML") (both of which are
wholly-owned subsidiaries of GST), as borrowers, respectively.
8. Access to Information. Upon reasonable notice and at
reasonable intervals, GSI, GST, PLI, TLI, NML, and each other Development
Company shall, and shall cause their officers, directors, employees, partners,
auditors, agents and Affiliates to: (a) afford Tomen's officers, employees and
authorized agents and representatives and its Affiliates reasonable access
during normal business hours to the offices, properties and records of
Greenstar, including, without limitation, access to engineers, surveyors and
other agents of Tomen and cooperation in all reasonable respects in the conduct
of any surveys, reviews, environmental investigations and audits; and (b)
furnish to Tomen's officers, employees and authorized agents and representatives
and its Affiliates such additional financial and operating data and other
information regarding Greenstar (or legible copies thereof) as Tomen may from
time to time reasonably request and that can be provided without unreasonable
cost to or effort on the part of Greenstar. Without limiting the generality of
the foregoing provisions, GSI, GST, PLI, TLI, NML and each other Development
Company shall, and shall cause their Affiliates to, cooperate in all reasonable
respects with Tomen's investigation of Greenstar and such other Companies and
provide copies of such documents as Tomen may request to confirm the title to
any and all properties or assets (real, personal, tangible, intangible or other)
of Greenstar and such other Companies or used, or intended to be used by the
Network Projects. Notwithstanding anything to the contrary in the Related
Documents, no investigation by Tomen shall affect the representations and
warranties of GSI, GST, PLI, TLI or NML under this Agreement.
9. No Restrictions. Except as provided in this Section 9,
there are no restrictions on Tomen with respect to its participation in projects
not related to Greenstar. Tomen is free to pursue opportunities relating to
(without limitation) alternative access telecommunications networks that become
available to Tomen either alone or with third parties; provided, however, that
(a) once Greenstar presents a Network Project to Tomen, Tomen shall not
participate in the debt or equity financing of such project without Greenstar
unless Greenstar informs Tomen that it no longer has any interest in pursuing
the Network Project, and (b) once each year Greenstar may provide Tomen with a
list of cities in which Greenstar reasonably expects to develop Network Projects
during the following twelve months and any information then available to
Greenstar with respect to the planned Network Projects, and Tomen shall not,
without Greenstar's consent, offer to provide debt or equity financing for an
alternative access telecommunications network under development by another party
in such city during such twelve month period.
10. Expenses. At any closings pursuant to Network Project
Credit Agreements, Tomen's transaction expenses with respect to the negotiation,
execution and delivery of the associated agreements, including legal, consulting
and financial advisory fees
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and other out of pocket expenses of Tomen, will be paid from the proceeds of the
loan made pursuant to the related Network Project Credit Agreement, in the
maximum amount of $250,000 (it being the anticipation of the parties that the
actual amount will be less than such amount).
11. Public Announcements. Neither Tomen, on the one hand, or
Greenstar on the other, shall make any public announcement concerning the
transactions contemplated hereby except with the prior consent of the other or
as may be required by law. Tomen or Greenstar, as the case may be, shall have
the right to review and provide comments on the form of any public announcement
prior to issuance of such announcement by the other.
12. Representations and Warranties. Tomen, GSI, GST, PLI, TLI
and NML and Pacwest each represent to the other as follows:
12.1 Organization. It is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of formation. It is duly qualified, authorized or licensed and in
good standing in each of the jurisdictions where the nature of its business or
the character of the properties owned, leased or operated by it requires such
qualification, authorization or licensing.
12.2 Authorization; Binding Agreement. This Agreement
has been duly executed and delivered by it and constitutes the valid and binding
obligation of it, enforceable against it in accordance with its terms. The
execution and delivery of this Agreement have been duly authorized by all
necessary action, and the individual or individuals executing and delivering
this Agreement on behalf of it is or are duly authorized to do so, and to bind
it thereby, all in accordance with its charter documents.
12.3 Proceedings. There is no litigation, action,
suit or proceeding pending or, to the best of such party's knowledge, threatened
by or against such party or which could reasonably be anticipated to adversely
affect, either individually or in the aggregate the transactions contemplated by
this Agreement.
12.4 No Brokers. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried on by such
party directly and no Person may be deemed to be acting on behalf of such party
in such a manner as to give rise to any valid claim against any of the parties
for a brokerage commission, finder's fee or other like payment except that
Pacwest is entitled to a finder's fee pursuant to Section 9.4 of the GST
Shareholder Agreement. GSI and GST are responsible for paying such finder's fee
to Pacwest.
12.5 Agreement Will Not Cause Breach. The execution
and delivery of this Agreement and the other Related Documents and the
consummation of the transactions contemplated hereby and thereby will not result
in or constitute any of the following: (i) a breach of any term or provision of
any Related Document by such party; (ii) a default, breach or violation or an
event that, with notice or lapse of time or both, would be a default,
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breach or violation of any of such party's organizing documents or any
contractual obligation, license, commitment or arrangement to which such party
is a party or by which such party is bound; (iii) an event that would permit any
Person to terminate any contractual obligation or to accelerate the maturity of
any indebtedness or other contractual obligation of such party; or (iv) the
creation or imposition of any lien.
12.6 Disclosure. No representation, warranty or other
statement made by such party in this Agreement contains any untrue statement of
a material fact or omits to state any material fact necessary to make the
statements herein taken as a whole not misleading in light of the circumstances
under which they were made.
13. Indemnification.
(a) Greenstar, jointly and severally, will indemnify
and hold harmless Tomen, each of Tomen's directors, partners, officers and
Affiliates, and each of such partners', officers' and Affiliates' officers,
directors, partners, employees, representatives and Affiliates (collectively,
the "Tomen Indemnitees"), against any losses, claims, damages or liabilities,
joint or several, to which any Tomen Indemnitee may become subject, under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) (i) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in any
Greenstar public document, including without limitation, press releases and all
documents required to be filed with the SEC, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and/or (ii) are suffered or incurred by a
Tomen Indemnitee, directly or indirectly, by reason of or arising out of any
litigation instituted by any shareholder of Greenstar other than a Tomen
Indemnitee, and Greenstar will reimburse each Tomen Indemnitee for any legal or
other expenses reasonably incurred by such Tomen Indemnitee in connection with
investigating or defending any such action or claim; provided, however, that
Greenstar shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any public
document, including without limitation, press releases and all documents
required to be filed with the SEC, or any such amendment or supplement, in
reliance upon and in conformity with written information furnished to Greenstar
by Tomen expressly for use in any Greenstar public document, including without
limitation, press releases and all documents required to be filed with the SEC.
(b) In the event that any third party claim is
asserted against a Tomen Indemnitee with respect to which such Tomen Indemnitee
is entitled to indemnification hereunder, such Tomen Indemnitee will, within
thirty (30) days after learning of such claim (provided, however, that if a
claim arises by virtue of litigation, then in no event less than twenty (20)
days prior to the date in which an appearance or answer is due, whichever is
earlier), notify Greenstar of such claim in writing. Greenstar shall, within
twenty (20) days after receipt from the Tomen Indemnitee of notice of such
claim, conduct at its expense the defense against such claim in its own name, or
if necessary in the name of the
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Tomen Indemnitee, subject to the Tomen Indemnitee's reasonable approval of any
voluntary resolution of such claim. In the event that Greenstar fails to conduct
such defense or to provide notice to Tomen that it will conduct such defense,
the Tomen Indemnitee will have the right to conduct such defense and to
compromise and settle the claim in its sole discretion and be entitled to
indemnification from Greenstar pursuant to this Section 13. The Tomen Indemnitee
and Greenstar will cooperate with the Person conducting such defense and make
available to such Person such assistance and materials as may be reasonably
requested by it, all at the expense of Greenstar.
(c) The obligations of Greenstar under this Section
13 shall be in addition to any liability which Greenstar may otherwise have.
14. Miscellaneous.
14.1 Notices. All notices, notifications and other
communications required or permitted by this Agreement shall be in writing and
shall be delivered by hand, telegraphically transmitted, sent by facsimile (with
a copy sent by overnight mail), or mailed by overnight courier to the parties at
the following addresses (or such other address for a party as shall be specified
by notice given pursuant hereto):
If to Tomen: Tomen America Inc.
1285 Avenue of the Americas
New York, NY 10019
Attn: Takashi Yoshida
Facsimile No. (212) 397-3351
with a copy to: Orrick, Herrington & Sutcliffe
400 Sansome Street
San Francisco, CA 94111
Attn: Michael R. Meyers
Facsimile No. (415) 773-5759
If to GSI, GST, Pacwest, PLI,
TLI or NML: c/o GST Telecommunications Inc.
4317 NE Thurston Way
Vancouver, WA 98662
Attn: John Warta
Facsimile No. (360) 604-2878
with a copy to: Olshan Grundman Frome & Rosenzweig, LLP
505 Park Avenue
New York, NY 10022
Attn: Stephen Irwin
Facsimile No. (212) 755-1467
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Notices delivered by hand, telegraphically transmitted, or
sent by facsimile shall be deemed given the day so delivered, transmitted or
sent. Notices delivered or mailed as provided herein shall be deemed given on
the date of actual receipt. Failure to deliver to counsel for a party as
provided above a copy of a notice shall not constitute failure to give notice
hereunder.
14.2 Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the successors and permitted
assigns of Tomen, GSI, GST, Pacwest, PLI, TLI and NML. No party may assign or
transfer this Agreement or any interest herein, in whole or in part, by
operation of law or otherwise, except upon the prior written consent of the
other parties, which prior consent may be withheld in the sole discretion of
such parties.
14.3 Waiver. No delay or omission by a party hereto
in exercising any right or remedy provided for herein shall constitute waiver of
such right or remedy and shall not be construed as a bar to or a waiver of any
such right or remedy on any future occasion.
14.4 Governing Law. This Agreement shall be governed
by, interpreted under, and construed and enforced in accordance with the laws of
the State of New York, except that body of law relating to choice of law.
14.5 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
14.6 Effect of Section Headings. Section headings
appearing in this Agreement are inserted for convenience or reference only, and
shall in no way be construed to be interpretations of text.
14.7 Amendments. This Agreement may only be modified
or amended by an instrument in writing duly executed and delivered by the
parties or their duly authorized representatives.
14.8 Entire Agreement. The terms and conditions set
forth herein constitute the complete and exclusive statement of the agreement
between Tomen, GSI, GST, Pacwest, PLI, TLI and NML relating to the subject
matter of this Agreement, superseding all previous negotiations and
understandings, and may not be contradicted by evidence of any prior or
contemporaneous agreement.
14.9 No Third Party Beneficiaries. The parties do not
intend to confer any benefit hereunder on any other than the parties hereto.
14.10 Further Assurances. The parties agree to do
such further acts and things and to execute and deliver such additional
agreements and instruments as the other
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may reasonably require to consummate, evidence or confirm the agreements
contained herein in the manner contemplated hereby.
14.11 Partial Invalidity. If any provision of this
Agreement is found to be invalid by any court, the invalidity of such provision
shall not affect the validity of the remaining provisions hereof.
14.12 Plural Terms. All terms defined in this
Agreement in the singular form shall have comparable meanings when used in the
plural form and vice versa.
14.13 Interpretation. Each party and its counsel have
reviewed this Agreement and accordingly the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement.
14.14 Arbitration.
(a) Any controversy, claim or dispute between the
parties hereto arising out of or related to this Agreement or the breach hereof,
which cannot be settled amicably by the parties, shall be submitted for
arbitration in accordance with the provisions contained herein and in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
("Rules"); provided, however, that notwithstanding any provisions of such Rules,
the parties shall have the right to take depositions and obtain discovery
regarding the subject matter of the Arbitration, as provided in the New York
Civil Practice Laws and Rules. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction. The arbitrators
shall determine all questions of fact and law relating to any controversy, claim
or dispute hereunder, including but not limited to whether or not any such
controversy, claim or dispute is subject to the Arbitration provisions contained
herein.
(b) Any party desiring arbitration shall serve on the
other party and the New York Office of the American Arbitration Association, in
accordance with the aforesaid Rules, its Notice of Intent to Arbitrate
("Arbitration Notice"), accompanied by the name of the arbitrator selected by
the party serving the Arbitration Notice. A second arbitrator shall be chosen by
the other party, and a third arbitrator shall be chosen by the two arbitrators
so selected. If the party upon whom the Arbitration Notice is served fails to
select an arbitrator and fails to advise the other party of selection within
fifteen (15) days after the receipt of the Arbitration Notice, the second
arbitrator shall be selected by the first arbitrator. If the two arbitrators so
chosen cannot agree upon a third arbitrator within ten (10) days after the
appointment of a second arbitrator, the third arbitrator shall be selected in
accordance with the Rules. The arbitration proceedings provided hereunder are
hereby declared to be self-executing, and it shall not be necessary to petition
a court to compel arbitration.
(c) If a controversy, claim or dispute arises between
the parties which is subject to the arbitration provisions hereunder, and there
exists or later arises a controversy, claim or dispute between the parties and
any third party, which controversy,
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claim or dispute arises out of or relates to the same transaction or series of
transactions, said third party controversy, claim or dispute shall be
consolidated with the arbitration proceedings hereunder; provided, however, that
any such third party must be a party to an agreement with Tomen, GSI, GST,
Pacwest, PLI, TLI or NML which provides for arbitration of disputes thereunder
in accordance with rules and procedures substantially the same in all material
respects as provided for herein, or, if not, must consent to arbitration as
provided for hereunder.
(d) All arbitration proceedings shall be held in New
York, New York.
(e) A demand for arbitration shall be made within
reasonable time after the claim, dispute or other matter in question has arisen
and in no event shall it be made after the date when institution of legal or
equitable proceedings based on such claim, dispute or other matter in question
would be barred by the applicable statutes of limitations.
(f) For the purposes of this Subsection 14.14, a
"party" shall be Tomen, on the one hand, or GSI, GST, Pacwest, PLI, TLI and/or
NML, on the other hand.
14.15 Attorneys' Fees. In the event of any litigation
or arbitration to enforce the provisions of this Agreement, the prevailing party
in such litigation or arbitration shall be entitled to reasonable attorneys'
fees and costs as fixed by court or arbitration.
14.16 Confidential Information. (a) "Confidential
Information" means, collectively, any financial information, customer
information, contracts, service or product data, "know-how," or other like
information provided by the Providing Party to the Receiving Party which is of a
secret and proprietary nature, is in written form and marked as "CONFIDENTIAL",
and is treated by the Providing Party as a trade secret. Each party, when
receiving Confidential Information from the other party shall be referred to as
the "Receiving Party" and when disclosing or providing access to Confidential
Information to the other party shall be referred to as the "Providing Party."
(b) Each Receiving Party agrees to keep the
Confidential Information of the Providing Party disclosed to it hereunder
confidential; not to communicate Confidential Information of the Providing Party
to any third party without the approval of the Disclosing Party except to its
agents, representatives, advisors, consultants and employees; to direct its
agents, representatives, advisors, consultants and employees not to disclose to
any person the fact that the Confidential Information has been made available to
the Receiving Party, any of the terms, conditions or other facts with respect to
any possible transactions, including the status thereof except as otherwise set
forth herein; and not to utilize Confidential Information of the Providing Party
except for purposes of the business relationship with the Providing Party.
(c) The restrictions provided herein concerning use
or disclosure of Confidential Information by the Receiving Party shall not apply
with respect to Confidential Information which:
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(i) was disclosed to the Receiving Party by
a third party having the right to disclose the same;
(ii) either was published or otherwise
available to the public at the time of its receipt by the Receiving Party or
became published or available to the public at a subsequent date by means other
than a breach of this Subsection 14.16, but in such event only as of said
subsequent date;
(iii) was known to, developed or obtained by
the Receiving Party independently of any disclosure to it hereunder, as shown by
documents in the Receiving Party's possession; or
(iv) is disclosed by the Receiving Party to
its counsel, as required by law, or in a legal proceeding.
(d) Upon the Providing Party's request, the Receiving
Party shall deliver to the Providing Party any tangible materials containing
Confidential Information, including all copies thereof, and all such materials
shall remain the property of the Providing Party. This paragraph shall survive
termination of this Agreement.
(e) Tomen and its Affiliates are authorized to (i)
discuss with their advisors, agents, representatives and consultants prospective
business transactions between Tomen and Greenstar or Pacwest in order to assess
the feasibility thereof, and (ii) disclose Confidential Information to the
extent required to perform the obligations of Procurement Agent.
(f) Except as provided in (d) above, this Subsection
14.16 shall terminate two (2) years from the date of disclosure of the
Confidential Information.
(g) Each Receiving Party understands and acknowledges
that any breach or threatened breach of any of its obligations under this
Subsection 14.16 will cause irreparable harm to the Providing Party for which
damages would not be a fully adequate remedy, and therefore, in the event of any
such breach, in addition to other available remedies, the Providing Party shall
have the right to obtain specific performance of this Subsection 14.16 and
injunctive relief.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first written above.
TOMEN AMERICA INC., GST TELECOMMUNICATIONS INC.,
a New York corporation a Canadian corporation
By: /s/ Takashi Yoshida By: /s/ Clifford V. Sander
- ------------------------ ----------------------------------------
Name: Takashi Yoshida Name: Clifford V. Sander
Title: Vice President Its: Senior Vice President
GST TELECOM INC.,
a Delaware corporation
By: /s/ Clifford V. Sander
----------------------------------------
Name: Clifford V. Sander
Its: Vice President
GST PACIFIC LIGHTWAVE, INC.,
a Washington corporation
By: /s/ Clifford V. Sander
----------------------------------------
Name: Clifford V. Sander
Its: Vice President
PACWEST NETWORK L.L.C.,
an Oregon limited liability company
By its sole members:
/s/ John Warta
----------------------------------------
John Warta
/s/ Clifford V. Sander
----------------------------------------
Clifford V. Sander
PACWEST NETWORK, INC.,
a Washington corporation
By: /s/ John Warta
----------------------------------------
Name: John Warta
Its: President
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GST TUCSON LIGHTWAVE, INC.,
an Arizona corporation
By: /s/ Clifford V. Sander
-----------------------------------------
Name: Clifford V. Sander
Title: Vice President, CFO, Treasurer
& Assistant Secretary
GST NEW MEXICO LIGHTWAVE, INC.,
a New Mexico corporation
By: /s/ Clifford V. Sander
-----------------------------------------
Name: Clifford V. Sander
Title: Vice President, CFO, Treasurer
& Assistant Secretary
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SCHEDULE 1
DEFINITIONS
"Act" means the U.S. federal Securities Act of 1933, as
amended.
"Additional Information" has the meaning given in Section
2.1(a) of the Master Agreement.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations under the Securities Exchange Act of 1934, as amended provided,
however, that in no case shall Tomen be deemed to be an Affiliate of Greenstar.
"AMEX" means the American Stock Exchange.
"Applicable Easement" means any Easement that is necessary at
any given time in light of the stage of development, construction or operation
of a Network Project to construct, test, operate, maintain, repair, own or use
the Network Project as contemplated by the Operative Documents, to enter into
any Operative Document or to consummate any transaction contemplated thereby.
"Applicable Permit" means any Permit, including any zoning,
environmental protection, pollution, sanitation, FCC, state, safety, sitting,
building or other Permit, (a) that is necessary at any given time in light of
the stage of development, construction or operation of a Network Project to
construct, test, operate, maintain, repair, own or use the Network Project as
contemplated by the Operative Documents, to enter into any Operative Document or
to consummate any transaction contemplated thereby, or (b) that is necessary so
that none of the Development Company, Lender nor any Affiliate of any of them
may be deemed by any Governmental Authority to be subject to regulation under
the Communications Act or under any state laws or regulations as a result of the
construction and operation of the Network Project.
"Arbitration Notice" has the meaning given in Section 14.14 of
the Master Agreement.
"Business Day" means any day other than a Saturday, Sunday or
other day on which banks are authorized to be closed in San Francisco,
California or New York, New York and, with respect to the determination of the
LIBOR Rate, which is also a day on which dealings in Dollar deposits are carried
out in the London interbank market.
"Closing Date" means the closing date of a financing of a
Development Company by Tomen.
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"Code" means the Internal Revenue Code of 1986, as amended.
Reference to a specific section of the Code shall include any valid regulation
promulgated thereunder, and any comparable provision of any future legislation
amending, supplementing or superseding such section.
"Collateral" means all real and personal property which is
subject or is or is intended to become subject to the security interests or lien
granted by any of the Collateral Documents.
"Collateral Documents" means the pledge agreement, the
security agreements, the Consents, the other security agreements to be entered
into pursuant to a credit agreement between Tomen and a Development Company, the
construction deeds of trust and any financing statements and the like filed or
recorded in connection with the foregoing.
"Collocation Agreements" means the agreements entered into or
to be entered into between a Development Company and local exchange carriers
with respect to physical or virtual collocation.
"Communications Act" means the Communication Act of 1934, as
amended.
"Confidential Information" has the meaning given in Section
14.16 of the Master Agreement.
"Consents" shall mean a consent to assignment as collateral
executed by each party to the Project Documents (other than Lender) in the form
set forth in the Credit Documents.
"Credit Documents" means with respect to the financing by
Tomen of a Network Project, the credit agreement, the note(s), the Collateral
Documents and the Consents.
"Development Companies" means corporations which are direct or
indirect subsidiaries of GSI and/or GST which develop Network Projects financed
by Tomen.
"Dollars" and "$" means United States dollars or such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts in the United States of
America.
"Easements" means any easement, other right of way or license
provided or agreed to by a Governmental Authority or other Person.
"Equity Securities" of any Person shall mean (a) all common
stock, preferred stock, participations, shares, partnership interests or other
equity interests in and of such Person (regardless of how designated and whether
or not voting or non-voting) and (b) all warrants, options and other rights to
acquire any of the foregoing.
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"FCC" means the Federal Communications Commission and its
successors.
"Governmental Authority" means any national, state or local
government (whether domestic or foreign), any political subdivision thereof or
any other governmental, quasi-governmental, judicial, public or statutory
instrumentality, authority, body, agency, bureau or entity, (including any
zoning authority, the FCC, or any arbitrator with authority to bind a party at
law.
"Governmental Rule" means any law, rule, regulation,
ordinance, order, code interpretation, judgment, decree, directive, guidelines,
policy or similar form of decision of any Governmental Authority.
"Greenstar" means GSI, GUS, GST, PLI and their Affiliates.
"GSI" means GST Telecommunications Inc. (formerly known as
"Greenstar Telecommunications Inc."), a corporation organized under the laws of
Canada.
"GSI Common Stock" means the common stock, no par value, of
GSI.
"GSI Stock Purchase Agreement" means the Greenstar
Telecommunications Inc. Stock Purchase Agreement between GSI and Tomen, dated
October 24, 1994.
"GST" means GST Telecom Inc., a Delaware corporation.
"GUS" means Greenstar USA, Inc., a Delaware corporation.
"Interest Period" means (a) the period commencing on the
Closing Date and ending on the numerically corresponding day in the third
succeeding calendar month and (b) thereafter, each period commencing on the last
day of the next preceding Interest Period and ending on the numerically
corresponding day in the third succeeding calendar month; provided, however,
that (1) the initial Interest Period with respect to each construction loan
other than the initial construction loan shall commence on the date on which
such subsequent construction loan is advanced and end on the last day of the
then current Interest Period as established above; (2) any Interest Period which
would otherwise end on a day which is not a Business Day shall be extended to
the next succeeding Business Day unless, such next Business Day falls in another
calendar month, in which case such Interest Period shall end on the immediately
preceding Business Day; (3) any Interest Period which begins on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall end on the last Business Day of a calendar month; and (4) no Interest
Period shall end after the Maturity Date.
"Leases" means any lease of property necessary or entered into
in connection with a Network Project.
"Lender" means Tomen and its successors and assigns.
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"Lender Representative" means an individual designated by
Lender from time to time to act as liaison with a Development Company.
"LIBOR Rate" means a rate per annum determined by Lender
(which determination shall, absent manifest error, be conclusive) to be equal to
the rate at which deposits in Dollars are offered to Lender in the London
interbank eurodollar currency market at approximately 11:00 a.m. (London time),
two Business Days prior to the first day of the relevant Interest Period (for
delivery on the first day of such Interest Period) and for a term equal to such
Interest Period.
"Maturity Date" means the maturity date under the Credit
Documents between a Development Company as borrower and Tomen as lender.
"Net Cash Flow" means with respect to a Development Company
and the applicable period:
(a) the sum of:
(i) the gross receipts of the Development Company
from all sources (other than capital contributions, proceeds from the Credit
Agreement with Tomen or a Tomen Affiliate or other loans), including but not
limited to receipts from (1) the sale of products and services, (2) interest and
other investment income on investments and reserves, and (3) insurance proceeds;
(ii) any amounts released from reserves, the
distribution of which is permissible and in accordance with the provisions of
the Credit Agreement; and
(iii) any Net Cash Flow from a prior period not
distributed but the distribution of which is permissible;
less (b) the sum of:
(i) all costs and expenses which the Development
Company paid during such period in connection with the construction, ownership,
management (except as provided herein), operation and maintenance of the Network
Project, including, but not limited to, (1) utility costs, (2) business taxes
and real and personal property tax and assessments, and fees and expenses in
connection with the preparation of the Development Company's tax returns, (3)
insurance premiums, (4) the actual documented costs of Network Project
management, not to include management fees paid to Greenstar or any Affiliate in
excess of such actual costs, (5) expenditures for capital improvements and the
repair, maintenance and restoration of the improvements (including any portion
of the same to the extent not covered by insurance proceeds), (6) expenditures
required or deemed advisable to be made under or in connection with any contract
of the Development Company, and (7) all other costs and expenses, including
capital expenditures and the purchase of spare parts and other inventory and
replacement items, required to be made by the Development Company (but excluding
any such amounts to the extent paid out of reserves); and
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(ii) all principal and interest and other sums and
amounts payable by the Development Company to repay any Loan from Tomen payable
for the applicable or pertinent period.
"Network Project Credit Agreement" means a credit agreement
between Tomen, as lender and a Development Company, as borrower, to finance an
alternative access network telecommunications project.
"Network Projects" means alternative access network
telecommunications projects to be developed or existing alternative access
projects to be expanded by GSI and/or GST in the Territory.
"NML" means GST New Mexico Lightwave, Inc., a New Mexico
corporation.
"Obligations" means and includes, with respect to any Person,
all loans, advances, debts, liabilities, and obligations, howsoever arising,
owed by such Person to a lender of every kind and description (whether or not
evidenced by any note or instrument and whether or not for the payment of
money), direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, pursuant to the terms of a credit agreement or
any other credit document, including all interest, fees, charges, expenses,
attorneys' fees and accountants fees chargeable to such Person in connection
with its dealings with such lender and payable by such Person hereunder or
thereunder. The term "Obligations" shall also mean and include any amounts owing
to Lender which arise because payments as to past transactions are rescinded or
otherwise required to be surrendered by Lender after receipt.
"Operative Documents" means the Credit Documents, the Project
Documents and any other contracts or agreements related to the construction,
testing, maintenance, repair, operation or use of the Network Project entered
into by the Development Company and any other Person subsequent to the Closing
Date.
"Pacwest" means Pacwest Network L.C.C., an Oregon limited
liability company.
"Parts" means any part, appliance, instrument, appurtenance,
accessory or other property of any nature necessary or useful to the operation,
maintenance, service or repair of the project.
"Permit" means any action, approval, consent, waiver,
exemption, variance, franchise, order, permit, authorization, right or license
of or from a Governmental Authority.
"Person" means and includes an individual, a partnership, a
firm, an association, a corporation (including a business trust), a joint stock
company, an unincorporated association, a joint venture, a Governmental
Authority or any other entity whether acting in an individual, fiduciary or
other capacity.
"PLI" means Pacific Lightwave, Inc., a Washington corporation.
1-5
<PAGE>
"PNI" shall mean Pacwest Network, Inc., a Washington
corporation.
"Procurement Agent" means construction equipment and materials
procurement agent for the development and construction of the Network Projects.
"Project Budget" has the meaning given in Section 3.1(l)(ii)
of the PLI Credit Agreement.
"Project Costs" means (a) the cost of designing, equipping,
procuring, constructing, starting up and testing the Network Project, (b) the
cost of acquiring any lease, the Applicable Easements and any other necessary
interest in the Network Project, (c) local property taxes and insurance premiums
payable with respect to the Network Project during the Construction Loan
Availability Period, (d) interest payable on any Note for the Network Project
during the Construction Loan Availability Period, (e) reasonable initial working
capital requirements of the Project as approved by Lender, (f) the costs of
acquiring Permits for the Network Project during the Construction Loan
Availability Period, (g) other fees and expenses relating to the Network
Project, including financial, legal (excluding litigation) and consulting fees
and expenses, all as described in the Project Budget.
"Project Documents" means the material agreements and
documents relating to the development, construction, operation, maintenance and
repair of a Network Project.
"Project Loan" means a loan in the amount of 75% of the
Project Costs of a Network Project provided by Tomen to a Development Company
pursuant to a Network Project Credit Agreement.
"Project Revenues" means, with respect to a Network Project,
all income and receipts derived from the ownership or operation of the Network
Project, including payments due the Development Company under the construction
contracts, proceeds of any business interruption or other insurance, income
derived from the Network Project, together with any receipts derived from the
sale of any property pertaining to the Network Project or incidental to the
operation of the Network Project, all as determined in conformity with cash
accounting principles, the investment income on amounts in the accounts held by
or on behalf of the related Development Company, the proceeds of any drawing
under a letter of credit of which the Development Company is the beneficiary,
proceeds of any insurance, condemnation or litigation or arbitration awards
relating to the Network Project and proceeds from the Collateral Documents, but
not including sums paid to the Development Company in satisfaction of a
contractual obligation to indemnify the Development Company for third party
liability to the extent such sums do not exceed the actual damage, loss or cost
suffered by the Development Company in connection therewith.
"Providing Party" has the meaning given in Section 14.16 of
the Master Agreement.
"Purchase Price" has the meaning given in Section 5.1 of the
Master Agreement.
1-6
<PAGE>
"Receiving Party" has the meaning given in Section 14.16 of
the Master Agreement.
"Related Documents" means the Master Agreement, the GSI Stock
Purchase Agreement, and, with respect to each Network Project, the Credit
Documents, the Collateral Documents, the Warrants, the GST Services Agreement
and all appurtenant documents.
"Rules" shall mean the Commercial Arbitration Rules of The
American Arbitration Association.
"SEC" means the U.S. Securities and Exchange Commission.
"Service District" means the geographic district to be served
by the Network Project.
"Territory" means North America, Central America and South
America.
"Tomen" means Tomen America and its Affiliates.
"Tomen America" means Tomen America Inc., a New York
corporation.
"U.S." means the United States of America.
"Warrant" means a warrant in the form of Exhibit A to the GSI
Stock Purchase Agreement.
"Warrant Shares" means shares of GSI Common Stock issuable
upon exercise of the Warrants pursuant to the GSI Stock Purchase Agreement.
1-7
<PAGE>
RULES OF INTERPRETATION
1. All terms defined in the Agreement in the singular form
shall have comparable meanings in the plural form and vice versa.
2. The word "or" is not exclusive.
3. A reference to a Person includes such Person's permitted
successors and permitted assigns.
4. The words "include", "includes" and "including" and words
of similar import are not limiting or exclusive.
5. A reference in the Agreement to an Article, Section,
Exhibit, Schedule, Annex, Attachment or Appendix is to the Article, Section,
Exhibit, Schedule, Annex, Attachment or Appendix of such Agreement unless
otherwise indicated. Exhibits, Schedules, Annexes, Attachments or Appendices to
any document shall be deemed incorporated by reference in such document.
6. References to any document, instrument or agreement (a)
shall include all exhibits, schedules and other attachments thereto, (b) shall
include all documents, instruments or agreements issued or executed in
replacement thereof, and (c) shall mean such document, instrument or agreement,
or replacement or predecessor thereto, as amended, modified and supplemented
from time to time and in effect at any given time.
7. The words "hereof," "herein" and "hereunder" and words of
similar import when used in the Agreement shall refer to such Agreement as a
whole and not to any particular provision of such document.
8. References to "days" shall mean calendar days, unless the
term "Business Days" is used. References to a time of day shall mean such time
in New York, New York unless otherwise specified.
9. This Agreement is the result of negotiations between, and
have been reviewed by the parties and their respective counsel. Accordingly,
this Agreement shall be deemed to be the product of all parties thereto, and no
ambiguity shall be construed in favor of or against any party.
AMENDMENT NO. 2
TO
GST TELECOMMUNICATIONS, INC.
COMMON STOCK PURCHASE AGREEMENT
THIS AMENDMENT NO. 2 TO GREENSTAR TELECOMMUNICATIONS INC.
COMMON STOCK PURCHASE AGREEMENT (this "Amendment") is entered into as of May 24,
1996, by and among GST Telecommunications, Inc., a Canadian corporation formerly
known as "Greenstar Telecommunications Inc." (the "Company"), Tomen America
Inc., a New York corporation ("Tomen America"), and Tomen Corporation, a
Japanese corporation ("Tomen Corp.").
A. The Company, Tomen Corp., and Tomen America are party to
the Greenstar Telecommunications Inc. Common Stock Purchase Agreement, dated
October 24, 1994, as amended by Amendment No. 1, dated as of October 24, 1994,
(the "Purchase Agreement"), whereby Tomen America and Tomen Corp. agreed to
purchase, and the Company agreed to sell, certain Equity Securities of the
Company.
B. The Company, Tomen America and Tomen Corp. wish to amend
the Purchase Agreement, to reflect certain additional rights of Tomen America
and Tomen Corp. to purchase Equity Securities of the Company.
THE PARTIES HERETO AGREE AS FOLLOWS:
1. Definitions. Unless otherwise indicated in this Amendment,
each term set forth in the Purchase Agreement, when used in this Amendment,
shall have the respective meaning given to that term in the Purchase Agreement
and the Schedules and Exhibits thereto.
2. New Section 2.3 of the Purchase Agreement is hereby added
to read in its entirety as follows:
2.3 Rights Related to Development Company Fundings.
With respect to each Network Project in which Tomen or an Affiliate elects to
participate, Tomen, or an Affiliate shall have the following additional rights
to purchase GSI Equity Securities.
(a) Tomen or an Affiliate shall have the
right (but not the obligation), at the time of the initial funding of the
initial Project Loans for the Network
SF3-92074.2
<PAGE>
Projects in Albuquerque, New Mexico and Tucson, Arizona, to purchase, for a
total purchase price of $800,000.00: (i) the number of shares of GSI Common
Stock, no par value ("GSI Common Stock") equal to the quotient of the purchase
price referred to in the preceding clause divided by the average of the per
share closing price for the GSI Common stock quoted on the AMEX as published in
the Western edition of the Wall Street Journal for the thirty (30) market
trading days preceding the date of the Credit Agreement between GST New Mexico
Lightwave, Inc. and GST Tucson Lightwave, Inc., respectively, as borrower and
Tomen or an Affiliate, as lender, and (ii) 46,155 warrants exercisable for one
share of GSI Common Stock.
(b) Tomen or an Affiliate shall have the
right (but not the obligation), at the time of the initial funding of each
Project Loan made after the Project Loans for the Albuquerque, New Mexico and
Tucson, Arizona Project Loans, to purchase for a total purchase price equal to
10% of the total equity contribution to the Development Company by its
shareholder(s): (i) the number of shares of GSI Common Stock equal to the
quotient of the purchase price referred to in the preceding clause divided by
the average of the per share closing price for the GSI Common stock quoted on
the AMEX as published in the Western edition of the Wall Street Journal for the
thirty (30) market trading days preceding the date of the Credit Agreement
between such Development Company as borrower and Tomen or an Affiliate as
lender, and (ii) with respect to the Network Project to be funded in Hawaii,
75,000 warrants, each exercisable for one share of GSI Common Stock, and with
respect to other Network Projects, a number of such warrants as shall be
mutually agreed by Tomen and GSI.
(c) The representations and warranties of
Tomen set forth in Article 4 of this Purchase Agreement apply to the GSI Common
Stock and warrants issuable pursuant to this Section 2.3.
3. The parties hereby affirm that the Purchase Agreement, as
amended hereby, and the other Related Documents, constitute the entire agreement
among any of the parties hereto pertaining to the subject matter thereof and the
amended Purchase Agreement supersedes all prior agreements and understandings
pertaining thereto which are set forth therein. The Purchase Agreement, as
amended hereby, remains in full force and effect.
4. This Amendment may be executed in one or more counterparts,
and by the different parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
GST TELECOMMUNICATIONS, INC.,
a Canadian corporation
By: /s/ Clifford V. Sander
-------------------------------------------------
Name: Clifford V. Sander
Title: Senior Vice President, Treasurer
& Chief Accounting Officer
TOMEN AMERICA INC.,
a New York corporation
By: /s/ Takashi Yoshida
-------------------------------------------------
Name: Takashi Yoshida
Title: Vice President
TOMEN CORPORATION,
a Japan corporation
By: /s/ Morihiko Tashiro
-------------------------------------------------
Name: Morihiko Tashiro
Title: Director & General Manager
Electronics & Telecommunications
Division
$8,000,000
CREDIT AGREEMENT
Dated as of May 24, 1996
GST NEW MEXICO LIGHTWAVE, INC.
(Borrower)
and
TM COMMUNICATIONS LLC
(Lender)
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 - DEFINITIONS................................................. 1
1.1. Definitions.............................................. 1
1.2. Rules of Interpretation.................................. 2
ARTICLE 2 - THE CREDIT FACILITIES....................................... 2
2.1. Loan Facilities.......................................... 2
2.2. Total Commitments........................................ 5
2.3. Fees..................................................... 6
2.4. Other Payment Terms...................................... 7
2.5. Change of Circumstances.................................. 8
2.6. Funding Loss Indemnification............................. 8
2.7. Security................................................. 9
ARTICLE 3 - CONDITIONS PRECEDENT........................................ 10
3.1. Conditions Precedent to Closing.......................... 10
3.2. Conditions Precedent to Each Construction Loan........... 16
3.3. No Approval of Work; Adjustments to Project Budget....... 18
3.4. Waiver of Funding; Adjustment of Drawdown Requests....... 18
3.5. Expenses in Excess of Project Budget..................... 19
3.6. Conditions Precedent to Term Loan Conversion............. 19
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES.............................. 19
4.1. Organization............................................. 20
4.2. Authorization; No Conflict............................... 20
4.3. Enforceability........................................... 20
4.4. ERISA.................................................... 20
4.5. Taxes.................................................... 20
4.6. Business, Debt, Contracts, Etc........................... 21
4.7. Filings.................................................. 21
4.8. Governmental Regulation.................................. 21
4.9. Financial Statements..................................... 21
4.10. Partnerships and Joint Ventures.......................... 22
4.11. No Default............................................... 22
4.12. Possession of Franchises, Licenses, Etc.................. 22
4.13. Permits.................................................. 22
4.14. Offices, Location of Collateral.......................... 22
4.15. Adverse Change........................................... 23
4.16. Project Documents........................................ 23
4.17. Hazardous Substances..................................... 23
4.18. Transfer of Contracts and Other Rights................... 23
4.19. Litigation............................................... 24
i
<PAGE>
Page
----
4.20. Title, Liens and Easements............................... 24
4.21. Utilities................................................ 25
4.22. Sufficiency of Project Documents......................... 25
4.23. Securities............................................... 25
4.24. Disclosure............................................... 25
4.25. Construction Budget; Projections......................... 26
4.26. Intellectual Property.................................... 26
ARTICLE 5 - COVENANTS OF THE BORROWER................................... 26
5.1. Notices.................................................. 26
5.2. Financial Statements, Reports, Etc....................... 27
5.3. Existence, Conduct of Business, Properties, Etc.......... 28
5.4. Obligations.............................................. 28
5.5. Damage and Cancellation Payments......................... 28
5.6. Books, Records, Access................................... 29
5.7. Operation of Project and Annual Budget................... 29
5.8. Completion............................................... 30
5.9. Preservation of Rights; Further Assurances............... 30
5.10. Construction of Project.................................. 30
5.11. Taxes, Other Government Charges and Utility Charges...... 31
5.12. Compliance with Laws, Instruments, Etc................... 31
5.13. Warranty of Title........................................ 31
5.14. Maintenance of Insurance................................. 32
5.15. Event of Eminent Domain.................................. 32
5.16. Indemnification.......................................... 33
5.17. Development Company Net Cash Flow Agreements............. 34
5.18. Consents to Assignment................................... 34
ARTICLE 6 - NEGATIVE COVENANTS.......................................... 35
6.1. Contingent Liabilities................................... 35
6.2. Limitations on Liens..................................... 35
6.3. Indebtedness............................................. 35
6.4. Sale or Lease of Assets.................................. 35
6.5. Changes.................................................. 35
6.6. Dividends, Redemptions, Etc.............................. 35
6.7. Investments.............................................. 36
6.8. Transactions With Affiliates............................. 36
6.9. Loan Proceeds; Project Revenues.......................... 36
6.10. Partnerships............................................. 36
6.11. Dissolution.............................................. 36
6.12. Amendments; Change Orders; Completion.................... 36
6.13. Name and Location; Fiscal Year........................... 36
6.14. Assignment............................................... 36
6.15. Transfer of Ownership Interests.......................... 37
6.16. Abandonment of Project................................... 37
ii
<PAGE>
Page
----
6.17. Hazardous Substance...................................... 37
6.18. ERISA.................................................... 37
ARTICLE 7 - APPLICATION OF FUNDS........................................ 37
7.1. Receipts Account and Operating Account................... 37
7.2. Application Of Insurance Proceeds........................ 39
7.3. Application of Eminent Domain Proceeds................... 41
7.4. Security Interest in Proceeds and Accounts............... 43
7.5. Permitted Investments.................................... 44
ARTICLE 8 - EVENTS OF DEFAULT; REMEDIES................................. 44
8.1. Events of Default........................................ 44
8.2. Remedies................................................. 48
ARTICLE 9 - ASSIGNMENTS, ETC............................................ 49
9.1. Assignments.............................................. 49
9.2. Confidentiality. ....................................... 50
9.3. Securities Laws.......................................... 50
ARTICLE 10 - MISCELLANEOUS.............................................. 50
10.1. Notices................................................. 50
10.2. Additional Security; Right to Set-Off................... 51
10.3. Delay and Waiver........................................ 51
10.4. Costs, Expenses and Attorneys' Fees..................... 52
10.5. Attorney-In-Fact........................................ 52
10.6. Entire Agreement; Amendments and Modifications.......... 53
10.7. Governing Law........................................... 53
10.8. Severability............................................ 53
10.9. Headings................................................ 53
10.10. Accounting Terms........................................ 53
10.11. No Partnership; Etc..................................... 53
10.12. Limitation on Liability................................. 54
10.13. Waiver of Jury Trial.................................... 54
10.14. Consent to Jurisdiction................................. 54
10.15. Usury................................................... 55
10.16. Successors and Assigns.................................. 55
10.17. Counterparts............................................ 55
iii
<PAGE>
EXHIBITS
Exhibit A --- Definitions
Exhibit B --- Form of Note
Exhibit C-1 --- Form of Notice of Borrowing
Exhibit C-2 --- Form of Drawdown Certificate
Exhibit D --- Form of Notice of Term Loan Conversion
Exhibit E --- Form of Notice of Interest Rate Conversion
Exhibit F --- Form of Refinancing Notice
Exhibit G-1 --- Form of Security Agreement
Exhibit G-2 --- Form of Account Security Agreement
Exhibit H --- Form of GST Security Agreement
Exhibit I --- Form of Construction Deed of Trust
Exhibit J --- Form of Pledge Agreement
Exhibit K-1 --- Form of Net Cash Flow Agreement
Exhibit K-2 --- Form of Net Cash Flow Account Security Agreement
Exhibit L --- Form of Lessor's Estoppel and Consent
Exhibit M-1 --- Form of Consent to Assignment of Agreement - Non-Utility
Exhibit M-2 --- Form of Consent to Assignment of Agreement - Utilities
Exhibit M-3 --- Form of Consent to Assignment of Agreement - GST Services
Agreement
Exhibit N-1 --- Form of Opinion of Olshan Grundman Frome & Rosenzweig, LLP
Exhibit N-2 --- Form of Opinion of Borrower's New Mexico Counsel
Exhibit N-3 --- Form of Opinion of Borrower's FCC Counsel
Exhibit O --- Form of Borrower's Closing Certificate
Exhibit P --- Form of Monthly Report
Exhibit Q --- Form of Assignment Agreement
SCHEDULES
Schedule 1 --- Description of Project
Schedule 2 --- Applicable Easements
Schedule 3 --- Applicable Permits
Schedule 4 --- Security Filings
Schedule 5 --- Adverse Changes
Schedule 6 --- Required Insurance
iv
<PAGE>
CREDIT AGREEMENT
----------------
This CREDIT AGREEMENT (this "Agreement") dated as of May 24,
1996 is entered into by and between:
(1) GST New Mexico Lightwave, Inc., a New Mexico corporation
("Borrower"); and
(2) TM Communications LLC, a Delaware limited liability
company ("Lender").
RECITALS
--------
A. Borrower was formed to develop and operate an alternative access
network telecommunications project in the Albuquerque, New Mexico area as
further described in Schedule 1 (the "Project"). Pursuant to a Master Agreement
dated October 24, 1994 among Pacific Lightwave, Inc., a Washington corporation
(now known as "GST Pacific Lightwave, Inc."), Greenstar Telecommunications Inc.,
a Canadian corporation (now known as "GST Telecommunications, Inc.") ("GSI"),
GST Telecom Inc., a Delaware corporation ("GST"), Pacwest Network L.L.C., an
Oregon limited liability company ("Pacwest"), and Tomen America, Inc. ("Tomen
America"), as amended as of the date hereof by Amendment No. 1 to the Master
Agreement (the "Master Agreement"), Tomen America agreed to provide, or to cause
its affiliates to provide, certain credit facilities to Borrower to finance
certain construction costs of Borrower.
B. Borrower wishes to develop and operate the Project.
C. Lender, an affiliate of Tomen America, is willing to provide credit
facilities for the Project upon the terms and subject to the conditions set
forth herein.
In consideration of the agreements herein and in the other
Credit Documents and in reliance upon the representations and warranties set
forth herein and therein, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
-----------------------
1.1. Definitions. Except as otherwise expressly provided in this
Agreement or any other Credit Document, capitalized terms used in this Agreement
and its Exhibits shall have the meanings given in Exhibit A or in the provision
of this Agreement or other Credit Document referenced in Exhibit A.
<PAGE>
1.2. Rules of Interpretation. Except as otherwise expressly provided,
the rules of interpretation set forth in Exhibit A shall apply to this Agreement
and the other Credit Documents.
ARTICLE 2 - THE CREDIT FACILITIES
---------------------------------
2.1. Loan Facilities.
(a) Construction Loan Facility.
(i) Availability. Subject to the terms and conditions
set forth in this Agreement, Lender agrees to advance to Borrower from time to
time during the Construction Loan Availability Period such loans as Borrower may
request under this Section 2.1(a) (individually, a "Construction Loan" and
collectively the "Construction Loans"), in an aggregate principal amount not to
exceed the Total Construction Loan Commitment.
(ii) Notice of Borrowing. Borrower shall request
Construction Loans by delivering to Lender an irrevocable written notice in the
form of Exhibit C-1, appropriately completed (a "Notice of Borrowing"), which
specifies, among other things:
(A) The amount of the requested Construction
Loan, which shall be in the minimum amount of Two Hundred Fifty Thousand Dollars
($250,000); and
(B) The date of the requested Construction
Loan, which shall be a Business Day and which shall comply with Section
3.2(a)(i).
Borrower shall give each Notice of Borrowing, accompanied with an appropriately
completed Drawdown Certificate in the form of Exhibit C-2, to Lender at least
three (3) Business Days before the date of any Construction Loan, in the manner
set forth in Section 10.01.
(iii) Use of Proceeds. Borrower shall use the
proceeds of each Construction Loan solely to pay Project Costs.
(b) Term Loan Facility.
(i) Conversion. Subject to the terms and conditions
set forth in this Agreement, Lender agrees to convert the outstanding
Construction Loans, at the request of Borrower, to term loans under this Section
2.1(b) (each, a "Term Loan") in an aggregate principal amount not to exceed the
Total Term Loan Commitment.
(ii) Notice of Term Conversion. Borrower shall
request a Term Conversion by delivering to Lender an irrevocable written notice
in the form of Exhibit D, appropriately completed (the "Notice of Term
Conversion"), which specifies, among other things, the requested date of the
Term Conversion, which shall be the Construction Loan Maturity Date and a
Business Day.
2
<PAGE>
Borrower shall give the Notice of Term Conversion to Lender at least three (3)
Business Days before the date of the requested conversion. The Notice of Term
Conversion shall be delivered by first-class mail or telecopy to Lender at the
office or to the telecopy number and during the hours specified in Section 10.1;
provided, however, that Borrower shall promptly deliver to Lender the original
of any Notice of Term Conversion initially delivered by telecopy.
(c) Interest. Borrower shall pay interest on the unpaid
principal amount of the Loan Facility with respect to the Project on the dates
and at the times specified herein from and including the Closing Date to but
excluding the Maturity Date, at a rate per annum equal to the LIBOR Rate plus
3.00% at all times until such time after the Term Conversion as the Term Loan
interest rate may be converted to a fixed interest rate pursuant to Section
2.1(d) and thereafter at a rate per annum equal to the Fixed Rate; provided
however, to the extent that Borrower has not obtained Consents to the assignment
of the Project Documents listed in Section 3.1(b) (with the exception of the
Competitive Access Provider Agreement between GST and Sprint dated October 12,
1995) to Lender in the forms set forth as Exhibit M on or before 60 days from
May 24, 1996, Lender has the right, at its sole option, to increase the interest
rate on the portion of the Loan Facility then in effect by one percent (1%)
until such time as all such consents to assignment shall have been received by
Lender.
All computations of interest shall be based on a year of 360 days for actual
days elapsed.
(d) Conversion to Fixed Rate. Borrower may convert the
interest rate on the Term Loan from the LIBOR Rate to the Fixed Rate; provided,
however that any such conversion shall be made on, and only on, the last day of
an Interest Period. Borrower shall request such a conversion by an irrevocable
written notice to Lender in the form of Exhibit E, appropriately completed (a
"Notice of Interest Rate Conversion"), which specifies, among other things, the
date of the requested conversion, which shall be a Business Day.
Borrower shall give a Notice of Interest Rate Conversion to Lender at least
three (3) Business Days before the date of the requested conversion. The Notice
of Interest Rate Conversion shall be delivered by first-class mail or telecopy
to Lender at the office or to the telecopy number and during the hours specified
in Paragraph 10.1; provided, however, that Borrower shall promptly deliver to
Lender the original of any Notice of Interest Rate Conversion initially
delivered by telecopy.
If Borrower is in compliance with the provisions of this Agreement, no later
than 2:00 p.m. on the date specified in the Notice of Interest Rate Conversion
Lender shall notify Borrower of the effectiveness of the conversion, the amount
of the Fixed Rate and the Liquidation Costs incurred by Lender in effecting such
conversion.
(e) Scheduled Payments. (i) Borrower shall repay to Lender (A)
the principal amount of the Construction Loans, accrued interest on the unpaid
principal amount of the Construction Loans and all outstanding fees and costs
payable to Lender with respect to the Construction Loans on the earlier of the
Construction Loan Maturity Date and the Term Conversion Date, and (B), the
principal amount of the Term Loan in twenty-four (24)
3
<PAGE>
equal quarterly installments payable on the 1st day of each third month,
commencing on the earlier of the 1st day of the month which is (y) two years
after the Term Conversion Date or (z) three years after the Closing Date, and
ending six years thereafter; provided, however, that the principal payment due
to Lender on each Maturity Date shall be in the amount necessary to pay all
remaining unpaid principal on the relevant portion of the Loan Facility.
(ii) Borrower shall pay accrued interest on the
unpaid principal amount of the Loan Facility (A) on the last day of each
Interest Period, provided that, in lieu of payments on the last day of each
Interest Period, Borrower shall pay accrued interest from amounts borrowed
pursuant to Construction Loans until the earlier of: (1) the Term Conversion
Date and (2) the date which is one year after the Closing Date; provided
further, that to the extent that net revenues from operations are generated
prior to the dates set forth in the preceding clauses (1) and (2), Borrower
shall forthwith pay such net revenues to Lender towards payment of accrued
interest; (B) upon prepayment (to the extent thereof) and (C) at maturity
(whether by acceleration or otherwise).
(f) Promissory Note. The obligation of Borrower to repay the
Loan Facility and to pay interest thereon at the rates provided herein shall be
evidenced by a promissory note of Borrower in substantially the form of Exhibit
B (the "Note").
(g) Funding.
(i) Notice. Each Notice of Borrowing shall be
delivered to Lender in accordance with Section 2.1(a)(ii).
(ii) Disbursement of Funds. No later than 2:00 p.m.
on the Business Day specified in each Notice of Borrowing, if the applicable
conditions precedent listed in Article 3 have been satisfied, Lender will make
available the Construction Loan requested in such Notice of Borrowing (or so
much thereof as Lender shall have approved pursuant to this Agreement) in
Dollars and in immediately available funds, in accordance with the next
succeeding sentence. At Lender's option and upon notice to Borrower, the amount
of any Construction Loan may, in whole or in part, be (x) disbursed by Lender to
Borrower by wire transfer to the Receipts Account established pursuant to
Section 7.1(a) at Bank of America, Sacramento RBCO, ABA No. 121000358, Account
Number 14899-02380, in lawful money of the United States and in immediately
available funds for application in accordance with the applicable Notice of
Borrowing and the Drawdown Certificate or (y) disbursed by Lender directly to
the Person(s) entitled thereto as specified in the applicable Drawdown
Certificate. Upon the application of funds in accordance with clause (y) of the
preceding sentence, Lender shall as promptly as practicable following the
disbursement of such funds provide an accounting of such payments to Borrower.
Such payment shall discharge pro tanto the obligations of Lender with respect to
such amounts and Borrower hereby authorizes Lender to pay such amounts on its
behalf.
4
<PAGE>
(h) Prepayments.
(i) Optional Prepayments. At its option, Borrower
may, upon ten (10) Business Days notice to Lender, prepay the Loan Facility in
part in aggregate principal amounts of not less than Five Hundred Thousand
Dollars ($500,000) or an integral multiple of One Hundred Thousand Dollars
($100,000) in excess thereof, or in whole, subject to this Section 2.1(h).
(ii) Mandatory Prepayments. Borrower shall prepay the
Loan Facility upon a Change of Control.
(iii) Terms of Prepayments.
(A) Upon the prepayment of any Loan Facility
(whether such prepayment is an optional prepayment under Section 2.1(h)(i) or a
mandatory prepayment required by the terms of this Agreement or the other Credit
Documents, including a prepayment upon acceleration), Borrower shall pay (1) all
accrued interest to the date of such prepayment on the amount prepaid, and (2)
all Liquidation Costs incurred by Lender as a result of such prepayment. All
prepayments of a Loan Facility shall reduce the remaining payments required
under Section 2.1(e) in the inverse order of maturity. Borrower may not reborrow
the principal amount of any Construction Loan or Term Loan which is prepaid.
(B) If Borrower proposes to refinance the
Project, Borrower shall deliver a written notice of the proposed refinancing in
the form of Exhibit F (a "Refinancing Notice") stating Borrower's bona fide
intention to refinance the Project, together with a copy of the offer to
finance, including without limitation, the name and address of the proposed
refinancer, the amount of the Loan Facility to be refinanced and the interest
rate and other terms of the proposed refinancing. Within thirty (30) days of
receipt of such Notice, Lender shall have the first right to provide the
proposed refinancing to Borrower upon such interest rate, terms and conditions
proposed by such refinancer as set forth in the Refinancing Notice. If the
Lender elects not to provide such refinancing, Borrower may prepay the Loan
Facility; provided that, Borrower refinances the Project at the interest rate
and on the other terms and conditions offered by the proposed refinancer as set
forth in the Refinancing Notice provided to Lender. At the time of any such
prepayment, in addition to any fees, costs or expenses otherwise payable by
Borrower hereunder, Borrower shall have paid to Lender an additional amount
equal to one-third of the net present value of the interest rate savings, if
any, of the refinancing loan compared to the Loan Facility. Net present value of
the interest payable hereunder and under the proposed refinanced loan shall be
calculated for the purposes of this Section by applying a discount rate equal to
the interest rate set forth in the Refinancing Notice.
2.2. Total Commitments.
(a) Construction Loans. The aggregate principal amount of all
Construction Loans made by the Lender shall not exceed Eight Million Dollars
($8,000,000) (the "Total Construction Loan Commitment").
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(b) Term Loan. The aggregate principal amount of the Term Loan
outstanding at any time shall not exceed Eight Million Dollars ($8,000,000) (the
"Total Term Loan Commitment").
2.3. Fees.
(a) Upfront Fee. Borrower shall pay $120,000.00 to Lender on
the Closing Date as an upfront fee (the "Upfront Fee"). The Upfront Fee shall be
paid to reimburse Lender for preliminary work done by Lender in consideration of
whether to make, and in preparing its analysis for, the loan to Borrower made by
Lender hereunder.
(b) Commitment Fees. The Borrower shall pay to Lender a
commitment fee on the daily average unused amount of the applicable Committed
Amount at a rate per annum equal to 0.5% for the period from the date of this
Agreement, to but not including the Term Conversion Date. Accrued commitment
fees shall be payable on the last day of each Interest Period and on the Term
Conversion Date.
(c) Net of Taxes, Etc.
(i) Taxes. All payments to Lender by Borrower
hereunder or under any other Credit Document shall be made free and clear of,
and without deduction or withholding for or on account of, any present or future
taxes, levies, imposts, deductions, charges or withholdings now or hereafter
imposed as a result of a Change of Law and all liabilities with respect thereto,
excluding taxes imposed on or measured by the income or capital of Lender (all
such non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If, as a result of a
Change of Law Borrower shall be required by law to withhold or deduct any Taxes
imposed by the United States or any political subdivision thereof from or in
respect of any sum payable hereunder or under any other Credit Document to
Lender, (A) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.3(c)), Lender receives an amount equal to the
sum it would have received had no such deductions been made, (B) Borrower shall
make such deductions, and (C) Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law. In addition, Borrower agrees to pay any present or future stamp, recording
or documentary taxes and, if as a result of a Change of Law, any other excise or
property taxes, charges or similar levies that arise under the laws of the
United States of America, the State of New Mexico, the State of California, or
the State of New York from any payment made hereunder or under any other Credit
Document or from the execution or delivery or otherwise with respect to this
Agreement or any other Credit Document (hereinafter referred to as "Other
Taxes").
(ii) Indemnity. Borrower shall indemnify Lender for
the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 2.3(c)) paid
by Lender or any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not
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such Taxes or Other Taxes were correctly or legally asserted; provided that,
Borrower shall not be obligated to indemnify Lender for any penalties, interest
or expenses relating to Taxes or Other Taxes arising from Lender's gross
negligence or willful misconduct. Lender agrees to give notice to Borrower of
the assertion of any claim against Lender relating to such Taxes or Other Taxes
as promptly as is practicable after being notified of such assertion; provided
that, Lender's failure to notify Borrower promptly of such assertion shall not
relieve Borrower of its obligation under this Section 2.3(c). Payments by
Borrower pursuant to this indemnification shall be made within thirty (30) days
from the date Lender makes written demand therefor, which demand shall be
accompanied by a certificate describing in reasonable detail the basis thereof.
Lender agrees to repay to Borrower any refund (including that portion of any
interest that was included as part of such refund with respect to Taxes or Other
Taxes paid by Borrower pursuant to this Section 2.3(c)) received by Lender for
Taxes or Other Taxes that were paid by Borrower pursuant to this Section 2.3(c)
and to contest, with the cooperation and at the expense of Borrower, any such
Taxes or Other Taxes which Lender or Borrower reasonably believes not to have
been properly assessed.
(iii) Notice. Within 30 days after the date of any
payment of Taxes by the Borrower, Borrower shall furnish to Lender, at its
address referred to in Section 10.1 hereof, the original or a certified copy of
a receipt evidencing payment thereof. Borrower shall compensate Lender for all
reasonable losses and expenses sustained by Lender as a result of any failure by
Borrower to so furnish such copy of such receipt.
(iv) Survival of Obligations. The obligations of
Borrower under this Section 2.3(c) shall survive the termination of this
Agreement and the repayment of Borrower's Obligations.
2.4. Other Payment Terms.
(a) Place and Manner. Borrower shall make all payments due to
Lender hereunder by wire transfer to Tomen America's Account at Citibank, N.A.,
ABA No. 021000089, Account No. 30753206, or as the Lender shall otherwise
direct, in lawful money of the United States and in immediately available funds
not later than 12:00 noon New York time on the due date.
(b) Late Payments. If any amounts required to be paid by
Borrower under this Agreement or the other Credit Documents (including principal
or interest payable on the Loan Facility, and any fees or other amounts
otherwise payable to Lender) remain unpaid after such amounts are due, Borrower
shall pay interest on the aggregate outstanding balance of such amounts from the
date due until those amounts are paid in full at a per annum rate equal to the
Default Rate.
(c) Application of Payments. Payments made under this
Agreement or the other Credit Documents shall first be applied to any fees,
costs, charges or expenses payable to Lender hereunder or under the other Credit
Documents, next to any accrued but unpaid interest, and then to outstanding
principal in inverse order of maturity.
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2.5. Change of Circumstances.
(a) Inability to Determine Rates. If, on or before the first
day of any Interest Period Lender shall have determined (which determination
shall be conclusive and binding on all parties hereto) that the LIBOR Rate for
such Interest Period cannot be adequately and reasonably determined due to the
unavailability of funds in or other circumstances affecting the London interbank
market, Lender shall immediately give notice of such condition to Borrower.
After the giving of any such notice and until Lender shall otherwise notify
Borrower that the circumstances giving rise to such condition no longer exist,
Borrower's right to request the making of, and Lender's obligations to make
Loans at the LIBOR Rate shall be suspended. Borrower may, in compliance with the
other terms and conditions hereof, request Alternate Interest Rate Construction
Loans during any periods in which the LIBOR Rate is suspended. Any LIBOR Rate
Loan Facility outstanding at the commencement of any such suspension shall be
converted at the end of the then current Interest Period into an Alternate
Interest Rate Loan unless such suspension has then ended.
(b) Illegality. If, after the date of this Agreement, the
adoption of any Governmental Rule, any change in any Governmental Rule or the
application or requirements thereof (whether such change occurs in accordance
with the terms of such Governmental Rule as enacted, as a result of amendment or
otherwise), any change in the interpretation or administration of any
Governmental Rule by any Governmental Authority, or compliance by Lender or
Borrower with any request or directive (whether or not having the force of law)
of any Governmental Authority (a "Change of Law") shall make it unlawful or
impossible for Lender to make or maintain any Construction Loan or the Term
Loan, Lender shall promptly notify Borrower of such Change of Law. Upon receipt
of such notice, (i) Borrower's right to request the making of Construction Loans
shall be terminated, and (ii) Borrower shall, at the request of Lender,
immediately repay the Loan Facility together with all accrued and unpaid
interest.
2.6. Funding Loss Indemnification. If Borrower shall (a) repay or
prepay the Loan Facility or any portion thereof on any day other than the last
day of an Interest Period (whether a payment upon acceleration or otherwise),
(b) fail to borrow in accordance with a Notice of Borrowing delivered to Lender
(whether as a result of the failure to satisfy any applicable conditions or
otherwise), or (c) prepay the Term Loan or any portion thereof after the
interest rate has been converted to a Fixed Rate, Borrower shall, upon demand by
Lender, reimburse Lender for and hold Lender harmless from all costs and losses,
expenses and liabilities incurred by Lender as a result of such repayment,
prepayment or failure (including without limitation by reason of the liquidation
of deposits or other funds by Lender) ("Liquidation Costs"). Borrower
understands that such Liquidation Costs may include direct losses incurred by
Lender as a result of funding and other contracts entered into by Lender.
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2.7. Security.
(a) Security Agreement, Pledge, etc. The Obligations of
Borrower to Lender shall be secured by the following:
(i) The Security Agreement, between Borrower, as
grantor, and Lender, in the form of Exhibit G-1, duly executed by Borrower (the
"Security Agreement");
(ii) The Deposit Account Security Agreement, between
Borrower, as grantor, and Lender, in the form of Exhibit G-2 duly executed by
Borrower (the "Account Security Agreement");
(iii) The GST Security Agreement, between GST, as
grantor, and Lender, in the form of Exhibit H, duly executed by GST (the "GST
Security Agreement");
(iv) Construction Deeds of Trust in the form of
Exhibit I, duly executed;
(v) The Pledge Agreement, of GST as the sole
shareholder of Borrower, in the form of Exhibit J, duly executed by GST (the
"Pledge Agreement");
(vi) The Net Cash Flow Agreements of GST Pacific
Lightwave, Inc., GST Tucson Lightwave, Inc., Borrower and the development
companies of all other Network Projects to which Lender or any of its Affiliates
has provided debt funding in the form of Exhibit K-1, duly executed by such
Development Companies (the "Net Cash Flow Agreements");
(vii) The Net Cash Flow Deposit Account Security
Agreements of GST Pacific Lightwave, Inc., GST Tucson Lightwave, Inc. and
Borrower in the form of Exhibit K-1, duly executed by such Development Companies
(the "Net Cash Flow Account Security Agreements"); and
(viii) Such other documents, instruments and
agreements as Lender may request in order to grant to Lender Liens in all assets
of Borrower (including, without limitation, all Permits), the shares of
Borrower's capital securities (other than shares held by the Lender) and all
other assets reasonably necessary for the operation and maintenance of the
Project.
(b) Further Assurances. Borrower shall deliver to Lender each
of the foregoing and such other instruments, agreements, certificates, opinions
and documents (including Uniform Commercial Code financing statements and
fixture filings and landlord waivers) as Lender may reasonably request to
perfect and maintain the Liens granted to Lender by the foregoing prior to the
Liens or other interests of any Person other than Lender. Borrower shall fully
cooperate with Lender and perform all additional acts reasonably requested by
Lender to effect the purposes of the foregoing.
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ARTICLE 3 - CONDITIONS PRECEDENT
--------------------------------
3.1. Conditions Precedent to Closing. The obligation of Lender to make
any Construction Loans is subject to the satisfaction of the following
conditions on or prior to the Closing Date (unless waived by Lender):
(a) Principal Credit Documents. Lender shall have received the
following Credit Documents, each of which (i) shall be in form and substance
satisfactory to Lender, and (ii) shall have been duly authorized, executed and
delivered by the parties thereto:
(A) This Agreement;
(B) The Note;
(C) The Security Agreement;
(D) The Account Security Agreement;
(E) The GST Security Agreement;
(F) The Pledge Agreement;
(G) The Net Cash Flow Agreements;
(H) The Net Cash Flow Account Security Agreements;
(I) An agreement duly executed by Greenstar agreeing
to subordinate all payments due to Greenstar pursuant to any management
agreement between Borrower and Greenstar to the obligations of Borrower to
Lender under this Agreement, the other Credit Agreements and any net cash flow
pledge agreement entered into by Borrower pursuant to Section 5.17;
(J) The Construction Deeds of Trust in the form of
Exhibit I for Bernalillo County; and
(K) The UCC-1 Financing Statements set forth on
Schedule 7.
(b) Project Documents. Lender shall have received (i) true,
complete and correct copies of the following Project Documents, and any
supplements or amendments thereto, each of which (A) shall be in form and
substance satisfactory to Lender, (B) shall have been duly authorized, executed
and delivered by the parties thereto, and (C) shall have been certified by an
authorized officer of Borrower as being true, complete and correct and in full
force and effect, and (ii) evidence satisfactory to Lender that each Project
Document is in full force and effect and that no party to any Project Document
is or, but for the passage of time or giving of notice or both will be, in
breach of any obligation thereunder which is reasonably expected to have a
Material Adverse Effect:
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(A) The Construction Contracts;
(B) The Pole and Conduit Use Agreements;
(C) The City of Albuquerque License and the City of
Rio Rancho License;
(D) The CPCN;
(E) The Collocation Agreements;
(F) The Interconnection Agreements;
(G) The Leases; and
(H) Each other applicable Project Document not
listed in this Section 3.1(b), including
without limitation, each equipment purchase
agreement referenced in Section 3(b) of the
Master
Agreement.
(c) Borrower Documents. Lender shall have received the
following items, each in form and substance satisfactory to Lender:
(i) A copy of one or more resolutions or other
authorizations of Borrower, certified by Borrower's Secretary as being in full
force and effect on the Closing Date, authorizing the borrowings herein provided
for, the development of the Project and the execution, delivery and performance
of this Agreement and the other Operative Documents and any instruments or
agreements required hereunder or thereunder to which Borrower is a party and the
consummation of the transactions contemplated thereby;
(ii) A certificate of Borrower signed by the
appropriate authorized officer of Borrower and dated as of the Closing Date, as
to the incumbency of the Person or Persons authorized to execute and deliver
this Agreement and the other Operative Documents and any instruments or
agreements required hereunder or thereunder to be executed on the Closing Date
to which Borrower is a party;
(iii) Copies of the Articles of Incorporation and any
Amendments to the Articles of Incorporation of Borrower (including the Articles
of Merger merging GST New Mexico Inc., a Delaware corporation, with and into
Borrower), certified by the New Mexico Secretary of State, and of copies of the
Bylaws of Borrower, certified by the Secretary of Borrower; and
(iv) Certificates issued by the New Mexico Secretary
of State and state tax authority as to the good standing of Borrower, and the
tax status of Borrower, respectively.
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(d) Security Filings. Lender shall have received the following
items, each in form and substance satisfactory to Lender:
(i) A UCC-3 (or similar) report of a date not less
recent than one (1) week before the Closing Date for each of the jurisdictions
in which the UCC-1 financing statements and the fixture filings are intended to
be filed in respect of the Collateral, showing that upon due filing or
recordation (assuming such filing or recordation occurred on such date), the
security interests created under such Collateral Documents will be prior to all
other financing statements, fixture filings, deeds of trust, mortgages or other
security documents in respect of the Collateral;
(ii) Evidence that all appropriate financing
statements and fixture filings were filed and/or recorded as required hereunder
or by law; and
(iii) Stock certificate(s) representing all of the
outstanding capital stock of Borrower together with stock powers duly endorsed
by Borrower's stockholder attached thereto.
(e) Easements. Lender shall have received the following items,
each in form and substance satisfactory to Lender:
(i) A schedule of Applicable Easements required to
construct and operate the Project, which schedule shall be included in and made
a part of this Agreement as Schedule 3, together with evidence of each
Applicable Easement listed on Part I of such schedule and a certificate of an
authorized officer of Borrower certifying that neither Borrower nor such
authorized officer has any reason to believe that all Applicable Easements that
have not been obtained prior to the Closing Date will not be obtained by the
dates by which they are required; and
(ii) Other evidence requested by Lender that (A)
Borrower has duly obtained the Applicable Easements set forth on Schedule 3,
other than those set forth in Part II of such schedule which are not, in light
of the status of the acquisition, development, construction and operation of the
Project as of the Closing Date, required to have been obtained as of such
Closing Date and which, in the reasonable opinion of Lender, can be obtained not
later than required without substantial difficulty, expense or delay, and (B)
such Applicable Easements are in full force and effect and not subject to any
condition, limitation or other provision that in the reasonable judgment of
Lender or its counsel could have a Material Adverse Effect.
(f) Consents and Estoppels. Lender shall have received the
following items, each in form and substance satisfactory to Lender:
(i) An Estoppel and Consent Certificate in the form
of Exhibit L from each lessor of real property to Borrower duly executed by each
such Lessor and Borrower;
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(ii) Consents to assignment of all material licenses,
permits and agreements in the form attached hereto as Exhibit M-1, M-2 and M-3.
(g) Permit, Regulatory and Environmental Matters. Lender shall
have received the following items, each in form and substance satisfactory to
Lender:
(i) A schedule of Applicable Permits required to
construct and operate the Project, which schedules shall be included in and made
a part of this Agreement as Schedule 4, together with copies of each Applicable
Permit listed on Part I of such schedule, and a certificate of an authorized
officer of Borrower certifying that neither Borrower nor such authorized officer
has any reason to believe that all Applicable Permits that have not been
obtained prior to the applicable Closing Date will not be obtained by the dates
by which they are required; and
(ii) Other evidence requested by Lender that (A)
Borrower has duly obtained or been assigned the Applicable Permits for the
Project, other than those set forth in Part II of such schedule which are not,
in light of the status of the acquisition, development, construction and
operation of the Project as of the Closing Date, required to have been obtained
or made as of the Closing Date and which, in the reasonable opinion of Lender,
can be obtained not later than required without substantial difficulty, expense
or delay, and (B) such Applicable Permits are in full force and effect and not
subject to any appeal, restriction, condition, limitation or other provision
that in the reasonable judgment of Lender or its counsel could have a Material
Adverse Effect.
(iii) A certificate of Borrower, that all Permits,
Easements, Licenses, Leases and other property rights necessary have been
obtained and that such Permits, Easements, Licenses, Leases and other property
rights form a contiguous and uninterrupted line necessary to construct and
operate the Project.
(iv) Evidence that Borrower and the network to be
constructed by the Project will not be subject to regulation by the New Mexico
Corporation Commission to an extent unacceptable to Lender in its discretion.
(h) Capital Contribution. Lender shall have received evidence
that GST Telecom Inc. has made a capital contribution to Borrower of Two Million
Six Hundred Sixty Six Thousand Six Hundred Sixty-Six Dollars ($2,666,666).
(i) Third Party Reports. Lender shall have received
satisfactory third- party appraisal, feasibility, engineering, environmental and
accounting reviews relating to the Project.
(j) Opinions. Lender shall have received the opinions, each in
form and substance satisfactory to Lender, of:
(i) Olshan Grundman Frome & Rosenzweig, LLP, counsel
for Borrower, in substantially the form of Exhibit N-1;
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(ii) Jones, Snead, Wertheim, Rodriquez & Wentworth,
P.A., special New Mexico counsel for Borrower, in substantially the form of
Exhibit N-2; and
(iii) Swidler & Berlin, FCC Counsel for Borrower, in
substantially the form of Exhibit N-3.
(k) Certificate. Lender shall have received evidence that
Borrower has obtained and is maintaining in full force and effect insurance
complying with Section 5.14 hereof and Schedule 6 hereto, including (A) a
certificate from Borrower's insurance broker(s), dated as of the Closing Date
and identifying underwriters, type of insurance, insurance limits and policy
terms, listing the special provisions required as set forth in Section 5.14
hereof and Schedule 6 hereto, describing the insurance obtained and stating that
such insurance is in full force and effect and that all premiums then due
thereon have been paid, and (B) certified copies of all policies evidencing such
insurance (or a binder, commitment or certificates signed by the insurer or a
broker authorized to bind the insurer).
(l) Financial Statements, Expenditures to Closing Date,
Projections, Etc. Lender shall have received and approved the following items,
each in form and substance satisfactory to Lender:
(i) The most recent annual financial statements
(audited if available), most recent quarterly financial statements from
Borrower, together with a certificate from the appropriate officer of such
Person, stating that no material adverse change in the consolidated assets,
liabilities, operations or financial condition of such Person has occurred since
the date of the financial statements provided to Lender, and pro forma financial
statements for Borrower giving effect to the Capital Contributions;
(ii) A budget for the Project (the "Project Budget")
for all anticipated costs to be incurred in connection with the construction and
start-up of the Project, including in such budget all construction and
non-construction costs, and including all interest, taxes and other carrying
costs, and such other information as Lender may require, together with a
balanced statement of sources and uses of proceeds (and any other funds
necessary to complete the Project), broken down as to separate construction
phases in a manner satisfactory to Lender.
(iii) An accurate and complete accounting of
expenditures of the Project as of the date five (5) Business Days before the
Closing Date, certified by the Chief Financial Officer of Borrower.
(iv) Borrower shall have furnished Lender the Base
Case Project Projections of operating expenses and cash flow for the Project and
the Project Schedule for the Project and the Milestone Disbursement Schedule for
the Project; and
(v) Evidence that there has not occurred any material
adverse change in the Project Budget, Project Schedule or Base Case Project
Projections, in the economics or feasibility of constructing and/or operating
the Project, or in the financial
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condition, business or property of any Major Project Participant, which will
have a Material Adverse Effect.
(m) Consents. Lender shall have received executed copies of
the Consents, each in form and substance satisfactory to Lender, including
without limitation, consents to assignment of each of the Project Documents in
the forms of Exhibit M-1, M-2 and M-3 hereto.
(n) Due Diligence. Lender shall have approved the results of
its due diligence review in connection with the transactions contemplated
hereby.
(o) Other Matters. Lender shall have received the following
items, each in form and substance satisfactory to Lender:
(i) Such other evidence as Lender may have requested
that all corporate and legal proceedings and all instruments in connection with
the transactions contemplated by this Agreement are satisfactory in form and
substance to Lender;
(ii) All approvals of Lender and Tomen Corporation
(Lender's parent corporation);
(iii) All information and copies of all documents,
including records of corporate proceedings and copies of any approval by any
Governmental Authority required in connection with any transaction herein
contemplated, which Lender may reasonably have requested in connection herewith,
such documents where appropriate to be certified by proper corporate officers or
Governmental Authorities;
(iv) Evidence that no action, suit, proceeding or
investigation has been instituted or threatened by any Person, nor has any
order, judgment or decree have been issued or proposed to be issued by any
Governmental Authority that could have a Material Adverse Effect;
(v) Evidence that all taxes, fees and other costs
payable in connection with the execution, delivery, recordation and filing of
the documents and instruments referred to in this Section 3.1 have been paid in
full;
(vi) Evidence that Tomen or an Affiliate of Tomen has
been appointed and is serving as Procurement Agent for the Project;
(vii) Evidence that GUS is the sole stockholder of
GST as of the Closing Date; and
(viii) A certificate in substantially the form of
Exhibit O hereto (the "Borrower's Closing Certificate"), dated as of the Closing
Date, signed by an authorized officer of Borrower.
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3.2. Conditions Precedent to Each Construction Loan. The obligation of
Lender to make each Construction Loan (including the initial Construction Loan)
is subject to the prior satisfaction of each of the following conditions (unless
waived by Lender).
(a) The Requested Construction Loans. Lender shall be
satisfied that the following are true and correct as of the date on which
Borrower has requested that such Construction Loan be made:
(i) No other Construction Loan has been made for the
Project during the two-week period preceding the date on which Borrower requests
that such Construction Loan be made;
(ii) The sum of the undrawn Total Construction Loan
Commitment, plus the unexpended portion of any Borrower Equity, is not less than
the aggregate unpaid amount required to attain Completion, in accordance with
all Legal Requirements, the Construction Contracts and the Plans and
Specifications, prior to the Expected Completion Date and to pay or provide for
all anticipated non-construction costs, all as set forth in the Project Budget
(including any revisions thereto) approved by Lender; and
(iii) The amounts to be applied in connection with
such Construction Loan will not cause the amount for any line item with respect
to such month in the applicable Project Budget to exceed the amount set forth in
such Project Budget, as such line items may be adjusted in accordance with
Section 3.3(b).
(b) Drawdown Procedures. Lender shall have received the
following, each in form and substance satisfactory to Lender:
(i) The Notice of Borrowing and the Drawdown
Certificate within the time periods specified therein;
(ii) Evidence that Borrower has established and is
maintaining the Receipts Account and the Operating Account at a bank in
California reasonably acceptable to Lender; and
(iii) Evidence that all work that has been done on
the Project shall have been done in a good and workmanlike manner and in
accordance with the Construction Contracts and Prudent Practices, including, but
not limited to, if requested by Lender, copies of all invoices for services
rendered and materials delivered for the Project, and there shall not have been
filed with or served upon Borrower with respect to the Project or any part
thereof notice of any Lien, claim of Lien or attachment upon or claim affecting
the right to receive payment of any of the moneys payable to any of the Persons
named on such request which has not been released or which will not be released
with the payment of such obligation out of such Construction Loan, other than
Permitted Liens.
(c) Liens. Lender shall have received in form and substance
satisfactory to Lender, if requested by Lender, and subject to Borrower's right
to contest liens as described
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in the definition of "Permitted Liens," duly executed acknowledgments of
payments and releases of mechanics' and materialmen's liens, in form
satisfactory to Lender, from the Contractors and all other contractors,
subcontractors and materialmen, for all work, services and materials, including
equipment and fixtures of all kinds, done, previously performed, or furnished
for the construction of the Project, except for such work, services and
materials to be paid for with the proceeds of the requested Construction Loan.
(d) Easements. Lender shall have received evidence, in form
and substance acceptable to Lender, that, except for Applicable Easements listed
in Part II of Schedule 3 which are not then required in connection with the
construction or operation of the Project, all Applicable Easements with respect
to the construction and operation of the Project required to have been obtained
by the date of such Construction Loans shall be in full force and effect, and,
with respect to any of the Applicable Easements not yet required, there shall be
no reason to believe that any such Applicable Easements will not be obtained,
all of which shall be satisfactory in all respects to Lender. Borrower shall
inform Lender as to the status of Borrower's efforts to obtain the Applicable
Easements not yet obtained.
(e) Permits. Lender shall have received evidence, in form and
substance acceptable to Lender, that, except for Applicable Permits listed in
Part II of Schedule 4 which are not then required in connection with the
construction or operation of the Project, all Applicable Permits with respect to
the construction and operation of the Project required to have been obtained by
the date of such Construction Loans from any Governmental Authority shall have
been issued and shall be in full force and effect, and, with respect to any of
the Applicable Permits not yet required, there shall be no reason to believe
that any such Applicable Permits will not be obtained, all of which shall be
satisfactory in all respects to Lender.
(f) Other Documents. If requested by Lender, Lender shall have
received evidence, in form and substance satisfactory to Lender, that:
(i) All of the Operative Documents to be executed and
delivered with respect to the Project on or prior to the date of such
Construction Loan shall be in full force and effect without change or amendment
since the respective dates of their execution and delivery in a form which was
approved by Lender, except as consented to in writing by Lender or as otherwise
permitted pursuant to Section 6.12; and
(ii) With respect to Additional Project Documents and
Applicable Permits entered into or obtained, transferred or required (whether
because of the status of the construction or operation of the Project or
otherwise) since the date of the most recent Construction Loan, there shall have
been a delivery or a redelivery, as the case may be, to Lender of such matters
as are described in Sections 3.1(b), 3.1(e), 3.1(f) and 3.1(g) and, if requested
by Lender, any of the other sections of Section 3.1.
(g) Status of Borrower. Lender shall be satisfied that the
following are true and correct as of the date on which Borrower has requested
that such Construction Loan be made:
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(i) Each representation and warranty set forth in
Article 4 is true and correct as if made on such date;
(ii) No Event of Default or Default has occurred and
is continuing or will result from such Credit Event;
(iii) No event of default under and as defined in or
applicable to any Project Document has occurred and is continuing; and
(iv) Each Credit Document and Project Document
remains in full force and effect.
3.3. No Approval of Work; Adjustments to Project Budget.
(a) The making of any Construction Loan hereunder shall not be
deemed an approval or acceptance by Lender of any work, labor, supplies,
materials or equipment furnished or supplied with respect to the Project.
(b) If requested by Borrower, Lender may, in its reasonable
discretion, adjust the amounts of any individual categories or line items of
Project Costs as set forth in the Project Budget by increasing or decreasing the
amounts shown on the Project Budget for each such individual category or line
item; provided that, Borrower shall have the right to adjust line items without
Lender's consent up to an aggregate maximum change of twenty percent (20%) per
line item from the original Project Budget; provided further, that Borrower
shall immediately provide Lender with notice of any such adjustments. With
respect to adjustments in excess of twenty percent (20%), Borrower shall have
the right to request such adjustments from the Lender Representative no more
frequently than once each thirty (30) days. The Lender Representative shall
approve or disapprove such requests within four (4) Business Days.
Notwithstanding anything to the contrary herein, however, no such adjustment
made pursuant to this Section 3.3 shall change the aggregate amount of all of
the Project Costs as shown on the Project Budget.
3.4. Waiver of Funding; Adjustment of Drawdown Requests.
Notwithstanding the foregoing, Lender, without waiving any of its rights
hereunder, shall have the right to make a Construction Loan or Construction
Loans hereunder without full compliance by Borrower with the conditions
described in this Article 3. If Lender determines that a material item or items
listed in a Drawdown Certificate as a Project Cost is not properly included in
such Drawdown Certificate, Lender may in its reasonable discretion cause to be
made a Construction Loan or Construction Loans in the amount requested in such
Drawdown Certificate less the amount of such item or items. In the event that
Borrower prevails in any dispute as to whether such Project Costs were properly
included in such Drawdown Certificate, Construction Loans in the amount
requested but not initially made shall forthwith be made.
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3.5. Expenses in Excess of Project Budget. If the amount of Project
Costs with respect to the Project exceeds the applicable amount available
pursuant to the Loan Facility and the Capital Contribution, GST may make a loan
to Borrower in a maximum amount of the unbudgeted Project Costs equal to the
difference between the amount, if any, contributed by Borrower's shareholder and
twenty percent (20%) of the Project Budget; provided that such loan be unsecured
and deeply subordinated to Borrower's obligations to Lender under this
Agreement.
3.6. Conditions Precedent to Term Loan Conversion. The obligation of
Lender to convert the Construction Loans to a Term Loan is subject to the
satisfaction of the following conditions on or prior to the Term Loan Conversion
Date (unless waived by Lender):
(a) Completion. Completion of the Project shall have occurred.
(b) Status of Borrower. Lender shall be satisfied that the
following are true and correct as of the date on which Borrower has requested
that the Term Loan Conversion be made:
(i) Each representation and warranty set forth in
Article 4 of this Agreement and in paragraph 3 of the Pledge Agreement is true
and correct in all material respects as if made on such date (except for
representations and warranties expressly made as of a specified date, which are
true as of such date);
(ii) No Event of Default or Default has occurred and
is continuing or will result from such Term Loan Conversion;
(iii) No material event of default under and as
defined in or applicable to any Project Document has occurred and is continuing;
and
(iv) Each Credit Document and Project Document
remains in full force and effect.
(c) Conversion Procedure. Lender shall have received the
Notice of Term Loan Conversion, in form and substance satisfactory to Lender,
within the time periods specified in Section 2.1(b).
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES
------------------------------------------
Borrower makes the following representations and warranties to and in
favor of Lender as of the date hereof and as of the Closing Date. All of these
representations and warranties shall survive the Closing Date and the making of
the Construction Loans and Term Loans:
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4.1. Organization.
(a) Borrower (i) is a corporation duly constituted, validly
existing and in good standing under the laws of the State of New Mexico, (ii) is
duly qualified, authorized to do business and in good standing in each
jurisdiction where the character of its properties or the nature of its
activities makes such qualification necessary, (iii) has all requisite corporate
power and authority (A) to carry on its business as now being conducted and as
proposed to be conducted by it, (B) to own or hold under lease and operate the
property it purports to own or hold under lease, (C) to execute, deliver and
perform each Operative Document to which it is a party, (D) to take all action
as may be necessary to consummate the transactions contemplated thereunder and
(E) to grant the liens and security interest provided for in the Collateral
Documents to which it is a party, and (iv) has the power and authority to
execute and deliver each Operative Document to which it is a party.
4.2. Authorization; No Conflict. Borrower has duly authorized, executed
and delivered each Operative Document to which Borrower is a party (or such
Operative Documents have been duly and validly assigned to Borrower and Borrower
has duly and validly assumed the obligations thereunder), and neither Borrower's
execution and delivery thereof nor its consummation of the transactions
contemplated thereby nor its compliance with the terms thereof (i) does or will
contravene the Charter Documents of Borrower or any other Legal Requirement
applicable to or binding on Borrower or any of its properties, (ii) does or will
contravene or result in any breach of or constitute any default under, or result
in or require the creation of any Lien (other than Permitted Liens) upon any of
its property under, any agreement or instrument to which it is a party or by
which it or any of its properties may be bound or affected, or (iii) does or
will require the consent or approval of any Person which has not already been
obtained.
4.3. Enforceability. Each Operative Document to which Borrower is a
party or which it has assumed is a legal, valid and binding obligation of
Borrower, enforceable against Borrower in accordance with its terms, except to
the extent that enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting the
enforcement of creditors' rights and subject to general equitable principles.
None of the Operative Documents to which Borrower is a party or which it has
assumed have been amended or modified except in accordance with this Agreement.
4.4. ERISA. There is no ERISA Plan with respect to Borrower or any
ERISA Affiliate, and neither Borrower nor any ERISA Affiliate has maintained,
contributed to or been obligated to contribute to any ERISA Plan at any time
within the preceding five (5) years.
4.5. Taxes. Borrower has filed all federal, state and local tax returns
that it is required to file, has paid all taxes it is required to pay to the
extent due (other than those taxes that it is contesting in good faith and by
appropriate proceedings, with adequate, segregated reserves established for such
taxes) and, to the extent such taxes are not yet due, has established reserves
that are adequate for the payment thereof and are required by GAAP.
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4.6. Business, Debt, Contracts, Etc. Borrower has not conducted any
business other than the development of the Project and activities incidental
thereto, it has no outstanding Debt or other material liabilities other than
pursuant to or allowed by the Credit Documents, and it is not a party to or
bound by any material contract other than the Operative Documents to which it is
a party.
4.7. Filings. No filing, recording, refiling or rerecording other than
those listed on Schedule 4 is necessary to perfect and maintain the perfection
of the interest, title or Liens referred to in Section 4.20, and on the Closing
Date all such filings or recordings (other than those that are required to be
made only at a later date, which are so indicated on Schedule 7) will have been
made.
4.8. Governmental Regulation. Except as described in the following
sentence, neither Borrower, nor any Affiliate of Borrower will, solely as a
result of the construction, ownership, leasing or operation of the Project, or
the entering into any Operative Document or any transaction contemplated hereby
or thereby be subject to, or not exempt from, regulation under the
Communications Act, or under state laws and regulations respecting the rates or
the financial or organizational regulation of fiber optic data transmission
companies. Borrower is a "telecommunications common carrier," as that term is
defined in the Communications Act, and is classified as a non-dominant carrier
by the FCC with respect to any domestic, interstate telecommunications service
it offers. Borrower is authorized to provide domestic, interstate
telecommunications service as a non-dominant carrier under the FCC regulatory
framework, and it has filed an appropriate tariff with the FCC. Borrower is a
"telecommunications company" under the New Mexico Telecommunications Act and a
"public telecommunications service" provider under the Docket No. 1099 Rules and
Regulations of the New Mexico State Corporation Commission ("NMSCC"). Pursuant
to a grant of authority in a Certificate of Public Convenience and Necessity by
Order dated October 23, 1995 of the NMSCC in Docket No. 94-371-TC ("NMSCC
October 23 Order"), Borrower has authority to provide specified intrastate
interexchange telecommunications services limited to nonswitched, dedicated
private line services at speeds of 1.544 Mbps or higher, within the territory of
New Mexico presently served by U.S. West. The initial New Mexico state tariff of
Borrower was approved by the NMSCC October 23, 1995 Order. Borrower is not
subject to regulation under any Governmental Rule as to securities, rates or
financial or organizational matters that would preclude any Construction Loan,
or the incurrence by Borrower of any of the Obligations or the execution,
delivery and performance by Borrower of the Operative Documents.
4.9. Financial Statements. The financial statements of Borrower, as of
March 31, 1996, certified by an appropriate authorized officer or other
authorized representative of Borrower, copies of which have been delivered to
Lender, are true, complete and correct and fairly present the financial
condition of Borrower as of the date thereof. The financial statements have been
prepared in accordance with GAAP on a consistent basis throughout the periods
indicated and with each other, except that any interim financial statements do
not contain all footnotes required by GAAP and are subject to normal year-end
adjustments. Borrower does not have and will not have any material liabilities,
direct or contingent, except as will be disclosed in such financial statements.
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4.10. Partnerships and Joint Ventures. Borrower is not a general
partner or a limited partner in any general or limited partnership or a joint
venturer in any joint venture.
4.11. No Default.
(a) No Event of Default or Default has occurred or is
existing.
(b) Borrower is not in default under any term of any Operative
Document, or any agreement relating to any obligation of Borrower for or with
respect to borrowed money, and to the best of Borrower's knowledge, no other
party to any Project Document is in default with respect to any term thereof.
4.12. Possession of Franchises, Licenses, Etc. Except as disclosed on
Schedule 3 and those the failure of which to obtain does not and will not have a
Material Adverse Effect, Borrower possesses all franchises, certificates,
licenses, Permits, and other authorizations from any Governmental Authorities
(including the City of Albuquerque and the City of Rio Rancho), free from unduly
burdensome restrictions, that are necessary or advisable for the leasing,
ownership, maintenance and operation of its properties and assets, and Borrower
is not in violation of any thereof in any respect. Borrower possesses all
patents, copyrights, trademarks and trade names, or rights thereto necessary to
perform its duties under the Operative Documents and Borrower is not in
violation thereof in any respect or of any valid rights of others with respect
to any of the foregoing.
4.13. Permits. There are no Permits under existing law that are or will
become Applicable Permits other than the Permits described in Schedule 3 and
those the failure of which to obtain does not and will not have a Material
Adverse Effect. Each Applicable Permit (including the City of Albuquerque and
the City of Rio Rancho) is either (y) in full force and effect and is not
subject to any appeals or further proceedings or to any unsatisfied condition
that may allow material modification or revocation, in the case of those Permits
listed in Part I of Schedule 3, or (z), of a type that is routinely granted on
application and that would not normally be obtained before the commencement of a
construction or reconstruction as contemplated by the Operative Documents in the
case of those Applicable Permits listed in Part II of Schedule 3. Borrower has
no reason to believe that any Permit so indicated on Schedule 3 will not be
obtained before it becomes an Applicable Permit.
4.14. Offices, Location of Collateral.
(a) The chief executive office or chief place of business (as
such term is used in Division 9 of the Uniform Commercial Code as in effect in
the State of New Mexico from time to time) of Borrower is located at 4317 NE
Thurston Way, Vancouver, Washington, 98662.
(b) All of the Collateral (other than the Accounts, the shares
of Borrower's Common Stock pledged pursuant to the Pledge Agreement, and general
intangibles) is, or when installed pursuant to the Project Documents will be,
located on the Leased Property or the Applicable Easements.
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(c) Borrower's books of accounts and records are located at
4317 NE Thurston Way, Vancouver, Washington, 98662.
4.15. Adverse Change. To the best of Borrower's knowledge, there are no
facts or conditions, with respect to the Project or Borrower which have or in
the future will have (so far as Borrower can now reasonably foresee) a Material
Adverse Effect which are not listed on Schedule 5.
4.16. Project Documents. Borrower makes, as of the time made, each of
the representations and warranties contained in the Project Documents or any
Additional Project Document to which Borrower is or will be a party to and for
the benefit of Lender as if the same were set forth at length herein.
4.17. Hazardous Substances.
(a) (i) Borrower, is not and has not in the past been in
violation of any Hazardous Substance Laws, which violation could result in a
material liability to Borrower or its respective properties and assets or in an
inability of Borrower to perform its obligations under the Operative Documents;
(ii) neither the Borrower nor, to the best knowledge of Borrower, any third
party has used, released, discharged, generated, manufactured, produced, stored,
or disposed of in, on, under, or about the Leased Property or any part of the
Project, or transported thereto or therefrom, any Hazardous Substances in any
manner or in quantities that could reasonably be expected to subject Lender or
Borrower to liability under any Hazardous Substance Law; (iii) there are no
underground tanks, whether operative or temporarily or permanently closed,
located on the Leased Property or any part of the Project; (iv) there are no
polychlorinated biphenyls ("PCBs") or items containing PCBs used, stored or
present at, on or near the Leased Property or any part of the Project, and (v)
to the best knowledge of Borrower, there is or has been no condition,
circumstance, action, activity or event that could form the basis of any
violation of, or liability to Lender or its Affiliates under, any Hazardous
Substance Law.
(b) There is no proceeding, investigation or inquiry by any
Governmental Authority (including Governmental Authorities in the State of New
Mexico and the U.S. Environmental Protection Agency) or any non-governmental
third party with respect to the presence or release of such Hazardous Substances
in, on, from or to the Leased Property or any part of the Project, and to the
best knowledge of Borrower, no such proceedings have been requested, suggested
or threatened by any such Governmental Authorities or non-governmental third
parties.
(c) Borrower has no knowledge of any past or existing
violations of any Hazardous Substances Laws by any Person relating in any way to
the Leased Property or any part of the Project.
4.18. Transfer of Contracts and Other Rights. All Project Documents and
Applicable Permits have been entered into by or duly and validly assigned to
Borrower free
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and clear of all Liens except Permitted Liens, and all necessary Persons have
duly consented to such assignment.
4.19. Litigation. There are no pending or, to the best of Borrower's
knowledge, threatened actions or proceedings of any kind, including actions or
proceedings of or before any Governmental Authority, to which Borrower or the
Project is a party or is subject, or by which any of them or any of their
properties or the Project are bound that, if adversely determined to or against
Borrower or the Project, would have a Material Adverse Effect, nor, to the best
of Borrower's knowledge, is there any basis for any such action or proceeding.
4.20. Title, Liens and Easements.
(a) On and after the Closing Date, Borrower will have a good,
insurable and indefeasible title to the Project, and all of the Collateral
relating to the Project, and a good, insurable and indefeasible interest in the
Leased Property and a valid estate in the Applicable Easements other than the
Easements described in Part II of Schedule 2, in each case free and clear of all
Liens, encumbrances or other exceptions to title except Liens in favor of or
created by Lender and Liens that do not interfere with the intended use for the
Project by Borrower of the Leased Properties or Applicable Easements. The Lien
of the Collateral Documents constitutes a valid and subsisting first priority
perfected security interest in all the personal property described in the other
Collateral Documents, subject to no Liens except the Permitted Liens.
(b) The security interests granted to Lender pursuant to the
Collateral Documents in the Collateral (i) as to personal property included in
the Collateral, constitute and, with respect to subsequently acquired personal
property included in the Collateral, will constitute, perfected security
interests under the UCC (to the extent such personal property is subject to the
UCC) and (ii) are, and, with respect to such subsequently acquired property,
will be, as to Collateral perfected under the UCC (to the extent such personal
property is subject to the UCC), superior and prior to the rights of all third
Persons now existing or hereafter arising whether by way of mortgage, lien,
security interests, encumbrance, assignment or otherwise, except for Permitted
Liens. Except to the extent possession of portions of the Collateral is required
for perfection, all such action as is necessary has been taken to establish and
perfect Lender's rights in and to the Collateral, including any recording,
filing, registration, giving of notice or other similar action. The Collateral
Documents relating to the Collateral and the financing statements relating
thereto have been duly filed or recorded in each office and in each jurisdiction
where required in order to create and perfect the first lien and security
interest described above. Borrower has properly delivered or caused to be
delivered to Lender all Collateral that requires perfection of the Lien and
security interest described above by possession.
(c) There are no Easements that are or will become Applicable
Easements other than the Easements described in Schedule 2. Each Applicable
Easement is either (y) in full force and effect and is not subject to any
unsatisfied condition that may allow material modification or revocation, in the
case of those Easements listed in Part I of Schedule 2, or
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(z) of a type that would not normally be obtained at the stage of the
construction on the Closing Date, as contemplated by the Operative Documents, in
the case of those Applicable Easements listed in Part II of Schedule 2. Borrower
has no reason to believe that any Easement so indicated on Schedule 2 will not
be obtained before it becomes an Applicable Easement.
4.21. Utilities. All utility services necessary for the construction
and the operation of the Project for its intended purposes are available or will
be so available as and when required.
4.22. Sufficiency of Project Documents.
(a) Other than those that can be reasonably expected to be
commercially available when and as required, the services to be performed, the
materials to be supplied and the real property interests, the Applicable
Easements, the Applicable Permits, and other rights granted pursuant to the
Project Documents:
(i) comprise all of the property interests necessary
to secure any right material to the acquisition, leasing, development,
construction, installation, completion, operation and maintenance of the Project
in accordance with all Legal Requirements and in accordance with the Project
Schedules, all without reference to any proprietary information not owned by
Borrower;
(ii) are sufficient to enable the Project to be
located, constructed and operated; and
(iii) provide adequate ingress and egress for any
reasonable purpose in connection with the construction and operation of the
Project.
(b) There are no services, materials or rights required for
the construction or operation of the Project in accordance with the Construction
Contracts, the Plans and Specifications and the Base Case Project Projections
other than those that can reasonably be expected to be commercially available
within the line items contained in the applicable Project Budget.
4.23. Securities. No registration of the Note under the Securities Act
of 1933, as amended, or under the securities laws of any state is required in
connection with the offering, issuance, sale or transfer of the Note hereunder.
4.24. Disclosure. Neither this Agreement nor any certificate furnished
to Lender, or to any consultant submitting a report to Lender, by or, to the
knowledge of Borrower, on behalf of Borrower in connection with the transactions
contemplated by this Agreement, the other Project Documents or the design,
construction, testing or operation of the Project, contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein or therein not misleading under the
circumstances in which they were made at the time such statements are made.
There is no
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fact known to Borrower which Borrower has not disclosed in writing to Lender
which does or reasonably could have a Material Adverse Effect.
4.25. Construction Budget; Projections. Borrower has prepared the
Project Budget and the Base Case Project Projections and is responsible for
developing the assumptions on which the Project Budget and the Base Case Project
Projections are based. The Project Budget and the Base Case Project Projections
(i) are, to the best of Borrower's knowledge as of the Closing Date, based on
reasonable assumptions as to all legal and factual matters material to the
estimates set forth therein, and (ii) as of the Closing Date are consistent with
the provisions of the Project Documents. In the reasonable opinion of Borrower,
as of the Closing Date the textual material accompanying the Base Case Project
Projections discloses all information reasonably necessary for an understanding
of the Base Case Project Projections, and does not contain any material
misstatements or omit any information which, in conjunction with other
information given, would be necessary to make such information not materially
misleading.
4.26. Intellectual Property. Borrower owns or has the right to use all
patents, trademarks, service marks, trade names, copyrights, licenses and other
rights, which are necessary for the operation of its business as presently
conducted. To the best of Borrower's knowledge, (a) no product, process, method,
substance, part or other material presently contemplated to be sold by or
employed by Borrower in connection with its business will infringe upon any
patent, trademark, service mark, trade name, copyright, license or other
intellectual property right of any other Person, (b) there are no pending or
threatened claims or litigation against or affecting Borrower contesting or
calling into question its right to sell or use any such product, process,
method, substance, part or other material or (c) there is no existing pending or
proposed, patent, invention, device, application or principle or any
Governmental Rule or standard or code which would prevent or inhibit or
substantially reduce the projected revenues of Borrower, or otherwise have a
Material Adverse Effect.
ARTICLE 5 - COVENANTS OF THE BORROWER
-------------------------------------
Borrower covenants and agrees that so long as this Agreement
is in effect, it will, unless Lender waives compliance in writing:
5.1. Notices. Promptly, upon acquiring notice or giving notice, as the
case may be, or obtaining knowledge, give written notice to Lender of:
(a) Any litigation pending or, to the knowledge of Borrower,
threatened against Borrower involving claims against Borrower or the Project in
excess of $100,000 in the aggregate or involving any injunctive or declaratory
relief, such notice to include copies of all papers filed in such litigation and
to be given monthly if any such papers have been filed since the last notice
given;
(b) Any dispute or disputes which may exist between Borrower
and any Governmental Authority and which involve (i) claims against Borrower
which individually
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exceed $100,000 or in the aggregate exceed $200,000, (ii) injunctive or
declaratory relief, (iii) revocation, expiration or modification or the like of
any Applicable Permit or Applicable Easement, or (iv) any Liens for taxes due
but not paid;
(c) Any Event of Default or Default;
(d) Any casualty, damage or loss, whether or not insured,
through fire, theft, other hazard or casualty, or any act or omission of
Borrower, its employees, agents, contractors, consultants or representatives, or
of any other Person if such casualty, damage or loss affects Borrower or the
Project, in excess of $50,000 for any one casualty or loss, or an aggregate of
$100,000; or
(e) Any matter which has resulted or is likely, in light of
other circumstances affecting Borrower, to have a Material Adverse Effect.
5.2. Financial Statements, Reports, Etc.
(a) Deliver to Lender (or cause to be delivered to Lender), in
form and detail reasonably satisfactory to Lender, unless delivery and/or the
timing of delivery is waived by Lender:
(i) As soon as available but no later than sixty (60)
days after the close of the first, second and third quarterly periods of its
fiscal year, quarterly (and year-to-date) financial statements of and prepared
by Borrower to include a balance sheet and an income and expense statement;
(ii) As soon as available but no later than one
hundred twenty (120) days after the close of each applicable fiscal year,
audited financial statements of Borrower including a statement of equity, a
balance sheet as of the close of such year, an income and expense statement,
reconciliation of capital accounts and a statement of cash flows, all prepared
in accordance with GAAP and certified by an independent certified public
accountant selected by the Person whose financial statements are being prepared
and satisfactory to Lender. Such certificate shall not be qualified or limited
because of restricted or limited examination by such accountant of any material
portion of the records of the applicable Person;
(iii) On the tenth day of each month, with respect to
the preceding month, a report with respect to the Project substantially in the
form of Exhibit P hereto.
(iv) Within thirty (30) days after Completion of the
Project, "as built" maps indicating the locations related to each Easement,
Permit, Collation Agreement, Inter-Connection Agreement, and Pole and Conduit
Use Agreement.
(v) Such other statement or statements, list of
property and accounts, budgets, forecasts or reports relating to the Project, as
Lender may reasonably
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<PAGE>
request from time to time and that can be provided without unreasonable cost to
or effort on the part of Borrower.
(b) Each time the financial statements are delivered under
subsections (i) or (ii) of Section 5.2(a), a certificate signed by the natural
person who is a senior financial officer of Borrower shall be delivered along
with such financial statements, certifying that such officer has made or caused
to be made a review of the transactions and financial condition of the Borrower
during the relevant fiscal period and that such review has not, to the best of
such officer's knowledge, disclosed the existence of any event or condition
which constitutes an Event of Default or a Default hereunder or under any Credit
Document applicable to Borrower, or if any such event or condition existed or
exists, the nature thereof and the corrective actions that Borrower has taken or
proposes to take with respect thereto, and also certifying that the Borrower is
in compliance with all applicable provisions of this Agreement or any other
Credit Document applicable to Borrower or, if such is not the case, stating the
nature of such non-compliance and the corrective actions which Borrower has
taken or proposes to take with respect thereto.
5.3. Existence, Conduct of Business, Properties, Etc. Except as
otherwise expressly permitted under this Agreement, (a) maintain and preserve
its existence as a New Mexico corporation and all rights, privileges and
franchises necessary or desirable in the normal conduct of its business, (b)
perform all of its contractual obligations under the Project Documents and all
other agreements and contracts by which it is bound, maintain all necessary
Permits, including all Applicable Permits, with respect to its business and the
Project, except such as may be contested in good faith or as to which a bona
fide dispute may exist, provided that the non-payment of same would not
reasonably be anticipated to result in a Material Adverse Effect or that
provision is made to the satisfaction of Lender in its reasonable discretion for
the posting of security (other than the Collateral) for or the bonding of such
obligations or the prompt payment thereof in the event that such obligation is
payable, (c) at or before the time that any Permit becomes an Applicable Permit,
obtain such Permit, and (d) engage only in the business contemplated by the
Operative Documents.
5.4. Obligations. Pay all Obligations, howsoever arising, as and when
due and payable, including taxes and tax claims, except (a) such as may be
contested in good faith or as to which a bona fide dispute may exist, provided
that the non-payment of same would not reasonably be anticipated to result in a
Material Adverse Effect or that provision is made to the satisfaction of Lender
in its reasonable discretion for the posting of security (other than the
Collateral) for or the bonding of such obligations or the prompt payment thereof
in the event that such obligation is payable and (b) Borrower's trade payables
which shall be paid in the ordinary course of business.
5.5. Damage and Cancellation Payments. Except as otherwise expressly
permitted under this Agreement apply the proceeds of any surety, performance or
similar bonds and any liquidated or other damages paid in respect of damage
payments or performance payments by any contractors or subcontractors or other
Persons involved in the construction and operation of the Project, to prepay the
Loan Facility.
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5.6. Books, Records, Access. Maintain adequate books, accounts and
records with respect to Borrower and the Project and prepare all financial
statements required hereunder in accordance with GAAP and in compliance with the
regulations of any Governmental Authority having jurisdiction thereof, and
permit employees or agents of Lender, at any reasonable times and upon
reasonable prior notice to inspect all of Borrower's properties, including the
Leased Property, to examine or audit all of Borrower's books, accounts and
records and make copies and memoranda thereof and to observe the operation,
maintenance and repair of the Project.
5.7. Operation of Project and Annual Budget.
(a) (i) Keep the Project, or cause the same to be kept, in
good operating condition consistent with Prudent Practices, all Applicable
Permits and applicable Legal Requirements and all applicable requirements of the
Operative Documents, and make or cause to be made all repairs (structural and
non-structural, extraordinary or ordinary) necessary to keep the Project in such
condition; and (ii) operate and maintain the Project in a manner consistent with
Prudent Practices and in compliance with the terms of the Project Documents so
as to assure, to the extent reasonably possible, the maximum generation of net
revenue for the Project consistent with the Project Documents.
(b) On or before the date forty-five (45) days prior to the
Expected Completion Date, deliver to Lender an update of the Project Budget for
the period from the date it is delivered until the anticipated commencement of
commercial operation of the Project and the Annual Operating Budget for the
period from the anticipated commencement of commercial operation through the end
of the first full fiscal year thereafter (collectively, the "First Annual
Operating Budget"), in form and substance reasonably acceptable to Lender,
setting forth all anticipated start-up costs, Project Revenues, Debt Service,
proposed distributions, maintenance, repair and operation expenses (including
reasonable allowance for contingencies), and all other anticipated Operation and
Maintenance Costs for the Project for such period. Such First Annual Operating
Budget shall be delivered by Borrower to Lender no later than August 16, 1997.
No less than forty-five (45) days in advance of the beginning of each fiscal
year thereafter, Borrower will similarly adopt an Annual Operating Budget for
the ensuing fiscal year covering the matters (other than start-up costs)
specified above in this Section 5.7(b) and such other matters as may be
reasonably required by Lender. Copies of the draft Annual Operating Budget for
each year of operation shall be promptly furnished to Lender for review and
approval. If Lender does not approve the draft Annual Operating Budget submitted
by Borrower, Lender shall give written notice to Borrower within fifteen (15)
days of Lender's receipt of such draft Annual Operating Budget in compliance
with Section 10.1 hereof. If Lender and Borrower do not agree on a final Annual
Operating Budget by the date the new fiscal year commences, the previous fiscal
year Annual Operating Budget increased by ten percent (10%) shall be used until
Lender and Borrower agree on the new final Annual Operating Budget; provided
however, that if a dispute in the previous fiscal year resulted in such a ten
percent (10%) increase in the Annual Operating Budget, the parties shall use the
previous fiscal year Annual Operating Budget without increase. The Operation and
Maintenance Costs in each such Annual Operating Budget which are subject to
escalation limitations in the Project Documents shall not, absent extraordinary
circumstances,
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be increased from year to year by more than the amounts provided in such Project
Documents. Borrower will operate and maintain the Project, or cause the Project
to be operated and maintained, within each Annual Operating Budget as approved
by Lender.
5.8. Completion. Achieve Completion in a timely and diligent manner in
accordance with the Project Schedule, the Construction Contracts and the Plans
and Specifications, the Project Budget as the same may be extended, and in no
event later than May 15, 1997.
5.9. Preservation of Rights; Further Assurances.
(a) Preserve, protect and defend the rights of Borrower under
each and every Project Document, including prosecution of suits to enforce any
right of Borrower thereunder and enforcement of any claims with respect thereto,
and, at the request of Lender, permit Lender to participate in such capacity as
it may choose in any such suit, any defense thereof or in the preparation
therefor; provided, however, that upon the occurrence and during the continuance
of any Event of Default, if Lender requests that certain actions be taken and
Borrower fails to take the requested action within five (5) Business Days,
Lender may enforce, in its own name, in the name of Lender or Borrower's name,
such rights of Borrower.
(b) Use its best efforts to extend or renew the City of
Albuquerque Franchise to a period at least as long as the period during which
the Loan Facility is outstanding, including giving timely written notice under
Section 4 of the City of Albuquerque Franchise of Borrower's intention to seek
renewal of such franchise.
(c) From time to time, execute, acknowledge, record, register,
deliver and/or file all such notices, statements, instruments and other
documents, including any memorandum of lease or other agreement, financing
statement, continuation statement, certificate of title or estoppel certificate
relating to the Loan Facility stating the interest and charges then due and any
known defaults, and take such other steps as may be necessary or advisable to
render fully valid and enforceable under all applicable laws the rights, liens
and priorities of Lender with respect to all Collateral and other security from
time to time furnished under this Agreement or intended to be so furnished, in
each case in such form and at such times as shall be satisfactory to Lender, and
pay all fees and expenses (including attorneys' fees and expenses) incident to
compliance with this Section 5.9(b).
(d) If Borrower shall at any time acquire any real property or
leasehold or other interest in real property, promptly upon such acquisition (or
on the Closing Date if such acquisition occurred prior thereto) execute, deliver
and record a mortgage, satisfactory in form and substance to Lender, subjecting
such real property or leasehold or other interests to a lien and security
interest of Lender created by such mortgage.
5.10. Construction of Project. Make or cause to be made all contracts
and do or cause to be done all things reasonably necessary for the acquisition,
construction, expansion, improvement and equipping of the Project, with or
without advertising for bids, and cause
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the Project to be constructed, expanded, improved and equipped substantially in
accordance with the Plans and Specifications, the Construction Contracts, the
Project Budget and Project Schedule (insofar as necessary to comply with Section
5.7) and not exceeding the disbursements as contemplated by the Construction
Contracts, except as compliance therewith may be waived pursuant to Section 6.12
hereof. Without limiting the generality of the foregoing, Borrower shall
diligently pursue and enforce all of its rights and remedies under the
Construction Contracts, and any other contracts or agreements related to the
construction of the Project and shall ensure that the Project is constructed
substantially in accordance with all such contracts and agreements, to the
extent applicable.
5.11. Taxes, Other Government Charges and Utility Charges. Pay, or
cause to be paid, as and when due and prior to delinquency, all taxes,
assessments and governmental charges of any kind that may at any time be
lawfully assessed or levied against or with respect to Borrower or the Project,
all utility and other charges incurred in the operation, maintenance, use,
occupancy and upkeep of the Project, and all assessments and charges lawfully
made by any Governmental Authority for public improvements that may be secured
by a lien on the Project. However, Borrower may contest in good faith any such
taxes, assessments and other charges and, in such event, may permit the taxes,
assessments or other charges so contested to remain unpaid during any period,
including appeals, when Borrower is in good faith contesting the same, so long
as (a) reserves reasonably satisfactory to Lender have been established in an
amount sufficient to pay any such taxes, assessments or other charges, accrued
interest thereon and potential penalties or other costs relating thereto, or
other adequate provision for the payment thereof shall have been made, (b)
enforcement of the contested tax, assessment or other charge is effectively
stayed for the entire duration of such contest, and (c) any tax, assessment or
other charge determined to be due, together with any interest or penalties
thereon, is immediately paid after resolution of such contest.
5.12. Compliance with Laws, Instruments, Etc. At its expense, promptly
(a) comply, or cause compliance, in all material respects, with all laws, rules,
regulations and Legal Requirements, including laws, rules, regulations and Legal
Requirements, relating to pollution control, environmental protection, equal
employment opportunity or employee benefit plans and employee safety, with
respect to Borrower or the Project, whether or not compliance therewith shall
require structural changes in the Project or any part thereof or require major
changes in operational practices or interfere with the use and enjoyment of the
Project or any part thereof, and (b) procure, maintain and comply, or cause to
be procured, maintained and complied with, in all material respects, all Permits
required for any use of the Project or any part thereof, then being made or
contemplated by the Operative Documents, except that Borrower may, at its
expense, contest by appropriate proceedings conducted in good faith the validity
or application of any such law, rule or regulation; provided that, (i) neither
Lender nor Borrower would be subject to any criminal liability for failure to
comply therewith and (ii) all proceedings to enforce such law, rule or
regulation against Lender, Borrower, or the Project or any part of any of them,
shall have been duly and effectively stayed during the entire pendency of such
contest.
5.13. Warranty of Title. Maintain (a) good, marketable and insurable
leasehold estate to the Leased Property, and good, marketable and insurable
title to the Applicable
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Easements and (b) good, marketable, insurable and indefeasible title to all of
its other respective properties and assets (other than properties and assets
disposed of in the ordinary course of business) to the extent that failure to do
so would have a Material Adverse Effect.
5.14. Maintenance of Insurance.
(a) Required Insurance. Borrower shall, without cost to
Lender, maintain or cause to be maintained on its behalf in effect at all times
the types of insurance set forth in Schedule 6, together with any other types of
insurance required under this Agreement.
(b) Rights of Lender. If at any time the insurance as herein
provided shall be reduced or cease to be maintained, then (without limiting the
rights of Lender hereunder in respect of the Event of Default which arises as a
result of such failure) Lender may at its option obtain and maintain the
insurance required hereby and, in such event, Borrower shall reimburse Lender
upon demand for the cost thereof together with interest thereon at a rate per
annum equal to the Default Rate. If Borrower fails to respond in a timely and
appropriate manner (as reasonably determined by Lender) to take any steps
necessary or reasonably requested by Lender to collect from any insurers for any
loss covered by any insurance required to be maintained by this Section 5.14,
Lender shall have the right to make all proofs of loss, adjust all claims and/or
receive all or any part of the proceeds of the foregoing insurance policies,
either in its own name or the name of Borrower; provided, however, that Borrower
shall, upon Lender's request and at Borrower's own cost and expense, make all
proofs of loss and take all other steps necessary or reasonably requested by
Lender to collect from insurers for any loss covered by any insurance required
to be obtained by this Section 5.14.
(c) Insurance Compliance. On or before the Closing Date and
annually at each policy renewal Borrower shall furnish to Lender, (i) a
certificate signed by a duly authorized representative of Borrower, listing the
insurance then maintained by or on behalf of Borrower and stating that such
insurance complies in all respects with the terms hereof, together with evidence
of payment of the premiums thereon, and (ii) the report of Borrower's insurance
broker, and prior to Completion, the report of Contractors' insurance broker, to
the effect that Borrower's insurance complies in all respects with the terms of
this Section 5.14 and Schedule 6.
(d) Borrower shall and shall cause (i) all of Borrower's
contractors to, name Lender a loss payee or an additional insured on each
insurance policy with respect to any aspect of the Project and (ii) all such
insurance policies to provide Lender with written notice ten (10) days prior to
cancellation of any such insurance policy for non-payment of premiums and thirty
(30) days prior to cancellation of any such insurance policy for any other
reason.
5.15. Event of Eminent Domain. If an Event of Eminent Domain shall be
threatened or occur with respect to any Collateral, (a) promptly upon discovery
or receipt of notice of any such threat or occurrence provide written notice
thereof to Lender, (b) diligently pursue all its rights to compensation against
the relevant Governmental
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Authority in respect of such Event of Eminent Domain, (c) not, without the
written consent of Lender, which consent shall not be unreasonably withheld,
compromise or settle any claim against such Governmental Authority, (d) hold all
amounts and proceeds (including instruments) received in respect of any Event of
Eminent Domain ("Eminent Domain Proceeds") in trust for the benefit of Lender,
segregated from other funds of Borrower, for application in accordance with
Section 7.3, and (e) forthwith pay over to Lender all such amounts and proceeds
in the same form as received (with any necessary endorsement) to be held and
applied in accordance with the provisions of Section 7.3. Borrower consents to
the participation of Lender in any eminent domain proceedings, and Borrower
shall from time to time deliver to Lender all instruments requested by it to
permit such participation.
5.16. Indemnification.
(a) Indemnify, defend and hold harmless Lender and, in their
capacities as such, Lender's respective officers, directors, shareholders,
controlling persons, employees, agents and servants (collectively, the
"Indemnitees") from and against and reimburse the Indemnitees for any and all
losses, claims, obligations, liabilities, damages, injuries (to person, property
or natural resources), penalties, stamp or other similar taxes, actions, causes
of action, suits, judgments, costs and expenses (including attorneys' and
consultants' fees and expenses) of whatever kind or nature, whether or not well
founded, meritorious or unmeritorious, demanded, asserted or claimed against any
such Indemnitee in any way relating to, or arising out of or in connection with
(i) this Agreement, the other Operative Documents or the Project; (ii) any Legal
Requirement or Permit relating to the Project or Borrower, the release or
presence of any Hazardous Substance at the Project or released or disposed of by
the Project or by or on behalf of Borrower, whether foreseeable or
unforeseeable, including all costs of removal and disposal of such Hazardous
Substances, all costs required to be incurred in determining whether the Project
is and causing the Project to be in compliance with all applicable Legal
Requirements and Permits; and (iii) any claims, suits or liabilities against or
of Borrower or its Affiliates.
(b) The foregoing indemnities shall not apply with respect to
an Indemnitee, to the extent the claims, damages, liabilities or losses arise as
the direct and sole result of the gross negligence or willful misconduct of such
Indemnitee, but shall continue to apply to other Indemnitees.
(c) The provisions of this Section 5.16 shall survive
foreclosure of the Collateral Documents and satisfaction or discharge of
Borrower's obligations hereunder and shall be in addition to any other rights
and remedies of Lender.
(d) In case any action, suit or proceeding shall be brought
against any Indemnitee, such Indemnitee shall notify in writing Lender and
Borrower of the commencement thereof, and Borrower shall be entitled, at its
expense, acting through counsel reasonably acceptable to such Indemnitee, to
participate in, and, to the extent that Borrower desires, to assume and control
the defense thereof. Such Indemnitee shall thereafter be entitled, at its
expense, to participate in any action, suit or proceeding the defense of which
has been assumed by Borrower. Notwithstanding the foregoing, Borrower
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shall not be entitled to assume and control the defenses of any such action,
suit or proceedings if and to the extent that, in the opinion of such Indemnitee
and its counsel, such action, suit or proceeding involves the potential
imposition of criminal liability on such Indemnitee or a conflict of interest
between such Indemnitee and Borrower or between such Indemnitee and another
Indemnitee, and in such event (other than with respect to disputes between such
Indemnitee and other Indemnitees) Borrower shall pay the reasonable expenses of
such Indemnitee in such defense, but not more than the expense of one additional
counsel.
(e) Borrower shall report to such Indemnitee on the status of
such action, suit or proceeding as developments shall occur. Borrower shall
deliver to such Indemnitee a copy of each document filed or served on any party
in such action, suit or proceeding, and each document which Borrower possesses
relating to such action, suit or proceeding.
(f) Upon payment of any claim by Borrower pursuant to this
Section 5.16 or other similar indemnity provisions contained herein to or on
behalf of an Indemnitee, Borrower, without any further action, shall be
subrogated to any and all claims that such Indemnitee may have relating thereto,
and such Indemnitee shall cooperate with Borrower and give such further
assurances as are necessary or advisable to enable Borrower vigorously to pursue
such claims. Payment thereof by any Indemnitee or the payment by such Indemnitee
of any judgment or claim successfully perfected against such Indemnitee shall be
payable upon demand of such Indemnitee.
(g) Any amounts payable by Borrower pursuant to this Section
5.16 shall be regularly payable within thirty (30) days after Borrower receives
an invoice for such amounts from any applicable Indemnitee.
5.17. Development Company Net Cash Flow Agreements. At the time of the
closing of the debt financing of subsequent Network Projects funded by Lender or
one of its Affiliates, enter into agreements pledging the Net Cash Flow of
Borrower to support the Obligations of each other Development Company to Lender
and its Affiliates upon a default or event of a default of any other Development
Company; provided however, that a default or event of default on the part of
another Development Company with respect to its Network Project Credit Agreement
by itself, shall not constitute a default or event of default with respect to
this Agreement by Borrower, but rather the Net Cash Flow of Borrower shall be
available to cure the default or event of default of such other Development
Company or Companies. Lender's and its Affiliates' interest in Borrower's Net
Cash Flow pursuant to such pledge agreements shall be senior to all other Debt
of Borrower (except Borrower's other Obligations to Lender under this Agreement)
and any obligations of Borrower to Greenstar for management fees.
5.18. Consents to Assignment. Borrower shall obtain consents to
assignment from third parties to Project Documents not entered into as of the
Closing at the time such Project Documents are entered into in the forms of
Exhibit M-1, M-2 and M-3, as applicable. Borrower shall provide Lender with a
status report with respect to Project Documents entered into and consents to
assignment to be obtained no less frequently than every month in the monthly
reports required pursuant to Section 5.2, commencing on the tenth day of the
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month which first occurs after the Closing Date. Borrower shall provide Lender
with each new consent to assignment received within three (3) days of receipt by
Borrower of such consent to assignment.
ARTICLE 6 - NEGATIVE COVENANTS
------------------------------
Borrower covenants and agrees that until the entire principal balance
of the Loan Facility, together with all interest, fees, charges and costs due to
Lender under this Agreement are paid in full, it will not, without the prior
written consent of Lender:
6.1. Contingent Liabilities. Except as provided in this Agreement,
become liable as a surety, guarantor, accommodation endorser or otherwise, for
or upon the obligation of any other Person; provided, however, that this Section
6.1 shall not be deemed to prohibit:
(a) The acquisition of goods, supplies or merchandise in the
normal course of business or normal trade credit; or
(b) The endorsement of negotiable instruments received in the
normal course of its business.
6.2. Limitations on Liens. Create, incur, assume or permit to exist any
Lien, securing a charge or obligation on the Project or on any of the
Collateral, real or personal, whether now owned or hereafter acquired, except
Permitted Liens.
6.3. Indebtedness. Incur, create, assume or permit to exist any Debt
except (a) the Loan Facility, (b) up to Two Hundred Fifty Thousand Dollars
($250,000) of Debt incurred in the ordinary course of business and (c)
obligations of Borrower for money borrowed to finance Project cost overruns
pursuant to Section 3.5 which is unsecured and deeply subordinated to Borrower's
Obligations to Lender hereunder, or cancel, modify, renew or otherwise rearrange
any Debt or make execute or deliver any assignment for the benefit of creditors,
bond, confession of judgment, mortgage or deed.
6.4. Sale or Lease of Assets. Sell, lease, assign, transfer or
otherwise dispose of assets or property, whether now owned or hereafter
acquired, (a) except in the ordinary course of its business as contemplated by
the Operative Documents and (b) except for obsolete, worn out or replaced
property not used or useful in its business, in each case, at fair market value.
The ordinary course of Borrower's business shall include sale or lease of
irrevocable rights to use dark fiber and conduits.
6.5. Changes. Change the nature of its business or expand its business
other than (i) developing and operating a fiber optic and digital
telecommunications network and (ii) provision of telecommunications services and
capacity.
6.6. Dividends, Redemptions, Etc. (i) Pay any dividends or make any
distributions on its Equity Securities; (ii) purchase, redeem, retire, defease
or otherwise acquire for value
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any of its Equity Securities; (iii) return any capital to any holder of its
Equity Securities as such; (iv) make any distribution of assets, Equity
Securities, obligations or securities to any holder of its Equity Securities as
such; or (v) set apart any sum for any such purpose.
6.7. Investments. Make or permit to remain outstanding any advances,
loans or extensions of credit to, or purchase or own any stock, bonds, notes,
debentures or other securities of any Person, except Permitted Investments.
6.8. Transactions With Affiliates. Directly or indirectly, enter into
any transaction or series of transactions with or for the benefit of an
Affiliate or utilize the collateral in any way for the furtherance of its or any
of its Affiliates' personal business activities without the prior written
approval of Lender, except for (i) the Services Agreement entered into between
Borrower and GST as of October 1, 1995, an executed copy of which has been
delivered to Lender, as the same may be amended from time to time with Lender's
prior written consent, and (ii) any other agreement for the provision of goods
or services by an Affiliate of Borrower to Borrower or by Borrower to an
Affiliate of Borrower; provided that all direct and indirect fees and charges
thereunder are reasonable and comparable to those available from other providers
of such goods or services or to other customers of Borrower, as the case may be.
6.9. Loan Proceeds; Project Revenues. Use, pay, transfer, distribute or
dispose of any Loan Facility proceeds in any manner or for any purposes except
as provided in Section 2.1(a)(iii) or of any Project Revenues in any manner or
for any purposes except as provided in Section 7.1.
6.10. Partnerships. Become a general or limited partner in any
partnership or a joint venturer in any joint venture.
6.11. Dissolution. Liquidate or dissolve, or sell or lease or otherwise
transfer or dispose of all or any substantial part of its property, assets or
business, or combine, merge or consolidate with or into any other entity.
6.12. Amendments; Change Orders; Completion. Cause, consent to or
permit any amendment, modification, variance or waiver of timely compliance with
any terms or conditions of any Project Document if it would have a Material
Adverse Effect, or cancel or terminate any Operative Document to which Borrower
is a party.
6.13. Name and Location; Fiscal Year. Change its name or the location
of its principal place of business without notice to Lender at least thirty (30)
days prior to such change, or change its fiscal year without Lender's consent.
6.14. Assignment. Assign its rights hereunder or under any of the
Operative Documents to any Person.
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6.15. Transfer of Ownership Interests. Cause, make, suffer, permit or
consent to any sale, assignment or transfer of any ownership or other interest
in Borrower or any right thereto, except that GSI or any direct or indirect
subsidiary of GSI that is a direct or indirect parent of Borrower (a "Specified
GSI Subsidiary") may sell securities of a specified GSI Subsidiary in a
transaction which does not result in the loss of control of such Specified GSI
Subsidiary by GSI or a Specified GSI Subsidiary, as the case may be ("loss of
control" includes the sale or other transfer of more than 49% of the Equity
Securities of such Specified GSI Subsidiary or the rights thereto, and the loss
of the voting power on the board of directors required to control such Specified
GSI Subsidiary). As used herein, the transfer of an ownership interest in
Borrower shall include direct and indirect transfers, including sale of stock or
ownership interests or rights thereto in any entity which has a direct ownership
interest in Borrower; provided that the provisions of this sentence shall not be
applicable to the transfer of stock or ownership interests or rights thereto in
GSI or any corporation the securities of which are publicly held.
6.16. Abandonment of Project. Voluntarily abandon the development,
construction, operation, maintenance or repair of the Project.
6.17. Hazardous Substance. Release, emit or discharge into the
environment any Hazardous Substances in excess of permitted levels or reportable
quantities or in violation of other permitted concentrations, standards or
limitations under any Hazardous Substance Laws, Legal Requirements or Applicable
Permits.
6.18. ERISA. Neither Borrower nor any ERISA Affiliate shall (i) adopt
or institute any ERISA Plan, (ii) take any action which will result in the
partial or complete withdrawal, within the meanings of sections 4203 and 4205 of
ERISA, from a Multiemployer Plan, (iii) engage or permit any Person to engage in
any transaction prohibited by section 406 of ERISA or section 4975 of the Code
involving any Employee Benefit Plan or Multiemployer Plan which would subject
either Borrower or any ERISA Affiliate to any tax, penalty or other liability
including a liability to indemnify, (iv) incur or allow to exist any accumulated
funding deficiency (within the meaning of section 412 of the Code or section 302
of ERISA), (v) fail to make full payment when due of all amounts due as
contributions to any Employee Benefit Plan or Multiemployer Plan, (vi) fail to
comply with the requirements of section 4980B of the Code or Part 6 of Title
I(B) of ERISA, or (vii) adopt any amendment to any Employee Benefit Plan which
would require the posting of security pursuant to section 401(a)(29) of the
Code, where singly or cumulatively, the above would have a Material Adverse
Effect.
ARTICLE 7 - APPLICATION OF FUNDS
--------------------------------
7.1. Receipts Account and Operating Account.
(a) On or prior to the date of the initial Construction Loan
hereunder, Borrower and Lender shall establish at Bank of America, Sacramento
RBCO or another bank which shall be reasonably acceptable to Lender, accounts
entitled "New Mexico Lightwave
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Project -- Receipts Account" (the "Receipts Account) and "New Mexico Lightwave
Project -- Operating Account" (the "Operating Account"), respectively. Borrower
shall deposit all Project Revenues (excluding Construction Loan proceeds
disbursed by Lender directly to the Person(s) entitled thereto) in the Receipts
Accounts and the Operating Account shall be used to pay all Project Costs. On
the first Business Day of each month until the Loan Facility has been repaid in
full, provided no Default or Event of Default has occurred and is continuing,
Lender will, to the extent funds are available in the Receipts Account and are
not otherwise restricted or designated for a different use or purpose, transfer
funds from the Receipts Account at the following times and in the following
order of priority:
(i) Monthly, to the Operating Account the amount
shown for such month on the applicable Annual Operating Budget, for the payment
of Operation and Maintenance Costs currently payable and with respect to which
funds have not already been withdrawn from the Operating Account;
(ii) from time to time, to the payment of all fees,
costs, charges and any other amounts due and payable to Lender in connection
with this Agreement and the other Credit Documents;
(iii) at the times set forth in Section 2.1(e), to
the payment of interest and principal on the Loan Facility;
(iv) on or within thirty (30) days after the dates
set forth in Section 2.1(e) and to the extent permitted under Section 6.6 and
after the establishment of prudent reserves for any reasonably anticipated
expenses or other items (which shall be retained in the Operating Account), to
Borrower, any part of which may be used by Borrower to pay dividends to its
shareholder in an aggregate amount up to the amount described in Section 6.6 and
in compliance with applicable law.
Upon repayment in full of all amounts due under this Agreement and satisfaction
of all Obligations under the Credit Documents, Lender shall disburse any amounts
on deposit in the Receipts Account and the Operating Account to Borrower.
(b) Notwithstanding anything in Section 7.1(a) to the
contrary, in lieu of transferring some or all of the amount shown on the
applicable Annual Operating Budget into the Operating Account for the payment of
Operation and Maintenance Costs, Lender may, and Borrower hereby authorizes
Lender to, pay some or all of the Operation and Maintenance Costs directly to
the Person(s) entitled thereto, and such payment shall discharge pro tanto the
obligations of Lender hereunder with respect to such amounts.
(c) Any of the payments, disbursements or transfers of funds
provided for in this Section 7.1 may be made notwithstanding the existence of a
Default or Event of Default if the requirement that there be no existing Default
or Event of Default is waived by Lender in its sole discretion. Such waiver may
apply to any or all such payments, disbursements or transfers of funds and may
apply to payments of a lesser priority without applying to payments of a greater
priority. (For example, such a waiver may apply to
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payments of Debt Service without necessarily applying to payment of Operation
and Maintenance Costs.)
(d) Operation and Maintenance Costs payable pursuant to
Section 7.1(a)(i) shall not in any event exceed the amounts shown on the
approved Annual Operating Budget (as it may be revised from time to time as
provided in Section 5.7(b)). Borrower shall promptly pay all Operation and
Maintenance Costs in excess of the foregoing limit from funds which are
otherwise distributable to Borrower hereunder, other unrestricted funds of
Borrower or equity funds provided to Borrower. To the extent the Annual
Operating Budget is revised pursuant to Section 5.7(b), additional amounts may
be transferred to the Operating Account as set forth in Section 7.1(a).
(e) Notwithstanding the preceding provisions of this Section
7.1, so long as no Default or Event of Default has occurred and at such time as
is ninety (90) days after any Default or Event of Default has been cured,
provided that no other Default or Event of Default shall have occurred in such
ninety (90) day period, Borrower shall have the right to operate the Receipts
Account and the Operating Account consistent with the provisions of this Section
7.1 without the direct control of Lender; provided however, that Borrower will
provide Lender with monthly reports on the balances, status and activity of such
accounts, and provided further, that in no event shall any of the funds in such
accounts be used for any purpose in violation of the terms and conditions of
this Agreement, including without limitation, Section 6.6.
7.2. Application Of Insurance Proceeds.
(a) Each of the parties hereto agrees that all amounts and
proceeds (including instruments) in respect of the proceeds of any insurance
policy required to be maintained by Borrower hereunder ("Insurance Proceeds")
shall, except as otherwise provided in clause (c) below, be paid by the active
insurers directly to Lender (as loss payee or additional insured as provided in
Section 5.14 and Schedule 6), and if paid to Borrower, such Insurance Proceeds
shall be received only in trust for Lender, shall be segregated from other funds
of Borrower, and shall be forthwith paid over to Lender in the same form as
received (with any necessary endorsements). Each of the parties hereto agrees,
to the fullest extent that it effectively may do so under applicable law, that
Lender shall apply all such Insurance Proceeds in accordance with the provisions
of Sections 7.2(b) and 7.2(c).
(b) Unless an Event of Default shall have occurred and be
continuing, any business interruption Insurance Proceeds received by Lender or
Borrower shall be deposited into the Receipts Account.
(c) (i) If there shall occur any damage or destruction of the
Project with respect to which Insurance Proceeds for any single loss not in
excess of $500,000 are payable, such Insurance Proceeds shall be paid to
Borrower and applied to the prompt payment of the cost of the repair or
restoration of such damage or destruction.
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(ii) If there shall occur any damage or destruction
of the Project with respect to which Insurance Proceeds for any single loss in
excess of $500,000 are payable, Borrower shall promptly notify Lender. Such
Insurance Proceeds shall be applied to the prompt repair or restoration of the
Project in accordance with Section 7.2(c)(iii) to the extent determined by
Borrower and, if Lender determines that such Insurance Proceeds should be
applied to such repair or restoration to a greater extent in order for Borrower
to be able to satisfy its obligations under the Operative Documents as well as
before such damage or destruction, to such greater extent.
(iii) If there shall occur any damage to or
destruction of the Project with respect to which Section 7.2(c)(i) or (ii)
requires repair or restoration and
(A) if (1) such damage or destruction does
not constitute the destruction of all or substantially all of the Project, (2)
Borrower and an independent engineer selected by Borrower and subject to
Lender's approval, certify, and Lender determines in its reasonable judgment,
that repair or restoration of the Project is technically and economically
feasible within a six (6) month period and that a sufficient amount of funds is
or will be available to Borrower to make such repairs and restorations, (3) the
Lender determines that after repair and restoration the Project will be able to
repay the Loan Facility and other amounts due the Lender as and when due, (4)
after giving effect to any proposed repair and restoration, but only at the time
that the same are expected to be made, such damage or destruction will not
result in an Event of Default or a Default, (5) Lender shall receive an opinion
of counsel acceptable to Lender to the effect that no material federal, state or
local governmental license, registration, recording, filing, consent, Permit,
order, authorization, certificate, approval, exemption or declaration is
necessary to proceed with the repair and restoration and that no material
amendment to this Agreement or any of the Credit Documents is necessary (or, if
any such is necessary, Borrower is reasonably likely to be able to obtain such
as and when required) for the purpose of subjecting the repairs or restorations
to the Liens of the Collateral Documents, except such, if any, as may be
delivered to Lender and that such amendments and other instruments (if any) have
been duly executed and delivered by and are valid and binding agreements of
Borrower and any other party thereto and subject such repairs or restoration to
the Liens of the Collateral Documents, and (6) Lender shall receive such
additional title insurance, title insurance endorsements, mechanic's lien
waivers, certificates, opinions or other matters as it may reasonably request as
necessary or appropriate in connection with such repairs or restoration or to
preserve or protect the Lender's interest hereunder or in the Collateral, or
(B) Lender shall direct Borrower to
undertake any repair or restoration, then Borrower shall cause any repairs or
restoration to be commenced and completed promptly and diligently at the cost
and expense of Borrower. From time to time after the Lender shall have duly
approved the making of such repairs or restoration, and upon Borrower's written
request and the presentation to Lender of all documents, certificates and
information with respect to such Insurance Proceeds as Lender may reasonably
request, including a certificate from Borrower (A) describing in reasonable
detail the nature of the repairs or restoration, (B) stating the cost of such
repairs or restoration and the specific amount requested to be paid over to or
upon the order of Borrower and that such amount is
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requested to pay the cost thereof, (C) stating that the aggregate amount
requested by Borrower in respect of such repairs or restoration (when added to
any other Insurance Proceeds received by Borrower in respect of such damage of
destruction) does not exceed the cost of such repairs or restoration and that a
sufficient amount of funds is or will be available to Borrower to complete the
Project,and (D) stating that no Event of Default has occurred and is continuing
other than an Event of Default resulting solely from such damage or destruction,
then any Insurance Proceeds (other than Insurance Proceeds with respect to
business interruption) held by Lender arising out of such damage or destruction
shall, be paid over to or at the direction of Borrower to pay for the cost of
the repairs or restoration in respect of which such Insurance Proceeds were
received to the extent of costs actually incurred.
(iv) If, after Insurance Proceeds have been applied
to the repair or restoration of the Project as provided in Sections 7.2(c)(i) or
7.2(c)(ii), Lender determines that the Project will be able to operate at a
level enabling Borrower to satisfy its obligations hereunder as well as before
the damage or destruction, any excess Insurance Proceeds shall be paid into the
Receipts Account; provided that such excess Insurance Proceeds shall, in lieu of
being paid into the Receipts Account, if and to the extent necessary to enable
Borrower to satisfy its obligations hereunder (after accounting for the
prepayment described in this sentence) as well as before such damage or
destruction, be applied to the repayment of the Loan Facility in accordance with
Section 2.1(e).
(v) If an Event of Default or Default shall have
occurred and be continuing, then any provisions of Sections 7.2(c)(i) through
7.2(c)(iv) to the contrary notwithstanding, the Insurance Proceeds (including
any Permitted Investments made with such proceeds, which shall be liquidated in
such manner as Lender shall deem reasonable and prudent under the circumstances)
may be applied by Lender to curing such Event of Default or Default. Any
Insurance Proceeds remaining thereafter shall be applied as provided in this
Section 7.2.
7.3. Application of Eminent Domain Proceeds.
(a) All Eminent Domain Proceeds shall be paid by the
condemning authority directly to Lender, and, if paid to Borrower, such Eminent
Domain Proceeds shall be received only in trust for Lender, shall be segregated
from other funds of Borrower and shall forthwith be paid over to Lender in the
same form as received (with any necessary endorsement).
(b) (i) If the Eminent Domain Proceeds with respect to a
single Event of Eminent Domain not in excess of $500,000 are payable, Borrower
shall comply with Section 5.16, and such Eminent Domain Proceeds shall be paid
to Borrower and applied to the prompt payment of the cost of the replacement or
restoration of the Collateral if such replacement and restoration is
practicable;
(ii) If the Eminent Domain Proceeds with respect to a
single Event of Eminent Domain in excess of $500,000 are payable, Borrower shall
comply with
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Section 5.15, and such Eminent Domain Proceeds shall be applied to the prompt
replacement or restoration of the Collateral in accordance with Section
7.3(b)(iii) to the extent determined by Borrower and, if Lender determines that
such Eminent Domain Proceeds should be applied to such replacement or
restoration to a greater extent in order for Borrower to be able to satisfy its
obligations under the Operative Documents as well as before such damage or
destruction, to such greater extent.
(iii) If there shall occur any Event of Eminent
Domain with respect to which Section 7.3(c)(i) or (ii) requires restoration or
replacement and
(A) if (1) such Event of Eminent Domain does
not constitute the loss of all or substantially all of the Project, (2) Borrower
and an independent engineer selected by Borrower and subject to Lender's
approval, certify, and Lender determines in its reasonable judgment, that
replacement or restoration of the Project is technically and economically
feasible within a six (6) month period and that a sufficient amount of funds is
or will be available to Borrower to make such replacements and restorations, (3)
the Lender determines that after replacement and restoration the Project will be
able to repay the Loan Facility and other amounts due the Lender as and when
due, (4) after giving effect to any proposed restoration or replacement, but
only at the time that the same are expected to be made, such Event of Eminent
Domain will not result in an Event of Default or a Default, (5) Lender shall
receive an opinion of counsel acceptable to Lender to the effect that no
material federal, state or local governmental license, registration, recording,
filing, consent, Permit, Easement, order, authorization, certificate, approval,
exemption or declaration is necessary to proceed with the restoration or
replacement and that no material amendment to this Agreement or any of the
Credit Documents is necessary (or, if any such is necessary, Borrower is
reasonably likely to be able to obtain such as and when required) for the
purpose of subjecting the restored or replacement Collateral to the Liens of the
Collateral Documents, except such, if any, as may be delivered to Lender and
that such amendments and other instruments (if any) have been duly executed and
delivered by and are valid and binding agreements of Borrower and any other
party thereto and subject such replacement or restoration to the Liens of the
Collateral Documents, and (6) Lender shall receive such additional title
insurance, title insurance endorsements, mechanic's lien waivers, certificates,
opinions or other matters as it may reasonably request as necessary or
appropriate in connection with such restoration or replacement or to preserve or
protect the Lender's interest hereunder or in the Collateral, or
(B) Lender shall direct Borrower to
undertake any replacement or restoration, then Borrower shall cause any
replacement or restoration to be commenced and completed promptly and diligently
at the cost and expense of Borrower. From time to time after the Lender shall
have duly approved the making of such restoration or replacement, and upon
Borrower's written request and the presentation to Lender of all documents,
certificates and information with respect to such Insurance Proceeds as Lender
may reasonably request, including a certificate from Borrower (A) describing in
reasonable detail the nature of the replacement or restoration, (B) stating the
cost of such restoration or replacement and the specific amount requested to be
paid over to or upon the order of Borrower and that such amount is requested to
pay the cost thereof, (C) stating that the
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aggregate amount requested by Borrower in respect of such restoration or
replacement (when added to any other Eminent Domain Proceeds received by
Borrower in respect of such damage of destruction) does not exceed the cost of
such repairs or restoration and that a sufficient amount of funds is or will be
available to Borrower to complete the Project,and (D) stating that no Event of
Default has occurred and is continuing other than an Event of Default resulting
solely from such Event of Eminent Domain, then any Eminent Domain Proceeds held
by Lender arising out of such Event of Eminent Domain shall, be paid over to or
at the direction of Borrower to pay for the cost of the restoration or
replacement of the Collateral in respect of which such Eminent Domain Proceeds
were received to the extent of costs actually incurred.
(iv) If, after Eminent Domain Proceeds have been
applied to the restoration or replacement of the Collateral as provided in
Sections 7.3(c)(i) or 7.3(c)(ii), Lender determines that the Project will be
able to operate at a level enabling Borrower to satisfy its obligations
hereunder as well as before the Event of Eminent Domain, any excess Eminent
Domain Proceeds shall be paid into the Receipts Account; provided that such
excess Eminent Domain Proceeds shall, in lieu of being paid into the Receipts
Account, if and to the extent necessary to enable Borrower to satisfy its
obligations hereunder (after accounting for the prepayment described in this
sentence) as well as before such Event of Eminent Domain, be applied to the
repayment of the Loan Facility in accordance with Section 2.1(e).
If Lender so determines that the Project should be restored,
but no or insufficient replacement property is available for such restoration,
then such Eminent Domain Proceeds shall be applied, after acquisition of
whatever necessary replacement property is available, to the prepayment of the
Loan Facility. After Eminent Domain Proceeds have been applied to the
restoration of the Project as provided in the second previous sentence or if
Lender has determined that the Project need not or can not be restored, any
remaining Eminent Domain Proceeds or the entire fund of Eminent Domain Proceeds,
as the case may be, shall be applied to the prepayment of the Loan Facility.
(v) Notwithstanding the foregoing provisions of this
Section 7.3, if an Event of Default shall have occurred and be continuing, any
amount to be applied pursuant to this Section 7.3, shall be paid to Lender as
security for the obligations of Borrower under the Credit Documents, and may be
held, applied or realized upon by Lender as provided herein or in the other
Credit Documents with respect to holding, applying or realizing upon Collateral
after the occurrence of an Event of Default. To the extent any Eminent Domain
Proceeds then remain, at such time thereafter as no Event of Default shall be
continuing, such amount shall be applied as provided in this Section 7.3.
7.4. Security Interest in Proceeds and Accounts. Borrower hereby
pledges, assigns and transfers to Lender on behalf of Lender and grants Lender
on behalf of Lender a security interest in and to all Insurance Proceeds and
Eminent Domain Proceeds (collectively, "Proceeds") and Accounts as security for
the Loan Facility and the full and faithful performance of all of Borrower's
obligations hereunder and under the other Credit Documents. Borrower shall not
have any rights or powers with respect to any Account except to have funds on
deposit therein applied in accordance with this Agreement. Lender
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is hereby authorized to reduce to cash any Permitted Investment (without regard
to maturity) in order to make any application required by any Section of this
Article 7 or otherwise pursuant to the Credit Documents. Upon the occurrence of
an Event of Default, Lender shall have all rights and powers with respect to
Proceeds as it has with respect to any other Collateral and may apply Proceeds
to the payment of interest, principal, fees, costs, charges or other amounts due
or payable to Lender with respect to the Loan Facility in such order as Lender
may elect in its sole discretion. Borrower shall not have any rights or powers
with respect to Proceeds except as expressly provided in Section 7.5.
7.5. Permitted Investments. All amounts held by Borrower and/or Lender
in the Accounts or as Insurance Proceeds or Eminent Domain Proceeds shall only
be invested in Permitted Investments as directed by and at the expense and risk
of Borrower.
ARTICLE 8 - EVENTS OF DEFAULT; REMEDIES
---------------------------------------
8.1. Events of Default.
The occurrence of any of the following events shall constitute an event
of default ("Event of Default") hereunder:
(a) Failure to Make Payments. Borrower shall fail to pay, in
accordance with the terms of this Agreement, (i) any principal on any of the
Loan Facility on the date that such sum is due, (ii) any interest on any of the
Loan Facility within five (5) days after the date that such sum is due, or (iii)
any other fee, cost, charge or other sum due under the Credit Documents within
ten (10) days after the date on which written notice is given to Borrower
pursuant to the provisions of Section 10.1 that such sum is due.
(b) Judgments. A judgment or judgments shall be entered
against Borrower (i) in the aggregate amount of $250,000 or more (other than (A)
a judgment which is fully covered by insurance or discharged within sixty (60)
days after its entry, or (B) a judgment, the execution of which is effectively
stayed within sixty (60) days after its entry but only for thirty (30) days
after the date on which such stay is terminated or expires) or (ii) which would
reasonably be expected to materially impair or inhibit the construction of or
Borrower's use or operation of the Project for the purpose for which the Project
was intended or materially impair the value of the Collateral or the interests
of the Lender under this Agreement and the other Credit Documents;
(c) Misstatements; Omissions. Any financial statement,
representation, report, warranty or certificate made or prepared by, under the
control of or on behalf of Borrower and furnished to the Lender pursuant to this
Agreement or any other Credit Document, or in any separate statement or document
to be delivered to the Lender hereunder or under any other Credit Document,
shall contain an untrue or misleading statement of a material fact or shall fail
to state a material fact necessary to make the statements therein not misleading
as of the date made and as a result thereof, there is or is likely to be a
Material Adverse Effect as determined by the Lender, provided that no Event of
Default shall occur
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pursuant hereto if, within thirty (30) days of the date on which Borrower
receives notice (from any source) that such untrue or misleading statement or
failure to state a material fact has occurred, Borrower shall eliminate or
otherwise address to the satisfaction of the Lender any such Material Adverse
Effect relating to such misleading statement or failure to state a material
fact.
(d) Bankruptcy; Insolvency. Borrower or Borrower's shareholder
shall institute a voluntary case seeking liquidation or reorganization under the
Bankruptcy Law (or any successor statute), or shall consent to the institution
of an involuntary case thereunder against it; or Borrower or Borrower's
shareholder shall file a petition, answer or consent or shall otherwise
institute any similar proceeding under any other applicable federal or state
law, or shall consent thereto; or Borrower or Borrower's shareholder shall apply
for, or by consent or acquiescence there shall be an appointment of, a receiver,
liquidator, sequestrator, trustee or other officer with similar powers, or
Borrower or Borrower's shareholder shall make an assignment for the benefit of
creditors; or Borrower or Borrower's shareholder shall admit in writing its
inability to pay its debts generally as they become due; or if an involuntary
case shall be commenced seeking the liquidation or reorganization of Borrower or
Borrower's shareholder under the Bankruptcy Law (or any successor statute) or
any similar proceeding shall be commenced against Borrower or Borrower's
shareholder under any other applicable federal or state law and (i) the petition
commencing the involuntary case is not timely controverted, (ii) the petition
commencing the involuntary case is not dismissed within sixty (60) days of its
filing, (iii) an interim trustee is appointed to take possession of all or a
portion of the property, and/or to operate all or any part of the business of
Borrower or Borrower's shareholder and such appointment is not vacated within
sixty (60) days, or (iv) an order for relief shall have been issued or entered
therein; or a decree or order of a court having jurisdiction in the premises for
the appointment of a receiver, liquidator, sequestrator, trustee or other
officer having similar powers of Borrower or Borrower's shareholder or of all or
a part of their property, shall have been entered; or any other similar relief
shall be granted against Borrower or Borrower's shareholder under any applicable
federal or state law.
(e) Cross Default. Borrower shall default for a period beyond
any applicable grace period (i) in the payment of any principal, interest or
other amount due under any agreement involving the borrowing of money or the
advance of credit and the outstanding amount or amounts payable under all such
agreements equals or exceeds $250,000 in the aggregate, or (ii) in the payment
of any amount or performance of any obligation due under any guarantee or other
agreement if in either case, pursuant to such default, the holder of the
obligation concerned exercises its right to accelerate the maturity of an
indebtedness evidenced thereby which equals or exceeds $250,000.
(f) ERISA. If Borrower or any ERISA Affiliate should
establish, maintain, contribute to or become obligated to contribute to any
ERISA Plan and (i) a reportable event (as defined in Section 4043(b) of ERISA)
shall have occurred with respect to any ERISA Plan and, within thirty (30) days
after the reporting of such reportable event to Lender by Borrower (or Lender
otherwise obtaining knowledge of such event) and the furnishing of such
information as Lender may reasonably request with respect thereto,
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Lender shall have notified Borrower in writing that Lender has made a
determination that, on the basis of such reportable event, there are reasonable
grounds for the termination of such ERISA Plan by the PBGC or for the
appointment by the appropriate United States District Court of a trustee to
administer such ERISA Plan; or (ii) a trustee shall be appointed by a United
States District Court to administer any ERISA Plan; or (iii) the PBGC shall
institute proceedings to terminate any ERISA Plan; or (iv) a complete or partial
withdrawal by Borrower or any ERISA Affiliate from any Multiemployer Plan shall
have occurred, or any Multiemployer Plan shall enter reorganization status,
become insolvent, or terminate (or notify Borrower or any ERISA Affiliate of its
intent to terminate) under Section 4041A of ERISA; provided that any of the
events described in this Section 8.1(f) shall involve (A) one or more ERISA
Plans that are single-employer plans (as defined in Section 4001(a)(15) of
ERISA) and under which the aggregate gross amount of unfunded benefit
liabilities (as defined in Section 4001(a)(16) of ERISA), including vested
unfunded liabilities which arise or might arise as the result of the termination
of such ERISA Plan or Plans, and/or (B) one or more Multiemployer Plans to which
the aggregate liabilities of Borrower and all ERISA Affiliates, shall exceed
Five Hundred Thousand Dollars ($500,000).
(g) Breach of Operative Documents. Borrower or any other party
thereto shall breach or default under any term, condition, provision, covenant,
representation or warranty contained in any Credit Document, Material Project
Document or other agreement to which Borrower is a party and Lender shall have
determined that such breach or default will have a Material Adverse Effect and
such breach or default shall continue unremedied for thirty (30) days after
notice from Lender to Borrower; provided, however, that if the breach or default
cannot be remedied within such thirty (30) days despite Borrower's and/or such
other party's, as the case may be, best efforts to do so and the breach or
default is capable of being remedied within a period of ninety (90) days, Lender
will not unreasonably withhold its consent to an extension for such additional
period (not to exceed ninety (90) days) as is reasonably necessary beyond such
initial thirty (30) day period to cure such breach of default if remedial action
is promptly instituted within such thirty (30) day period and is thereafter
diligently pursued until the breach or default is corrected. Notwithstanding the
foregoing, Borrower's stockholder shall default in the performance of any of its
respective obligations under its Pledge Agreement and such default is not cured
within five (5) days after notice thereof to such stockholder from Lender.
(h) Breach of Terms of Agreement.
(i) Borrower shall fail to perform or observe any of
the covenants set forth in Sections 5.1, 5.2, 5.4, 5.7, 5.9, 5.11, 5.13, 5.14,
5.15, or 5.16, Sections 6.1 through 6.18 or Article 7; or
(ii) Borrower shall fail to perform or observe any
other covenant to be observed or performed by it hereunder or under any Credit
Document and not otherwise specifically provided for in Section 8.1(h)(i) or
elsewhere in Section 8.1, and such failure shall continue unremedied for a
period of thirty (30) days after Borrower becomes aware thereof or receives
written notice thereof from Lender, provided, however, that if such default is
of a nature such that it cannot reasonably be cured within such thirty (30) day
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period but is susceptible to cure within a longer period, an Event of Default
shall not result therefrom so long as (A) Borrower has, promptly upon discovery
thereof, given written notice to Lender of such default (provided, that if any
Event of Default is cured within any applicable time period specified herein, or
waived or temporarily waived by the Lender, the failure alone to give notice of
such Event of Default as provided in this sentence shall not be deemed an Event
of Default); (B) Borrower as promptly as practicable commences action reasonably
designed to cure such default and continues diligently to pursue such action and
(C) the Lender in its sole discretion shall have determined that such default
does and will not have a Material Adverse Effect.
(i) Completion. Completion shall not have occurred by the
Construction Loan Maturity Date.
(j) Loss of Status.
(i) The CPCN, the City of Albuquerque License or the
City of Rio Rancho License shall be revoked or suspended, or
(ii) Borrower shall lose its status as a nondominant
interexchange carrier under the Communications Act and the regulations
thereunder and Lender determines in its discretion, that such loss could
reasonably be anticipated to have a Material Adverse Effect, or
(iii) Administrative or judicial proceedings are
commenced by the City of Albuquerque, Bernalillo County, the NMSCC or the FCC
that could result in the occurrence of either of subclauses (i) or (ii).
(k) Default in Construction. At any time prior to Completion,
the Project shall be abandoned or work thereon shall cease for a period of more
than thirty (30) days (which period shall be measured from the first occurrence
of a work stoppage and continuing until work of a substantial nature is resumed
and thereafter diligently continued, but which period shall not include delays
caused by Force Majeure and strikes not extending for any one work stoppage or
abandonment beyond 30 days so long as an independent engineer, selected by
Borrower and subject to Lender's approval, has certified that Completion is not
likely to be achieved beyond the applicable Construction Loan Maturity Date,
provided that Borrower gives Lender immediate written notice of all such events)
for any reason, or the Project shall not be constructed substantially in
accordance with the Plans and Specifications (except as to changes therein
approved by the Lender or permitted by Section 6.12), or changes shall be made
in the Plans and Specifications without the prior written approval of the Lender
(except as to changes permitted by Section 6.12).
(l) Security. Any of the Collateral Documents, once executed
and delivered, shall, except as the result of the acts or omissions of the
Lender, in any material respect fail to provide the Lender the Liens, security
interest, rights, titles, interest, remedies, powers or privileges intended to
be created thereby or cease to be in full force and effect, or the validity
thereof or the applicability thereof to this Agreement, the Loan
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Facility, the Note or any other obligations purported to be secured or
guaranteed thereby or any part thereof shall be disaffirmed or questioned by or
on behalf of Borrower or any other party thereto or there shall occur a default
or event of default (however defined) under any of the Collateral Documents,
such default or event of default shall not have been cured within thirty (30)
days after its occurrence and the Lender shall determine in its sole discretion
that such default or event of default could have a Material Adverse Effect.
(m) Loss of Applicable Permit. Any Applicable Permit necessary
for operation of the Project shall be revoked or cancelled by the issuing agency
or other Governmental Authority having jurisdiction and within ninety (90) days
thereafter Borrower is not able to replace or reinstate such Permit or
demonstrate to the Lender that loss of such Permit will not have a Material
Adverse Effect.
(n) Loss of Collateral. Any substantial portion of Borrower's
property is seized or appropriated without fair value being paid therefor such
as to allow replacement of such property and/or prepayment of the Loan Facility
as provided in Section 7.3 and to allow Borrower in the Lender's reasonable
judgment to continue satisfying its obligations hereunder and under the other
Operative Documents.
8.2. Remedies.
Upon the occurrence and during the continuation of an Event of Default,
Lender may, without further notice of default, presentment or demand for
payment, protest or notice of non-payment or dishonor, or other notices or
demands of any kind, all such notices and demands being waived, exercise any or
all of the following rights and remedies, in any combination or order that the
Lender may elect, in addition to such other rights or remedies as the Lender may
have hereunder, under the Collateral Documents or at law or in equity:
(a) No Further Loans. Refuse, and Lender shall not be
obligated, to make any additional Construction Loans or make any payments from
any Account or any Proceeds or other funds held or controlled by Lender under
the Credit Documents or on behalf of Borrower.
(b) Cure. Without any obligation to do so, make disbursements
or Construction Loans to or on behalf of Borrower to cure any Event of Default
or Default hereunder and to cure any default and render any performance under
any Project Documents as the Lender in its sole discretion may consider
necessary or appropriate, whether to preserve and protect the Collateral or the
Lender's interests therein or for any other reason, and all sums so expended,
together with interest on such total amount at the Default Rate, shall be repaid
by Borrower on demand to Lender, and shall be secured by the Credit Documents,
notwithstanding that such expenditures may, together with amounts advanced under
this Agreement, exceed the amount of the Committed Amount.
(c) Acceleration. Declare and make all sums of accrued and
outstanding principal and accrued but unpaid interest remaining under this
Agreement together with all
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unpaid fees, costs (including Liquidation Costs) and charges due hereunder or
under any other Credit Document, immediately due and payable.
(d) Cash Collateral. Subject to Section 10.2, apply or execute
upon any amounts on deposit in any Account or any Proceeds or Borrower Equity or
any other moneys of Borrower on deposit with Lender in the manner provided in
the Uniform Commercial Code and other relevant statutes and decisions and
interpretations thereunder with respect to cash collateral.
(e) Possession of Project. Enter into possession of the
Project and perform any and all work and labor necessary to complete the Project
substantially according to the Construction Contract and the Plans and
Specifications or to operate, maintain and repair the Project, and all sums
expended by Lender in so doing, together with interest on such total amount at
the Default Rate, shall be repaid by Borrower to Lender upon demand and shall be
secured by the Credit Documents, notwithstanding that such expenditures may,
together with amounts advanced under this Agreement, exceed the amount of the
Total Construction Loan Commitment.
(f) Remedies Under Credit Documents. Exercise any and all
rights and remedies available to it under any of the Credit Documents, including
making demand for payment under any judicial or non-judicial foreclosure or
public or private sale of any of the Collateral pursuant to the Collateral
Documents.
ARTICLE 9 - ASSIGNMENTS, ETC.
-----------------------------
9.1. Assignments.
Lender may in accordance with applicable law, after giving reasonable
notice to Borrower, sell and assign to one or more parties (individually, an
"Assignee") all or a portion of its rights and obligations under this Agreement
and the other Credit Documents (such a sale and assignment to be referred to
herein as an "Assignment") pursuant to an assignment agreement in the form of
Exhibit Q (an "Assignment Agreement"), executed by each Assignee and Lender (as
"Assignor") provided, however, that Lender shall not assign more than forty-nine
percent (49%) of its rights or obligations hereunder or assign any of its rights
or obligations hereunder to a competitor of Borrower or a Person who is or has
been engaged in a dispute with Borrower; provided further, that upon notice that
Lender intends to assign any part of its interest hereunder, Borrower shall
promptly provide Lender with a list of its competitors and those Persons with
which it has, or has had, disputes. Upon the execution, delivery, acceptance and
recording of each Assignment Agreement, from and after the Assignment Effective
Date determined pursuant to such Assignment Agreement, (A) each Assignee
thereunder shall be a Lender hereunder with a Proportionate Share as set forth
on Attachment 1 to such Assignment Agreement and shall have the rights, duties
and obligations of Lender under this Agreement and the other Credit Documents,
and (B) the Assignor thereunder shall be a Lender with a Proportionate Share as
set forth on Attachment 1 to such Assignment Agreement, or, if the Proportionate
Share of the Assignor has been reduced to
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0%, the Assignor shall cease to be a Lender. On or prior to the Assignment
Effective Date determined pursuant to each Assignment Agreement, Borrower, at
its expense, shall execute and deliver to Lender in exchange for the respective
surrendered Note of the Assignor thereunder, a new Note to the order of each
Assignee thereunder (with each new Note to be in an amount equal to the
Committed Amount assumed by such Assignee) and, if the Assignor has retained a
Committed Amount hereunder, a new Note to the order of the Assignor (with the
new Note to be in an amount equal to the Committed Amount retained by it). Each
such new Note shall be dated the Closing Date and each such new Note shall
otherwise be in the form of the Note replaced thereby. The Note surrendered by
the Assignor shall be returned by Lender to Borrower marked "cancelled".
9.2. Confidentiality. Lender may disclose the Credit Documents and any
financial or other information relating to Borrower to any potential Assignee.
9.3. Securities Laws. Notwithstanding the foregoing provisions of this
Article 9, no sale, assignment, transfer, negotiation or other disposition of
the interests of Lender hereunder or under the other Credit Documents shall be
allowed if it would violate the Securities Act of 1933, as amended (the "Act"),
or would require registration under the Act, any other federal securities laws
or regulations or the securities laws or regulations of any applicable
jurisdiction. Borrower shall, from time to time at the request and expense of
Lender, execute and deliver to Lender, or to such party or parties as Lender may
designate, any and all further instruments as may in the opinion of Lender be
necessary or advisable to give full force and effect to such disposition.
ARTICLE 10 - MISCELLANEOUS
--------------------------
10.1. Notices. All notices, notifications and other communications
required or permitted by this Agreement shall be in writing and shall be
delivered by hand, telegraphically transmitted, sent by facsimile (with a copy
sent by overnight mail), or mailed by overnight courier to the parties at the
following addresses (or such other address for a party as shall be specified by
notice given pursuant hereto):
If to Lender: c/o Tomen America Inc.
1285 Avenue of the Americas
New York, NY 10019
Attn: Takashi Yoshida
Facsimile No. (212) 397-3351
with a copy to: Orrick, Herrington & Sutcliffe
400 Sansome Street
San Francisco, CA 94111
Attn: Michael R. Meyers
Facsimile No. (415) 773-5759
50
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If to Borrower: GST New Mexico Lightwave, Inc.
4317 NE Thurston Way
Vancouver, WA 98662
Attn: John Warta, Chief Executive Officer
Facsimile No. (360) 260-2075
with a copy to: Olshan Grundman Frome & Rosenzweig, LLP
505 Park Avenue
New York, NY 10022
Attn: Stephen Irwin
Facsimile No. (212) 755-1467
Notices delivered by hand, telegraphically transmitted, or sent by
facsimile shall be deemed given the day so delivered, transmitted or sent.
Notices delivered or mailed as provided herein shall be deemed given on the date
of actual receipt. Failure to deliver a copy of a notice to counsel for a party
as provided above shall not constitute failure to give notice hereunder. Notice
so given shall be effective upon receipt by the addressee, except that
communication or notice so transmitted by telecopy or other direct written
electronic means shall be deemed to have been validly and effectively given on
the day (if a Business Day and, if not, on the next following Business Day) on
which it is transmitted if transmitted before 4 p.m., recipient's time, and if
transmitted after that time, on the next following Business Day; provided,
however, that if any notice is tendered to an addressee and the delivery thereof
is refused by such addressee, such notice shall be effective upon such tender.
Any party shall have the right to change its address for notice hereunder to any
other location within the continental United States by giving of thirty (30)
days' notice to the other parties in the manner set forth hereinabove.
10.2. Additional Security; Right to Set-Off. Any deposits or other sums
at any time credited or due from Lender and any Project Revenues, securities or
other property of Borrower in the possession of Lender may at all times be
treated as collateral security for the payment of amounts due with respect to
the Loan Facility and the Note and all other obligations of Borrower to Lender
under this Agreement and the other Credit Documents, and Borrower hereby pledges
to Lender for the benefit of the Lender and grants Lender a security interest in
and to all such deposits, sums, securities or other property. Regardless of the
adequacy of any other collateral, Lender and only Lender, may execute or realize
on the Lender's security interest in any such deposits or other sums credited by
or due from Lender to Borrower, may apply any such deposits or other sums to or
set them off against Borrower's obligations to Lender under the Note and this
Agreement at any time after the occurrence and during the continuance of any
Event of Default.
10.3. Delay and Waiver. No delay or omission to exercise any right,
power or remedy accruing to the Lender upon the occurrence of any Event of
Default or Default or any breach or default of Borrower under this Agreement or
any other Credit Document shall impair any such right, power or remedy of the
Lender, nor shall it be construed to be a waiver of any such breach or default,
or an acquiescence therein, or of or in any similar breach or default thereafter
occurring, nor shall any waiver of any single Event of Default,
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Default or other breach or default be deemed a waiver of any other Event of
Default, Default or other breach or default theretofore or thereafter occurring.
Any waiver, permit, consent or approval of any kind or character on the part of
Lender of any Event of Default, Default or other breach or default under this
Agreement or any other Credit Document, or any waiver on the part of Lender of
any provision or condition of this Agreement or any other Credit Document, must
be in writing and shall be effective only to the extent in such writing
specifically set forth. All remedies, either under this Agreement or any other
Credit Document or by law or otherwise afforded to Lender, shall be cumulative
and not alternative.
10.4. Costs, Expenses and Attorneys' Fees. Borrower will pay to Lender
on demand (a) all reasonable out-of-pocket costs, fees and expenses, including
reasonable attorneys' fees and expenses, incurred by Lender in connection with
the enforcement or protection (or attempted enforcement or protection) of any
rights or remedies of Lender under this Agreement or any other Credit Document
and (b) the reasonable fees, expenses and disbursements of any engineering,
environmental, insurance, construction or other consultants to Lender incurred
in connection with any of the foregoing.
10.5. Attorney-In-Fact.
(a) For the purpose of allowing Lender to exercise the rights
and remedies provided in Article 8, following the occurrence and during the
continuation of an Event of Default, Borrower hereby constitutes and appoints
Lender its true and lawful attorney-in-fact, with full power of substitution, to
complete any or all of the Project in the name of Borrower, and hereby empowers
such attorney or attorneys as follows:
(i) To use any unadvanced proceeds of the
Construction Loans and any Borrower Equity for the purpose of completing,
operating, maintaining and repairing any or all of the Project and to perform
any and all of Borrower's obligations under the Project Documents;
(ii) To make such changes and corrections in the
Plans and Specifications or the operating and maintenance practices and
procedures of the Project as they consider reasonably necessary or desirable to
complete the work on any or all of the Project in substantially the manner
contemplated by the Construction Contracts;
(iii) To employ such contractors, subcontractors,
agents, architects, inspectors and other Persons as reasonably shall be required
for such purposes;
(iv) To pay, settle or compromise all bills and
claims which may be or become liens or security interests against any or all of
the Project or the Collateral, or any part thereof, unless a bond or other
security satisfactory to Lender has been provided;
(v) To execute applications and certificates in the
name of Borrower which reasonably may be required by the Credit Documents or any
other agreement or instrument executed by Borrower in connection with the
Project;
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(vi) To prosecute and defend all actions or
proceedings in connection with the Project or the Collateral or any part thereof
and to take such action and require such performance as Lender reasonably deems
necessary under any performance and payment bond or the Credit Documents;
(vii) To do any and every act which Borrower might do
on its behalf with respect to the Collateral or any part thereof or any or all
of the Project and to exercise any or all of Borrower's rights and remedies
under any or all of the Project Documents; and
(viii) To use any funds in any Account to pay
interest or principal with respect to the Loan Facility or fees and other
amounts due to Lender, as they may be due from time to time or, to pay Project
Costs.
(b) The powers of attorney set forth in this Section 10.5
shall be deemed to be powers coupled with interests and shall be irrevocable.
10.6. Entire Agreement; Amendments and Modifications. This Agreement
and any agreement, document or instrument attached hereto as exhibits or
schedules or otherwise or referred to herein integrate all the terms and
conditions mentioned herein or incidental hereto and supersede all oral
negotiations and prior writings, in respect to the subject matter hereof. In the
event of any conflict between the terms, conditions and provisions of this
Agreement and any such agreement, document or instrument, the terms, conditions
and provisions of this Agreement shall prevail. This Agreement and the other
Credit Documents may only be amended or modified by an instrument in writing
signed by Borrower, Lender and any other parties to be charged or as set forth
in Section 9.1.
10.7. Governing Law. This Agreement, and any instrument or agreement
required hereunder (to the extent not expressly provided for therein), shall be
governed by, and construed under, the laws of the State of New York without
reference to conflicts of law rules.
10.8. Severability. In case any one or more of the provisions contained
in this Agreement should be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
10.9. Headings. Paragraph headings have been inserted in this Agreement
as a matter of convenience for reference only and are not a part of this
Agreement and shall not be used in the interpretation of any provision of this
Agreement.
10.10. Accounting Terms. All accounting terms used in this Agreement or
in any other Credit Document shall be construed, and all accounting and
financial computations, hereunder or thereunder, shall be computed, in
accordance with GAAP.
10.11. No Partnership; Etc. The Lender and Borrower intend that the
relationship between them shall be solely that of creditor and debtor. Nothing
contained in this
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Agreement, the Note or in any of the other Credit Documents shall be deemed or
construed to create a partnership, tenancy-in-common, joint tenancy, joint
venture or co-ownership by or between the Lender and Borrower or any other
Person. The Lender shall not be in any way responsible or liable for the debts,
losses, obligations or duties of Borrower or any other Person with respect to
the Project or otherwise. All obligations to pay real property or other taxes,
assessments, insurance premiums, and all other fees and charges arising from the
ownership, operation or occupancy of the Project and to perform all obligations
and other agreements and contracts relating to the Project shall be the sole
responsibility of Borrower.
10.12. Limitation on Liability. No claim shall be made by Borrower, any
shareholder of Borrower or sponsor or any of their Affiliates against the Lender
or any of their Affiliates, directors, employees, attorneys or agents for any
special, indirect, consequential or punitive damages in respect of any breach or
wrongful conduct (whether or not the claim therefor is based on contract, tort
or duty imposed by law), in connection with, arising out of or in any way
related to the transactions contemplated by this Agreement or the other
Operative Documents or any act or omission or event occurring in connection
therewith; and Borrower hereby waives, releases and agrees not to sue upon any
such claim for any such damages, whether or not accrued and whether or not known
or suspected to exist in its favor.
10.13. Waiver of Jury Trial. THE LENDER AND BORROWER HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT, OR ANY COURSE OR
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS
OF THE LENDER OR BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
LENDER TO ENTER INTO THIS AGREEMENT.
10.14. Consent to Jurisdiction. The Lender and Borrower agree that,
except as may otherwise be required by law, any legal action or proceeding by or
against Borrower or with respect to or arising out of this Agreement, the Note,
or any other Credit Document may be brought in or removed to the courts of the
State of New York sitting in New York City, or of the United States of America
for the Southern District of New York, as Lender may elect. By execution and
delivery of this Agreement, Lender and Borrower accept, for themselves and in
respect of their property, generally and unconditionally, the jurisdiction of
the aforesaid courts. Lender and Borrower irrevocably consent to the service of
process out of any of the aforementioned courts in any such action or proceeding
by the mailing of copies thereof by registered or certified airmail, postage
prepaid, to Lender or Borrower, as the case may be, at their respective
addresses for notices as specified herein and that such service shall be
effective five (5) Business Days after such mailing. Nothing herein shall affect
the right to serve process in any other manner permitted by law or the right of
Lender to bring legal action or proceedings in any other competent jurisdiction,
including judicial or non-judicial foreclosure of a mortgage. Notwithstanding
the foregoing, service of process shall not be deemed mailed (i) to Lender until
a copy of all matters to be served have been
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mailed to Orrick, Herrington & Sutcliffe, 400 Sansome Street, San Francisco,
California 94111, Attention: Michael R. Meyers, Esq. or such other Person as
Lender may hereafter designate by notice given pursuant to Section 10.1 or (ii)
to Borrower until a copy of all matters to be served have been mailed to Olshan,
Grundman, Frome & Rosenzweig, LLP, 505 Park Avenue, New York, New York 10022,
Attention: Stephen Irwin, Esq. or such other Person as Borrower may hereafter
designate by notice given pursuant to Section 10.1. Lender and Borrower further
agree that the aforesaid courts of the State of New York and of the United
States of America shall have exclusive jurisdiction with respect to any claim or
counterclaim of Borrower based upon the assertion that the rate of interest
charged by Lender on or under this Agreement, the Loan Facility and/or the other
Credit Documents is usurious. Lender and Borrower hereby waive any right to stay
or dismiss any action or proceeding under or in connection with any or all of
the Project, this Agreement or any other Credit Document brought before the
foregoing courts on the basis of forum non-conveniens.
10.15. Usury. Nothing contained in this Agreement or the Note shall be
deemed to require the payment of interest or other charges by Borrower or any
other Person in excess of the amount which Lender or other holders of the Note
("Note Holders") may lawfully charge under any applicable usury laws. In the
event that Lender or other Note Holders shall collect moneys under this
Agreement, the Note or any other Credit Document which are deemed to constitute
interest which would increase the effective interest rate to a rate in excess of
that permitted to be charged by applicable law, all such sums deemed to
constitute interest in excess of the legal rate shall, upon such determination,
at the option of Lender or other Note Holders, be returned to Borrower or
credited against the principal balance of the Note then outstanding.
10.16. Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. Borrower may not assign or otherwise transfer
any of its rights under this Agreement without the prior written consent of
Lender.
10.17. Counterparts. This Agreement may be executed in one or more
duplicate counterparts and when signed by each of the parties listed below shall
constitute a single binding agreement.
* * * *
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their officers thereunto duly authorized as of the day and
year first above written.
GST NEW MEXICO LIGHTWAVE, INC.,
a New Mexico corporation,
as Borrower
By: /s/ Clifford V. Sander
------------------------------------------------
Name: Clifford V. Sander
Title: Assistant Secretary and Vice President
TM COMMUNICATIONS LLC,
a Delaware limited liability company,
as Lender
By: /s/ Takashi Yoshida
------------------------------------------------
Name: Takashi Yoshida
Title: Vice President
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EXHIBIT A
---------
DEFINITIONS
-----------
"Account Debtor" has the meaning given in Section 5(c) of the
Security Agreement.
"Account Security Agreement" has the meaning given in Section
2.7(a) of the NML Credit Agreement.
"Accounts" means the Receipts Account and the Operating
Account.
"Act" means the U.S. federal Securities Act of 1933, as
amended.
"Additional Information" has the meaning given in Section
2.1(a) of the Master Agreement.
"Additional Project Documents" means any other contracts or
agreements related to the construction, testing, maintenance, repair, operation
or use of the Project entered into by Borrower and any other Person subsequent
to the Closing Date.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations under the Securities Exchange Act of 1934, as amended provided,
however, that in no case shall Lender or any of its Affiliates be deemed to be
Affiliates of Greenstar.
"Alternate Interest Rate" means a fluctuating per annum rate
of interest as shall be in effect from time to time which rate shall at all
times be equal to the Federal Funds Rate plus three percent (3%). Any change in
the Alternate Interest Rate due to a change in the Federal Funds Rate shall be
effective as of the effective date of such change in such Federal Funds Rate.
"Alternate Interest Rate Loan" means any portion of the Loan
Facility converted pursuant to Section 2.5(a) of the NML Credit Agreement into a
loan at the Alternate Interest Rate.
"AMEX" means the American Stock Exchange.
"Annual Operating Budget" means, with respect to any fiscal
year of Borrower, an annual operating budget setting forth all reasonably
anticipated Project Revenues, Debt Service, Operation and Maintenance Costs,
allowances for reserves, and information described in Section 5.7(b) of the NML
Credit Agreement. "Annual Operating Budget" includes the First Annual Operating
Budget.
"Applicable Easement" means any Easement that is necessary at
any given time in light of the stage of development, construction or operation
of the Project to
A-1
<PAGE>
construct, test, operate, maintain, repair, own or use the Project as
contemplated by the Operative Documents, to enter into any Operative Document or
to consummate any transaction contemplated thereby.
"Applicable Permit" means any Permit, including any zoning,
environmental protection, pollution, sanitation, FCC, NMSCC, safety, sitting,
building or other Permit, (a) that is necessary at any given time in light of
the stage of development, construction or operation of the Project to construct,
test, operate, maintain, repair, own or use the Project as contemplated by the
Operative Documents, to enter into any Operative Document or to consummate any
transaction contemplated thereby, or (b) that is necessary so that neither
Borrower nor any Affiliate may be deemed by any Governmental Authority to be
subject to regulation under the Communications Act or under any state laws or
regulations as a result of the construction and operation of the Project.
"Assigned Agreement" has the meaning given in Section 2(d)(i)
of the Security Agreement.
"Assignee" has the meaning given in Section 9.1 of the NML
Credit Agreement.
"Assignment" has the meaning given in Section 9.1 of the NML
Credit Agreement.
"Assignment Agreement" has the meaning given in Section 9.1 of
the NML Credit Agreement.
"Assignor" has the meaning given in Section 9.1 of the NML
Credit Agreement.
"Bankruptcy Law" means Title 11 of the United States Code, and
any other state or federal insolvency, reorganization, moratorium or similar law
for the relief of debtors.
"Base Case Project Projection" means a projection of operating
results for the Project over a period ending no sooner than five (5) years
beyond the Expected Completion Date, showing at a minimum Borrower's reasonable
good faith estimates, as of the applicable Closing Date, of revenue, operating
expenses, debt service coverage ratios and sources and uses of revenues over the
forecast period, which projection shall be delivered at the applicable Closing
Date.
"Borrower" means GST New Mexico Lightwave, Inc., a New Mexico
corporation.
"Borrower Equity" means any non-borrowed funds contributed by
Borrower, or any shareholder of Borrower on behalf of Borrower, toward Project
Costs.
A-2
<PAGE>
"Business Day" means any day other than a Saturday, Sunday or
other day on which banks are authorized to be closed in Albuquerque, New Mexico
or New York, New York and, with respect to the determination of the LIBOR Rate,
which is also a day on which dealings in Dollar deposits are carried out in the
London interbank market.
"Capital Contribution" means the contribution to capital to be
made prior to the Closing as set forth in Section 3.1(h) of the NML Credit
Agreement.
"Change of Control" means any of the following: (i) the sale,
lease, conveyance or other disposition of assets of the Borrower valued in
excess of $5,000,000; (ii) the liquidation or dissolution of the Borrower; and
(iii) any transaction or series of transactions that results in GSI ceasing to
hold and control, directly or indirectly, fifty percent (50%) or more of the
Equity Securities of Borrower.
"Change of Law" has the meaning given in Section 2.5(b) of the
NML Credit Agreement.
"Charter Documents" means, as to any Person other than a
natural person, the charter, certificate or articles of incorporation, bylaws or
other organizational or governing documents of such Person, including, with
respect to a partnership, a partnership agreement and any certificate of limited
partnership or similar document.
"City of Albuquerque License" means the nonexclusive
franchise, right and privilege to erect, construct, maintain and operate within
the corporate limits of the City of Albuquerque, New Mexico, a telecommunication
system to supply city residents and others with telecommunication service
granted to Borrower by the City of Albuquerque on July 17, 1995.
"City of Rio Rancho License" means the non-exclusive right and
privilege to construct, erect, operate and maintain, in, upon, along, across,
above, over and under the streets, alleys, public way and public places now in
use or dedicated, and all extensions thereof, and additions thereto, in the City
of Rio Rancho, poles, wires, cables, underground conduits, manholes and other
telecommunications facilities necessary or proper for the maintenance and
operation in said City of Rio Rancho, the Company's telecommunications business
as that term is defined in ss.63-9A-3.L, NMSA 1978, and set forth in its CPCN as
amended from time to time, granted to Borrower by the City of Rio Rancho on
January 24, 1996.
"Closing Date" means the date when each of the conditions
precedent listed in Section 3.1 of the NML Credit Agreement has been satisfied
(or waived in writing by Lender).
"Code" means the Internal Revenue Code of 1986, as amended.
Reference to a specific section of the Code shall include any valid regulation
promulgated thereunder, and any comparable provision of any future legislation
amending, supplementing or superseding such section.
A-3
<PAGE>
"Collateral" means all real and personal property which is
subject or is or is intended to become subject to the security interests or lien
granted by any of the Collateral Documents.
"Collateral Documents" means the Pledge Agreement, the
Security Agreement, the Account Security Agreement, the GST Security Agreement,
the Consents, the Net Cash Flow Agreements, the Net Cash Flow Account Security
Agreements, and the other agreements to be entered into pursuant to Section 5.17
of the NML Credit Agreement, the Construction Deeds of Trust and any financing
statements and the like filed or recorded in connection with the foregoing.
"Collocation Agreements" means the agreements entered into or
to be entered into between NML and local exchange carriers with respect to
physical or virtual collocation with respect to the Project.
"Committed Amount" means Eight Million Dollars ($8,000,000).
"Communications Act" means the Communication Act of 1934, as
amended.
"Completion" means, with respect to the Project, that the
Project shall have been substantially completed in all material respects and
that all work under the Construction Contracts shall have occurred and that
completion of all such work shall have been in accordance with the Plans and
Specifications and the requirements of all Applicable Permits for the Project.
"Completion Date" means, with respect to the Project, the
earlier of: (i) the date of Completion of the Project, and (ii) May 15, 1997.
"Consents" shall mean a consent executed by each party to the
Project Documents (other than Lender) in substantially the form of Exhibit M-1,
M-2 or M-3 hereto, as applicable.
"Construction Contracts" means the Construction Contract
between NML and US Communications, Inc. dated September 26, 1995 and the other
Construction Agreements to be entered into with respect to the construction of
the Project, subject to the terms and conditions of the NML Credit Agreement.
"Construction Deeds of Trust" shall mean the construction
deeds of trust filed in connection with the Closing, in substantially the form
of Exhibit I.
"Construction Loan" has the meaning given in Section 2.1(a)(i)
of the NML Credit Agreement.
"Construction Loan Availability Period" means with respect to
the Project the period from the Closing Date to the earlier of Completion or the
Construction Loan Maturity Date.
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"Construction Loan Borrowing" means a borrowing by Borrower
consisting of a Construction Loan made by the Lender.
"Construction Loan Maturity Date" shall mean, with respect to
the Project, the date which is one year after the Closing Date.
"Contractors" means U. S. Communications, Inc. and such other
contractors as may be selected by Borrower and approved by Lender.
"CPCN" means the Certificate of Public Convenience and
Necessity Granted to Borrower by the NMSCC on October 23, 1995.
"Credit Documents" means the NML Credit Agreement, the Note,
the Collateral Documents and the Consents.
"Credit Event" means the making of any Construction Loan and
any other extension of credit hereunder.
"Debt" of any Person at any date means, without duplication,
(a) all obligations of such Person for borrowed money, (b) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(c) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business, (d) all obligations of such Person under leases which are or
should be, in accordance with GAAP, recorded as capital leases in respect of
which such Person is liable, (e) all obligations of such Person to purchase
securities (or other property) which arise out of or in connection with the sale
of the same or substantially similar securities (or property), (f) all deferred
obligations of such Person to reimburse any bank or other Person in respect of
amounts paid or advanced under a letter of credit or other instrument, (g) all
Debt of others secured by a Lien on any asset of such Person, whether or not
such Debt is assumed by such Person and (h) all Debt of others guaranteed
directly or indirectly by such person or as to which such Person has an
obligation substantially the economic equivalent of a guarantee.
"Debt Service" means for any Person and any period all
Obligations for principal and interest payments on Debt of such Persons due in
such period.
"Default" means any occurrence, circumstance or event, or any
combination thereof, which, with the lapse of time and/or the giving of notice,
would constitute an Event of Default.
"Default Rate" means an interest rate per annum equal to the
interest rate then in effect on the Loan Facility plus three percent (3%). All
computations of interest with respect to the Default Rate shall be based on a
year of 360 days and actual days elapsed.
"Depositary Bank" has the meaning given in Section 8(b) of the
Security Agreement.
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"Development Companies" means corporations which are direct or
indirect subsidiaries of GSI and/or GST which will develop the Network Projects.
"Dollars" and "$" means United States dollars or such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts in the United States of
America.
"Drawdown Certificate" means a certificate delivered to Lender
pursuant to Section 3.2(b) of the NML Credit Agreement substantially in the form
of Exhibit C-2 thereto.
"Easement Property" means the property subject to all
Easements and similar agreements described on Schedule 2 attached hereto.
"Easements" means any easement, other right of way or license
provided or agreed to by any Person other than a Governmental Authority.
"Eminent Domain Proceeds" has the meaning given in Section
5.15 of the NML Credit Agreement.
"Employee Benefit Plan" means any employee benefit plan within
the meaning of section 3(3) of ERISA maintained or contributed to by Borrower or
any ERISA Affiliate, other than a Multiemployer Plan.
"Equipment" has the meaning given in Section 2(c) of the
Security Agreement.
"Equity Securities" of any Person shall mean (a) all common
stock, preferred stock, participations, shares, partnership interests or other
equity interests in and of such Person (regardless of how designated and whether
or not voting or non-voting) and (b) all warrants, options and other rights to
acquire any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, including (unless the context otherwise
requires) any rules or regulations promulgated thereunder.
"ERISA Affiliate" means any Person which is treated as a
single employer with Borrower under Section 414 of the Code.
"ERISA Plan" means any employee benefit plan (a) maintained by
Borrower or any ERISA Affiliate, or to which any of them contributes or is
obligated to contribute, for its employees and (b) covered by Title IV of ERISA
or to which Section 412 of the Code applies.
"Estoppel and Consent Certificate" shall mean an estoppel and
consent certificate in substantially the same form of Exhibit L.
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"Event of Default" means any event specified in Article 8 of
the NML Credit Agreement.
"Event of Eminent Domain" means any compulsory transfer or
taking by condemnation, eminent domain or exercise of a similar power, or
transfer under threat of such compulsory transfer or taking, of any part of the
Collateral or any of the mortgaged property described in a mortgage by any
agency, department, authority, commission, board, instrumentality or political
subdivision of the State of New Mexico, the United States or another
Governmental Authority having jurisdiction.
"Exercise Price" has the meaning given in Section 2 of the
Warrant.
"Expected Completion Date" means March 31, 1997.
"FCC" means the Federal Communications Commission and its
successors.
"Federal Funds Rate" means the per annum rate of interest at
which Federal funds in the amount of the Loan Facility scheduled to be
outstanding as of the commencement of the relevant Interest Period are offered
to the Lender for such Interest Period by Federal funds brokers in New York at
approximately 11:00 a.m. New York time on the date two Business Days prior to
the first day of such Interest Period.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System.
"First Annual Operating Budget" has the meaning given in
Section 5.7(b) of the NML Credit Agreement.
"Fixed Rate" means a rate per annum equal to the annual yield
which a United States government securities dealer of recognizes standing,
selected by the Lender in its sole discretion, offers to the Lender at
approximately 11:00 a.m. New York time on the day preceding the date of
conversion for the purchase of United States Treasury notes or bonds in an
aggregate principal amount of $1,000,000 or more maturing approximately on the
Maturity Date plus 3.00% plus swap costs.
"Force Majeure" means a delay in or failure of performance by
a Person attributable to unforeseeable occurrences beyond the control of such
Person, including acts of God or the public enemy; expropriation or confiscation
of facilities; compliance with any order or request of any Governmental
Authority; unforeseen changes in laws, regulations or orders, acts of declared
or undeclared war; use of any weapon of war employing atomic fission or
radioactive force, whether in time of peace or war; shipwreck; public disorder,
rebellion or sabotage, revolution, epidemics, landslides, hurricanes,
earthquakes, floods, riots, partial or entire failure of utilities, quarantine,
or similar causes; strikes, lockouts or other labor disputes (excluding a strike
at the Site or by employees of a Contractor unless such strike or disturbance is
in violation of a "no strike" provision of a Project labor
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agreement). Financial difficulties of any kind are explicitly excluded from
this definition of Force Majeure.
"GAAP" means generally accepted accounting principles and
practices as in effect in the United States of America from time to time,
consistently applied.
"Governmental Authority" means any national, state or local
government (whether domestic or foreign), any political subdivision thereof or
any other governmental, quasi-governmental, judicial, public or statutory
instrumentality, authority, body, agency, bureau or entity, (including any
zoning authority, the FCC, the NMSCC, or any arbitrator with authority to bind a
party at law).
"Governmental Charges" has the meaning given in Section 1 of
the Security Agreement.
"Governmental Rule" means any law, rule, regulation,
ordinance, order, code interpretation, judgment, decree, directive, guidelines,
policy or similar form of decision of any Governmental Authority.
"Greenstar" means GSI, GUS, GST, PLI, NML, GST Tucson
Lightwave, Inc., GST Pacwest Telecom Hawaii, Inc., and their Affiliates.
"GSI" means GST Telecommunications Inc. (formerly known as
"Greenstar Telecommunications Inc."), a corporation organized under the laws of
Canada.
"GST" means GST Telecom Inc., a Delaware corporation.
"GST Security Agreement" has the meaning given in Section
2.7(a) of the NML Credit Agreement.
"GST Services Agreement" means the Services Agreement between
NML and GST, dated as of October 1, 1995.
"GUS" means GST USA, Inc. (formerly known as "Greenstar USA,
Inc."), a Delaware corporation.
"Hazardous Substances" means substances defined as "hazardous
substances," in Section 101 of the CERCLA (42 U.S.C. Section 9601); those
substances defined as "hazardous waste" by the RCRA; those substances designated
as a "hazardous substance" pursuant to Section 311 of the Clean Water Act (33
U.S.C. Section 1321); those substances defined as "hazardous materials" in
Section 103 of the Hazardous Materials Transportation Act (49 U.S.C. Section
1801 et seq. at Section 1802); those substances regulated as a hazardous
chemical substance or mixture or as an imminently hazardous chemical substance
or mixture pursuant to Sections 6 or 7 of the TSCA (15 U.S.C. Sections 2605,
2606); those substances defined as "contaminants" by Section 1401 of the SDWA
(42 U.S.C. Section 300f), if present in any surface or ground water in excess of
maximum contaminant
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levels; those substances regulated by the Oil Pollution Act; those substances
defined as a pesticide pursuant to Section 2(u) of the FIFRA (7 U.S.C. Section
136(u)); those substances defined as a source, special nuclear or by-product
material by Section 11 of the AEA (42 U.S.C. Section 2014); those substances
defined as "residual radioactive material" by Section 101 of the UMTRCA (42
U.S.C. Section 7911); those substances defined as "toxic materials" or "harmful
physical agents" pursuant to Section 6 of the Occupational Safety and Health Act
(29 U.S.C. Section 651 et seq. at Section 655); those substances defined as
hazardous wastes in 40 C.F.R. Part 261.3; those substances defined as hazardous
waste constituents in 40 C.F.R. Part 260.10, specifically including Appendix VII
and VIII of Subpart D of 40 C.F.R. Part 261; those substances designated as
hazardous substances in 40 C.F.R. Parts 116.4 and 302.4; those substances
defined as hazardous substances or hazardous materials in 49 C.F.R. Part 171.8;
those substances regulated as hazardous materials, hazardous substances, or
toxic substances in 40 C.F.R. Part 1910; and in the regulations adopted and
publications promulgated pursuant to any Hazardous Substance Laws, whether or
not such regulations or publications are specifically referenced herein.
"Hazardous Substance Laws" means: (a) the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. Section 9601 et seq.)("CERCLA"); (b) the Federal Water Pollution Control
Act (33 U.S.C. Section 1251 et seq.)("Clean Water Act" or "CWA"); (c) the
Resource Conversation and Recovery Act (42 U.S.C. Section 6901 et seq.)("RCRA");
(d) the Atomic Energy Act of 1954 (42 U.S.C. Section 2011 et seq.)("AEA"); (e)
the Clean Air Act (42 U.S.C. Section 7401 et seq.)("CAA"); (f) the Emergency
Planning and Community Right to Know Act (42 U.S.C. Section 11001 et
seq.)("EPCRA"); (g) the Federal Insecticide, Fungicide, and Rodenticide Act (7
U.S.C. Section 136 et seq.)("FIFRA"); (h) the Oil Pollution Act of 1990 (P.L.
101-380, 104 Stat. 486); (i) the Safe Drinking Water Act (42 U.S.C. Sections
300f et seq.)("SDWA"); (j) the Surface Mining Control and Reclamation Act of
1974 (30 U.S.C. Sections 1201 et seq.)("SMCRA"); (k) the Toxic Substances
Control Act (15 U.S.C. Section 2601 et seq.)("TSCA"); (l) the Uranium Mill
Tailings Radiation Control Act of 1978 (42 U.S.C. Section 7901 et
seq.)("UMTRCA"); and (m) all other Federal, state and local Governmental Rules
which govern Hazardous Substances, and the regulations adopted and publications
promulgated pursuant to all such foregoing laws.
"Insurance Proceeds" has the meaning given in Section 7.2(a)
of the NML Credit Agreement.
"Interconnection Agreements" means the Communications Services
Agreement between NML and AT&T dated December 15, 1995, Competitive Access
Provider Service Agreement between GST and Sprint Communications Company L.P.
dated October 12, 1995, Building Space License Agreement for Shared Customer
Provided Access between NML and AT&T, Synchronization Interconnection Agreement
between NML and AT&T dated January 17, 1996, the Master Capacity Agreement
between GST and MCI dated October 12, 1995 (with respect to Borrower), and any
other interconnection agreement entered into or to be entered into with respect
to the Project.
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"Interest Period" means (a) the period commencing on May 24,
1996 and ending on August 24, 1996 and (b) thereafter, each period commencing on
the last day of the next preceding Interest Period and ending on the numerically
corresponding day in the third succeeding calendar month; provided, however,
that (1) the initial Interest Period with respect to each Construction Loan
other than the initial Construction Loan shall commence on the date on which
such subsequent Construction Loan is advanced and end on the last day of the
then current Interest Period as established above; (2) any Interest Period which
would otherwise end on a day which is not a Business Day shall be extended to
the next succeeding Business Day unless such next Business Day falls in another
calendar month, in which case such Interest Period shall end on the immediately
preceding Business Day; (3) any Interest Period which begins on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall end on the last Business Day of a calendar month; and (4) no Interest
Period shall end after the Maturity Date.
"Inventory" has the meaning given in Section 2(e) of the
Security Agreement.
"Leased Property" means the real property subject to or
covered by the Leases.
"Leases" means any lease of property necessary or entered into
in connection with respect to the Project.
"Lease Sites" means: (i) Suite 120A located at 505 Marquette,
N.W., Albuquerque, N.M. (approximately 1,095 sq. ft.), (ii) Suite 1000 located
at 3830 Singer Blvd., N.E., Albuquerque, N.M. (approximately 20,000 sq. ft.);
(iii) building and parking space at 5540 Midway Park Place, N.E., Albuquerque,
N.M. (approximately 5,700 sq. ft.) and the sites which are the subject of the
other Leases to be entered into with respect to the Project, and all rights,
rights of way and appurtenances thereto, covering certain real property in
Bernalillo County, New Mexico with respect to the Project.
"Legal Requirement" means, as to any Person, any requirement
set forth in the Charter Documents, of such Person, any Governmental Rule, any
requirement under a Permit, and any determination of any arbitrator, court, or
government Governmental Authority, in each case applicable to or binding upon
such Person or any of its properties or to which such Person or any of its
properties is subject.
"Lender" means TM Communications LLC and its successors and
assigns.
"Lender Representative" means an individual designated by
Lender from time to time to act as liaison with Borrower.
"LIBOR Rate" means a rate per annum determined by Lender
(which determination shall, absent manifest error, be conclusive) to be equal to
the rate at which deposits in Dollars are offered to Lender in the London
interbank eurodollar currency market at approximately 11:00 a.m. (London time),
two Business Days prior to the first day of the
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relevant Interest Period (for delivery on the first day of such Interest Period)
and for a term equal to such Interest Period.
"Lien" on any asset means any mortgage, deed of trust, lien,
pledge, charge, judgment, security interest, restrictive covenant or easement or
encumbrance of any kind in respect of such asset, whether or not filed, recorded
or otherwise perfected or effective under applicable law, as well as the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
"Liquidation Costs" has the meaning given in Section 2.6 of
the NML Credit Agreement.
"Loan Facility" means, collectively, the Construction Loans
and the Term Loans made under the NML Credit Agreement.
"Major Project Participants" means U. S. Communications, Inc.
and the other entities to be awarded contracts with respect to the construction
of the Project.
"Major Subcontracts" means any contract between Contractor and
any Major Subcontractor.
"Major Subcontractor" means any Person, at any tier, who
performs any work, including the supply of any equipment or materials for any
Contractor, involving amounts in excess in the aggregate of Two Hundred Fifty
Thousand Dollars ($250,000).
"Master Agreement" means the Master Agreement among GSI, GST,
Pacwest, PLI and Tomen America dated October 24, 1994, as amended.
"Material Adverse Effect" means a material adverse effect on
(a) construction or operation of the Project, or the business, assets,
operations or financial or other condition of Borrower at any time or on the
financial or other condition of any other Major Project Participant during the
Construction Loan Availability Period, (b) the ability of Borrower or any Major
Project Participant to perform its obligations under the Credit Documents or
other Operative Documents, (c) the validity or enforceability of the NML Credit
Agreement or any other Credit Document or any related document, instrument or
agreement, or the rights and remedies of Lender hereunder or thereunder, or (d)
the Lender's interest in a Project, the value of the Collateral, or Lender's
security interests in the Collateral or the perfection or priority of such
security interests.
"Material Project Documents" means the documents specified in
Section 3.1(b)(A) through 3.1(b)(G) of the NML Credit Agreement.
"Maturity" or "maturity" means, with respect to the amount due
with respect to the Loan Facility, interest, fees or other amounts payable by
Borrower under the NML Credit Agreement or the other Credit Documents, the date
such amounts becomes due, whether upon the stated maturity or due date, upon
acceleration or otherwise.
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"Maturity Date" means the earlier of the date which is nine
(9) years from the Closing Date or eight (8) years from the Term Conversion Date
or such earlier date on which the entire outstanding principal balance of the
Loan Facility, together with all unpaid interest, fees, charges and costs,
become due and payable under the NML Credit Agreement.
"Maximum Legal Rate" has the meaning given in the Note.
"Milestone Disbursement Schedule" means the milestone
disbursement schedule for the Project delivered by Borrower at the Closing Date.
"Multiemployer Plan" means any multiemployer plan within the
meaning of section 3(37) of ERISA maintained or contributed to by Borrower or
any ERISA Affiliate.
"Net Cash Flow" means with respect to a Development Company
and the applicable period:
(a) the sum of:
(i) the gross receipts of the Development Company
from all sources (other than capital contributions, proceeds from the Credit
Agreement with Tomen America or a Tomen Affiliate or other loans), including but
not limited to receipts from (1) the sale of products and services, (2) interest
and other investment income on investments and reserves, and (3) insurance
proceeds;
(ii) any amounts released from reserves, the
distribution of which is permissible and in accordance with the provisions of
the Credit Agreement; and
(iii) any Net Cash Flow from a prior period not
distributed but the distribution of which is permissible;
less (b) the sum of:
(i) all costs and expenses which the Development
Company paid during such period in connection with the construction, ownership,
management (except as provided herein), operation and maintenance of the Network
Project, including, but not limited to, (1) utility costs, (2) business taxes
and real and personal property tax and assessments, and fees and expenses in
connection with the preparation of the Development Company's tax returns, (3)
insurance premiums, (4) the actual documented costs of Network Project
management, not to include management fees paid to Greenstar or any Affiliate in
excess of such actual costs, (5) expenditures for capital improvements and the
repair, maintenance and restoration of the improvements (including any portion
of the same to the extent not covered by insurance proceeds), (6) expenditures
required or deemed advisable to be made under or in connection with any contract
of the Development Company, and (7) all other costs and expenses, including
capital expenditures and the purchase of spare parts and other inventory and
replacement items, required to be made by the Development Company (but excluding
any such amounts to the extent paid out of reserves); and
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(ii) all principal and interest and other sums and
amounts payable by the Development Company to repay any Loan from Tomen or any
of its Affiliates payable for the applicable or pertinent period.
"Net Cash Flow Account Security Agreements" has the meaning
given in Section 2.7(a).
"Net Cash Flow Agreements" means the agreements in the form of
Exhibit K entered into pursuant to Section 3.1(a) and Section 5.17 of the NML
Credit Agreement.
"Network Project Credit Agreement" means a credit agreement
between Lender or one of its Affiliates, as lender and a Development Company, as
borrower, to finance an alternative access network telecommunications project.
"Network Projects" means alternative access network
telecommunications projects to be developed or existing alternative access
projects to be expanded by GSI and/or GST in the Territory.
"1934 Act" means the Securities Exchange Act of 1934, as
amended.
"NML" means GST New Mexico Lightwave, Inc., a New Mexico
corporation.
"NML Credit Agreement" means the Credit Agreement between TM
Communications LLC (as lender) and NML (as borrower) dated May 24, 1996.
"NML Project" means the Project.
"NMSCC" means the New Mexico State Corporation Commission.
"Note Holder" means the registered owner of any Note.
"Note" has the meaning given in Section 2.1(f) of the NML
Credit Agreement.
"Notice of Borrowing" has the meaning given in Section
2.1(a)(ii) of the NML Credit Agreement.
"Notice of Interest Rate Conversion" has the meaning given in
Section 2.1(d) of the NML Credit Agreement.
"Notice of Term Conversion" has the meaning given in Section
2.1(b)(ii) of the NML Credit Agreement.
"Obligations" means and includes, with respect to any Person,
all loans, advances, debts, liabilities, and obligations, howsoever arising,
owed by such Person to a lender of every kind and description (whether or not
evidenced by any note or instrument,
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and whether or not for the payment of money), direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, pursuant to
the terms of a credit agreement or any other credit document, including all
interest, fees, charges, expenses, attorneys' fees and accountants fees
chargeable to such Person in connection with its dealings with such lender and
payable by such Person hereunder or thereunder. The term "Obligations" shall
also mean and include any amounts owing to Lender which arise because payments
as to past transactions are rescinded or otherwise required to be surrendered by
Lender after receipt.
"Operating Account" has the meaning given in Section 7.1 of
the NML Credit Agreement.
"Operation and Maintenance Costs" means all actual cash
maintenance and operation costs incurred and paid, or if appropriate, to be
incurred and paid, for the Project in any particular calendar or fiscal year or
period to which said term is applicable, including payments for fuel, additives
or chemicals and transportation costs related thereto, local taxes, insurance,
consumables, payments under any Lease, payments pursuant to the agreements for
the management, operation and maintenance of the Project, reasonable legal fees
and expenses paid by Borrower in connection with the management, maintenance or
operation of the Project (but excluding legal fees and expenses related to
litigation), fees paid in connection with obtaining, transferring, maintaining
or amending any Applicable Permits and reasonable general and administrative
expenses, but exclusive in all cases of non-cash charges, including depreciation
or obsolescence charges or reserves therefor, amortization of intangibles or
other bookkeeping entries of a similar nature, and also exclusive of all
interest charges and charges for the payment or amortization of principal of
indebtedness of Borrower (other than those relating to Debt permitted pursuant
to Section 6.3 of the NML Credit Agreement).
"Operative Documents" means the Credit Documents, the Project
Documents and any Additional Project Documents.
"Other Taxes" has the meaning given in Section 2.3(c)(i) of
the NML Credit Agreement.
"Pacwest" means Pacwest Network L.L.C., an Oregon limited
liability company and its Affiliates.
"Parts" means any part, appliance, instrument, appurtenance,
accessory or other property of any nature necessary or useful to the operation,
maintenance, service or repair of the project.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under Title IV of ERISA.
"Permit" means any action, approval, consent, waiver,
exemption, variance, franchise, order, permit, authorization, right or license
of or from a Governmental Authority.
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"Permitted Investments" means (a) direct obligations of the
United States of America (including obligations issued or held in book-entry
form on the books of the Department of the Treasury of the United States of
America) or obligations the timely payment of the principal of and interest on
which are fully guaranteed by the United States of America; (b) obligations,
debentures, notes or other evidence of indebtedness issued or guaranteed by any
of the following: Export-Import Lender of the United States, Federal Housing
Administration or other agency or instrumentality of the United States; (c)
interest-bearing demand or time deposits (including certificates of deposit)
which are either (i) insured by the Federal Deposit Insurance Corporation, or
(ii) held in banks and savings and loan associations, having general obligations
rated at least "AA" or equivalent by Standard & Poor's Corporation ("S&P") or
Moody's Investors Service, Inc. ("Moody's), or if not so rated, secured at all
times, in the manner and to the extent provided by law, by collateral security
described in clauses (a) or (b) of this definition, of a market value of no less
than the amount of moneys so invested; (d) commercial paper rated (on the date
of acquisition thereof) at least A-1 or P-1 or equivalent by S&P or Moody's,
respectively (or an equivalent rating by another nationally recognized credit
rating agency of similar standing if neither of such corporations is then in the
business of rating commercial paper), maturing not more than 270 days from the
date of creation thereof; (e) any corporate evidence of indebtedness rated at
least "A-" or equivalent by S&P or Moody's; or (f) any advances, loans or
extensions of credit or any stock, bonds, notes, debentures or other securities
as Lender may from time to time approve in its sole and absolute discretion.
"Permitted Liens" means (a) the rights and interests of Lender
as provided in the Operative Documents, (b) Liens for any tax, assessment or
other governmental charge, either secured by a bond reasonably acceptable to
Lender or not yet due or being contested in good faith and by appropriate
proceedings, so long as (i) such proceedings shall not involve any substantial
danger of the sale, forfeiture or loss of the Project or any Applicable
Easements, as the case may be, title thereto or any interest therein and shall
not interfere in any material respect with the use or disposition of the Project
or any Applicable Easements, or (ii) a bond or other security acceptable to
Lender in its sole discretion has been posted or provided in such manner and
amount as to assure Lender that any taxes, assessments or other charges
determined to be due will be promptly paid in full when such contest is
determined, (c) materialmen's, mechanics', workers', repairmen's, employees' or
other like Liens arising in the ordinary course of business or in connection
with the construction of the Project, either for amounts not yet due or for
amounts being contested in good faith and by appropriate proceedings, so long as
(i) such proceedings shall not involve any substantial danger of the sale,
forfeiture or loss of any part of the Project or any Applicable Easements, as
the case may be, title thereto or any interest therein and shall not interfere
with the use or disposition of the Project or any Applicable Easements, or (ii)
a bond or other security acceptable to Lender in its sole discretion has been
posted or provided in such manner and amount as to assure Lender that any
amounts determined to be due will be promptly paid in full when such contest is
determined, (d) Liens arising out of judgments or awards, but only so long as an
appeal or proceeding for review is being prosecuted in good faith with a
reasonable likelihood of success and for the payment of which adequate reserves,
bonds or other security acceptable to Lender in its sole discretion have been
provided or are fully covered by insurance, (e) mineral rights the use and
enjoyment of which do not materially
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interfere with the use and enjoyment of the Project or any Applicable Easements,
(f) Liens, deposits or pledges to secure statutory obligations or performance of
bids, tenders, contracts (other than for the repayment of borrowed money) or
leases, or for purposes of like general nature in the ordinary course of its
business, (g) Liens incident to the ordinary course of business that are not
incurred in connection with the obtaining of any loan, advance or credit and
that do not in the aggregate materially impair the use of the property or assets
of Borrower or the value of such property or assets for the purposes of such
business, (h) Liens of trade vendors created in connection with Debt allowed
under Section 6.3 of the NML Credit Agreement, and (i) Liens created in
connection with a Net Cash Flow Agreement.
"Person" means and includes an individual, a partnership, a
firm, an association, a corporation (including a business trust), a joint stock
company, an unincorporated association, a joint venture, a Governmental
Authority or any other entity whether acting in an individual, fiduciary or
other capacity.
"Plans and Specifications" means the plans and specifications
for the construction and design of the Project, including any document
describing the scope of work performed by the Contractors under the Construction
Contracts or any other contract or subcontract for the construction of the
Project, including, without limitation, the Collocation Agreements, the
Interconnection Agreements and the Pole and Conduit Agreements, all work
drawings, engineering and construction schedules, project schedules, project
monitoring systems, specifications status lists, material and procurement
ledgers, drawings and drawing lists, manpower allocation documents, management
and project procedures documents, project design criteria, and any other
document referred to in the Construction Contracts or any of the documents
referred to in this definition.
"Pledge Agreement" has the meaning given in Section 2.6 of the
NML Credit Agreement.
"Pole and Conduit Use Agreements" means the Fiber Optic
Construction and Use Agreement between NML and Public Service Company of New
Mexico dated July 18, 1995 and any other agreements entered into or to be
entered into with respect to the use of poles, conduits, the lease of fiber
optic cables, or rights of way for the Project's fiber optic cable and other
equipment.
"Proceeds" has the meaning given in Section 7.4 of the NML
Credit Agreement.
"Procurement Agent" means construction equipment and materials
procurement agent for the development and construction of the Network Projects.
"Project" means the development, construction and operation of
fiber optic transmission equipment and optical fiber cable for the Service
District all as more particularly described in Schedule 1 to the NML Credit
Agreement, together with all Easements, all alterations thereto or replacements
thereof, all fixtures, attachments, appliances, equipment, machinery and other
articles attached thereto or used in connection
A-16
<PAGE>
therewith and all Parts which may from time to time be incorporated or installed
in or attached thereto, all contracts and agreements for the purchase or sale of
commodities or other personal property related thereto, all leases of real or
personal property related thereto, and all other real and tangible and
intangible personal property owned by Borrower and placed upon or used in
connection therewith.
"Project Budget" has the meaning given in Section 3.1(l)(ii)
of the NML Credit Agreement.
"Project Costs" means (a) the cost of designing, equipping,
procuring, constructing, starting up and testing the Project, (b) the cost of
acquiring any lease, the Applicable Easements and any other necessary interest
in the Project, (c) local property taxes and insurance premiums payable with
respect to the Project during the Construction Loan Availability Period, (d)
interest payable on any Note for the Project during the Construction Loan
Availability Period, (e) reasonable initial working capital requirements of the
Project as approved by Lender, (f) the costs of acquiring Permits for the
Project during the Construction Loan Availability Period, (g) other fees and
expenses relating to the Project, including financial, legal (excluding
litigation) and consulting fees and expenses, all as described in the Project
Budget.
"Project Documents" means the documents listed in Section
3.1(b) of the NML Credit Agreement, and any other material agreement or document
relating to the development, construction, operation, maintenance and repair of
the Project.
"Project Loan" means a loan in the amount of 75% of the
Project Costs of a Network Project provided by Lender or one of its affiliates
to a Development Company pursuant to a Network Project Credit Agreement.
"Project Revenues" means all income and receipts derived from
the ownership or operation of the Project, including payments due Borrower under
the Construction Contracts, proceeds of any business interruption or other
insurance, income derived from the Project, together with any receipts derived
from the sale of any property pertaining to the Project or incidental to the
operation of the Project, all as determined in conformity with cash accounting
principles, the investment income on amounts in the Accounts, the proceeds of
any drawing under a letter of credit of which Borrower is the beneficiary,
proceeds of any insurance, condemnation or litigation or arbitration awards
relating to the Project and proceeds from the Collateral Documents, but not
including sums paid to Borrower in satisfaction of a contractual obligation to
indemnify Borrower for third party liability to the extent such sums do not
exceed the actual damage, loss or cost suffered by Borrower in connection
therewith.
"Project Schedule" means the Project Schedule/Milestone
Disbursement Schedule for the Project delivered by Borrower at the Closing.
"Proportionate Share" has the meaning given to it in Section
9.1 of the NML Credit Agreement, and as set forth in Attachment 1 of the
Assignment Agreement.
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"Prudent Practices" means those practices, methods, equipment,
specifications and standards of safety and performance, as the same may change
from time to time, as are commonly used by facilities similar to the Project of
a type and size similar to the Project as good, safe and prudent engineering
practices in connection with the design, construction, operation, maintenance,
repair and use thereof with commensurate standards of safety, performance,
dependability, efficiency and economy.
"Receipts Account" has the meaning given in Section 7.1(a) of
NML Credit Agreement.
"Receivables" has the meaning given in Section 2(a) of the
Security Agreement.
"Refinancing Notice" shall mean a written notice of proposed
financing by Borrower in substantially the same form of Exhibit F to the NML
Credit Agreement.
"Rules" shall mean the Commercial Arbitration Rules of The
American Arbitration Association.
"SEC" means the U.S. Securities and Exchange Commission.
"Security Agreement" has the meaning given in Section
2.7(a)(i) of the NML Credit Agreement.
"Service District" means the geographic district to be served
by the Project in Albuquerque, New Mexico as further described in Schedule 1.
"Site" means the Lease Sites and the Easement Properties.
"Substantial Completion" means substantial completion of the
Project in accordance with the Plans and Specifications and the requirements of
all Applicable Permits and as certified by an independent engineer to the
satisfaction of the Lender in its sole discretion.
"Taxes" has the meaning given in Section 2.3(c) of the NML
Credit Agreement.
"Term Conversion" means the accomplishment of the conversion
of Construction Loans to a Term Loan pursuant to Section 2.1(b)(i) of the NML
Credit Agreement.
"Term Conversion Date" means the date on which Term Conversion
occurs.
"Term Loan" has the meaning given in Section 2.1(b) of the NML
Credit Agreement.
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"Territory" means North America, Central America and South
America.
"Tomen" means Tomen Corporation, a corporation organized under
the laws of Japan.
"Tomen America" means Tomen America Inc., a New York
Corporation.
"Total Construction Loan Commitment" has the meaning given in
Section 2.2(a) of the NML Credit Agreement.
"Total Term Loan Commitment" has the meaning given in Section
2.2(b) of the NML Credit Agreement.
"UCC" means the Uniform Commercial Code of the jurisdiction
the law of which governs the document in which such term is used.
"U.S." means the United States of America.
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RULES OF INTERPRETATION
1. All terms defined in the NML Credit Agreement or any other
Credit Document in the singular form shall have comparable meanings in the
plural form and vice versa.
2. The word "or" is not exclusive.
3. A reference to a Governmental Rule includes any amendment
or modification to such Governmental Rule.
4. A reference to a Person includes such Person's permitted
successors and permitted assigns.
5. The words "include", "includes" and "including" and words
of similar import are not limiting or exclusive.
6. A reference in a Credit Document to an Article, Section,
Exhibit, Schedule, Annex, Attachment or Appendix is to the Article, Section,
Exhibit, Schedule, Annex, Attachment or Appendix of such Credit Document unless
otherwise indicated. Exhibits, Schedules, Annexes, Attachments or Appendices to
any document shall be deemed incorporated by reference in such document.
7. References to any document, instrument or agreement (a)
shall include all exhibits, schedules and other attachments thereto, (b) shall
include all documents, instruments or agreements issued or executed in
replacement thereof, and (c) shall mean such document, instrument or agreement,
or replacement or predecessor thereto, as amended, modified and supplemented
from time to time and in effect at any given time.
8. The words "hereof," "herein" and "hereunder" and words of
similar import when used in any Credit Document shall refer to such Credit
Document as a whole and not to any particular provision of such document.
9. References to "days" shall mean calendar days, unless the
term "Business Days" is used. References to a time of day shall mean such time
in New York, New York unless otherwise specified.
10. The Credit Documents are the result of negotiations
between, and have been reviewed by Borrower, Lender and their respective
counsel. Accordingly, the Credit Documents shall be deemed to be the product of
all parties thereto, and no ambiguity shall be construed in favor of or against
Borrower or Lender.
$8,000,000
CREDIT AGREEMENT
Dated as of May 24, 1996
GST TUCSON LIGHTWAVE, INC.
(Borrower)
and
TM COMMUNICATIONS LLC
(Lender)
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 - DEFINITIONS..................................................... 1
1.1. Definitions.................................................. 1
1.2. Rules of Interpretation...................................... 2
ARTICLE 2 - THE CREDIT FACILITIES........................................... 2
2.1. Loan Facilities.............................................. 2
2.2. Total Commitments............................................ 5
2.3. Fees......................................................... 6
2.4. Other Payment Terms.......................................... 7
2.5. Change of Circumstances...................................... 8
2.6. Funding Loss Indemnification................................. 8
2.7. Security..................................................... 9
ARTICLE 3 - CONDITIONS PRECEDENT............................................ 10
3.1. Conditions Precedent to Closing.............................. 10
3.2. Conditions Precedent to Each Construction Loan............... 16
3.3. Additional Conditions Precedent to Initial
Construction Loans for the Phase II Project............... 18
3.4. No Approval of Work; Adjustments to Project Phase Budget..... 23
3.5. Waiver of Funding; Adjustment of Drawdown Requests........... 24
3.5A Expenses in Excess of Project Budget......................... 24
3.6. Conditions Precedent to Term Loan Conversion................. 24
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES.................................. 24
4.1. Organization................................................. 25
4.2. Authorization; No Conflict................................... 25
4.3. Enforceability............................................... 25
4.4. ERISA........................................................ 25
4.5. Taxes........................................................ 25
4.6. Business, Debt, Contracts, Etc............................... 26
4.7. Filings...................................................... 26
4.8. Governmental Regulation...................................... 26
4.9. Financial Statements......................................... 26
4.10. Partnerships and Joint Ventures.............................. 26
4.11. No Default................................................... 27
4.12. Possession of Franchises, Licenses, Etc...................... 27
4.13. Permits...................................................... 27
4.14. Offices, Location of Collateral.............................. 27
4.15. Adverse Change............................................... 28
4.16. Project Documents............................................ 28
4.17. Hazardous Substances......................................... 28
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Page
4.18. Transfer of Contracts and Other Rights....................... 28
4.19. Litigation................................................... 29
4.20. Title, Liens and Easements................................... 29
4.21. Utilities.................................................... 30
4.22. Sufficiency of Project Documents............................. 30
4.23. Securities................................................... 30
4.24. Disclosure................................................... 30
4.25. Construction Budget; Projections............................. 31
4.26. Intellectual Property........................................ 31
ARTICLE 5 - COVENANTS OF THE BORROWER....................................... 31
5.1. Notices...................................................... 31
5.2. Financial Statements, Reports, Etc........................... 32
5.3. Existence, Conduct of Business, Properties, Etc.............. 33
5.4. Obligations.................................................. 33
5.5. Damage and Cancellation Payments............................. 33
5.6. Books, Records, Access....................................... 34
5.7. Operation of Project and Annual Budget....................... 34
5.8. Completion................................................... 35
5.9. Preservation of Rights; Further Assurances................... 35
5.10. Construction of Project...................................... 35
5.11. Taxes, Other Government Charges and Utility Charges.......... 36
5.12. Compliance with Laws, Instruments, Etc....................... 36
5.13. Warranty of Title............................................ 36
5.14. Maintenance of Insurance..................................... 37
5.15. Event of Eminent Domain...................................... 37
5.16. Indemnification.............................................. 38
5.17. Development Company Net Cash Flow Agreements................. 39
5.18. Consents to Assignment....................................... 39
ARTICLE 6 - NEGATIVE COVENANTS.............................................. 40
6.1. Contingent Liabilities....................................... 40
6.2. Limitations on Liens......................................... 40
6.3. Indebtedness................................................. 40
6.4. Sale or Lease of Assets...................................... 40
6.5. Changes...................................................... 40
6.6. Dividends, Redemptions, Etc.................................. 40
6.7. Investments.................................................. 41
6.8. Transactions With Affiliates................................. 41
6.9. Loan Proceeds; Project Revenues.............................. 41
6.10. Partnerships................................................. 41
6.11. Dissolution.................................................. 41
6.12. Amendments; Change Orders; Completion........................ 41
6.13. Name and Location; Fiscal Year............................... 41
6.14. Assignment................................................... 41
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Page
6.15. Transfer of Ownership Interests.............................. 42
6.16. Abandonment of Project....................................... 42
6.17. Hazardous Substance.......................................... 42
6.18. ERISA........................................................ 42
ARTICLE 7 - APPLICATION OF FUNDS............................................ 42
7.1. Receipts Account and Operating Account....................... 42
7.2. Application Of Insurance Proceeds............................ 44
7.3. Application of Eminent Domain Proceeds....................... 46
7.4. Security Interest in Proceeds and Accounts................... 48
7.5. Permitted Investments........................................ 49
ARTICLE 8 - EVENTS OF DEFAULT; REMEDIES..................................... 49
8.1. Events of Default............................................ 49
8.2. Remedies..................................................... 53
ARTICLE 9 - ASSIGNMENTS, ETC................................................ 54
9.1. Assignments.................................................. 54
9.2. Confidentiality. ........................................... 55
9.3. Securities Laws.............................................. 55
ARTICLE 10 - MISCELLANEOUS.................................................. 55
10.1. Notices..................................................... 55
10.2. Additional Security; Right to Set-Off....................... 56
10.3. Delay and Waiver............................................ 56
10.4. Costs, Expenses and Attorneys' Fees......................... 57
10.5. Attorney-In-Fact............................................ 57
10.6. Entire Agreement; Amendments and Modifications.............. 58
10.7. Governing Law............................................... 58
10.8. Severability................................................ 58
10.9. Headings.................................................... 58
10.10. Accounting Terms............................................ 58
10.11. No Partnership; Etc......................................... 58
10.12. Limitation on Liability..................................... 59
10.13. Waiver of Jury Trial........................................ 59
10.14. Consent to Jurisdiction..................................... 59
10.15. Usury....................................................... 60
10.16. Successors and Assigns...................................... 60
10.17. Counterparts................................................ 60
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<PAGE>
EXHIBITS
Exhibit A --- Definitions
Exhibit B --- Form of Note
Exhibit C-1 --- Form of Notice of Borrowing
Exhibit C-2 --- Form of Drawdown Certificate
Exhibit D --- Form of Notice of Term Loan Conversion
Exhibit E --- Form of Notice of Interest Rate Conversion
Exhibit F --- Form of Refinancing Notice
Exhibit G-1 --- Form of Security Agreement
Exhibit G-2 --- Form of Account Security Agreement
Exhibit H --- Form of GST Security Agreement
Exhibit I --- Form of Construction Deed of Trust
Exhibit J --- Form of Pledge Agreement
Exhibit K-1 --- Form of Net Cash Flow Agreement
Exhibit K-2 --- Form of Net Cash Flow Security Agreement
Exhibit L --- Form of Lessor's Estoppel and Consent
Exhibit M-1 --- Form of Consent to Assignment of Agreement - Non-Utility
Exhibit M-2 --- Form of Consent to Assignment of Agreement - Utilities
Exhibit M-3 --- Form of Consent to Assignment of Agreement - GST Services
Agreement
Exhibit N-1 --- Form of Opinion of Olshan Grundman Frome & Rosenzweig
Exhibit N-2 --- Form of Opinion of Borrower's Arizona Counsel
Exhibit N-3 --- Form of Opinion of Borrower's FCC Counsel
Exhibit O --- Form of Borrower's Closing Certificate
Exhibit P --- Form of Monthly Report
Exhibit Q --- Form of Assignment Agreement
SCHEDULES
Schedule 1 --- Description of Phase I Project
Schedule 2 --- Description of Phase II Project
Schedule 3 --- Phase I Applicable Easements
Schedule 4 --- Phase II Applicable Easements
Schedule 5 --- Phase I Applicable Permits
Schedule 6 --- Phase II Applicable Permits
Schedule 7 --- Security Filings
Schedule 8 --- Adverse Changes
Schedule 9 --- Required Insurance
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<PAGE>
CREDIT AGREEMENT
This CREDIT AGREEMENT (this "Agreement") dated as of May 24, 1996 is
entered into by and between:
(1) GST Tucson Lightwave, Inc., an Arizona corporation (formerly known
as "Tucson Lightwave, Inc.") ("Borrower"); and
(2) TM Communications LLC, a Delaware limited liability company
("Lender").
RECITALS
A. Borrower was formed to develop and operate an alternative access
network telecommunications project in the Tucson area of Arizona in two phases
as further described in Schedule 1 (the "Phase I Project") and Schedule 2 (the
"Phase II Project"). Pursuant to a Master Agreement dated October 24, 1994 among
Pacific Lightwave, Inc., a Washington corporation (now known as "GST Pacific
Lightwave, Inc."), Greenstar Telecommunications Inc., a Canadian corporation
(now known as "GST Telecommunications, Inc.") ("GSI"), GST Telecom Inc., a
Delaware corporation ("GST"), Pacwest Network L.L.C., an Oregon limited
liability company ("Pacwest"), and Tomen America, Inc. ("Tomen America"), as
amended as of the date hereof by Amendment No. 1 to the Master Agreement (the
"Master Agreement"), Tomen America agreed to provide, or to cause its affiliates
to provide, certain credit facilities to Borrower to finance certain
construction costs of Borrower.
B. Borrower wishes to develop and operate the Phase I Project and the
Phase II Project (collectively, the "Project").
C. Lender, an affiliate of Tomen America, is willing to provide credit
facilities for the Project upon the terms and subject to the conditions set
forth herein.
In consideration of the agreements herein and in the other
Credit Documents and in reliance upon the representations and warranties set
forth herein and therein, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
1.1. Definitions. Except as otherwise expressly provided in this
Agreement or any other Credit Document, capitalized terms used in this Agreement
and its Exhibits shall have the meanings given in Exhibit A or in the provision
of this Agreement or other Credit Document referenced in Exhibit A.
<PAGE>
1.2. Rules of Interpretation. Except as otherwise expressly provided,
the rules of interpretation set forth in Exhibit A shall apply to this Agreement
and the other Credit Documents.
ARTICLE 2 - THE CREDIT FACILITIES
2.1. Loan Facilities.
(a) Construction Loan Facility.
(i) Availability. Subject to the terms and conditions
set forth in this Agreement, Lender agrees to advance to Borrower from time to
time during the Construction Loan Availability Period such loans as Borrower may
request under this Section 2.1(a) (individually, a "Construction Loan" and
collectively the "Construction Loans"), in an aggregate principal amount not to
exceed the Total Construction Loan Commitment.
(ii) Notice of Borrowing. Borrower shall request
Construction Loans by delivering to Lender an irrevocable written notice in the
form of Exhibit C-1, appropriately completed (a "Notice of Borrowing"), which
specifies, among other things:
(A) The amount of the requested Construction
Loan, which shall be in the minimum amount of Two Hundred Fifty Thousand Dollars
($250,000); and
(B) The date of the requested Construction
Loan, which shall be a Business Day and which shall comply with Section
3.2(a)(i); and
(C) Whether the requested Construction Loan
pertains to the Phase I Project or the Phase II Project.
Borrower shall give each Notice of Borrowing, accompanied with an appropriately
completed Drawdown Certificate in the form of Exhibit C-2, to Lender at least
three (3) Business Days before the date of any Construction Loan, in the manner
set forth in Section 10.01.
(iii) Use of Proceeds. Borrower shall use the
proceeds of each Construction Loan solely to pay Project Costs of the Project
Phase for which such Construction Loan was requested.
(b) Term Loan Facility.
(i) Conversion. Subject to the terms and conditions
set forth in this Agreement, Lender agrees to convert the outstanding
Construction Loans, at the request of Borrower, to term loans under this Section
2.1(b) (each, a "Term Loan") in an aggregate principal amount not to exceed the
Total Term Loan Commitment.
(ii) Notice of Term Conversion. Borrower shall
request a Term Conversion by delivering to Lender an irrevocable written notice
in the form of Exhibit D,
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<PAGE>
appropriately completed (the "Notice of Term Conversion"), which specifies,
among other things, the requested date of the Term Conversion, which shall be
the Construction Loan Maturity Date and a Business Day.
Borrower shall give the Notice of Term Conversion to Lender at least three (3)
Business Days before the date of the requested conversion. The Notice of Term
Conversion shall be delivered by first-class mail or telecopy to Lender at the
office or to the telecopy number and during the hours specified in Section 10.1;
provided, however, that Borrower shall promptly deliver to Lender the original
of any Notice of Term Conversion initially delivered by telecopy.
(c) Interest. Borrower shall pay interest on the unpaid
principal amount of the Loan Facility with respect to the Project on the dates
and at the times specified herein from and including the Closing Date to but
excluding the Maturity Date, at a rate per annum equal to the LIBOR Rate plus
3.00% at all times until such time after the Term Conversion as the Term Loan
interest rate may be converted to a fixed interest rate pursuant to Section
2.1(d) and thereafter at a rate per annum equal to the Fixed Rate; provided
however, to the extent that Borrower has not obtained Consents to the assignment
of the Project Documents listed in Section 3.1(b) (with the exception of the
Competitive Access Provider Agreement between GST and Sprint dated October 12,
1995) to Lender in the forms set forth as Exhibit M on or before 60 days from
May 24, 1996, Lender has the right, at its sole option, to increase the interest
rate on the portion of the Loan Facility then in effect by one percent (1%)
until such time as all such consents to assignment shall have been received by
Lender.
All computations of interest shall be based on a year of 360 days for actual
days elapsed.
(d) Conversion to Fixed Rate. Borrower may convert the
interest rate on the Term Loan from the LIBOR Rate to the Fixed Rate; provided,
however that any such conversion shall be made on, and only on, the last day of
an Interest Period. Borrower shall request such a conversion by an irrevocable
written notice to Lender in the form of Exhibit E, appropriately completed (a
"Notice of Interest Rate Conversion"), which specifies, among other things, the
date of the requested conversion, which shall be a Business Day.
Borrower shall give a Notice of Interest Rate Conversion to Lender at least
three (3) Business Days before the date of the requested conversion. The Notice
of Interest Rate Conversion shall be delivered by first-class mail or telecopy
to Lender at the office or to the telecopy number and during the hours specified
in Paragraph 10.1; provided, however, that Borrower shall promptly deliver to
Lender the original of any Notice of Interest Rate Conversion initially
delivered by telecopy.
If Borrower is in compliance with the provisions of this Agreement, no later
than 2:00 p.m. on the date specified in the Notice of Interest Rate Conversion
Lender shall notify Borrower of the effectiveness of the conversion, the amount
of the Fixed Rate and the Liquidation Costs incurred by Lender in effecting such
conversion.
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<PAGE>
(e) Scheduled Payments. (i) Borrower shall repay to Lender (A)
the principal amount of the Construction Loans, accrued interest on the unpaid
principal amount of the Construction Loans and all outstanding fees and costs
payable to Lender with respect to the Construction Loans on the earlier of the
Construction Loan Maturity Date and the Term Conversion Date, and (B), the
principal amount of the Term Loan in twenty-four (24) equal quarterly
installments payable on the 1st day of each third month, commencing on the
earlier of the 1st day of the month which is (y) two years after the Term
Conversion Date or (z) three years after the Closing Date, and ending six years
thereafter; provided, however, that the principal payment due to Lender on each
Maturity Date shall be in the amount necessary to pay all remaining unpaid
principal on the relevant portion of the Loan Facility.
(ii) Borrower shall pay accrued interest on the
unpaid principal amount of the Loan Facility (A) on the last day of each
Interest Period, provided that, in lieu of payments on the last day of each
Interest Period, Borrower shall pay accrued interest from amounts borrowed
pursuant to Construction Loans until the earlier of: (1) the Term Conversion
Date and (2) the date which is one year after the Closing Date; provided
further, that to the extent that net revenues from operations are generated
prior to the dates set forth in the preceding clauses (1) and (2), Borrower
shall forthwith pay such net revenues to Lender towards payment of accrued
interest; (B) upon prepayment (to the extent thereof) and (C) at maturity
(whether by acceleration or otherwise).
(f) Promissory Note. The obligation of Borrower to repay the
Loan Facility and to pay interest thereon at the rates provided herein shall be
evidenced by a promissory note of Borrower in substantially the form of Exhibit
B (the "Note").
(g) Funding.
(i) Notice. Each Notice of Borrowing shall be
delivered to Lender in accordance with Section 2.1(a)(ii).
(ii) Disbursement of Funds. No later than 2:00 p.m.
on the Business Day specified in each Notice of Borrowing, if the applicable
conditions precedent listed in Article 3 have been satisfied, Lender will make
available the Construction Loan requested in such Notice of Borrowing (or so
much thereof as Lender shall have approved pursuant to this Agreement) in
Dollars and in immediately available funds, in accordance with the next
succeeding sentence. At Lender's option and upon notice to Borrower, the amount
of any Construction Loan may, in whole or in part, be (x) disbursed by Lender to
Borrower by wire transfer to the Receipts Account established pursuant to
Section 7.1(a) at Bank of America, Sacramento RBCO, ABA No. 121000358, Account
Number 14894-02378, in lawful money of the United States and in immediately
available funds for application in accordance with the applicable Notice of
Borrowing and the Drawdown Certificate or (y) disbursed by Lender directly to
the Person(s) entitled thereto as specified in the applicable Drawdown
Certificate. Upon the application of funds in accordance with clause (y) of the
preceding sentence, Lender shall as promptly as practicable following the
disbursement of such funds provide an accounting of such payments to Borrower.
Such payment shall discharge pro tanto the
4
<PAGE>
obligations of Lender with respect to such amounts and Borrower hereby
authorizes Lender to pay such amounts on its behalf.
(h) Prepayments.
(i) Optional Prepayments. At its option, Borrower
may, upon ten (10) Business Days notice to Lender, prepay the Loan Facility in
part in aggregate principal amounts of not less than Five Hundred Thousand
Dollars ($500,000) or an integral multiple of One Hundred Thousand Dollars
($100,000) in excess thereof, or in whole, subject to this Section 2.1(h).
(ii) Mandatory Prepayments. Borrower shall prepay the
Loan Facility upon a Change of Control.
(iii) Terms of Prepayments.
(A) Upon the prepayment of any Loan Facility
(whether such prepayment is an optional prepayment under Section 2.1(h)(i) or a
mandatory prepayment required by the terms of this Agreement or the other Credit
Documents, including a prepayment upon acceleration), Borrower shall pay (1) all
accrued interest to the date of such prepayment on the amount prepaid, and (2)
all Liquidation Costs incurred by Lender as a result of such prepayment. All
prepayments of a Loan Facility shall reduce the remaining payments required
under Section 2.1(e) in the inverse order of maturity. Borrower may not reborrow
the principal amount of any Construction Loan or Term Loan which is prepaid.
(B) If Borrower proposes to refinance the
Project, Borrower shall deliver a written notice of the proposed refinancing in
the form of Exhibit F (a "Refinancing Notice") stating Borrower's bona fide
intention to refinance the Project, together with a copy of the offer to
finance, including without limitation, the name and address of the proposed
refinancer, the amount of the Loan Facility to be refinanced and the interest
rate and other terms of the proposed refinancing. Within thirty (30) days of
receipt of such Notice, Lender shall have the first right to provide the
proposed refinancing to Borrower upon such interest rate, terms and conditions
proposed by such refinancer as set forth in the Refinancing Notice. If the
Lender elects not to provide such refinancing, Borrower may prepay the Loan
Facility; provided that, Borrower refinances the Project at the interest rate
and on the other terms and conditions offered by the proposed refinancer as set
forth in the Refinancing Notice provided to Lender. At the time of any such
prepayment, in addition to any fees, costs or expenses otherwise payable by
Borrower hereunder, Borrower shall have paid to Lender an additional amount
equal to one-third of the net present value of the interest rate savings, if
any, of the refinancing loan compared to the Loan Facility. Net present value of
the interest payable hereunder and under the proposed refinanced loan shall be
calculated for the purposes of this Section by applying a discount rate equal to
the interest rate set forth in the Refinancing Notice.
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<PAGE>
2.2. Total Commitments.
(a) Construction Loans. The aggregate principal amount of all
Construction Loans made by the Lender shall not exceed Eight Million Dollars
($8,000,000) (the "Total Construction Loan Commitment").
(b) Term Loan. The aggregate principal amount of the Term Loan
outstanding at any time shall not exceed Eight Million Dollars ($8,000,000) (the
"Total Term Loan Commitment").
2.3. Fees.
(a) Upfront Fee. Borrower shall pay $120,000.00 to Lender on
the Closing Date as an upfront fee (the "Upfront Fee"). The Upfront Fee shall be
paid to reimburse Lender for the preliminary work done by Lender in
consideration of whether to make, and in preparing its analysis for, the loan to
Borrower made by Lender hereunder.
(b) Commitment Fees. The Borrower shall pay to Lender a
commitment fee on the daily average unused amount of the applicable Committed
Amount at a rate per annum equal to 0.5% for the period from the date of this
Agreement, to but not including the Term Conversion Date. Accrued commitment
fees shall be payable on the last day of each Interest Period and on the Term
Conversion Date.
(c) Net of Taxes, Etc.
(i) Taxes. All payments to Lender by Borrower
hereunder or under any other Credit Document shall be made free and clear of,
and without deduction or withholding for or on account of, any present or future
taxes, levies, imposts, deductions, charges or withholdings now or hereafter
imposed as a result of a Change of Law and all liabilities with respect thereto,
excluding taxes imposed on or measured by the income or capital of Lender (all
such non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If, as a result of a
Change of Law Borrower shall be required by law to withhold or deduct any Taxes
imposed by the United States or any political subdivision thereof from or in
respect of any sum payable hereunder or under any other Credit Document to
Lender, (A) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.3(c)), Lender receives an amount equal to the
sum it would have received had no such deductions been made, (B) Borrower shall
make such deductions, and (C) Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law. In addition, Borrower agrees to pay any present or future stamp, recording
or documentary taxes and, if as a result of a Change of Law, any other excise or
property taxes, charges or similar levies that arise under the laws of the
United States of America, the State of Arizona, the State of California, or the
State of New York from any payment made hereunder or under any other Credit
Document or from the execution or delivery or
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otherwise with respect to this Agreement or any other Credit Document
(hereinafter referred to as "Other Taxes").
(ii) Indemnity. Borrower shall indemnify Lender for
the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 2.3(c)) paid
by Lender or any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted; provided that, Borrower shall not be obligated to
indemnify Lender for any penalties, interest or expenses relating to Taxes or
Other Taxes arising from Lender's gross negligence or willful misconduct. Lender
agrees to give notice to Borrower of the assertion of any claim against Lender
relating to such Taxes or Other Taxes as promptly as is practicable after being
notified of such assertion; provided that, Lender's failure to notify Borrower
promptly of such assertion shall not relieve Borrower of its obligation under
this Section 2.3(c). Payments by Borrower pursuant to this indemnification shall
be made within thirty (30) days from the date Lender makes written demand
therefor, which demand shall be accompanied by a certificate describing in
reasonable detail the basis thereof. Lender agrees to repay to Borrower any
refund (including that portion of any interest that was included as part of such
refund with respect to Taxes or Other Taxes paid by Borrower pursuant to this
Section 2.3(c)) received by Lender for Taxes or Other Taxes that were paid by
Borrower pursuant to this Section 2.3(c) and to contest, with the cooperation
and at the expense of Borrower, any such Taxes or Other Taxes which Lender or
Borrower reasonably believes not to have been properly assessed.
(iii) Notice. Within 30 days after the date of any
payment of Taxes by the Borrower, Borrower shall furnish to Lender, at its
address referred to in Section 10.1 hereof, the original or a certified copy of
a receipt evidencing payment thereof. Borrower shall compensate Lender for all
reasonable losses and expenses sustained by Lender as a result of any failure by
Borrower to so furnish such copy of such receipt.
(iv) Survival of Obligations. The obligations of
Borrower under this Section 2.3(c) shall survive the termination of this
Agreement and the repayment of Borrower's Obligations.
2.4. Other Payment Terms.
(a) Place and Manner. Borrower shall make all payments due to
Lender hereunder by wire transfer to Tomen America's account at Citibank, N.A.,
ABA No. 021000089, Account No. 30753206, or as the Lender shall otherwise
direct, in lawful money of the United States and in immediately available funds
not later than 12:00 noon New York time on the due date.
(b) Late Payments. If any amounts required to be paid by
Borrower under this Agreement or the other Credit Documents (including principal
or interest payable on the Loan Facility, and any fees or other amounts
otherwise payable to Lender) remain unpaid after such amounts are due, Borrower
shall pay interest on the aggregate outstanding balance
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of such amounts from the date due until those amounts are paid in full at a per
annum rate equal to the Default Rate.
(c) Application of Payments. Payments made under this
Agreement or the other Credit Documents shall first be applied to any fees,
costs, charges or expenses payable to Lender hereunder or under the other Credit
Documents, next to any accrued but unpaid interest, and then to outstanding
principal in inverse order of maturity.
2.5. Change of Circumstances.
(a) Inability to Determine Rates. If, on or before the first
day of any Interest Period Lender shall have determined (which determination
shall be conclusive and binding on all parties hereto) that the LIBOR Rate for
such Interest Period cannot be adequately and reasonably determined due to the
unavailability of funds in or other circumstances affecting the London interbank
market, Lender shall immediately give notice of such condition to Borrower.
After the giving of any such notice and until Lender shall otherwise notify
Borrower that the circumstances giving rise to such condition no longer exist,
Borrower's right to request the making of, and Lender's obligations to make
Loans at the LIBOR Rate shall be suspended. Borrower may, in compliance with the
other terms and conditions hereof, request Alternate Interest Rate Construction
Loans during any periods in which the LIBOR Rate is suspended. Any LIBOR Rate
Loan Facility outstanding at the commencement of any such suspension shall be
converted at the end of the then current Interest Period into an Alternate
Interest Rate Loan unless such suspension has then ended.
(b) Illegality. If, after the date of this Agreement, the
adoption of any Governmental Rule, any change in any Governmental Rule or the
application or requirements thereof (whether such change occurs in accordance
with the terms of such Governmental Rule as enacted, as a result of amendment or
otherwise), any change in the interpretation or administration of any
Governmental Rule by any Governmental Authority, or compliance by Lender or
Borrower with any request or directive (whether or not having the force of law)
of any Governmental Authority (a "Change of Law") shall make it unlawful or
impossible for Lender to make or maintain any Construction Loan or the Term
Loan, Lender shall promptly notify Borrower of such Change of Law. Upon receipt
of such notice, (i) Borrower's right to request the making of Construction Loans
shall be terminated, and (ii) Borrower shall, at the request of Lender,
immediately repay the Loan Facility together with all accrued and unpaid
interest.
2.6. Funding Loss Indemnification. If Borrower shall (a) repay or
prepay the Loan Facility or any portion thereof on any day other than the last
day of an Interest Period (whether a payment upon acceleration or otherwise),
(b) fail to borrow in accordance with a Notice of Borrowing delivered to Lender
(whether as a result of the failure to satisfy any applicable conditions or
otherwise), or (c) prepay the Term Loan or any portion thereof after the
interest rate has been converted to a Fixed Rate, Borrower shall, upon demand by
Lender, reimburse Lender for and hold Lender harmless from all costs and losses,
expenses and liabilities incurred by Lender as a result of such repayment,
prepayment or failure (including without limitation by reason of the liquidation
of deposits or other funds by
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Lender) ("Liquidation Costs"). Borrower understands that such Liquidation Costs
may include direct losses incurred by Lender as a result of funding and other
contracts entered into by Lender.
2.7. Security.
(a) Security Agreement, Pledge, etc. The Obligations of
Borrower to Lender shall be secured by the following:
(i) The Security Agreement, between Borrower, as
grantor, and Lender, in the form of Exhibit G, duly executed by Borrower (the
"Security Agreement");
(ii) The Deposit Account Security Agreement, between
Borrower, as grantor, and Lender, in the form of Exhibit G-2 duly executed by
Borrower (the "Account Security Agreement").
(iii) The GST Security Agreement, between GST, as
grantor, and Lender, in the form of Exhibit H, duly executed by GST (the "GST
Security Agreement");
(iv) Construction Deeds of Trust in the form of
Exhibit I, duly executed;
(v) The Pledge Agreement, of GST as the sole
shareholder of Borrower, in the form of Exhibit J, duly executed by GST (the
"Pledge Agreement");
(vi) The Net Cash Flow Agreements of GST Pacific
Lightwave, Inc., GST New Mexico Lightwave, Inc., Borrower and the development
companies of all other Network Projects to which Lender or any of its Affiliates
has provided debt funding in the form of Exhibit K, duly executed by such
development companies (the "Net Cash Flow Agreements");
(vii) The Net Cash Flow Deposit Account Security
Agreements of GST Pacific Lightwave, Inc., GST New Mexico Lightwave, Inc., and
Borrower, in the form of Exhibit K-1, duly executed by such Development
Companies (the "Net Cash Flow Account Security Agreement"); and
(viii) Such other documents, instruments and
agreements as Lender may request in order to grant to Lender Liens in all assets
of Borrower (including, without limitation, all Permits), the shares of
Borrower's capital securities (other than shares held by the Lender) and all
other assets reasonably necessary for the operation and maintenance of the
Project.
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(b) Further Assurances. Borrower shall deliver to Lender each
of the foregoing and such other instruments, agreements, certificates, opinions
and documents (including Uniform Commercial Code financing statements and
fixture filings and landlord waivers) as Lender may reasonably request to
perfect and maintain the Liens granted to Lender by the foregoing prior to the
Liens or other interests of any Person other than Lender. Borrower shall fully
cooperate with Lender and perform all additional acts reasonably requested by
Lender to effect the purposes of the foregoing.
ARTICLE 3 - CONDITIONS PRECEDENT
3.1. Conditions Precedent to Closing. The obligation of Lender to make
any Construction Loans is subject to the satisfaction of the following
conditions on or prior to the Closing Date (unless waived by Lender):
(a) Principal Credit Documents. Lender shall have received the
following Credit Documents, each of which (i) shall be in form and substance
satisfactory to Lender, and (ii) shall have been duly authorized, executed and
delivered by the parties thereto:
(A) This Agreement;
(B) The Note;
(C) The Security Agreement;
(D) The Account Security Agreement;
(E) The GST Security Agreement;
(F) The Pledge Agreement;
(G) The Net Cash Flow Agreements;
(H) The Net Cash Flow Account Security Agreements;
(I) An agreement duly executed by Greenstar agreeing
to subordinate all payments due to Greenstar pursuant to any management
agreement between Borrower and Greenstar to the obligations of Borrower to
Lender under this Agreement, the other Credit Agreements and any net cash flow
pledge agreement entered into by Borrower pursuant to Section 5.17;
(J) The Construction Deeds of Trust in the form of
Exhibit I for Pima County; and
(K) The UCC-1 Financing Statements set forth on
Schedule 7.
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(b) Project Documents. Lender shall have received (i) true,
complete and correct copies of the following Project Documents, and any
supplements or amendments thereto, each of which (A) shall be in form and
substance satisfactory to Lender, (B) shall have been duly authorized, executed
and delivered by the parties thereto, and (C) shall have been certified by an
authorized officer of Borrower as being true, complete and correct and in full
force and effect, and (ii) evidence satisfactory to Lender that each Project
Document is in full force and effect and that no party to any Project Document
is or, but for the passage of time or giving of notice or both will be, in
breach of any obligation thereunder which is reasonably expected to have a
Material Adverse Effect:
(A) The applicable Construction Contracts;
(B) The applicable Pole and Conduit Use Agreements;
(C) The City of Tucson License, amended to permit
the construction of a completely fiber optic
network Project;
(D) The applicable Collocation Agreements;
(E) The applicable Interconnection Agreements;
(F) The applicable Leases; and
(G) Each other applicable Project Document not
listed in this Section 3.1(b), including without
limitation, each equipment purchase agreement
referenced in Section 3(b) of the Master
Agreement.
Notwithstanding the foregoing provisions of this Section
3.1(b), with respect to the Closing, "Project Documents" shall refer only to the
Project Documents applicable to Phase I, and the delivery of the Project
Documents with respect to Phase II shall be a condition precedent to the initial
Construction Loan for Phase II pursuant to Section 3.3.
(c) Borrower Documents. Lender shall have received the
following items, each in form and substance satisfactory to Lender:
(i) A copy of one or more resolutions or other
authorizations of Borrower, certified by Borrower's Secretary as being in full
force and effect on the Closing Date, authorizing the borrowings herein provided
for, the development of the Project and the execution, delivery and performance
of this Agreement and the other Operative Documents and any instruments or
agreements required hereunder or thereunder to which Borrower is a party and the
consummation of the transactions contemplated thereby;
(ii) A certificate of Borrower signed by the
appropriate authorized officer of Borrower and dated as of the Closing Date, as
to the incumbency of the Person or Persons authorized to execute and deliver
this Agreement and the other Operative Documents
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and any instruments or agreements required hereunder or thereunder to be
executed on the Closing Date to which Borrower is a party;
(iii) Copies of the Articles of Incorporation and any
Amendments to the Articles of Incorporation of Borrower, certified by the
Arizona Secretary of State, and of copies of the Bylaws of Borrower, certified
by the Secretary of Borrower; and
(iv) Certificates issued by the Arizona Secretary of
State and state tax authority as to the good standing of Borrower, and the tax
status of Borrower, respectively.
(d) Security Filings. Lender shall have received the following
items, each in form and substance satisfactory to Lender:
(i) A UCC-3 (or similar) report of a date not less
recent than one (1) week before the Closing Date for each of the jurisdictions
in which the UCC-1 financing statements and the fixture filings are intended to
be filed in respect of the Collateral, showing that upon due filing or
recordation (assuming such filing or recordation occurred on such date), the
security interests created under such Collateral Documents will be prior to all
other financing statements, fixture filings, deeds of trust, mortgages or other
security documents in respect of the Collateral;
(ii) Evidence that all appropriate financing
statements and fixture filings were filed and/or recorded as required hereunder
or by law; and
(iii) Stock certificate(s) representing all of the
outstanding capital stock of Borrower together with stock powers duly endorsed
by Borrower's stockholders attached thereto.
(e) Easements. Lender shall have received the following items,
each in form and substance satisfactory to Lender:
(i) A schedule of Applicable Easements required to
construct and operate the Project, which schedule shall be included in and made
a part of this Agreement as Schedule 3 in the case of the Phase I Project, and
Schedule 4 in the case of the Phase II Project, together with evidence of each
Applicable Easement listed on Part I of such schedule and a certificate of an
authorized officer of Borrower certifying that neither Borrower nor such
authorized officer has any reason to believe that all Applicable Easements that
have not been obtained prior to the Closing Date will not be obtained by the
dates by which they are required; and
(ii) Other evidence requested by Lender that (A)
Borrower has duly obtained the Applicable Easements set forth on Schedule 3 or
Schedule 4, as applicable, other than those set forth in Part II of such
schedule which are not, in light of the status of the acquisition, development,
construction and operation of the Project as of the Closing Date, required to
have been obtained as of such Closing Date and which, in the reasonable opinion
of Lender, can be obtained not later than required without substantial
difficulty,
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expense or delay, and (B) such Applicable Easements are in full force and effect
and not subject to any condition, limitation or other provision that in the
reasonable judgment of Lender or its counsel could have a Material Adverse
Effect.
(f) Consents and Estoppels. Lender shall have received the
following items, each in form and substance satisfactory to Lender with respect
to the Phase I Project:
(i) An Estoppel and Consent Certificate in the form
of Exhibit L from each lessor of real property to Borrower duly executed by each
such Lessor and Borrower;
(ii) Consents to assignment of all material licenses,
permits and agreements in the form attached hereto as Exhibit M-1, M-2 and M-3.
(g) Permit, Regulatory and Environmental Matters. Lender shall
have received the following items, each in form and substance satisfactory to
Lender:
(i) Schedules of Applicable Permits required to
construct and operate each Project Phase, which schedules shall be included in
and made a part of this Agreement as Schedule 5, in the case of the Phase I
Project, and Schedule 6 in the case of the Phase II Project, together with
copies of each Applicable Permit listed on Part I of Schedule 5, in the case of
the Phase I Project, and Schedule 6, in the case of the Phase II Project, and a
certificate of an authorized officer of Borrower certifying that neither
Borrower nor such authorized officer has any reason to believe that all
Applicable Permits that have not been obtained prior to the applicable Closing
Date will not be obtained by the dates by which they are required; and
(ii) Other evidence requested by Lender that (A)
Borrower has duly obtained or been assigned the Applicable Permits for the
Project set forth on Schedule 5, in the case of the Phase I Project, and
Schedule 6, in the case of the Phase II Project, other than those set forth in
Part II of such schedules which are not, in light of the status of the
acquisition, development, construction and operation of the Project as of the
Closing Date, required to have been obtained or made as of the Closing Date and
which, in the reasonable opinion of Lender, can be obtained not later than
required without substantial difficulty, expense or delay, and (B) such
Applicable Permits are in full force and effect and not subject to any appeal,
restriction, condition, limitation or other provision that in the reasonable
judgment of Lender or its counsel could have a Material Adverse Effect.
(iii) A certificate of Network Development
Consultants, Inc., a Nevada corporation ("NDC"), that all Permits, Easements,
Licenses, Leases and other property rights necessary for the Phase I Project
have been obtained and that such Permits, Easements, Licenses, Leases and other
property rights form a contiguous and uninterrupted line necessary to construct
and operate the Phase I Project.
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(iv) Evidence that Borrower and the network to be
constructed by the Project will not be subject to regulation by the Arizona
Corporation Commission to an extent unacceptable to Lender in its discretion.
(h) Capital Contribution. Lender shall have received evidence
that GST Telecom Inc. has made a capital contribution to Borrower of Four
Million Dollars ($4,000,000).
(i) Third Party Reports. Lender shall have received
satisfactory third- party appraisal, feasibility, engineering, environmental and
accounting reviews relating to the Project.
(j) Opinions. Lender shall have received the opinions, each in
form and substance satisfactory to Lender, of:
(i) Olshan Grundman Frome & Rosenzweig, LLP, counsel
for Borrower, in substantially the form of Exhibit N-1;
(ii) Lewis & Roca, LLP, special Arizona counsel for
Borrower, in substantially the form of Exhibit N-2; and
(iii) Swidler & Berlin, FCC Counsel for Borrower, in
substantially the form of Exhibit N-3.
(k) Certificate. Lender shall have received evidence that
Borrower has obtained and is maintaining in full force and effect insurance
complying with Section 5.14 hereof and Schedule 9 hereto, including (A) a
certificate from Borrower's insurance broker(s), dated as of the Closing Date
and identifying underwriters, type of insurance, insurance limits and policy
terms, listing the special provisions required as set forth in Section 5.14
hereof and Schedule 9 hereto, describing the insurance obtained and stating that
such insurance is in full force and effect and that all premiums then due
thereon have been paid, and (B) certified copies of all policies evidencing such
insurance (or a binder, commitment or certificates signed by the insurer or a
broker authorized to bind the insurer).
(l) Financial Statements, Expenditures to Closing Date,
Projections, Etc. Lender shall have received and approved the following items,
each in form and substance satisfactory to Lender:
(i) The most recent annual financial statements
(audited if available), most recent quarterly financial statements from
Borrower, together with a certificate from the appropriate officer of such
Person, stating that no material adverse change in the consolidated assets,
liabilities, operations or financial condition of such Person has occurred since
the date of the financial statements provided to Lender, and pro forma financial
statements for Borrower giving effect to the Capital Contributions;
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(ii) A budget for each Project Phase (the "Project
Phase Budget") for all anticipated costs to be incurred in connection with the
construction and start-up of the Project Phase, including in such budget all
construction and non-construction costs, and including all interest, taxes and
other carrying costs, and such other information as Lender may require, together
with a balanced statement of sources and uses of proceeds (and any other funds
necessary to complete the Project), broken down as to separate construction
phases in a manner satisfactory to Lender.
(iii) An accurate and complete accounting of
expenditures of each Project Phase as of the date five (5) Business Days before
the Closing Date, certified by the Chief Financial Officer of Borrower.
(iv) Borrower shall have furnished Lender the Base
Case Project Projections of operating expenses and cash flow for the Project and
the Project Schedule for the Project and the Milestone Disbursement Schedule for
the Project; and
(v) Evidence that there has not occurred any material
adverse change in the Project Budget, Project Schedule or Base Case Project
Projections, in the economics or feasibility of constructing and/or operating
the Project, or in the financial condition, business or property of any Major
Project Participant, which will have a Material Adverse Effect.
(m) Consents. Lender shall have received executed copies of
the Consents, each in form and substance satisfactory to Lender, including
without limitation, consents to assignment of each of the Project Documents
applicable to the Phase I Project in the forms of Exhibit M-1, M-2 and M-3
hereto.
(n) Due Diligence. Lender shall have approved the results of
its due diligence review in connection with the transactions contemplated
hereby.
(o) Other Matters. Lender shall have received the following
items, each in form and substance satisfactory to Lender:
(i) Such other evidence as Lender may have requested
that all corporate and legal proceedings and all instruments in connection with
the transactions contemplated by this Agreement are satisfactory in form and
substance to Lender;
(ii) All approvals of Lender and Tomen Corporation
(Lender's parent corporation);
(iii) All information and copies of all documents,
including records of corporate proceedings and copies of any approval by any
Governmental Authority required in connection with any transaction herein
contemplated, which Lender may reasonably have requested in connection herewith,
such documents where appropriate to be certified by proper corporate officers or
Governmental Authorities;
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(iv) Evidence that no action, suit, proceeding or
investigation has been instituted or threatened by any Person, nor has any
order, judgment or decree have been issued or proposed to be issued by any
Governmental Authority that could have a Material Adverse Effect;
(v) Evidence that the litigations involving Borrower
and the City of Tucson, Brooks Fiber Properties, Inc. and Tucson Electric Power
Company, respectively, have been settled or otherwise resolved to Lender's
satisfaction;
(vi) Evidence that all taxes, fees and other costs
payable in connection with the execution, delivery, recordation and filing of
the documents and instruments referred to in this Section 3.1 have been paid in
full;
(vii) Evidence that Tomen or an Affiliate of Tomen
has been appointed and is serving as Procurement Agent for the Project;
(viii) Evidence that GUS is the sole stockholder of
GST as of the Closing Date; and
(ix) A certificate in substantially the form of
Exhibit O hereto (the "Borrower's Closing Certificate"), dated as of the Closing
Date, signed by an authorized officer of Borrower.
3.2. Conditions Precedent to Each Construction Loan. The obligation of
Lender to make each Construction Loan (including the initial Construction Loan
for either Project Phase) is subject to the prior satisfaction of each of the
following conditions (unless waived by Lender).
(a) The Requested Construction Loans. Lender shall be
satisfied that the following are true and correct as of the date on which
Borrower has requested that such Construction Loan be made:
(i) No other Construction Loan has been made for such
Project Phase during the two-week period preceding the date on which Borrower
requests that such Construction Loan be made;
(ii) The sum of the undrawn Total Construction Loan
Commitment, plus the unexpended portion of any Borrower Equity is not less than
the aggregate unpaid amount required to attain Completion, in accordance with
all Legal Requirements, the Construction Contracts and the Plans and
Specifications, prior to the Expected Completion Date and to pay or provide for
all anticipated non-construction costs, all as set forth in the Project Phase
Budget (including any revisions thereto) approved by Lender; and
(iii) The amounts to be applied in connection with
such Construction Loan will not cause the amount for any line item with respect
to such month in the applicable
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Project Phase Budget to exceed the amount set forth in such Project Phase
Budget, as such line items may be adjusted in accordance with Section 3.3(b).
(b) Drawdown Procedures. Lender shall have received the
following, each in form and substance satisfactory to Lender:
(i) The Notice of Borrowing and the Drawdown
Certificate within the time periods specified therein;
(ii) Evidence that Borrower has established and is
maintaining the Receipts Account and the Operating Account at a bank in
California reasonably acceptable to Lender; and
(iii) Evidence that all work that has been done on
the Project shall have been done in a good and workmanlike manner and in
accordance with the Construction Contracts and Prudent Practices, including, but
not limited to, if requested by Lender, copies of all invoices for services
rendered and materials delivered for the Project, and there shall not have been
filed with or served upon Borrower with respect to the Project or any part
thereof notice of any Lien, claim of Lien or attachment upon or claim affecting
the right to receive payment of any of the moneys payable to any of the Persons
named on such request which has not been released or which will not be released
with the payment of such obligation out of such Construction Loan, other than
Permitted Liens.
(c) Liens. Lender shall have received in form and substance
satisfactory to Lender, if requested by Lender, and subject to Borrower's right
to contest liens as described in the definition of "Permitted Liens," duly
executed acknowledgments of payments and releases of mechanics' and
materialmen's liens, in form satisfactory to Lender, from the Contractors and
all other contractors, subcontractors and materialmen, for all work, services
and materials, including equipment and fixtures of all kinds, done, previously
performed, or furnished for the construction of the Project, except for such
work, services and materials to be paid for with the proceeds of the requested
Construction Loan.
(d) Easements. Lender shall have received evidence, in form
and substance acceptable to Lender, that, except for Applicable Easements listed
in Part II of Schedule 4 which are not then required in connection with the
construction or operation of the Project, all Easements with respect to the
construction and operation of the Project required to have been obtained by the
date of such Construction Loans shall be in full force and effect, and, with
respect to any of the Applicable Easements not yet required, there shall be no
reason to believe that any such Applicable Easements will not be obtained, all
of which shall be satisfactory in all respects to Lender. Borrower shall inform
Lender as to the status of Borrower's efforts to obtain the Applicable Easements
not yet obtained.
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(e) Permits. Lender shall have received evidence, in form and
substance acceptable to Lender, that, except for Applicable Permits listed in
Part II of Schedule 6 which are not then required in connection with the
construction or operation of the Project, all Permits with respect to the
construction and operation of the Project required to have been obtained by the
date of such Construction Loans from any Governmental Authority shall have been
issued and shall be in full force and effect, and, with respect to any of the
Applicable Permits not yet required, there shall be no reason to believe that
any such Applicable Permits will not be obtained, all of which shall be
satisfactory in all respects to Lender.
(f) Other Documents. If requested by Lender, Lender shall have
received evidence, in form and substance satisfactory to Lender, that:
(i) All of the Operative Documents to be executed and
delivered with respect to the Project on or prior to the date of such
Construction Loan shall be in full force and effect without change or amendment
since the respective dates of their execution and delivery in a form which was
approved by Lender, except as consented to in writing by Lender or as otherwise
permitted pursuant to Section 6.12; and
(ii) With respect to Additional Project Documents and
Applicable Permits entered into or obtained, transferred or required (whether
because of the status of the construction or operation of the Project or
otherwise) since the date of the most recent Construction Loan, there shall have
been a delivery or a redelivery, as the case may be, to Lender of such matters
as are described in Sections 3.1(b), 3.1(e), 3.1(f) and 3.1(g) and, if requested
by Lender, any of the other sections of Section 3.1.
(g) Status of Borrower. Lender shall be satisfied that the
following are true and correct as of the date on which Borrower has requested
that such Construction Loan be made:
(i) Each representation and warranty set forth in
Article 4 is true and correct as if made on such date;
(ii) No Event of Default or Default has occurred and
is continuing or will result from such Credit Event;
(iii) No event of default under and as defined in or
applicable to any Project Document has occurred and is continuing; and
(iv) Each Credit Document and Project Document
remains in full force and effect.
3.3. Additional Conditions Precedent to Initial Construction Loans for
the Phase II Project. The obligation of Lender to make the initial Construction
Loan for the Phase II Project is subject to the satisfaction of the following
conditions on or prior to the date of the initial Construction Loan for the
Phase II Project (unless waived by Lender):
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(a) Principal Credit Documents. To the extent not delivered at
the Closing Lender shall have received the Credit Documents set forth in Section
3.1(a) and the following Credit Documents with respect to the Phase II Project,
each of which (i) shall be in form and substance satisfactory to Lender, and
(ii) shall have been duly authorized, executed and delivered by the parties
thereto:
(A) The Construction Deed of Trust in the form of
Exhibit I updated with the additional Phase II Project Permits, Leases and
Easements; and
(B) The UCC-1 Financing Statements set forth on
Schedule 7 updated with the additional Phase II Project Permits, Leases and
Easements.
(b) Project Documents. To the extent not delivered at the
Closing, Lender shall have received the Project Documents set forth in Section
3.1(b) and, with respect to the Phase II Project, (i) true, complete and correct
copies of the following Project Documents, and any supplements or amendments
thereto, each of which (A) shall be in form and substance satisfactory to
Lender, (B) shall have been duly authorized, executed and delivered by the
parties thereto, and (C) shall have been certified by an authorized officer of
Borrower as being true, complete and correct and in full force and effect, and
(ii) evidence satisfactory to Lender that each Project Document is in full force
and effect and that no party to any Project Document is or, but for the passage
of time or giving of notice or both will be, in breach of any obligation
thereunder which is reasonably expected to have a Material Adverse Effect:
(A) The applicable Construction Contracts;
(B) The applicable Pole and Conduit Use Agreements;
(C) The applicable Collocation Agreements;
(D) The applicable Interconnection Agreements;
(E) The applicable Leases; and
(F) Each other applicable Project Document not
listed in this Section 3.3(b), including without
limitation, each equipment purchase agreement
referenced in Section 3(b) of the Master
Agreement.
(c) Borrower Documents. Lender shall have received the
following items, each in form and substance satisfactory to Lender:
(i) A copy of one or more resolutions or other
authorizations of Borrower, certified by Borrower's Secretary as being in full
force and effect on the date of the initial Construction Loan with respect to
the Phase II Project, authorizing the borrowings herein provided for, the
development of the Phase II Project and the execution, delivery and
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performance of any additional Operative Documents and any instruments or
agreements required hereunder or thereunder to which Borrower is a party and the
consummation of the transactions contemplated thereby;
(ii) A certificate of Borrower signed by the
appropriate authorized officer of Borrower and dated as of the date of the
applicable initial Construction Loan, as to the incumbency of the Person or
Persons authorized to execute and deliver the Drawdown Certificate and any
additional Operative Documents and any instruments or agreements required
hereunder or thereunder to be executed on such date to which Borrower is a
party;
(iii) Copies of the Articles of Incorporation and any
Amendments to the Articles of Incorporation of Borrower, certified by the
Arizona Secretary of State, and of copies of the Bylaws of Borrower, certified
by the Secretary of Borrower; and
(iv) Certificates issued by the Arizona Secretary of
State and state tax authorities as to the good standing of Borrower, and the tax
status of Borrower.
(d) Security Filings. Lender shall have received the following
items, each in form and substance satisfactory to Lender:
(i) A UCC-3 (or similar) report of a date not less
recent than one (1) week before the initial Construction Loan for each of the
jurisdictions in which the UCC-1 financing statements and the fixture filings
are intended to be filed in respect of the Collateral, showing that upon due
filing or recordation (assuming such filing or recordation occurred on such
date), the security interests created under such Collateral Documents will be
prior to all other financing statements, fixture filings, deeds of trust,
mortgages or other security documents in respect of the Collateral; and
(ii) Evidence that all appropriate financing
statements and fixture filings were filed and/or recorded as required hereunder
or by law.
(e) Easements. Lender shall have received the following items,
each in form and substance satisfactory to Lender:
(i) A schedule of Applicable Easements required to
construct and operate the Phase II Project, which schedules shall be included in
and made a part of this Agreement, together with evidence of each Applicable
Easement listed on Part I of such schedule and a certificate of an authorized
officer of Borrower certifying that neither Borrower nor such authorized officer
has any reason to believe that all Applicable Easements that have not been
obtained prior to the date of the applicable initial Construction Loan will not
be obtained by the dates by which they are required; and
(ii) Other evidence requested by Lender that (A)
Borrower has duly obtained the Applicable Easements set forth on Schedule 4,
other than those set forth in Part II of such schedule which are not, in light
of the status of the acquisition, development, construction and operation of the
Project as of the date of the applicable initial Construction
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Loan with respect to the Phase II Project, required to have been obtained as of
such date and which, in the reasonable opinion of Lender, can be obtained not
later than required without substantial difficulty, expense or delay, and (B)
such Applicable Easements are in full force and effect and not subject to any
condition, limitation or other provision that in the reasonable judgment of
Lender or its counsel could have a Material Adverse Effect.
(f) Other Real Estate Matters. Lender shall have received the
following items, each in form and substance satisfactory to Lender, with respect
to the Phase II Project:
(i) An Estoppel and Consent Certificate in the form
of Exhibit I from each lessor of real property to Borrower duly executed by each
such Lessor and Borrower;
(ii) Consents to assignment of all material licenses,
permits and agreements in the form attached hereto as Exhibit M-1, M-2 and M-3.
(g) Permit, Regulatory and Environmental Matters. Lender shall
have received the following items, each in form and substance satisfactory to
Lender:
(i) Schedules of Applicable Permits required to
construct and operate the Phase II Project, which schedules shall be included in
and made a part of this Agreement, together with copies of each Applicable
Permit listed on Part I of Schedule 6, and a certificate of an authorized
officer of Borrower certifying that neither Borrower nor such authorized officer
has any reason to believe that all Applicable Permits that have not been
obtained prior to the date of the initial Construction Loan with respect to the
Phase II Project, will not be obtained by the dates by which they are required;
and
(ii) Other evidence requested by Lender that (A)
Borrower has duly obtained or been assigned the Applicable Permits for the Phase
II Project set forth on Schedule 6, other than those set forth in Part II of
such schedule which are not, in light of the status of the acquisition,
development, construction and operation of the Phase II Project as of the date
of the applicable initial Construction Loan, required to have been obtained or
made as of such date and which, in the reasonable opinion of Lender, can be
obtained not later than required without substantial difficulty, expense or
delay, and (B) such Applicable Permits are in full force and effect and not
subject to any appeal, restriction, condition, limitation or other provision
that in the reasonable judgment of Lender or its counsel could have a Material
Adverse Effect.
(iii) A certificate of NDC or another engineer, that
all Permits, Easements, Licenses, Leases and other property rights necessary
have been obtained and that such Permits, Easements, Licenses, Leases and other
property rights form a contiguous and uninterrupted line necessary to construct
and operate the Phase II Project as part of the Project.
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(h) Third Party Reports. Lender shall have received
satisfactory third- party appraisal, feasibility, engineering, environmental and
accounting reviews relating to the Segment.
(i) Opinions. Lender shall have received the opinions, each in
form and substance satisfactory to Lender, of:
(i) Olshan Grundman Frome & Rosenzweig, counsel for
Borrower, in substantially the form of Exhibit N-1; and
(ii) Lewis & Roca, LLC, special Arizona counsel for
Borrower, in substantially the form of Exhibit N-2.
(j) Certificate. Lender shall have received evidence that
Borrower has obtained and is maintaining in full force and effect insurance
complying with Section 5.14 hereof and Schedule 9 hereto, including (A) a
certificate from Borrower's insurance broker(s), dated as of the date of the
applicable initial Construction Loan and identifying underwriters, type of
insurance, insurance limits and policy terms, listing the special provisions
required as set forth in Section 5.14 hereof and Schedule 9 hereto, describing
the insurance obtained and stating that such insurance is in full force and
effect and that all premiums then due thereon have been paid, and (B) certified
copies of all policies evidencing such insurance (or a binder, commitment or
certificates signed by the insurer or a broker authorized to bind the insurer).
(k) Financial Statements, Expenditures to Closing Date,
Projections, Etc. Lender shall have received and approved the following items,
each in form and substance satisfactory to Lender:
(i) An accurate and complete accounting of
expenditures of the Project as of the date five (5) Business Days before the
date of the applicable initial Construction Loan, certified by the Chief
Financial Officer of Borrower.
(ii) Evidence that there has not occurred any
material adverse change in, the Project Phase Budget (including Phase II Project
budget), Project Schedule or Base Case Project Projections, in the economics or
feasibility of constructing and/or operating the Project, or in the financial
condition, business or property of any Major Project Participant, which will
have a Material Adverse Effect.
(l) Consents. Lender shall have received executed copies of
the Consents, each in form and substance satisfactory to Lender, including
without limitation, consents to assignment of each of the Project Documents for
the Phase II Project in the forms of Exhibit M-1, M-2 and M-3 hereto.
(m) Due Diligence. Lender shall have approved the results of
its due diligence review in connection with the Phase II Project.
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(n) Other Matters. Lender shall have received the following
items, each in form and substance satisfactory to Lender:
(i) All information and copies of all documents,
including records of corporate proceedings and copies of any approval by any
Governmental Authority required in connection with any transaction herein
contemplated with respect to the Phase II Project, which Lender may reasonably
have requested in connection herewith, such documents where appropriate to be
certified by proper corporate officers or Governmental Authorities;
(ii) Evidence that no action, suit, proceeding or
investigation has been instituted or threatened by any Person, nor has any
order, judgment or decree have been issued or proposed to be issued by any
Governmental Authority that could have a Material Adverse Effect;
(iii) Evidence that all taxes, fees and other costs
payable in connection with the execution, delivery, recordation and filing of
the documents and instruments referred to in this Section 3.3 have been paid in
full;
(iv) Evidence that Tomen or an Affiliate of Tomen is
serving as Procurement Agent for the Project;
(v) A certificate substantially in the form of
Exhibit O hereto, dated as of the date of the initial Construction Loan with
respect to the Phase II Project, signed by an authorized officer of Borrower.
3.4. No Approval of Work; Adjustments to Project Phase Budget.
(a) The making of any Construction Loan hereunder shall not be
deemed an approval or acceptance by Lender of any work, labor, supplies,
materials or equipment furnished or supplied with respect to the Project.
(b) If requested by Borrower, Lender may, in its reasonable
discretion, adjust the amounts of any individual categories or line items of
Project Costs as set forth in the applicable Project Phase Budget by increasing
or decreasing the amounts shown on the Project Phase Budget for each such
individual category or line item; provided that, Borrower shall have the right
to adjust line items without Lender's consent up to an aggregate maximum change
of twenty percent (20%) per line item from the original Project Phase Budget;
provided further, that Borrower shall immediately provide Lender with notice of
any such adjustments. With respect to adjustments in excess of twenty percent
(20%), Borrower shall have the right to request such adjustments from the Lender
Representative no more frequently than once each thirty (30) days. The Lender
Representative shall approve or disapprove such requests within four (4)
Business Days. Notwithstanding anything to the contrary herein, however, no such
adjustment made pursuant to this Section 3.4 shall change the aggregate amount
of all of the Project Costs as shown on the Project Phase Budgets.
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3.5. Waiver of Funding; Adjustment of Drawdown Requests.
Notwithstanding the foregoing, Lender, without waiving any of its rights
hereunder, shall have the right to make a Construction Loan or Construction
Loans hereunder without full compliance by Borrower with the conditions
described in this Article 3. If Lender determines that a material item or items
listed in a Drawdown Certificate as a Project Phase Cost is not properly
included in such Drawdown Certificate, Lender may in its reasonable discretion
cause to be made a Construction Loan or Construction Loans in the amount
requested in such Drawdown Certificate less the amount of such item or items. In
the event that Borrower prevails in any dispute as to whether such Project Phase
Costs were properly included in such Drawdown Certificate, Construction Loans in
the amount requested but not initially made shall forthwith be made.
3.5A Expenses in Excess of Project Budget. If the amount of Project
Costs with respect to the Project exceeds the applicable amount available
pursuant to the Loan Facility and the Capital Contribution, GST may make a loan
to Borrower in a maximum amount of the unbudgeted Project Costs equal to the
difference between the amount, if any, contributed by Borrower's shareholder and
fifty percent (50%) of the Project Budget; provided that such loan be unsecured
and deeply subordinated to Borrower's obligations to Lender under this
Agreement.
3.6. Conditions Precedent to Term Loan Conversion. The obligation of
Lender to convert the Construction Loans to a Term Loan is subject to the
satisfaction of the following conditions on or prior to the Term Loan Conversion
Date (unless waived by Lender):
(a) Completion. Completion of the Project shall have occurred.
(b) Status of Borrower. Lender shall be satisfied that the
following are true and correct as of the date on which Borrower has requested
that the Term Loan Conversion be made:
(i) Each representation and warranty set forth in
Article 4 of this Agreement and in paragraph 3 of the Pledge Agreement is true
and correct in all material respects as if made on such date (except for
representations and warranties expressly made as of a specified date, which are
true as of such date);
(ii) No Event of Default or Default has occurred and
is continuing or will result from such Term Loan Conversion;
(iii) No material event of default under and as
defined in or applicable to any Project Document has occurred and is continuing;
and
(iv) Each Credit Document and Project Document
remains in full force and effect.
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(c) Conversion Procedure. Lender shall have received the
Notice of Term Loan Conversion, in form and substance satisfactory to Lender,
within the time periods specified in Section 2.1(b).
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to and in
favor of Lender as of the date hereof and as of the Closing Date. All of these
representations and warranties shall survive the Closing Date and the making of
the Construction Loans and Term Loans:
4.1. Organization.
(a) Borrower (i) is a corporation duly constituted, validly
existing and in good standing under the laws of the State of Arizona, (ii) is
duly qualified, authorized to do business and in good standing in each
jurisdiction where the character of its properties or the nature of its
activities makes such qualification necessary, (iii) has all requisite corporate
power and authority (A) to carry on its business as now being conducted and as
proposed to be conducted by it, (B) to own or hold under lease and operate the
property it purports to own or hold under lease, (C) to execute, deliver and
perform each Operative Document to which it is a party, (D) to take all action
as may be necessary to consummate the transactions contemplated thereunder and
(E) to grant the liens and security interest provided for in the Collateral
Documents to which it is a party, and (iv) has the power and authority to
execute and deliver each Operative Document to which it is a party.
4.2. Authorization; No Conflict. Borrower has duly authorized, executed
and delivered each Operative Document to which Borrower is a party (or such
Operative Documents have been duly and validly assigned to Borrower and Borrower
has duly and validly assumed the obligations thereunder), and neither Borrower's
execution and delivery thereof nor its consummation of the transactions
contemplated thereby nor its compliance with the terms thereof (i) does or will
contravene the Charter Documents of Borrower or any other Legal Requirement
applicable to or binding on Borrower or any of its properties, (ii) does or will
contravene or result in any breach of or constitute any default under, or result
in or require the creation of any Lien (other than Permitted Liens) upon any of
its property under, any agreement or instrument to which it is a party or by
which it or any of its properties may be bound or affected, or (iii) does or
will require the consent or approval of any Person which has not already been
obtained.
4.3. Enforceability. Each Operative Document to which Borrower is a
party or which it has assumed is a legal, valid and binding obligation of
Borrower, enforceable against Borrower in accordance with its terms, except to
the extent that enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting the
enforcement of creditors' rights and subject to general equitable principles.
None of the Operative Documents to which Borrower is a party or which it has
assumed have been amended or modified except in accordance with this Agreement.
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4.4. ERISA. There is no ERISA Plan with respect to Borrower or any
ERISA Affiliate, and neither Borrower nor any ERISA Affiliate has maintained,
contributed to or been obligated to contribute to any ERISA Plan at any time
within the preceding five (5) years.
4.5. Taxes. Borrower has filed all federal, state and local tax returns
that it is required to file, has paid all taxes it is required to pay to the
extent due (other than those taxes that it is contesting in good faith and by
appropriate proceedings, with adequate, segregated reserves established for such
taxes) and, to the extent such taxes are not yet due, has established reserves
that are adequate for the payment thereof and are required by GAAP.
4.6. Business, Debt, Contracts, Etc. Borrower has not conducted any
business other than the development of the Project and activities incidental
thereto, it has no outstanding Debt or other material liabilities other than
pursuant to or allowed by the Credit Documents, and it is not a party to or
bound by any material contract other than the Operative Documents to which it is
a party.
4.7. Filings. No filing, recording, refiling or rerecording other than
those listed on Schedule 7 is necessary to perfect and maintain the perfection
of the interest, title or Liens referred to in Section 4.20, and on the Closing
Date all such filings or recordings (other than those that are required to be
made only at a later date, which are so indicated on Schedule 7) will have been
made.
4.8. Governmental Regulation. Except as described in the following
sentence, neither Borrower, nor any Affiliate of Borrower will, solely as a
result of the construction, ownership, leasing or operation of the Project, or
the entering into any Operative Document or any transaction contemplated hereby
or thereby be subject to, or not exempt from, regulation under the
Communications Act, or under state laws and regulations respecting the rates or
the financial or organizational regulation of fiber optic data transmission
companies. Borrower is a "telecommunications common carrier," as that term is
defined in the Communications Act, and is classified as a non-dominant carrier
by the FCC with respect to any domestic, interstate telecommunications service
it offers. Borrower is authorized to provide domestic, interstate
telecommunications services as a non-dominant carrier under the FCC regulatory
framework, and it has filed an appropriate tariff with the FCC. Borrower does
not hold any State regulatory authority in Arizona. Borrower currently provides
interstate switched access services and private line services in Arizona.
Provision of these interstate services in Arizona does not require Borrower to
obtain State regulatory authority from the State of Arizona. Borrower is not
subject to regulation under any Governmental Rule as to securities, rates or
financial or organizational matters that would preclude any Construction Loan,
or the incurrence by Borrower of any of the Obligations or the execution,
delivery and performance by Borrower of the Operative Documents.
4.9. Financial Statements. The financial statements of Borrower, as of
March 31, 1996, certified by an appropriate authorized officer or other
authorized representative of Borrower, copies of which have been delivered to
Lender, are true, complete and correct and
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fairly present the financial condition of Borrower as of the date thereof. The
financial statements have been prepared in accordance with GAAP on a consistent
basis throughout the periods indicated and with each other, except that any
interim financial statements do not contain all footnotes required by GAAP and
are subject to normal year-end adjustments. Borrower does not have and will not
have any material liabilities, direct or contingent, except as will be disclosed
in such financial statements.
4.10. Partnerships and Joint Ventures. Borrower is not a general
partner or a limited partner in any general or limited partnership or a joint
venturer in any joint venture.
4.11. No Default.
(a) No Event of Default or Default has occurred or is
existing.
(b) Borrower is not in default under any term of any Operative
Document, or any agreement relating to any obligation of Borrower for or with
respect to borrowed money, and to the best of Borrower's knowledge, no other
party to any Project Document is in default with respect to any term thereof.
4.12. Possession of Franchises, Licenses, Etc. Except as disclosed on
Schedules 5 and 6 and those the failure of which to obtain does not and will not
have a Material Adverse Effect, Borrower possesses all franchises, certificates,
licenses, Permits, and other authorizations from any Governmental Authorities
(including without limitation the City of Tucson), free from unduly burdensome
restrictions, that are necessary or advisable for the leasing, ownership,
maintenance and operation of its properties and assets, and Borrower is not in
violation of any thereof in any respect. Borrower possesses all patents,
copyrights, trademarks and trade names, or rights thereto necessary to perform
its duties under the Operative Documents and Borrower is not in violation
thereof in any respect or of any valid rights of others with respect to any of
the foregoing.
4.13. Permits. There are no Permits under existing law that are or will
become Applicable Permits other than the Permits described in Schedules 5 and 6
and those the failure of which to obtain does not and will not have a Material
Adverse Effect. Each Applicable Permit (including without limitation the City of
Tucson) is either (y) in full force and effect and is not subject to any appeals
or further proceedings or to any unsatisfied condition that may allow material
modification or revocation, in the case of those Permits listed in Part I of
Schedules 5 and 6, or (z), with respect to the Phase II Project, of a type that
is routinely granted on application and that would not normally be obtained
before the commencement of a construction or reconstruction as contemplated by
the Operative Documents in the case of those Applicable Permits listed in Part
II of Schedule 6. Borrower has no reason to believe that any Permit so indicated
on Schedule 6 will not be obtained before it becomes an Applicable Permit.
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4.14. Offices, Location of Collateral.
(a) The chief executive office or chief place of business (as
such term is used in Division 9 of the Uniform Commercial Code as in effect in
the State of Arizona from time to time) of Borrower is located at 4317 NE
Thurston Way, Vancouver, Washington, 98662.
(b) All of the Collateral (other than the Accounts, the shares
of Borrower's Common Stock pledged pursuant to the Pledge Agreement, and general
intangibles) is, or when installed pursuant to the Project Documents will be,
located on the Leased Property or the Applicable Easements.
(c) Borrower's books of accounts and records are located at
4317 NE Thurston Way, Vancouver, Washington, 98662.
4.15. Adverse Change. To the best of Borrower's knowledge, there are no
facts or conditions, with respect to the Project or Borrower which have or in
the future will have (so far as Borrower can now reasonably foresee) a Material
Adverse Effect which are not listed on Schedule 8.
4.16. Project Documents. Borrower makes, as of the time made, each of
the representations and warranties contained in the Project Documents or any
Additional Project Document to which Borrower is or will be a party to and for
the benefit of Lender as if the same were set forth at length herein.
4.17. Hazardous Substances.
(a) (i) Borrower, is not and has not in the past been in
violation of any Hazardous Substance Laws, which violation could result in a
material liability to Borrower or its respective properties and assets or in an
inability of Borrower to perform its obligations under the Operative Documents;
(ii) neither the Borrower nor, to the best knowledge of Borrower, any third
party has used, released, discharged, generated, manufactured, produced, stored,
or disposed of in, on, under, or about the Leased Property or any part of the
Project, or transported thereto or therefrom, any Hazardous Substances in any
manner or in quantities that could reasonably be expected to subject Lender or
Borrower to liability under any Hazardous Substance Law; (iii) there are no
underground tanks, whether operative or temporarily or permanently closed,
located on the Leased Property or any part of the Project; (iv) there are no
polychlorinated biphenyls ("PCBs") or items containing PCBs used, stored or
present at, on or near the Leased Property or any part of the Project, and (v)
to the best knowledge of Borrower, there is or has been no condition,
circumstance, action, activity or event that could form the basis of any
violation of, or liability to Lender or its Affiliates under, any Hazardous
Substance Law.
(b) There is no proceeding, investigation or inquiry by any
Governmental Authority (including Governmental Authorities in the State of
Arizona and the U.S. Environmental Protection Agency) or any non-governmental
third party with respect to the
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presence or release of such Hazardous Substances in, on, from or to the Leased
Property or any part of the Project, and to the best knowledge of Borrower, no
such proceedings have been requested, suggested or threatened by any such
Governmental Authorities or non-governmental third parties.
(c) Borrower has no knowledge of any past or existing
violations of any Hazardous Substances Laws by any Person relating in any way to
the Leased Property or any part of the Project.
4.18. Transfer of Contracts and Other Rights. All Project Documents and
Applicable Permits have been entered into by or duly and validly assigned to
Borrower free and clear of all Liens except Permitted Liens, and all necessary
Persons have duly consented to such assignment.
4.19. Litigation. There are no pending or, to the best of Borrower's
knowledge, threatened actions or proceedings of any kind, including actions or
proceedings of or before any Governmental Authority, to which Borrower or the
Project is a party or is subject, or by which any of them or any of their
properties or the Project are bound that, if adversely determined to or against
Borrower or the Project, would have a Material Adverse Effect, nor, to the best
of Borrower's knowledge, is there any basis for any such action or proceeding.
4.20. Title, Liens and Easements.
(a) On and after the Closing Date, Borrower will have a good,
insurable and indefeasible title to the Project, and all of the Collateral
relating to the Project, and a good, insurable and indefeasible interest in the
Leased Property and a valid estate in the Applicable Easements other than the
Easements described in Part II of Schedules 3 and 4, in each case free and clear
of all Liens, encumbrances or other exceptions to title except Liens in favor of
or created by Lender and Liens that do not interfere with the intended use for
the Project by Borrower of the Leased Properties or Applicable Easements. The
Lien of the Collateral Documents constitutes a valid and subsisting first
priority perfected security interest in all the personal property described in
the other Collateral Documents, subject to no Liens except the Permitted Liens.
(b) The security interests granted to Lender pursuant to the
Collateral Documents in the Collateral (i) as to personal property included in
the Collateral, constitute and, with respect to subsequently acquired personal
property included in the Collateral, will constitute, perfected security
interests under the UCC (to the extent such personal property is subject to the
UCC) and (ii) are, and, with respect to such subsequently acquired property,
will be, as to Collateral perfected under the UCC (to the extent such personal
property is subject to the UCC), superior and prior to the rights of all third
Persons now existing or hereafter arising whether by way of mortgage, lien,
security interests, encumbrance, assignment or otherwise, except for Permitted
Liens. Except to the extent possession of portions of the Collateral is required
for perfection, all such action as is necessary has been taken to establish and
perfect Lender's rights in and to the Collateral, including any
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recording, filing, registration, giving of notice or other similar action. The
Collateral Documents relating to the Collateral and the financing statements
relating thereto have been duly filed or recorded in each office and in each
jurisdiction where required in order to create and perfect the first lien and
security interest described above. Borrower has properly delivered or caused to
be delivered to Lender all Collateral that requires perfection of the Lien and
security interest described above by possession.
(c) There are no Easements that are or will become Applicable
Easements other than the Easements described in Schedules 3 and 4. Each
Applicable Easement is either (y) in full force and effect and is not subject to
any unsatisfied condition that may allow material modification or revocation, in
the case of those Easements listed in Part I of Schedules 3 and 4, or (z) with
respect to the Phase II Project, of a type that would not normally be obtained
at the stage of the construction on the Closing Date, as contemplated by the
Operative Documents, in the case of those Applicable Easements listed in Part II
of Schedule 4. Borrower has no reason to believe that any Easement so indicated
on Schedule 4 will not be obtained before it becomes an Applicable Easement.
4.21. Utilities. All utility services necessary for the construction
and the operation of the Project for its intended purposes are available or will
be so available as and when required.
4.22. Sufficiency of Project Documents.
(a) Other than those that can be reasonably expected to be
commercially available when and as required, the services to be performed, the
materials to be supplied and the real property interests, the Applicable
Easements, the Applicable Permits, and other rights granted pursuant to the
Project Documents:
(i) comprise all of the property interests necessary
to secure any right material to the acquisition, leasing, development,
construction, installation, completion, operation and maintenance of the Project
in accordance with all Legal Requirements and in accordance with the Project
Schedules, all without reference to any proprietary information not owned by
Borrower;
(ii) are sufficient to enable the Project to be
located, constructed and operated; and
(iii) provide adequate ingress and egress for any
reasonable purpose in connection with the construction and operation of the
Project.
(b) There are no services, materials or rights required for
the construction or operation of the Project in accordance with the Construction
Contracts, the Plans and Specifications and the Base Case Project Projections
other than those that can reasonably be expected to be commercially available
within the line items contained in the applicable Project Phase Budget.
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4.23. Securities. No registration of the Note under the Securities Act
of 1933, as amended, or under the securities laws of any state is required in
connection with the offering, issuance, sale or transfer of the Note hereunder.
4.24. Disclosure. Neither this Agreement nor any certificate furnished
to Lender, or to any consultant submitting a report to Lender, by or, to the
knowledge of Borrower, on behalf of Borrower in connection with the transactions
contemplated by this Agreement, the other Project Documents or the design,
construction, testing or operation of the Project, contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein or therein not misleading under the
circumstances in which they were made at the time such statements are made.
There is no fact known to Borrower which Borrower has not disclosed in writing
to Lender which does or reasonably could have a Material Adverse Effect.
4.25. Construction Budget; Projections. Borrower has prepared the
Project Phase Budgets and the Base Case Project Projections and is responsible
for developing the assumptions on which the Project Phase Budgets and the Base
Case Project Projections are based. The Project Phase Budgets and the Base Case
Project Projections (i) are, to the best of Borrower's knowledge as of the
Closing Date, based on reasonable assumptions as to all legal and factual
matters material to the estimates set forth therein, and (ii) as of the Closing
Date are consistent with the provisions of the Project Documents. In the
reasonable opinion of Borrower, as of the Closing Date the textual material
accompanying the Base Case Project Projections discloses all information
reasonably necessary for an understanding of the Base Case Project Projections,
and does not contain any material misstatements or omit any information which,
in conjunction with other information given, would be necessary to make such
information not materially misleading.
4.26. Intellectual Property. Borrower owns or has the right to use all
patents, trademarks, service marks, trade names, copyrights, licenses and other
rights, which are necessary for the operation of its business as presently
conducted. To the best of Borrower's knowledge, (a) no product, process, method,
substance, part or other material presently contemplated to be sold by or
employed by Borrower in connection with its business will infringe upon any
patent, trademark, service mark, trade name, copyright, license or other
intellectual property right of any other Person, (b) there are no pending or
threatened claims or litigation against or affecting Borrower contesting or
calling into question its right to sell or use any such product, process,
method, substance, part or other material or (c) there is no existing pending or
proposed, patent, invention, device, application or principle or any
Governmental Rule or standard or code which would prevent or inhibit or
substantially reduce the projected revenues of Borrower, or otherwise have a
Material Adverse Effect.
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ARTICLE 5 - COVENANTS OF THE BORROWER
Borrower covenants and agrees that so long as this Agreement
is in effect, it will, unless Lender waives compliance in writing:
5.1. Notices. Promptly, upon acquiring notice or giving notice, as the
case may be, or obtaining knowledge, give written notice to Lender of:
(a) Any litigation pending or, to the knowledge of Borrower,
threatened against Borrower involving claims against Borrower or the Project in
excess of $100,000 in the aggregate or involving any injunctive or declaratory
relief, such notice to include copies of all papers filed in such litigation and
to be given monthly if any such papers have been filed since the last notice
given;
(b) Any dispute or disputes which may exist between Borrower
and any Governmental Authority and which involve (i) claims against Borrower
which individually exceed $100,000 or in the aggregate exceed $200,000, (ii)
injunctive or declaratory relief, (iii) revocation, expiration or modification
or the like of any Applicable Permit or Applicable Easement, or (iv) any Liens
for taxes due but not paid;
(c) Any Event of Default or Default;
(d) Any casualty, damage or loss, whether or not insured,
through fire, theft, other hazard or casualty, or any act or omission of
Borrower, its employees, agents, contractors, consultants or representatives, or
of any other Person if such casualty, damage or loss affects Borrower or the
Project, in excess of $50,000 for any one casualty or loss, or an aggregate of
$100,000; or
(e) Any matter which has resulted or is likely, in light of
other circumstances affecting Borrower, to have a Material Adverse Effect.
5.2. Financial Statements, Reports, Etc.
(a) Deliver to Lender (or cause to be delivered to Lender), in
form and detail reasonably satisfactory to Lender, unless delivery and/or the
timing of delivery is waived by Lender:
(i) As soon as available but no later than sixty (60)
days after the close of the first, second and third quarterly periods of its
fiscal year, quarterly (and year-to-date) financial statements of and prepared
by Borrower to include a balance sheet and an income and expense statement;
(ii) As soon as available but no later than one
hundred twenty (120) days after the close of each applicable fiscal year,
audited financial statements of Borrower including a statement of equity, a
balance sheet as of the close of such year, an income and expense statement,
reconciliation of capital accounts and a statement of cash flows, all
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prepared in accordance with GAAP and certified by an independent certified
public accountant selected by the Person whose financial statements are being
prepared and satisfactory to Lender. Such certificate shall not be qualified or
limited because of restricted or limited examination by such accountant of any
material portion of the records of the applicable Person;
(iii) On the tenth day of each month, with respect to
the preceding month, a report with respect to the Phase I Project and the Phase
II Project substantially in the form of Exhibit P hereto.
(iv) Within thirty (30) days after Completion of each
Project Phase, "as built" maps indicating the locations related to each
Easement, Permit, Collation Agreement, Inter-Connection Agreement, and Pole and
Conduit Use Agreement.
(v) Such other statement or statements, list of
property and accounts, budgets, forecasts or reports relating to the Project, as
Lender may reasonably request from time to time and that can be provided without
unreasonable cost to or effort on the part of Borrower.
(b) Each time the financial statements are delivered under
subsections (i) or (ii) of Section 5.2(a), a certificate signed by the natural
person who is a senior financial officer of Borrower shall be delivered along
with such financial statements, certifying that such officer has made or caused
to be made a review of the transactions and financial condition of the Borrower
during the relevant fiscal period and that such review has not, to the best of
such officer's knowledge, disclosed the existence of any event or condition
which constitutes an Event of Default or a Default hereunder or under any Credit
Document applicable to Borrower, or if any such event or condition existed or
exists, the nature thereof and the corrective actions that Borrower has taken or
proposes to take with respect thereto, and also certifying that the Borrower is
in compliance with all applicable provisions of this Agreement or any other
Credit Document applicable to Borrower or, if such is not the case, stating the
nature of such non-compliance and the corrective actions which Borrower has
taken or proposes to take with respect thereto.
5.3. Existence, Conduct of Business, Properties, Etc. Except as
otherwise expressly permitted under this Agreement, (a) maintain and preserve
its existence as an Arizona corporation and all rights, privileges and
franchises necessary or desirable in the normal conduct of its business, (b)
perform all of its contractual obligations under the Project Documents and all
other agreements and contracts by which it is bound, maintain all necessary
Permits, including all Applicable Permits, with respect to its business and the
Project, except such as may be contested in good faith or as to which a bona
fide dispute may exist, provided that the non-payment of same would not
reasonably be anticipated to result in a Material Adverse Effect or that
provision is made to the satisfaction of Lender in its reasonable discretion for
the posting of security (other than the Collateral) for or the bonding of such
obligations or the prompt payment thereof in the event that such obligation is
payable, (c) at or before the time that any Permit becomes an Applicable Permit,
obtain such Permit, and (d) engage only in the business contemplated by the
Operative Documents.
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5.4. Obligations. Pay all Obligations, howsoever arising, as and when
due and payable, including taxes and tax claims, except (a) such as may be
contested in good faith or as to which a bona fide dispute may exist, provided
that the non-payment of same would not reasonably be anticipated to result in a
Material Adverse Effect or that provision is made to the satisfaction of Lender
in its reasonable discretion for the posting of security (other than the
Collateral) for or the bonding of such obligations or the prompt payment thereof
in the event that such obligation is payable and (b) Borrower's trade payables
which shall be paid in the ordinary course of business.
5.5. Damage and Cancellation Payments. Except as otherwise expressly
permitted under this Agreement apply the proceeds of any surety, performance or
similar bonds and any liquidated or other damages paid in respect of damage
payments or performance payments by any contractors or subcontractors or other
Persons involved in the construction and operation of the Project, to prepay the
Loan Facility.
5.6. Books, Records, Access. Maintain adequate books, accounts and
records with respect to Borrower and the Project and prepare all financial
statements required hereunder in accordance with GAAP and in compliance with the
regulations of any Governmental Authority having jurisdiction thereof, and
permit employees or agents of Lender, at any reasonable times and upon
reasonable prior notice to inspect all of Borrower's properties, including the
Leased Property, to examine or audit all of Borrower's books, accounts and
records and make copies and memoranda thereof and to observe the operation,
maintenance and repair of the Project.
5.7. Operation of Project and Annual Budget.
(a) (i) Keep the Project, or cause the same to be kept, in
good operating condition consistent with Prudent Practices, all Applicable
Permits and applicable Legal Requirements and all applicable requirements of the
Operative Documents, and make or cause to be made all repairs (structural and
non-structural, extraordinary or ordinary) necessary to keep the Project in such
condition; and (ii) operate and maintain the Project in a manner consistent with
Prudent Practices and in compliance with the terms of the Project Documents so
as to assure, to the extent reasonably possible, the maximum generation of net
revenue for the Project consistent with the Project Documents.
(b) On or before the date forty-five (45) days prior to the
Expected Completion Date, deliver to Lender an update of the Project Phase
Budget for the period from the date it is delivered until the anticipated
commencement of commercial operation of the Project Phase and the Annual
Operating Budget for the period from the anticipated commencement of commercial
operation through the end of the first full fiscal year thereafter
(collectively, the "First Annual Operating Budget"), in form and substance
reasonably acceptable to Lender, setting forth all anticipated start-up costs,
Project Revenues, Debt Service, proposed distributions, maintenance, repair and
operation expenses (including reasonable allowance for contingencies), and all
other anticipated Operation and Maintenance Costs for the Project for such
period. Such First Annual Operating Budget shall be delivered by Borrower to
Lender no later than August 16, 1996, in the case of the Phase I Project, and
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no later than August 16, 1997, in the case of the Phase II Project, it being
understood that such First Annual Operating Budget and all subsequent Annual
Operating Budgets (described below) may cover the entire Project after both
Project Phases have reached Completion. No less than forty-five (45) days in
advance of the beginning of each fiscal year thereafter, Borrower will similarly
adopt an Annual Operating Budget for the ensuing fiscal year covering the
matters (other than start-up costs) specified above in this Section 5.7(b) and
such other matters as may be reasonably required by Lender. Copies of the draft
Annual Operating Budget for each year of operation shall be promptly furnished
to Lender for review and approval. If Lender does not approve the draft Annual
Operating Budget submitted by Borrower, Lender shall give written notice to
Borrower within fifteen (15) days of Lender's receipt of such draft Annual
Operating Budget in compliance with Section 10.1 hereof. If Lender and Borrower
do not agree on a final Annual Operating Budget by the date the new fiscal year
commences, the previous fiscal year Annual Operating Budget increased by ten
percent (10%) shall be used until Lender and Borrower agree on the new final
Annual Operating Budget; provided however, that if a dispute in the previous
fiscal year resulted in such a ten percent (10%) increase in the Annual
Operating Budget, the parties shall use the previous fiscal year Annual
Operating Budget without increase. The Operation and Maintenance Costs in each
such Annual Operating Budget which are subject to escalation limitations in the
Project Documents shall not, absent extraordinary circumstances, be increased
from year to year by more than the amounts provided in such Project Documents.
Borrower will operate and maintain the Project, or cause the Project to be
operated and maintained, within each Annual Operating Budget as approved by
Lender.
5.8. Completion. Achieve Completion in a timely and diligent manner in
accordance with the Project Schedule, the Construction Contracts and the Plans
and Specifications, the Project Phase Budgets as the same may be extended, and
in no event later than December 31, 1997.
5.9. Preservation of Rights; Further Assurances.
(a) Preserve, protect and defend the rights of Borrower under
each and every Project Document, including prosecution of suits to enforce any
right of Borrower thereunder and enforcement of any claims with respect thereto,
and, at the request of Lender, permit Lender to participate in such capacity as
it may choose in any such suit, any defense thereof or in the preparation
therefor; provided, however, that upon the occurrence and during the continuance
of any Event of Default, if Lender requests that certain actions be taken and
Borrower fails to take the requested action within five (5) Business Days,
Lender may enforce, in its own name, in the name of Lender or Borrower's name,
such rights of Borrower.
(b) From time to time, execute, acknowledge, record, register,
deliver and/or file all such notices, statements, instruments and other
documents, including any memorandum of lease or other agreement, financing
statement, continuation statement, certificate of title or estoppel certificate
relating to the Loan Facility stating the interest and charges then due and any
known defaults, and take such other steps as may be necessary or advisable to
render fully valid and enforceable under all applicable laws the rights, liens
and
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priorities of Lender with respect to all Collateral and other security from time
to time furnished under this Agreement or intended to be so furnished, in each
case in such form and at such times as shall be satisfactory to Lender, and pay
all fees and expenses (including attorneys' fees and expenses) incident to
compliance with this Section 5.9(b).
(c) If Borrower shall at any time acquire any real property or
leasehold or other interest in real property, promptly upon such acquisition (or
on the Closing Date if such acquisition occurred prior thereto) execute, deliver
and record a mortgage, satisfactory in form and substance to Lender, subjecting
such real property or leasehold or other interests to a lien and security
interest of Lender created by such mortgage.
5.10. Construction of Project. Make or cause to be made all contracts
and do or cause to be done all things reasonably necessary for the acquisition,
construction, expansion, improvement and equipping of the Project, with or
without advertising for bids, and cause the Project to be constructed, expanded,
improved and equipped substantially in accordance with the Plans and
Specifications, the Construction Contracts, the Project Phase Budget and Project
Schedule (insofar as necessary to comply with Section 5.7) and not exceeding the
disbursements as contemplated by the Construction Contracts, except as
compliance therewith may be waived pursuant to Section 6.12 hereof. Without
limiting the generality of the foregoing, Borrower shall diligently pursue and
enforce all of its rights and remedies under the Construction Contracts, and any
other contracts or agreements related to the construction of the Project and
shall ensure that the Project is constructed substantially in accordance with
all such contracts and agreements, to the extent applicable.
5.11. Taxes, Other Government Charges and Utility Charges. Pay, or
cause to be paid, as and when due and prior to delinquency, all taxes,
assessments and governmental charges of any kind that may at any time be
lawfully assessed or levied against or with respect to Borrower or the Project,
all utility and other charges incurred in the operation, maintenance, use,
occupancy and upkeep of the Project, and all assessments and charges lawfully
made by any Governmental Authority for public improvements that may be secured
by a lien on the Project. However, Borrower may contest in good faith any such
taxes, assessments and other charges and, in such event, may permit the taxes,
assessments or other charges so contested to remain unpaid during any period,
including appeals, when Borrower is in good faith contesting the same, so long
as (a) reserves reasonably satisfactory to Lender have been established in an
amount sufficient to pay any such taxes, assessments or other charges, accrued
interest thereon and potential penalties or other costs relating thereto, or
other adequate provision for the payment thereof shall have been made, (b)
enforcement of the contested tax, assessment or other charge is effectively
stayed for the entire duration of such contest, and (c) any tax, assessment or
other charge determined to be due, together with any interest or penalties
thereon, is immediately paid after resolution of such contest.
5.12. Compliance with Laws, Instruments, Etc. At its expense, promptly
(a) comply, or cause compliance, in all material respects, with all laws, rules,
regulations and Legal Requirements, including laws, rules, regulations and Legal
Requirements, relating to pollution control, environmental protection, equal
employment opportunity or employee benefit plans and employee safety, with
respect to Borrower or the Project, whether or not
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compliance therewith shall require structural changes in the Project or any part
thereof or require major changes in operational practices or interfere with the
use and enjoyment of the Project or any part thereof, and (b) procure, maintain
and comply, or cause to be procured, maintained and complied with, in all
material respects, all Permits required for any use of the Project or any part
thereof, then being made or contemplated by the Operative Documents, except that
Borrower may, at its expense, contest by appropriate proceedings conducted in
good faith the validity or application of any such law, rule or regulation;
provided that, (i) neither Lender nor Borrower would be subject to any criminal
liability for failure to comply therewith and (ii) all proceedings to enforce
such law, rule or regulation against Lender, Borrower, or the Project or any
part of any of them, shall have been duly and effectively stayed during the
entire pendency of such contest.
5.13. Warranty of Title. Maintain (a) good, marketable and insurable
leasehold estate to the Leased Property, and good, marketable and insurable
title to the Applicable Easements and (b) good, marketable, insurable and
indefeasible title to all of its other respective properties and assets (other
than properties and assets disposed of in the ordinary course of business) to
the extent that failure to do so would have a Material Adverse Effect.
5.14. Maintenance of Insurance.
(a) Required Insurance. Borrower shall, without cost to
Lender, maintain or cause to be maintained on its behalf in effect at all times
the types of insurance set forth in Schedule 9, together with any other types of
insurance required under this Agreement.
(b) Rights of Lender. If at any time the insurance as herein
provided shall be reduced or cease to be maintained, then (without limiting the
rights of Lender hereunder in respect of the Event of Default which arises as a
result of such failure) Lender may at its option obtain and maintain the
insurance required hereby and, in such event, Borrower shall reimburse Lender
upon demand for the cost thereof together with interest thereon at a rate per
annum equal to the Default Rate. If Borrower fails to respond in a timely and
appropriate manner (as reasonably determined by Lender) to take any steps
necessary or reasonably requested by Lender to collect from any insurers for any
loss covered by any insurance required to be maintained by this Section 5.14,
Lender shall have the right to make all proofs of loss, adjust all claims and/or
receive all or any part of the proceeds of the foregoing insurance policies,
either in its own name or the name of Borrower; provided, however, that Borrower
shall, upon Lender's request and at Borrower's own cost and expense, make all
proofs of loss and take all other steps necessary or reasonably requested by
Lender to collect from insurers for any loss covered by any insurance required
to be obtained by this Section 5.14.
(c) Insurance Compliance. On or before the Closing Date and
annually at each policy renewal Borrower shall furnish to Lender, (i) a
certificate signed by a duly authorized representative of Borrower, listing the
insurance then maintained by or on behalf of Borrower and stating that such
insurance complies in all respects with the terms hereof, together with evidence
of payment of the premiums thereon, and (ii) the report of Borrower's insurance
broker, and prior to Completion, the report of Contractors' insurance broker, to
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the effect that Borrower's insurance complies in all respects with the terms of
this Section 5.14 and Schedule 9.
(d) Borrower shall and shall cause (i) all of Borrower's
contractors to, name Lender a loss payee or an additional insured on each
insurance policy with respect to any aspect of the Project or a Project Phase
and (ii) all such insurance policies to provide Lender with written notice ten
(10) days prior to cancellation of any such insurance policy for non-payment of
premiums and thirty (30) days prior to cancellation of any such insurance policy
for any other reason.
5.15. Event of Eminent Domain. If an Event of Eminent Domain shall be
threatened or occur with respect to any Collateral, (a) promptly upon discovery
or receipt of notice of any such threat or occurrence provide written notice
thereof to Lender, (b) diligently pursue all its rights to compensation against
the relevant Governmental Authority in respect of such Event of Eminent Domain,
(c) not, without the written consent of Lender, which consent shall not be
unreasonably withheld, compromise or settle any claim against such Governmental
Authority, (d) hold all amounts and proceeds (including instruments) received in
respect of any Event of Eminent Domain ("Eminent Domain Proceeds") in trust for
the benefit of Lender, segregated from other funds of Borrower, for application
in accordance with Section 7.3, and (e) forthwith pay over to Lender all such
amounts and proceeds in the same form as received (with any necessary
endorsement) to be held and applied in accordance with the provisions of Section
7.3. Borrower consents to the participation of Lender in any eminent domain
proceedings, and Borrower shall from time to time deliver to Lender all
instruments requested by it to permit such participation.
5.16. Indemnification.
(a) Indemnify, defend and hold harmless Lender and, in their
capacities as such, Lender's respective officers, directors, shareholders,
controlling persons, employees, agents and servants (collectively, the
"Indemnitees") from and against and reimburse the Indemnitees for any and all
losses, claims, obligations, liabilities, damages, injuries (to person, property
or natural resources), penalties, stamp or other similar taxes, actions, causes
of action, suits, judgments, costs and expenses (including attorneys' and
consultants' fees and expenses) of whatever kind or nature, whether or not well
founded, meritorious or unmeritorious, demanded, asserted or claimed against any
such Indemnitee in any way relating to, or arising out of or in connection with
(i) this Agreement, the other Operative Documents or the Project; (ii) any Legal
Requirement or Permit relating to the Project or Borrower, the release or
presence of any Hazardous Substance at the Project or released or disposed of by
the Project or by or on behalf of Borrower, whether foreseeable or
unforeseeable, including all costs of removal and disposal of such Hazardous
Substances, all costs required to be incurred in determining whether the Project
is and causing the Project to be in compliance with all applicable Legal
Requirements and Permits; and (iii) any claims, suits or liabilities against or
of Borrower or its Affiliates.
(b) The foregoing indemnities shall not apply with respect to
an Indemnitee, to the extent the claims, damages, liabilities or losses arise as
the direct and sole
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result of the gross negligence or willful misconduct of such Indemnitee, but
shall continue to apply to other Indemnitees.
(c) The provisions of this Section 5.16 shall survive
foreclosure of the Collateral Documents and satisfaction or discharge of
Borrower's obligations hereunder and shall be in addition to any other rights
and remedies of Lender.
(d) In case any action, suit or proceeding shall be brought
against any Indemnitee, such Indemnitee shall notify in writing Lender and
Borrower of the commencement thereof, and Borrower shall be entitled, at its
expense, acting through counsel reasonably acceptable to such Indemnitee, to
participate in, and, to the extent that Borrower desires, to assume and control
the defense thereof. Such Indemnitee shall thereafter be entitled, at its
expense, to participate in any action, suit or proceeding the defense of which
has been assumed by Borrower. Notwithstanding the foregoing, Borrower shall not
be entitled to assume and control the defenses of any such action, suit or
proceedings if and to the extent that, in the opinion of such Indemnitee and its
counsel, such action, suit or proceeding involves the potential imposition of
criminal liability on such Indemnitee or a conflict of interest between such
Indemnitee and Borrower or between such Indemnitee and another Indemnitee, and
in such event (other than with respect to disputes between such Indemnitee and
other Indemnitees) Borrower shall pay the reasonable expenses of such Indemnitee
in such defense, but not more than the expense of one additional counsel.
(e) Borrower shall report to such Indemnitee on the status of
such action, suit or proceeding as developments shall occur. Borrower shall
deliver to such Indemnitee a copy of each document filed or served on any party
in such action, suit or proceeding, and each document which Borrower possesses
relating to such action, suit or proceeding.
(f) Upon payment of any claim by Borrower pursuant to this
Section 5.16 or other similar indemnity provisions contained herein to or on
behalf of an Indemnitee, Borrower, without any further action, shall be
subrogated to any and all claims that such Indemnitee may have relating thereto,
and such Indemnitee shall cooperate with Borrower and give such further
assurances as are necessary or advisable to enable Borrower vigorously to pursue
such claims. Payment thereof by any Indemnitee or the payment by such Indemnitee
of any judgment or claim successfully perfected against such Indemnitee shall be
payable upon demand of such Indemnitee.
(g) Any amounts payable by Borrower pursuant to this Section
5.16 shall be regularly payable within thirty (30) days after Borrower receives
an invoice for such amounts from any applicable Indemnitee.
5.17. Development Company Net Cash Flow Agreements. At the time of the
closing of the debt financing of subsequent Network Projects funded by Lender or
one of its Affiliates, enter into agreements pledging the Net Cash Flow of
Borrower to support the Obligations of each other Development Company to Lender
and its Affiliates upon a default or event of a default of any other Development
Company; provided however, that a default or event of default on the part of
another Development Company with respect to its Network
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Project Credit Agreement by itself, shall not constitute a default or event of
default with respect to this Agreement by Borrower, but rather the Net Cash Flow
of Borrower shall be available to cure the default or event of default of such
other Development Company or Companies. Lender's and its Affiliates' interest in
Borrower's Net Cash Flow pursuant to such pledge agreements shall be senior to
all other Debt of Borrower (except Borrower's other Obligations to Lender under
this Agreement) and any obligations of Borrower to Greenstar for management
fees.
5.18. Consents to Assignment. Borrower shall obtain consents to
assignment from third parties to Project Documents not entered into as of the
Closing at the time such Project Documents are entered into in the forms of
Exhibit M-1, M-2 and M-3, as applicable. Borrower shall provide Lender with a
status report with respect to Project Documents entered into and consents to
assignment to be obtained no less frequently than every month in the monthly
reports required pursuant to Section 5.2, commencing on the tenth day of the
month which first occurs after the Closing Date. Borrower shall provide Lender
with each new consent to assignment received within three (3) days of receipt by
Borrower of such consent to assignment.
ARTICLE 6 - NEGATIVE COVENANTS
Borrower covenants and agrees that until the entire principal balance
of the Loan Facility, together with all interest, fees, charges and costs due to
Lender under this Agreement are paid in full, it will not, without the prior
written consent of Lender:
6.1. Contingent Liabilities. Except as provided in this Agreement,
become liable as a surety, guarantor, accommodation endorser or otherwise, for
or upon the obligation of any other Person; provided, however, that this Section
6.1 shall not be deemed to prohibit:
(a) The acquisition of goods, supplies or merchandise in the
normal course of business or normal trade credit; or
(b) The endorsement of negotiable instruments received in the
normal course of its business.
6.2. Limitations on Liens. Create, incur, assume or permit to exist any
Lien, securing a charge or obligation on the Project or on any of the
Collateral, real or personal, whether now owned or hereafter acquired, except
Permitted Liens.
6.3. Indebtedness. Incur, create, assume or permit to exist any Debt
except (a) the Loan Facility, (b) up to Two Hundred Fifty Thousand Dollars
($250,000) of Debt incurred in the ordinary course of business and (c)
obligations of Borrower for money borrowed to finance Project cost overruns
pursuant to Section 3.5A which is unsecured and deeply subordinated to
Borrower's Obligations to Lender hereunder, or cancel, modify, renew or
otherwise rearrange any Debt or make execute or deliver any assignment for the
benefit of creditors, bond, confession of judgment, mortgage or deed.
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6.4. Sale or Lease of Assets. Sell, lease, assign, transfer or
otherwise dispose of assets or property, whether now owned or hereafter
acquired, (a) except in the ordinary course of its business as contemplated by
the Operative Documents and (b) except for obsolete, worn out or replaced
property not used or useful in its business, in each case, at fair market value.
The ordinary course of Borrower's business shall include sale or lease of
irrevocable rights to use dark fiber and conduits.
6.5. Changes. Change the nature of its business or expand its business
other than (i) developing and operating a fiber optic and digital
telecommunications network and (ii) provision of telecommunications services and
capacity.
6.6. Dividends, Redemptions, Etc. Except in connection with a
distribution to GST of the amount of any Contributed Capital in excess of
$4,000,000, (i) pay any dividends or make any distributions on its Equity
Securities; (ii) purchase, redeem, retire, defease or otherwise acquire for
value any of its Equity Securities; (iii) return any capital to any holder of
its Equity Securities as such; (iv) make any distribution of assets, Equity
Securities, obligations or securities to any holder of its Equity Securities as
such; or (v) set apart any sum for any such purpose.
6.7. Investments. Make or permit to remain outstanding any advances,
loans or extensions of credit to, or purchase or own any stock, bonds, notes,
debentures or other securities of any Person, except Permitted Investments.
6.8. Transactions With Affiliates. Directly or indirectly, enter into
any transaction or series of transactions with or for the benefit of an
Affiliate or utilize the collateral in any way for the furtherance of its or any
of its Affiliates' personal business activities without the prior written
approval of Lender, except for (i) the Services Agreement entered into between
Borrower and GST on as of October 1, 1995, an executed copy of which has been
delivered to Lender, as the same may be amended from time to time with Lender's
prior written consent, and (ii) any other agreement for the provision of goods
or services by an Affiliate of Borrower to Borrower or by Borrower to an
Affiliate of Borrower; provided that all direct and indirect fees and charges
thereunder are reasonable and comparable to those available from other providers
of such goods or services, or to other customers of Borrower, as the case may
be.
6.9. Loan Proceeds; Project Revenues. Use, pay, transfer, distribute or
dispose of any Loan Facility proceeds in any manner or for any purposes except
as provided in Section 2.1(a)(iii) or of any Project Revenues in any manner or
for any purposes except as provided in Section 7.1.
6.10. Partnerships. Become a general or limited partner in any
partnership or a joint venturer in any joint venture.
6.11. Dissolution. Liquidate or dissolve, or sell or lease or otherwise
transfer or dispose of all or any substantial part of its property, assets or
business, or combine, merge or consolidate with or into any other entity.
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6.12. Amendments; Change Orders; Completion. Cause, consent to or
permit any amendment, modification, variance or waiver of timely compliance with
any terms or conditions of any Project Document if it would have a Material
Adverse Effect, or cancel or terminate any Operative Document to which Borrower
is a party.
6.13. Name and Location; Fiscal Year. Change its name or the location
of its principal place of business without notice to Lender at least thirty (30)
days prior to such change, or change its fiscal year without Lender's consent.
6.14. Assignment. Assign its rights hereunder or under any of the
Operative Documents to any Person.
6.15. Transfer of Ownership Interests. Cause, make, suffer, permit or
consent to any sale, assignment or transfer of any ownership or other interest
in Borrower or any right thereto, except that GSI or any direct or indirect
subsidiary of GSI that is a direct or indirect parent of Borrower (a "Specified
GSI Subsidiary") may sell securities of a specified GSI Subsidiary in a
transaction which does not result in the loss of control of such Specified GSI
Subsidiary by GSI or a Specified GSI Subsidiary, as the case may be ("loss of
control" includes the sale or other transfer of more than 49% of the Equity
Securities of such Specified GSI Subsidiary or the rights thereto, and the loss
of the voting power on the board of directors required to control such Specified
GSI Subsidiary). As used herein, the transfer of an ownership interest in
Borrower shall include direct and indirect transfers, including sale of stock or
ownership interests or rights thereto in any entity which has a direct ownership
interest in Borrower; provided that the provisions of this sentence shall not be
applicable to the transfer of stock or ownership interests or rights thereto in
GSI or any corporation the securities of which are publicly held.
6.16. Abandonment of Project. Voluntarily abandon the development,
construction, operation, maintenance or repair of the Project or any Phase
thereof.
6.17. Hazardous Substance. Release, emit or discharge into the
environment any Hazardous Substances in excess of permitted levels or reportable
quantities or in violation of other permitted concentrations, standards or
limitations under any Hazardous Substance Laws, Legal Requirements or Applicable
Permits.
6.18. ERISA. Neither Borrower nor any ERISA Affiliate shall (i) adopt
or institute any ERISA Plan, (ii) take any action which will result in the
partial or complete withdrawal, within the meanings of sections 4203 and 4205 of
ERISA, from a Multiemployer Plan, (iii) engage or permit any Person to engage in
any transaction prohibited by section 406 of ERISA or section 4975 of the Code
involving any Employee Benefit Plan or Multiemployer Plan which would subject
either Borrower or any ERISA Affiliate to any tax, penalty or other liability
including a liability to indemnify, (iv) incur or allow to exist any accumulated
funding deficiency (within the meaning of section 412 of the Code or section 302
of ERISA), (v) fail to make full payment when due of all amounts due as
contributions to any Employee Benefit Plan or Multiemployer Plan, (vi) fail to
comply with the requirements of section 4980B of the Code or Part 6 of Title
I(B) of ERISA, or (vii) adopt any amendment to
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any Employee Benefit Plan which would require the posting of security pursuant
to section 401(a)(29) of the Code, where singly or cumulatively, the above would
have a Material Adverse Effect.
ARTICLE 7 - APPLICATION OF FUNDS
7.1. Receipts Account and Operating Account.
(a) On or prior to the date of the initial Construction Loan
hereunder, Borrower and Lender shall establish at Bank of America, Sacramento
RBCO, or another bank which shall be reasonably acceptable to Lender, accounts
entitled "Tucson Lightwave Project -- Receipts Account" (the "Receipts Account)
and "Tucson Lightwave Project -- Operating Account" (the "Operating Account"),
respectively. Borrower shall deposit all Project Revenues (excluding
Construction Loan proceeds disbursed by Lender directly to the Person(s)
entitled thereto) in the Receipts Accounts and the Operating Account shall be
used to pay all Project Costs. On the first Business Day of each month until the
Loan Facility has been repaid in full, provided no Default or Event of Default
has occurred and is continuing, Lender will, to the extent funds are available
in the Receipts Account and are not otherwise restricted or designated for a
different use or purpose, transfer funds from the Receipts Account at the
following times and in the following order of priority:
(i) Monthly, to the Operating Account the amount
shown for such month on the applicable Annual Operating Budget, for the payment
of Operation and Maintenance Costs currently payable and with respect to which
funds have not already been withdrawn from the Operating Account;
(ii) from time to time, to the payment of all fees,
costs, charges and any other amounts due and payable to Lender in connection
with this Agreement and the other Credit Documents;
(iii) at the times set forth in Section 2.1(e), to
the payment of interest and principal on the Loan Facility;
(iv) on or within thirty (30) days after the dates
set forth in Section 2.1(e) and to the extent permitted under Section 6.6 and
after the establishment of prudent reserves for any reasonably anticipated
expenses or other items (which shall be retained in the Operating Account), to
Borrower, any part of which may be used by Borrower to pay dividends to its
shareholder in an aggregate amount up to the amount described in Section 6.6 and
in compliance with applicable law.
Upon repayment in full of all amounts due under this Agreement and satisfaction
of all Obligations under the Credit Documents, Lender shall disburse any amounts
on deposit in the Receipts Account and the Operating Account to Borrower.
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(b) Notwithstanding anything in Section 7.1(a) to the
contrary, in lieu of transferring some or all of the amount shown on the
applicable Annual Operating Budget into the Operating Account for the payment of
Operation and Maintenance Costs, Lender may, and Borrower hereby authorizes
Lender to, pay some or all of the Operation and Maintenance Costs directly to
the Person(s) entitled thereto, and such payment shall discharge pro tanto the
obligations of Lender hereunder with respect to such amounts.
(c) Any of the payments, disbursements or transfers of funds
provided for in this Section 7.1 may be made notwithstanding the existence of a
Default or Event of Default if the requirement that there be no existing Default
or Event of Default is waived by Lender in its sole discretion. Such waiver may
apply to any or all such payments, disbursements or transfers of funds and may
apply to payments of a lesser priority without applying to payments of a greater
priority. (For example, such a waiver may apply to payments of Debt Service
without necessarily applying to payment of Operation and Maintenance Costs.)
(d) Operation and Maintenance Costs payable pursuant to
Section 7.1(a)(i) shall not in any event exceed the amounts shown on the
approved Annual Operating Budget (as it may be revised from time to time as
provided in Section 5.7(b)). Borrower shall promptly pay all Operation and
Maintenance Costs in excess of the foregoing limit from funds which are
otherwise distributable to Borrower hereunder, other unrestricted funds of
Borrower or equity funds provided to Borrower. To the extent the Annual
Operating Budget is revised pursuant to Section 5.7(b), additional amounts may
be transferred to the Operating Account as set forth in Section 7.1(a).
(e) Notwithstanding the preceding provisions of this Section
7.1, so long as no Default or Event of Default has occurred and at such time as
is ninety (90) days after any Default or Event of Default has been cured,
provided that no other Default or Event of Default shall have occurred in such
ninety (90) day period, Borrower shall have the right to operate the Receipts
Account and the Operating Account consistent with the provisions of this Section
7.1 without the direct control of Lender; provided however, that Borrower will
provide Lender with monthly reports on the balances, status and activity of such
accounts, and provided further, that in no event shall any of the funds in such
accounts be used for any purpose in violation of the terms and conditions of
this Agreement, including without limitation, Section 6.6.
7.2. Application Of Insurance Proceeds.
(a) Each of the parties hereto agrees that all amounts and
proceeds (including instruments) in respect of the proceeds of any insurance
policy required to be maintained by Borrower hereunder ("Insurance Proceeds")
shall, except as otherwise provided in clause (c) below, be paid by the active
insurers directly to Lender (as loss payee or additional insured as provided in
Section 5.14 and Schedule 9), and if paid to Borrower, such Insurance Proceeds
shall be received only in trust for Lender, shall be segregated from other funds
of Borrower, and shall be forthwith paid over to Lender in the same form as
received (with any necessary endorsements). Each of the parties hereto agrees,
to the fullest
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extent that it effectively may do so under applicable law, that Lender shall
apply all such Insurance Proceeds in accordance with the provisions of Sections
7.2(b) and 7.2(c).
(b) Unless an Event of Default shall have occurred and be
continuing, any business interruption Insurance Proceeds received by Lender or
Borrower shall be deposited into the Receipts Account.
(c) (i) If there shall occur any damage or destruction of the
Project with respect to which Insurance Proceeds for any single loss not in
excess of $500,000 are payable, such Insurance Proceeds shall be paid to
Borrower and applied to the prompt payment of the cost of the repair or
restoration of such damage or destruction.
(ii) If there shall occur any damage or destruction
of the Project with respect to which Insurance Proceeds for any single loss in
excess of $500,000 are payable, Borrower shall promptly notify Lender. Such
Insurance Proceeds shall be applied to the prompt repair or restoration of the
Project in accordance with Section 7.2(c)(iii) to the extent determined by
Borrower and, if Lender determines that such Insurance Proceeds should be
applied to such repair or restoration to a greater extent in order for Borrower
to be able to satisfy its obligations under the Operative Documents as well as
before such damage or destruction, to such greater extent.
(iii) If there shall occur any damage to or
destruction of the Project with respect to which Section 7.2(c)(i) or (ii)
requires repair or restoration and
(A) if (1) such damage or destruction does
not constitute the destruction of all or substantially all of the Project, (2)
Borrower and an independent engineer selected by Borrower and subject to
Lender's approval, certify, and Lender determines in its reasonable judgment,
that repair or restoration of the Project is technically and economically
feasible within a six (6) month period and that a sufficient amount of funds is
or will be available to Borrower to make such repairs and restorations, (3) the
Lender determines that after repair and restoration the Project will be able to
repay the Loan Facility and other amounts due the Lender as and when due, (4)
after giving effect to any proposed repair and restoration, but only at the time
that the same are expected to be made, such damage or destruction will not
result in an Event of Default or a Default, (5) Lender shall receive an opinion
of counsel acceptable to Lender to the effect that no material federal, state or
local governmental license, registration, recording, filing, consent, Permit,
order, authorization, certificate, approval, exemption or declaration is
necessary to proceed with the repair and restoration and that no material
amendment to this Agreement or any of the Credit Documents is necessary (or, if
any such is necessary, Borrower is reasonably likely to be able to obtain such
as and when required) for the purpose of subjecting the repairs or restorations
to the Liens of the Collateral Documents, except such, if any, as may be
delivered to Lender and that such amendments and other instruments (if any) have
been duly executed and delivered by and are valid and binding agreements of
Borrower and any other party thereto and subject such repairs or restoration to
the Liens of the Collateral Documents, and (6) Lender shall receive such
additional title insurance, title insurance endorsements, mechanic's lien
waivers, certificates, opinions or other matters as it may reasonably request
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as necessary or appropriate in connection with such repairs or restoration or
to preserve or protect the Lender's interest hereunder or in the Collateral, or
(B) Lender shall direct Borrower to
undertake any repair or restoration, then Borrower shall cause any repairs or
restoration to be commenced and completed promptly and diligently at the cost
and expense of Borrower. From time to time after the Lender shall have duly
approved the making of such repairs or restoration, and upon Borrower's written
request and the presentation to Lender of all documents, certificates and
information with respect to such Insurance Proceeds as Lender may reasonably
request, including a certificate from Borrower (A) describing in reasonable
detail the nature of the repairs or restoration, (B) stating the cost of such
repairs or restoration and the specific amount requested to be paid over to or
upon the order of Borrower and that such amount is requested to pay the cost
thereof, (C) stating that the aggregate amount requested by Borrower in respect
of such repairs or restoration (when added to any other Insurance Proceeds
received by Borrower in respect of such damage of destruction) does not exceed
the cost of such repairs or restoration and that a sufficient amount of funds is
or will be available to Borrower to complete the Project,and (D) stating that no
Event of Default has occurred and is continuing other than an Event of Default
resulting solely from such damage or destruction, then any Insurance Proceeds
(other than Insurance Proceeds with respect to business interruption) held by
Lender arising out of such damage or destruction shall, be paid over to or at
the direction of Borrower to pay for the cost of the repairs or restoration in
respect of which such Insurance Proceeds were received to the extent of costs
actually incurred.
(iv) If, after Insurance Proceeds have been applied
to the repair or restoration of the Project as provided in Sections 7.2(c)(i) or
7.2(c)(ii), Lender determines that the Project will be able to operate at a
level enabling Borrower to satisfy its obligations hereunder as well as before
the damage or destruction, any excess Insurance Proceeds shall be paid into the
Receipts Account; provided that such excess Insurance Proceeds shall, in lieu of
being paid into the Receipts Account, if and to the extent necessary to enable
Borrower to satisfy its obligations hereunder (after accounting for the
prepayment described in this sentence) as well as before such damage or
destruction, be applied to the repayment of the Loan Facility in accordance with
Section 2.1(e).
(v) If an Event of Default or Default shall have
occurred and be continuing, then any provisions of Sections 7.2(c)(i) through
7.2(c)(iv) to the contrary notwithstanding, the Insurance Proceeds (including
any Permitted Investments made with such proceeds, which shall be liquidated in
such manner as Lender shall deem reasonable and prudent under the circumstances)
may be applied by Lender to curing such Event of Default or Default. Any
Insurance Proceeds remaining thereafter shall be applied as provided in this
Section 7.2.
7.3. Application of Eminent Domain Proceeds.
(a) All Eminent Domain Proceeds shall be paid by the
condemning authority directly to Lender, and, if paid to Borrower, such Eminent
Domain Proceeds shall
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be received only in trust for Lender, shall be segregated from other funds of
Borrower and shall forthwith be paid over to Lender in the same form as received
(with any necessary endorsement).
(b) (i) If the Eminent Domain Proceeds with respect to a
single Event of Eminent Domain not in excess of $500,000 are payable, Borrower
shall comply with Section 5.16, and such Eminent Domain Proceeds shall be paid
to Borrower and applied to the prompt payment of the cost of the replacement or
restoration of the Collateral if such replacement and restoration is
practicable;
(ii) If the Eminent Domain Proceeds with respect to a
single Event of Eminent Domain in excess of $500,000 are payable, Borrower shall
comply with Section 5.15, and such Eminent Domain Proceeds shall be applied to
the prompt replacement or restoration of the Collateral in accordance with
Section 7.3(b)(iii) to the extent determined by Borrower and, if Lender
determines that such Eminent Domain Proceeds should be applied to such
replacement or restoration to a greater extent in order for Borrower to be able
to satisfy its obligations under the Operative Documents as well as before such
damage or destruction, to such greater extent.
(iii) If there shall occur any Event of Eminent
Domain with respect to which Section 7.3(c)(i) or (ii) requires restoration or
replacement and
(A) if (1) such Event of Eminent Domain does
not constitute the loss of all or substantially all of the Project, (2) Borrower
and an independent engineer selected by Borrower and subject to Lender's
approval, certify, and Lender determines in its reasonable judgment, that
replacement or restoration of the Project is technically and economically
feasible within a six (6) month period and that a sufficient amount of funds is
or will be available to Borrower to make such replacements and restorations, (3)
the Lender determines that after replacement and restoration the Project will be
able to repay the Loan Facility and other amounts due the Lender as and when
due, (4) after giving effect to any proposed restoration or replacement, but
only at the time that the same are expected to be made, such Event of Eminent
Domain will not result in an Event of Default or a Default, (5) Lender shall
receive an opinion of counsel acceptable to Lender to the effect that no
material federal, state or local governmental license, registration, recording,
filing, consent, Permit, Easement, order, authorization, certificate, approval,
exemption or declaration is necessary to proceed with the restoration or
replacement and that no material amendment to this Agreement or any of the
Credit Documents is necessary (or, if any such is necessary, Borrower is
reasonably likely to be able to obtain such as and when required) for the
purpose of subjecting the restored or replacement Collateral to the Liens of the
Collateral Documents, except such, if any, as may be delivered to Lender and
that such amendments and other instruments (if any) have been duly executed and
delivered by and are valid and binding agreements of Borrower and any other
party thereto and subject such replacement or restoration to the Liens of the
Collateral Documents, and (6) Lender shall receive such additional title
insurance, title insurance endorsements, mechanic's lien waivers, certificates,
opinions or other matters as it may reasonably request as necessary or
appropriate in
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connection with such restoration or replacement or to preserve or protect the\
Lender's interest hereunder or in the Collateral, or
(B) Lender shall direct Borrower to
undertake any replacement or restoration, then Borrower shall cause any
replacement or restoration to be commenced and completed promptly and diligently
at the cost and expense of Borrower. From time to time after the Lender shall
have duly approved the making of such restoration or replacement, and upon
Borrower's written request and the presentation to Lender of all documents,
certificates and information with respect to such Insurance Proceeds as Lender
may reasonably request, including a certificate from Borrower (A) describing in
reasonable detail the nature of the replacement or restoration, (B) stating the
cost of such restoration or replacement and the specific amount requested to be
paid over to or upon the order of Borrower and that such amount is requested to
pay the cost thereof, (C) stating that the aggregate amount requested by
Borrower in respect of such restoration or replacement (when added to any other
Eminent Domain Proceeds received by Borrower in respect of such damage of
destruction) does not exceed the cost of such repairs or restoration and that a
sufficient amount of funds is or will be available to Borrower to complete the
Project,and (D) stating that no Event of Default has occurred and is continuing
other than an Event of Default resulting solely from such Event of Eminent
Domain, then any Eminent Domain Proceeds held by Lender arising out of such
Event of Eminent Domain shall, be paid over to or at the direction of Borrower
to pay for the cost of the restoration or replacement of the Collateral in
respect of which such Eminent Domain Proceeds were received to the extent of
costs actually incurred.
(iv) If, after Eminent Domain Proceeds have been
applied to the restoration or replacement of the Collateral as provided in
Sections 7.3(c)(i) or 7.3(c)(ii), Lender determines that the Project will be
able to operate at a level enabling Borrower to satisfy its obligations
hereunder as well as before the Event of Eminent Domain, any excess Eminent
Domain Proceeds shall be paid into the Receipts Account; provided that such
excess Eminent Domain Proceeds shall, in lieu of being paid into the Receipts
Account, if and to the extent necessary to enable Borrower to satisfy its
obligations hereunder (after accounting for the prepayment described in this
sentence) as well as before such Event of Eminent Domain, be applied to the
repayment of the Loan Facility in accordance with Section 2.1(e).
If Lender so determines that the Project should be restored,
but no or insufficient replacement property is available for such restoration,
then such Eminent Domain Proceeds shall be applied, after acquisition of
whatever necessary replacement property is available, to the prepayment of the
Loan Facility. After Eminent Domain Proceeds have been applied to the
restoration of the Project as provided in the second previous sentence or if
Lender has determined that the Project need not or can not be restored, any
remaining Eminent Domain Proceeds or the entire fund of Eminent Domain Proceeds,
as the case may be, shall be applied to the prepayment of the Loan Facility.
(v) Notwithstanding the foregoing provisions of this
Section 7.3, if an Event of Default shall have occurred and be continuing, any
amount to be applied pursuant to this Section 7.3, shall be paid to Lender as
security for the obligations of
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Borrower under the Credit Documents, and may be held, applied or realized upon
by Lender as provided herein or in the other Credit Documents with respect to
holding, applying or realizing upon Collateral after the occurrence of an Event
of Default. To the extent any Eminent Domain Proceeds then remain, at such time
thereafter as no Event of Default shall be continuing, such amount shall be
applied as provided in this Section 7.3.
7.4. Security Interest in Proceeds and Accounts. Borrower hereby
pledges, assigns and transfers to Lender on behalf of Lender and grants Lender
on behalf of Lender a security interest in and to all Insurance Proceeds and
Eminent Domain Proceeds (collectively, "Proceeds") and Accounts as security for
the Loan Facility and the full and faithful performance of all of Borrower's
obligations hereunder and under the other Credit Documents. Borrower shall not
have any rights or powers with respect to any Account except to have funds on
deposit therein applied in accordance with this Agreement. Lender is hereby
authorized to reduce to cash any Permitted Investment (without regard to
maturity) in order to make any application required by any Section of this
Article 7 or otherwise pursuant to the Credit Documents. Upon the occurrence of
an Event of Default, Lender shall have all rights and powers with respect to
Proceeds as it has with respect to any other Collateral and may apply Proceeds
to the payment of interest, principal, fees, costs, charges or other amounts due
or payable to Lender with respect to the Loan Facility in such order as Lender
may elect in its sole discretion. Borrower shall not have any rights or powers
with respect to Proceeds except as expressly provided in Section 7.5.
7.5. Permitted Investments. All amounts held by Borrower and/or Lender
in the Accounts or as Insurance Proceeds or Eminent Domain Proceeds shall only
be invested in Permitted Investments as directed by and at the expense and risk
of Borrower.
ARTICLE 8 - EVENTS OF DEFAULT; REMEDIES
8.1. Events of Default.
The occurrence of any of the following events shall constitute an event
of default ("Event of Default") hereunder:
(a) Failure to Make Payments. Borrower shall fail to pay, in
accordance with the terms of this Agreement, (i) any principal on any of the
Loan Facility on the date that such sum is due, (ii) any interest on any of the
Loan Facility within five (5) days after the date that such sum is due, or (iii)
any other fee, cost, charge or other sum due under the Credit Documents within
ten (10) days after the date on which written notice is given to Borrower
pursuant to the provisions of Section 10.1 that such sum is due.
(b) Judgments. A judgment or judgments shall be entered
against Borrower (i) in the aggregate amount of $250,000 or more (other than (A)
a judgment which is fully covered by insurance or discharged within sixty (60)
days after its entry, or (B) a judgment, the execution of which is effectively
stayed within sixty (60) days after its entry but only for thirty (30) days
after the date on which such stay is terminated or expires) or
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(ii) which would reasonably be expected to materially impair or inhibit the
construction of or Borrower's use or operation of the Project for the purpose
for which the Project was intended or materially impair the value of the
Collateral or the interests of the Lender under this Agreement and the other
Credit Documents;
(c) Misstatements; Omissions. Any financial statement,
representation, report, warranty or certificate made or prepared by, under the
control of or on behalf of Borrower and furnished to the Lender pursuant to this
Agreement or any other Credit Document, or in any separate statement or document
to be delivered to the Lender hereunder or under any other Credit Document,
shall contain an untrue or misleading statement of a material fact or shall fail
to state a material fact necessary to make the statements therein not misleading
as of the date made and as a result thereof, there is or is likely to be a
Material Adverse Effect as determined by the Lender, provided that no Event of
Default shall occur pursuant hereto if, within thirty (30) days of the date on
which Borrower receives notice (from any source) that such untrue or misleading
statement or failure to state a material fact has occurred, Borrower shall
eliminate or otherwise address to the satisfaction of the Lender any such
Material Adverse Effect relating to such misleading statement or failure to
state a material fact.
(d) Bankruptcy; Insolvency. Borrower or Borrower's majority
shareholder shall institute a voluntary case seeking liquidation or
reorganization under the Bankruptcy Law (or any successor statute), or shall
consent to the institution of an involuntary case thereunder against it; or
Borrower or Borrower's majority shareholder shall file a petition, answer or
consent or shall otherwise institute any similar proceeding under any other
applicable federal or state law, or shall consent thereto; or Borrower or
Borrower's majority shareholder shall apply for, or by consent or acquiescence
there shall be an appointment of, a receiver, liquidator, sequestrator, trustee
or other officer with similar powers, or Borrower or Borrower's majority
shareholder shall make an assignment for the benefit of creditors; or Borrower
or Borrower's majority shareholder shall admit in writing its inability to pay
its debts generally as they become due; or if an involuntary case shall be
commenced seeking the liquidation or reorganization of Borrower or Borrower's
majority shareholder under the Bankruptcy Law (or any successor statute) or any
similar proceeding shall be commenced against Borrower or Borrower's majority
shareholder under any other applicable federal or state law and (i) the petition
commencing the involuntary case is not timely controverted, (ii) the petition
commencing the involuntary case is not dismissed within sixty (60) days of its
filing, (iii) an interim trustee is appointed to take possession of all or a
portion of the property, and/or to operate all or any part of the business of
Borrower or Borrower's majority shareholder and such appointment is not vacated
within sixty (60) days, or (iv) an order for relief shall have been issued or
entered therein; or a decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator, trustee or
other officer having similar powers of Borrower or Borrower's majority
shareholder or of all or a part of their property, shall have been entered; or
any other similar relief shall be granted against Borrower or Borrower's
majority shareholder under any applicable federal or state law.
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(e) Cross Default. Borrower shall default for a period beyond
any applicable grace period (i) in the payment of any principal, interest or
other amount due under any agreement involving the borrowing of money or the
advance of credit and the outstanding amount or amounts payable under all such
agreements equals or exceeds $250,000 in the aggregate, or (ii) in the payment
of any amount or performance of any obligation due under any guarantee or other
agreement if in either case, pursuant to such default, the holder of the
obligation concerned exercises its right to accelerate the maturity of an
indebtedness evidenced thereby which equals or exceeds $250,000.
(f) ERISA. If Borrower or any ERISA Affiliate should
establish, maintain, contribute to or become obligated to contribute to any
ERISA Plan and (i) a reportable event (as defined in Section 4043(b) of ERISA)
shall have occurred with respect to any ERISA Plan and, within thirty (30) days
after the reporting of such reportable event to Lender by Borrower (or Lender
otherwise obtaining knowledge of such event) and the furnishing of such
information as Lender may reasonably request with respect thereto, Lender shall
have notified Borrower in writing that Lender has made a determination that, on
the basis of such reportable event, there are reasonable grounds for the
termination of such ERISA Plan by the PBGC or for the appointment by the
appropriate United States District Court of a trustee to administer such ERISA
Plan; or (ii) a trustee shall be appointed by a United States District Court to
administer any ERISA Plan; or (iii) the PBGC shall institute proceedings to
terminate any ERISA Plan; or (iv) a complete or partial withdrawal by Borrower
or any ERISA Affiliate from any Multiemployer Plan shall have occurred, or any
Multiemployer Plan shall enter reorganization status, become insolvent, or
terminate (or notify Borrower or any ERISA Affiliate of its intent to terminate)
under Section 4041A of ERISA; provided that any of the events described in this
Section 8.1(f) shall involve (A) one or more ERISA Plans that are
single-employer plans (as defined in Section 4001(a)(15) of ERISA) and under
which the aggregate gross amount of unfunded benefit liabilities (as defined in
Section 4001(a)(16) of ERISA), including vested unfunded liabilities which arise
or might arise as the result of the termination of such ERISA Plan or Plans,
and/or (B) one or more Multiemployer Plans to which the aggregate liabilities of
Borrower and all ERISA Affiliates, shall exceed Five Hundred Thousand Dollars
($500,000).
(g) Breach of Operative Documents. Borrower or any other party
thereto shall breach or default under any term, condition, provision, covenant,
representation or warranty contained in any Credit Document, Material Project
Document or other agreement to which Borrower is a party and Lender shall have
determined that such breach or default will have a Material Adverse Effect and
such breach or default shall continue unremedied for thirty (30) days after
notice from Lender to Borrower; provided, however, that if the breach or default
cannot be remedied within such thirty (30) days despite Borrower's and/or such
other party's, as the case may be, best efforts to do so and the breach or
default is capable of being remedied within a period of ninety (90) days, Lender
will not unreasonably withhold its consent to an extension for such additional
period (not to exceed ninety (90) days) as is reasonably necessary beyond such
initial thirty (30) day period to cure such breach of default if remedial action
is promptly instituted within such thirty (30) day period and is thereafter
diligently pursued until the breach or default is corrected. Notwithstanding the
foregoing, any of Borrower's stockholders shall default in the performance of
any of its respective
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obligations under its Pledge Agreement and such default is not cured within five
(5) days after notice thereof to such stockholder from Lender.
(h) Breach of Terms of Agreement.
(i) Borrower shall fail to perform or observe any of
the covenants set forth in Sections 5.1, 5.2, 5.4, 5.7, 5.9, 5.11, 5.13, 5.14,
5.15, or 5.16, Sections 6.1 through 6.18 or Article 7; or
(ii) Borrower shall fail to perform or observe any
other covenant to be observed or performed by it hereunder or under any Credit
Document and not otherwise specifically provided for in Section 8.1(h)(i) or
elsewhere in Section 8.1, and such failure shall continue unremedied for a
period of thirty (30) days after Borrower becomes aware thereof or receives
written notice thereof from Lender, provided, however, that if such default is
of a nature such that it cannot reasonably be cured within such thirty (30) day
period but is susceptible to cure within a longer period, an Event of Default
shall not result therefrom so long as (A) Borrower has, promptly upon discovery
thereof, given written notice to Lender of such default (provided, that if any
Event of Default is cured within any applicable time period specified herein, or
waived or temporarily waived by the Lender, the failure alone to give notice of
such Event of Default as provided in this sentence shall not be deemed an Event
of Default); (B) Borrower as promptly as practicable commences action reasonably
designed to cure such default and continues diligently to pursue such action and
(C) the Lender in its sole discretion shall have determined that such default
does and will not have a Material Adverse Effect.
(i) Completion. Completion shall not have occurred by the
Construction Loan Maturity Date.
(j) Loss of Status.
(i) The City of Tucson License shall be revoked or
suspended, or
(ii) Borrower shall lose its status as a nondominant
interexchange carrier under the Communications Act and the regulations
thereunder and Lender determines in its discretion, that such loss could
reasonably be anticipated to have a Material Adverse Effect, or
(iii) Administrative or judicial proceedings are
commenced by the City of Tucson, Pima County, the ACC or the FCC that could
result in the occurrence of either of subclauses (i) or (ii).
(k) Default in Construction. At any time prior to Completion,
the Project Phase shall be abandoned or work thereon shall cease for a period of
more than thirty (30) days (which period shall be measured from the first
occurrence of a work stoppage and continuing until work of a substantial nature
is resumed and thereafter diligently continued, but which period shall not
include delays caused by Force Majeure and strikes not extending
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for any one work stoppage or abandonment beyond 30 days so long as an
independent engineer, selected by Borrower and subject to Lender's approval, has
certified that Completion is not likely to be achieved beyond the applicable
Construction Loan Maturity Date, provided that Borrower gives Lender immediate
written notice of all such events) for any reason, or the Project Phase shall
not be constructed substantially in accordance with the Plans and Specifications
(except as to changes therein approved by the Lender or permitted by Section
6.12), or changes shall be made in the Plans and Specifications without the
prior written approval of the Lender (except as to changes permitted by Section
6.12).
(l) Security. Any of the Collateral Documents, once executed
and delivered, shall, except as the result of the acts or omissions of the
Lender, in any material respect fail to provide the Lender the Liens, security
interest, rights, titles, interest, remedies, powers or privileges intended to
be created thereby or cease to be in full force and effect, or the validity
thereof or the applicability thereof to this Agreement, the Loan Facility, the
Note or any other obligations purported to be secured or guaranteed thereby or
any part thereof shall be disaffirmed or questioned by or on behalf of Borrower
or any other party thereto or there shall occur a default or event of default
(however defined) under any of the Collateral Documents, such default or event
of default shall not have been cured within thirty (30) days after its
occurrence and the Lender shall determine in its sole discretion that such
default or event of default could have a Material Adverse Effect.
(m) Loss of Applicable Permit. Any Applicable Permit necessary
for operation of a Project Phase shall be revoked or cancelled by the issuing
agency or other Governmental Authority having jurisdiction and within ninety
(90) days thereafter Borrower is not able to replace or reinstate such Permit or
demonstrate to the Lender that loss of such Permit will not have a Material
Adverse Effect.
(n) Loss of Collateral. Any substantial portion of Borrower's
property is seized or appropriated without fair value being paid therefor such
as to allow replacement of such property and/or prepayment of the Loan Facility
as provided in Section 7.3 and to allow Borrower in the Lender's reasonable
judgment to continue satisfying its obligations hereunder and under the other
Operative Documents.
8.2. Remedies.
Upon the occurrence and during the continuation of an Event of Default,
Lender may, without further notice of default, presentment or demand for
payment, protest or notice of non-payment or dishonor, or other notices or
demands of any kind, all such notices and demands being waived, exercise any or
all of the following rights and remedies, in any combination or order that the
Lender may elect, in addition to such other rights or remedies as the Lender may
have hereunder, under the Collateral Documents or at law or in equity:
(a) No Further Loans. Refuse, and Lender shall not be
obligated, to make any additional Construction Loans or make any payments from
any Account or any Proceeds or other funds held or controlled by Lender under
the Credit Documents or on behalf of Borrower.
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(b) Cure. Without any obligation to do so, make disbursements
or Construction Loans to or on behalf of Borrower to cure any Event of Default
or Default hereunder and to cure any default and render any performance under
any Project Documents as the Lender in its sole discretion may consider
necessary or appropriate, whether to preserve and protect the Collateral or the
Lender's interests therein or for any other reason, and all sums so expended,
together with interest on such total amount at the Default Rate, shall be repaid
by Borrower on demand to Lender, and shall be secured by the Credit Documents,
notwithstanding that such expenditures may, together with amounts advanced under
this Agreement, exceed the amount of the Committed Amount.
(c) Acceleration. Declare and make all sums of accrued and
outstanding principal and accrued but unpaid interest remaining under this
Agreement together with all unpaid fees, costs (including Liquidation Costs) and
charges due hereunder or under any other Credit Document, immediately due and
payable.
(d) Cash Collateral. Subject to Section 10.2, apply or execute
upon any amounts on deposit in any Account or any Proceeds or Borrower Equity or
any other moneys of Borrower on deposit with Lender in the manner provided in
the Uniform Commercial Code and other relevant statutes and decisions and
interpretations thereunder with respect to cash collateral.
(e) Possession of Project. Enter into possession of the
Project and perform any and all work and labor necessary to complete the Project
substantially according to the Construction Contract and the Plans and
Specifications or to operate, maintain and repair the Project, and all sums
expended by Lender in so doing, together with interest on such total amount at
the Default Rate, shall be repaid by Borrower to Lender upon demand and shall be
secured by the Credit Documents, notwithstanding that such expenditures may,
together with amounts advanced under this Agreement, exceed the amount of the
Total Construction Loan Commitment.
(f) Remedies Under Credit Documents. Exercise any and all
rights and remedies available to it under any of the Credit Documents, including
making demand for payment under any judicial or non-judicial foreclosure or
public or private sale of any of the Collateral pursuant to the Collateral
Documents.
ARTICLE 9 - ASSIGNMENTS, ETC.
9.1. Assignments.
Lender may in accordance with applicable law, after giving reasonable
notice to Borrower, sell and assign to one or more parties (individually, an
"Assignee") all or a portion of its rights and obligations under this Agreement
and the other Credit Documents (such a sale and assignment to be referred to
herein as an "Assignment") pursuant to an assignment agreement in the form of
Exhibit Q (an "Assignment Agreement"), executed by each Assignee and Lender (as
"Assignor") provided, however, that Lender shall not assign
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more than forty-nine percent (49%) of its rights or obligations hereunder or
assign any of its rights or obligations hereunder to a competitor of Borrower or
a Person who is or has been engaged in a dispute with Borrower; provided
further, that upon notice that Lender intends to assign any part of its interest
hereunder, Borrower shall promptly provide Lender with a list of its competitors
and those Persons with which it has, or has had, disputes. Upon the execution,
delivery, acceptance and recording of each Assignment Agreement, from and after
the Assignment Effective Date determined pursuant to such Assignment Agreement,
(A) each Assignee thereunder shall be a Lender hereunder with a Proportionate
Share as set forth on Attachment 1 to such Assignment Agreement and shall have
the rights, duties and obligations of Lender under this Agreement and the other
Credit Documents, and (B) the Assignor thereunder shall be a Lender with a
Proportionate Share as set forth on Attachment 1 to such Assignment Agreement,
or, if the Proportionate Share of the Assignor has been reduced to 0%, the
Assignor shall cease to be a Lender. On or prior to the Assignment Effective
Date determined pursuant to each Assignment Agreement, Borrower, at its expense,
shall execute and deliver to Lender in exchange for the respective surrendered
Note of the Assignor thereunder, a new Note to the order of each Assignee
thereunder (with each new Note to be in an amount equal to the Committed Amount
assumed by such Assignee) and, if the Assignor has retained a Committed Amount
hereunder, a new Note to the order of the Assignor (with the new Note to be in
an amount equal to the Committed Amount retained by it). Each such new Note
shall be dated the Closing Date and each such new Note shall otherwise be in the
form of the Note replaced thereby. The Note surrendered by the Assignor shall be
returned by Lender to Borrower marked "cancelled".
9.2. Confidentiality. Lender may disclose the Credit Documents and any
financial or other information relating to Borrower to any potential Assignee.
9.3. Securities Laws. Notwithstanding the foregoing provisions of this
Article 9, no sale, assignment, transfer, negotiation or other disposition of
the interests of Lender hereunder or under the other Credit Documents shall be
allowed if it would violate the Securities Act of 1933, as amended (the "Act"),
or would require registration under the Act, any other federal securities laws
or regulations or the securities laws or regulations of any applicable
jurisdiction. Borrower shall, from time to time at the request and expense of
Lender, execute and deliver to Lender, or to such party or parties as Lender may
designate, any and all further instruments as may in the opinion of Lender be
necessary or advisable to give full force and effect to such disposition.
ARTICLE 10 - MISCELLANEOUS
10.1. Notices. All notices, notifications and other communications
required or permitted by this Agreement shall be in writing and shall be
delivered by hand, telegraphically transmitted, sent by facsimile (with a copy
sent by overnight mail), or mailed by overnight courier to the parties at the
following addresses (or such other address for a party as shall be specified by
notice given pursuant hereto):
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If to Lender: c/o Tomen America Inc.
1285 Avenue of the Americas
New York, NY 10019
Attn: Takashi Yoshida
Facsimile No. (212) 397-3351
with a copy to: Orrick, Herrington & Sutcliffe
400 Sansome Street
San Francisco, CA 94111
Attn: Michael R. Meyers
Facsimile No. (415) 773-5759
If to Borrower: GST Tucson Lightwave, Inc.
4317 NE Thurston Way
Vancouver, WA 98662
Attn: John Warta, Chief Executive Officer
Facsimile No. (360) 260-2075
with a copy to: Olshan Grundman Frome & Rosenzweig, LLP
505 Park Avenue
New York, NY 10022
Attn: Stephen Irwin
Facsimile No. (212) 755-1467
Notices delivered by hand, telegraphically transmitted, or sent by
facsimile shall be deemed given the day so delivered, transmitted or sent.
Notices delivered or mailed as provided herein shall be deemed given on the date
of actual receipt. Failure to deliver a copy of a notice to counsel for a party
as provided above shall not constitute failure to give notice hereunder. Notice
so given shall be effective upon receipt by the addressee, except that
communication or notice so transmitted by telecopy or other direct written
electronic means shall be deemed to have been validly and effectively given on
the day (if a Business Day and, if not, on the next following Business Day) on
which it is transmitted if transmitted before 4 p.m., recipient's time, and if
transmitted after that time, on the next following Business Day; provided,
however, that if any notice is tendered to an addressee and the delivery thereof
is refused by such addressee, such notice shall be effective upon such tender.
Any party shall have the right to change its address for notice hereunder to any
other location within the continental United States by giving of thirty (30)
days' notice to the other parties in the manner set forth hereinabove.
10.2. Additional Security; Right to Set-Off. Any deposits or other sums
at any time credited or due from Lender and any Project Revenues, securities or
other property of Borrower in the possession of Lender may at all times be
treated as collateral security for the payment of amounts due with respect to
the Loan Facility and the Note and all other obligations of Borrower to Lender
under this Agreement and the other Credit Documents, and Borrower hereby pledges
to Lender for the benefit of the Lender and grants Lender a security interest in
and to all such deposits, sums, securities or other property. Regardless of
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the adequacy of any other collateral, Lender and only Lender, may execute or
realize on the Lender's security interest in any such deposits or other sums
credited by or due from Lender to Borrower, may apply any such deposits or other
sums to or set them off against Borrower's obligations to Lender under the Note
and this Agreement at any time after the occurrence and during the continuance
of any Event of Default.
10.3. Delay and Waiver. No delay or omission to exercise any right,
power or remedy accruing to the Lender upon the occurrence of any Event of
Default or Default or any breach or default of Borrower under this Agreement or
any other Credit Document shall impair any such right, power or remedy of the
Lender, nor shall it be construed to be a waiver of any such breach or default,
or an acquiescence therein, or of or in any similar breach or default thereafter
occurring, nor shall any waiver of any single Event of Default, Default or other
breach or default be deemed a waiver of any other Event of Default, Default or
other breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of Lender of any Event
of Default, Default or other breach or default under this Agreement or any other
Credit Document, or any waiver on the part of Lender of any provision or
condition of this Agreement or any other Credit Document, must be in writing and
shall be effective only to the extent in such writing specifically set forth.
All remedies, either under this Agreement or any other Credit Document or by law
or otherwise afforded to Lender, shall be cumulative and not alternative.
10.4. Costs, Expenses and Attorneys' Fees. Borrower will pay to Lender
on demand (a) all reasonable out-of-pocket costs, fees and expenses, including
reasonable attorneys' fees and expenses, incurred by Lender in connection with
the enforcement or protection (or attempted enforcement or protection) of any
rights or remedies of Lender under this Agreement or any other Credit Document
and (b) the reasonable fees, expenses and disbursements of any engineering,
environmental, insurance, construction or other consultants to Lender incurred
in connection with any of the foregoing.
10.5. Attorney-In-Fact.
(a) For the purpose of allowing Lender to exercise the rights
and remedies provided in Article 8, following the occurrence and during the
continuation of an Event of Default, Borrower hereby constitutes and appoints
Lender its true and lawful attorney-in-fact, with full power of substitution, to
complete any or all of the Project in the name of Borrower, and hereby empowers
such attorney or attorneys as follows:
(i) To use any unadvanced proceeds of the
Construction Loans and any Borrower Equity for the purpose of completing,
operating, maintaining and repairing any or all of the Project and to perform
any and all of Borrower's obligations under the Project Documents;
(ii) To make such changes and corrections in the
Plans and Specifications or the operating and maintenance practices and
procedures of the Project as
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they consider reasonably necessary or desirable to complete the work on any or
all of the Project in substantially the manner contemplated by the Construction
Contracts;
(iii) To employ such contractors, subcontractors,
agents, architects, inspectors and other Persons as reasonably shall be required
for such purposes;
(iv) To pay, settle or compromise all bills and
claims which may be or become liens or security interests against any or all of
the Project or the Collateral, or any part thereof, unless a bond or other
security satisfactory to Lender has been provided;
(v) To execute applications and certificates in the
name of Borrower which reasonably may be required by the Credit Documents or any
other agreement or instrument executed by Borrower in connection with the
Project;
(vi) To prosecute and defend all actions or
proceedings in connection with the Project or the Collateral or any part thereof
and to take such action and require such performance as Lender reasonably deems
necessary under any performance and payment bond or the Credit Documents;
(vii) To do any and every act which Borrower might do
on its behalf with respect to the Collateral or any part thereof or any or all
of the Project and to exercise any or all of Borrower's rights and remedies
under any or all of the Project Documents; and
(viii) To use any funds in any Account to pay
interest or principal with respect to the Loan Facility or fees and other
amounts due to Lender, as they may be due from time to time or, to pay Project
Costs.
(b) The powers of attorney set forth in this Section 10.5
shall be deemed to be powers coupled with interests and shall be irrevocable.
10.6. Entire Agreement; Amendments and Modifications. This Agreement
and any agreement, document or instrument attached hereto as exhibits or
schedules or otherwise or referred to herein integrate all the terms and
conditions mentioned herein or incidental hereto and supersede all oral
negotiations and prior writings, in respect to the subject matter hereof. In the
event of any conflict between the terms, conditions and provisions of this
Agreement and any such agreement, document or instrument, the terms, conditions
and provisions of this Agreement shall prevail. This Agreement and the other
Credit Documents may only be amended or modified by an instrument in writing
signed by Borrower, Lender and any other parties to be charged or as set forth
in Section 9.1.
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10.7. Governing Law. This Agreement, and any instrument or agreement
required hereunder (to the extent not expressly provided for therein), shall be
governed by, and construed under, the laws of the State of New York without
reference to conflicts of law rules.
10.8. Severability. In case any one or more of the provisions contained
in this Agreement should be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
10.9. Headings. Paragraph headings have been inserted in this Agreement
as a matter of convenience for reference only and are not a part of this
Agreement and shall not be used in the interpretation of any provision of this
Agreement.
10.10. Accounting Terms. All accounting terms used in this Agreement or
in any other Credit Document shall be construed, and all accounting and
financial computations, hereunder or thereunder, shall be computed, in
accordance with GAAP.
10.11. No Partnership; Etc. The Lender and Borrower intend that the
relationship between them shall be solely that of creditor and debtor. Nothing
contained in this Agreement, the Note or in any of the other Credit Documents
shall be deemed or construed to create a partnership, tenancy-in-common, joint
tenancy, joint venture or co-ownership by or between the Lender and Borrower or
any other Person. The Lender shall not be in any way responsible or liable for
the debts, losses, obligations or duties of Borrower or any other Person with
respect to the Project or otherwise. All obligations to pay real property or
other taxes, assessments, insurance premiums, and all other fees and charges
arising from the ownership, operation or occupancy of the Project and to perform
all obligations and other agreements and contracts relating to the Project shall
be the sole responsibility of Borrower.
10.12. Limitation on Liability. No claim shall be made by Borrower, any
shareholder of Borrower or sponsor or any of their Affiliates against the Lender
or any of their Affiliates, directors, employees, attorneys or agents for any
special, indirect, consequential or punitive damages in respect of any breach or
wrongful conduct (whether or not the claim therefor is based on contract, tort
or duty imposed by law), in connection with, arising out of or in any way
related to the transactions contemplated by this Agreement or the other
Operative Documents or any act or omission or event occurring in connection
therewith; and Borrower hereby waives, releases and agrees not to sue upon any
such claim for any such damages, whether or not accrued and whether or not known
or suspected to exist in its favor.
10.13. Waiver of Jury Trial. THE LENDER AND BORROWER HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT, OR ANY COURSE OR
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
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WRITTEN), OR ACTIONS OF THE LENDER OR BORROWER. THIS PROVISION
IS A MATERIAL INDUCEMENT FOR THE LENDER TO ENTER INTO THIS
AGREEMENT.
10.14. Consent to Jurisdiction. The Lender and Borrower agree that,
except as may otherwise be required by law, any legal action or proceeding by or
against Borrower or with respect to or arising out of this Agreement, the Note,
or any other Credit Document may be brought in or removed to the courts of the
State of New York sitting in New York City, or of the United States of America
for the Southern District of New York, as Lender may elect. By execution and
delivery of this Agreement, Lender and Borrower accept, for themselves and in
respect of their property, generally and unconditionally, the jurisdiction of
the aforesaid courts. Lender and Borrower irrevocably consent to the service of
process out of any of the aforementioned courts in any such action or proceeding
by the mailing of copies thereof by registered or certified airmail, postage
prepaid, to Lender or Borrower, as the case may be, at their respective
addresses for notices as specified herein and that such service shall be
effective five (5) Business Days after such mailing. Nothing herein shall affect
the right to serve process in any other manner permitted by law or the right of
Lender to bring legal action or proceedings in any other competent jurisdiction,
including judicial or non-judicial foreclosure of a mortgage. Notwithstanding
the foregoing, service of process shall not be deemed mailed (i) to Lender until
a copy of all matters to be served have been mailed to Orrick, Herrington &
Sutcliffe, 400 Sansome Street, San Francisco, California 94111, Attention:
Michael R. Meyers, Esq. or such other Person as Lender may hereafter designate
by notice given pursuant to Section 10.1 or (ii) to Borrower until a copy of all
matters to be served have been mailed to Olshan, Grundman, Frome & Rosenzweig,
LLP, 505 Park Avenue, New York, New York 10022, Attention: Stephen Irwin, Esq.
or such other Person as Borrower may hereafter designate by notice given
pursuant to Section 10.1. Lender and Borrower further agree that the aforesaid
courts of the State of New York and of the United States of America shall have
exclusive jurisdiction with respect to any claim or counterclaim of Borrower
based upon the assertion that the rate of interest charged by Lender on or under
this Agreement, the Loan Facility and/or the other Credit Documents is usurious.
Lender and Borrower hereby waive any right to stay or dismiss any action or
proceeding under or in connection with any or all of the Project, this Agreement
or any other Credit Document brought before the foregoing courts on the basis of
forum non-conveniens.
10.15. Usury. Nothing contained in this Agreement or the Note shall be
deemed to require the payment of interest or other charges by Borrower or any
other Person in excess of the amount which Lender or other holders of the Note
("Note Holders") may lawfully charge under any applicable usury laws. In the
event that Lender or other Note Holders shall collect moneys under this
Agreement, the Note or any other Credit Document which are deemed to constitute
interest which would increase the effective interest rate to a rate in excess of
that permitted to be charged by applicable law, all such sums deemed to
constitute interest in excess of the legal rate shall, upon such determination,
at the option of Lender or other Note Holders, be returned to Borrower or
credited against the principal balance of the Note then outstanding.
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10.16. Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. Borrower may not assign or otherwise transfer
any of its rights under this Agreement without the prior written consent of
Lender.
10.17. Counterparts. This Agreement may be executed in one or more
duplicate counterparts and when signed by each of the parties listed below shall
constitute a single binding agreement.
* * * *
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their officers thereunto duly authorized as of the day and
year first above written.
GST TUCSON LIGHTWAVE, INC.,
an Arizona corporation,
as Borrower
By: /s/ Clifford V. Sander
--------------------------------------------------
Name: Clifford V. Sander
Title: Assistant Secretary and Vice President
TM COMMUNICATIONS LLC,
a Delaware limited liability company,
as Lender
By: /s/ Takashi Yoshida
-------------------------------------------------
Name: Takashi Yoshida
Title: Vice President
62
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EXHIBIT A
DEFINITIONS
"ACC" means the Arizona Corporations Commission.
"Account Debtor" has the meaning given in Section 5(c) of the
Security Agreement.
"Account Security Agreement" has the meaning given in Section
2.7(a) of the TLI Credit Agreement.
"Accounts" means the Receipts Account and the Operating
Account.
"Act" means the U.S. federal Securities Act of 1933, as
amended.
"Additional Information" has the meaning given in Section
2.1(a) of the Master Agreement.
"Additional Project Documents" means any other contracts or
agreements related to the construction, testing, maintenance, repair, operation
or use of the Project entered into by Borrower and any other Person subsequent
to the Closing Date.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations under the Securities Exchange Act of 1934, as amended provided,
however, that in no case shall Lender or any of its Affiliates be deemed to be
Affiliates of Greenstar.
"Alternate Interest Rate" means a fluctuating per annum rate
of interest as shall be in effect from time to time which rate shall at all
times be equal to the Federal Funds Rate plus three percent (3%). Any change in
the Alternate Interest Rate due to a change in the Federal Funds Rate shall be
effective as of the effective date of such change in such Federal Funds Rate.
"Alternate Interest Rate Loan" means any portion of the Loan
Facility converted pursuant to Section 2.5(a) of the TLI Credit Agreement into a
loan at the Alternate Interest Rate.
"AMEX" means the American Stock Exchange.
"Annual Operating Budget" means, with respect to any fiscal
year of Borrower, an annual operating budget setting forth all reasonably
anticipated Project Revenues, Debt Service, Operation and Maintenance Costs,
allowances for reserves, and information described in Section 5.7(b) of the TLI
Credit Agreement. "Annual Operating Budget" includes the First Annual Operating
Budget.
A-1
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"Applicable Easement" means any Easement that is necessary at
any given time in light of the stage of development, construction or operation
of the Project to construct, test, operate, maintain, repair, own or use the
Project as contemplated by the Operative Documents, to enter into any Operative
Document or to consummate any transaction contemplated thereby.
"Applicable Permit" means any Permit, including any zoning,
environmental protection, pollution, sanitation, FCC, ACC, safety, sitting,
building or other Permit, (a) that is necessary at any given time in light of
the stage of development, construction or operation of the Project to construct,
test, operate, maintain, repair, own or use the Project as contemplated by the
Operative Documents, to enter into any Operative Document or to consummate any
transaction contemplated thereby, or (b) that is necessary so that neither
Borrower nor any Affiliate may be deemed by any Governmental Authority to be
subject to regulation under the Communications Act or under any state laws or
regulations as a result of the construction and operation of the Project.
"Assigned Agreement" has the meaning given in Section 2(d)(i)
of the Security Agreement.
"Assignee" has the meaning given in Section 9.1 of the TLI
Credit Agreement.
"Assignment" has the meaning given in Section 9.1 of the TLI
Credit Agreement.
"Assignment Agreement" has the meaning given in Section 9.1 of
the TLI Credit Agreement.
"Assignor" has the meaning given in Section 9.1 of the TLI
Credit Agreement.
"Bankruptcy Law" means Title 11 of the United States Code, and
any other state or federal insolvency, reorganization, moratorium or similar law
for the relief of debtors.
"Base Case Project Projection" means a projection of operating
results for the applicable Project Phase over a period ending no sooner than
five (5) years beyond the Expected Completion Date, showing at a minimum
Borrower's reasonable good faith estimates, as of the applicable Closing Date,
of revenue, operating expenses, debt service coverage ratios and sources and
uses of revenues over the forecast period, which projection shall be delivered
at the applicable Closing Date.
"Borrower" means GST Tucson Lightwave, Inc., an Arizona
corporation formerly known as "Tucson Lightwave, Inc.".
"Borrower Equity" means any non-borrowed funds contributed by
Borrower, or any shareholder of Borrower on behalf of Borrower, toward Project
Costs.
A-2
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"Business Day" means any day other than a Saturday, Sunday or
other day on which banks are authorized to be closed in Tucson, Arizona or New
York, New York and, with respect to the determination of the LIBOR Rate, which
is also a day on which dealings in Dollar deposits are carried out in the London
interbank market.
"Capital Contribution" means the contribution to capital to be
made prior to the Closing as set forth in Section 3.1(h) of the TLI Credit
Agreement.
"Change of Control" means any of the following: (i) the sale,
lease, conveyance or other disposition of assets of the Borrower valued in
excess of $5,000,000; (ii) the liquidation or dissolution of the Borrower; and
(iii) any transaction or series of transactions that results in GSI ceasing to
hold and control, directly or indirectly, fifty percent (50%) or more of the
Equity Securities of Borrower.
"Change of Law" has the meaning given in Section 2.5(b) of the
TLI Credit Agreement.
"Charter Documents" means, as to any Person other than a
natural person, the charter, certificate or articles of incorporation, bylaws or
other organizational or governing documents of such Person, including, with
respect to a partnership, a partnership agreement and any certificate of limited
partnership or similar document.
"City of Tucson License" means the Non-exclusive License and
City-wide Right of Way granted to Borrower by the City of Tucson on July 5,
1994, as amended on September 26, 1994 and November 6, 1995, to construct,
maintain, and operate in designated portions of the City of Tucson, Arizona,
telecommunication facilities for the purpose of providing service within the
City of Tucson and further additions thereto.
"Closing Date" means the date when each of the conditions
precedent listed in Section 3.1 of the TLI Credit Agreement has been satisfied
(or waived in writing by Lender).
"Code" means the Internal Revenue Code of 1986, as amended.
Reference to a specific section of the Code shall include any valid regulation
promulgated thereunder, and any comparable provision of any future legislation
amending, supplementing or superseding such section.
"Collateral" means all real and personal property which is
subject or is or is intended to become subject to the security interests or lien
granted by any of the Collateral Documents.
"Collateral Documents" means the Pledge Agreement, the
Security Agreement, the Account Security Agreement, the GST Security Agreement,
the Consents, the Net Cash Flow Agreements, the Net Cash Flow Account Security
Agreements, and the other agreements to be entered into pursuant to Section 5.17
of the TLI Credit Agreement, the Construction Deeds of Trust and any financing
statements and the like filed or recorded in connection with the foregoing.
A-3
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"Collocation Agreements" means the agreements entered into or
to be entered into between TLI and local exchange carriers with respect to
physical or virtual collocation with respect to the Phase I Project and the
Phase II Project.
"Committed Amount" means Eight Million Dollars ($8,000,000).
"Communications Act" means the Communication Act of 1934, as
amended.
"Completion" means, with respect to the Project, that the
Project shall have been substantially completed in all material respects and
that all work under the Construction Contracts shall have occurred and that
completion of all such work shall have been in accordance with the Plans and
Specifications and the requirements of all Applicable Permits for the Project.
"Completion Date" means, with respect to the Project, the
earlier of: (i) the date of Completion of the Project, and (ii) December 31,
1997.
"Consents" shall mean a consent executed by each party to the
Project Documents (other than Lender) in substantially the form of Exhibit M-1,
M-2 or M-3 hereto, as applicable.
"Construction Contracts" means the Phase I Construction
Contracts and the Phase II Construction Contracts.
"Construction Deeds of Trust" shall mean the construction
deeds of trust filed in connection with the Closing, in substantially the form
of Exhibit I.
"Construction Loan" has the meaning given in Section 2.1(a)(i)
of the TLI Credit Agreement.
"Construction Loan Availability Period" means with respect to
the Project the period from the Closing Date to the earlier of Completion or the
Construction Loan Maturity Date.
"Construction Loan Borrowing" means a borrowing by Borrower
consisting of a Construction Loan made by the Lender.
"Construction Loan Maturity Date" shall mean, with respect to
the Project, December 31, 1997.
"Contractors" means Manuel Bros. Inc., Aegean Construction
Services, Inc., Network Development Consultants, Inc. and such other contractors
as may be selected by Borrower and approved by Lender.
"Credit Documents" means the TLI Credit Agreement, the Note,
the Collateral Documents and the Consents.
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"Credit Event" means the making of any Construction Loan and
any other extension of credit hereunder.
"Debt" of any Person at any date means, without duplication,
(a) all obligations of such Person for borrowed money, (b) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(c) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business, (d) all obligations of such Person under leases which are or
should be, in accordance with GAAP, recorded as capital leases in respect of
which such Person is liable, (e) all obligations of such Person to purchase
securities (or other property) which arise out of or in connection with the sale
of the same or substantially similar securities (or property), (f) all deferred
obligations of such Person to reimburse any bank or other Person in respect of
amounts paid or advanced under a letter of credit or other instrument, (g) all
Debt of others secured by a Lien on any asset of such Person, whether or not
such Debt is assumed by such Person and (h) all Debt of others guaranteed
directly or indirectly by such person or as to which such Person has an
obligation substantially the economic equivalent of a guarantee.
"Debt Service" means for any Person and any period all
Obligations for principal and interest payments on Debt of such Persons due in
such period.
"Default" means any occurrence, circumstance or event, or any
combination thereof, which, with the lapse of time and/or the giving of notice,
would constitute an Event of Default.
"Default Rate" means an interest rate per annum equal to the
interest rate then in effect on the Loan Facility plus three percent (3%). All
computations of interest with respect to the Default Rate shall be based on a
year of 360 days and actual days elapsed.
"Depositary Bank" has the meaning given in Section 8(b) of the
Security Agreement.
"Development Companies" means corporations which are direct or
indirect subsidiaries of GSI and/or GST which will develop the Network Projects.
"Dollars" and "$" means United States dollars or such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts in the United States of
America.
"Drawdown Certificate" means a certificate delivered to Lender
pursuant to Section 3.2(b) of the TLI Credit Agreement substantially in the form
of Exhibit C-2 thereto.
"Easement Property" means the property subject to all
Easements and similar agreements described on Schedules 3 and 4 attached hereto.
A-5
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"Easements" means any easement, other right of way or license
provided or agreed to by any Person other than a Governmental Authority.
"Eminent Domain Proceeds" has the meaning given in Section
5.15 of the TLI Credit Agreement.
"Employee Benefit Plan" means any employee benefit plan within
the meaning of section 3(3) of ERISA maintained or contributed to by Borrower or
any ERISA Affiliate, other than a Multiemployer Plan.
"Equipment" has the meaning given in Section 2(c) of the
Security Agreement.
"Equity Securities" of any Person shall mean (a) all common
stock, preferred stock, participations, shares, partnership interests or other
equity interests in and of such Person (regardless of how designated and whether
or not voting or non-voting) and (b) all warrants, options and other rights to
acquire any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, including (unless the context otherwise
requires) any rules or regulations promulgated thereunder.
"ERISA Affiliate" means any Person which is treated as a
single employer with Borrower under Section 414 of the Code.
"ERISA Plan" means any employee benefit plan (a) maintained by
Borrower or any ERISA Affiliate, or to which any of them contributes or is
obligated to contribute, for its employees and (b) covered by Title IV of ERISA
or to which Section 412 of the Code applies.
"Estoppel and Consent Certificate" shall mean an estoppel and
consent certificate in substantially the same form of Exhibit L.
"Event of Default" means any event specified in Article 8 of
the TLI Credit Agreement.
"Event of Eminent Domain" means any compulsory transfer or
taking by condemnation, eminent domain or exercise of a similar power, or
transfer under threat of such compulsory transfer or taking, of any part of the
Collateral or any of the mortgaged property described in a mortgage by any
agency, department, authority, commission, board, instrumentality or political
subdivision of the State of Arizona, the United States or another Governmental
Authority having jurisdiction.
"Exercise Price" has the meaning given in Section 2 of the
Warrant.
"Expected Completion Date" means March 31, 1997.
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"FCC" means the Federal Communications Commission and its
successors.
"Federal Funds Rate" means the per annum rate of interest at
which Federal funds in the amount of the Loan Facility scheduled to be
outstanding as of the commencement of the relevant Interest Period are offered
to the Lender for such Interest Period by Federal funds brokers in New York at
approximately 11:00 a.m. New York time on the date two Business Days prior to
the first day of such Interest Period.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System.
"First Annual Operating Budget" has the meaning given in
Section 5.7(b) of the TLI Credit Agreement.
"Fixed Rate" means a rate per annum equal to the annual yield
which a United States government securities dealer of recognized standing,
selected by the Lender in its sole discretion, offers to the Lender at
approximately 11:00 a.m. New York time on the day preceding the date of
conversion for the purchase of United States Treasury notes or bonds in an
aggregate principal amount of $1,000,000 or more maturing approximately on the
Maturity Date plus 3.00% plus swap costs.
"Force Majeure" means a delay in or failure of performance by
a Person attributable to unforeseeable occurrences beyond the control of such
Person, including acts of God or the public enemy; expropriation or confiscation
of facilities; compliance with any order or request of any Governmental
Authority; unforeseen changes in laws, regulations or orders, acts of declared
or undeclared war; use of any weapon of war employing atomic fission or
radioactive force, whether in time of peace or war; shipwreck; public disorder,
rebellion or sabotage, revolution, epidemics, landslides, hurricanes,
earthquakes, floods, riots, partial or entire failure of utilities, quarantine,
or similar causes; strikes, lockouts or other labor disputes (excluding a strike
at the Site or by employees of a Contractor unless such strike or disturbance is
in violation of a "no strike" provision of a Project labor agreement). Financial
difficulties of any kind are explicitly excluded from this definition of Force
Majeure.
"GAAP" means generally accepted accounting principles and
practices as in effect in the United States of America from time to time,
consistently applied.
"Governmental Authority" means any national, state or local
government (whether domestic or foreign), any political subdivision thereof or
any other governmental, quasi-governmental, judicial, public or statutory
instrumentality, authority, body, agency, bureau or entity, (including any
zoning authority, the FCC, the ACC, or any arbitrator with authority to bind a
party at law).
"Governmental Charges" has the meaning given in Section 1 of
the Security Agreement.
A-7
<PAGE>
"Governmental Rule" means any law, rule, regulation,
ordinance, order, code interpretation, judgment, decree, directive, guidelines,
policy or similar form of decision of any Governmental Authority.
"Greenstar" means GSI, GUS, GST, PLI, TLI, GST New Mexico
Lightwave, Inc., GST Pacwest Telecom Hawaii, Inc., and their Affiliates.
"GSI" means GST Telecommunications Inc. (formerly known as
"Greenstar Telecommunications Inc."), a corporation organized under the laws of
Canada.
"GST" means GST Telecom Inc., a Delaware corporation.
"GST Security Agreement" has the meaning given in Section
2.7(a) of the TLI Credit Agreement.
"GST Services Agreement" means the Services Agreement between
TLI and GST, dated as of October 1, 1995.
"GUS" means GST USA, Inc. (formerly known as "Greenstar USA,
Inc."), a Delaware corporation.
"Hazardous Substances" means substances defined as "hazardous
substances," in Section 101 of the CERCLA (42 U.S.C. Section 9601); those
substances defined as "hazardous waste" by the RCRA; those substances designated
as a "hazardous substance" pursuant to Section 311 of the Clean Water Act (33
U.S.C. Section 1321); those substances defined as "hazardous materials" in
Section 103 of the Hazardous Materials Transportation Act (49 U.S.C. Section
1801 et seq. at Section 1802); those substances regulated as a hazardous
chemical substance or mixture or as an imminently hazardous chemical substance
or mixture pursuant to Sections 6 or 7 of the TSCA (15 U.S.C. Sections 2605,
2606); those substances defined as "contaminants" by Section 1401 of the SDWA
(42 U.S.C. Section 300f), if present in any surface or ground water in excess of
maximum contaminant levels; those substances regulated by the Oil Pollution Act;
those substances defined as a pesticide pursuant to Section 2(u) of the FIFRA (7
U.S.C. Section 136(u)); those substances defined as a source, special nuclear or
by-product material by Section 11 of the AEA (42 U.S.C. Section 2014); those
substances defined as "residual radioactive material" by Section 101 of the
UMTRCA (42 U.S.C. Section 7911); those substances defined as "toxic materials"
or "harmful physical agents" pursuant to Section 6 of the Occupational Safety
and Health Act (29 U.S.C. Section 651 et seq. at Section 655); those substances
defined as hazardous wastes in 40 C.F.R. Part 261.3; those substances defined as
hazardous waste constituents in 40 C.F.R. Part 260.10, specifically including
Appendix VII and VIII of Subpart D of 40 C.F.R. Part 261; those substances
designated as hazardous substances in 40 C.F.R. Parts 116.4 and 302.4; those
substances defined as hazardous substances or hazardous materials in 49 C.F.R.
Part 171.8; those substances regulated as hazardous materials, hazardous
substances, or toxic substances in 40 C.F.R. Part 1910; and in the regulations
adopted and publications promulgated pursuant to any Hazardous Substance Laws,
whether or not such regulations or publications are specifically referenced
herein.
A-8
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"Hazardous Substance Laws" means: (a) the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. Section 9601 et seq.)("CERCLA"); (b) the Federal Water Pollution Control
Act (33 U.S.C. Section 1251 et seq.)("Clean Water Act" or "CWA"); (c) the
Resource Conversation and Recovery Act (42 U.S.C. Section 6901 et seq.)("RCRA");
(d) the Atomic Energy Act of 1954 (42 U.S.C. Section 2011 et seq.)("AEA"); (e)
the Clean Air Act (42 U.S.C. Section 7401 et seq.)("CAA"); (f) the Emergency
Planning and Community Right to Know Act (42 U.S.C. Section 11001 et
seq.)("EPCRA"); (g) the Federal Insecticide, Fungicide, and Rodenticide Act (7
U.S.C. Section 136 et seq.)("FIFRA"); (h) the Oil Pollution Act of 1990 (P.L.
101-380, 104 Stat. 486); (i) the Safe Drinking Water Act (42 U.S.C. Sections
300f et seq.)("SDWA"); (j) the Surface Mining Control and Reclamation Act of
1974 (30 U.S.C. Sections 1201 et seq.)("SMCRA"); (k) the Toxic Substances
Control Act (15 U.S.C. Section 2601 et seq.)("TSCA"); (l) the Uranium Mill
Tailings Radiation Control Act of 1978 (42 U.S.C. Section 7901 et
seq.)("UMTRCA"); and (m) all other Federal, state and local Governmental Rules
which govern Hazardous Substances, and the regulations adopted and publications
promulgated pursuant to all such foregoing laws.
"Insurance Proceeds" has the meaning given in Section 7.2(a)
of the TLI Credit Agreement.
"Interconnection Agreements" means the Phase I Interconnection
Agreements and the Phase II Interconnection Agreements.
"Interest Period" means (a) the period commencing on May 24,
1996 and ending on August 24, 1996 and (b) thereafter, each period commencing on
the last day of the next preceding Interest Period and ending on the numerically
corresponding day in the third succeeding calendar month; provided, however,
that (1) the initial Interest Period with respect to each Construction Loan
other than the initial Construction Loan shall commence on the date on which
such subsequent Construction Loan is advanced and end on the last day of the
then current Interest Period as established above; (2) any Interest Period which
would otherwise end on a day which is not a Business Day shall be extended to
the next succeeding Business Day unless such next Business Day falls in another
calendar month, in which case such Interest Period shall end on the immediately
preceding Business Day; (3) any Interest Period which begins on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall end on the last Business Day of a calendar month; and (4) no Interest
Period shall end after the Maturity Date.
"Inventory" has the meaning given in Section 2(e) of the
Security Agreement.
"Leased Property" means the real property subject to or
covered by the Leases.
"Leases" means any lease of property necessary or entered into
in connection with respect to the Phase I Project and the Phase II Project.
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"Lease Sites" means: (i) approximately 5,000 square feet
located at 3770 Park Avenue, Suite B, Tucson, Arizona; (ii) a 10,052 square foot
office warehouse building located at 3836 South Evans Blvd., Tucson, Arizona;
(iii) 1,023 square feet at 177 North Church Avenue, Tucson, Arizona, and the
sites which are the subject of the other Leases to be entered into with respect
to the Project, and all rights, rights of way and appurtenances thereto,
covering certain real property in Pima County, Arizona with respect to the
Project.
"Legal Requirement" means, as to any Person, any requirement
set forth in the Charter Documents, of such Person, any Governmental Rule, any
requirement under a Permit, and any determination of any arbitrator, court, or
government Governmental Authority, in each case applicable to or binding upon
such Person or any of its properties or to which such Person or any of its
properties is subject.
"Lender" means TM Communications LLC and its successors and
assigns.
"Lender Representative" means an individual designated by
Lender from time to time to act as liaison with Borrower.
"LIBOR Rate" means a rate per annum determined by Lender
(which determination shall, absent manifest error, be conclusive) to be equal to
the rate at which deposits in Dollars are offered to Lender in the London
interbank eurodollar currency market at approximately 11:00 a.m. (London time),
two Business Days prior to the first day of the relevant Interest Period (for
delivery on the first day of such Interest Period) and for a term equal to such
Interest Period.
"Lien" on any asset means any mortgage, deed of trust, lien,
pledge, charge, judgment, security interest, restrictive covenant or easement or
encumbrance of any kind in respect of such asset, whether or not filed, recorded
or otherwise perfected or effective under applicable law, as well as the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
"Liquidation Costs" has the meaning given in Section 2.6 of
the TLI Credit Agreement.
"Loan Facility" means, collectively, the Construction Loans
and the Term Loans made under the TLI Credit Agreement.
"Major Project Participants" means Aegean Construction
Services, Inc. and the other entities to be awarded contracts with respect to
the construction of the Project.
"Major Subcontracts" means any contract between Contractor and
any Major Subcontractor.
"Major Subcontractor" means any Person, at any tier, who
performs any work, including the supply of any equipment or materials for any
Contractor, involving amounts in excess in the aggregate of Two Hundred Fifty
Thousand Dollars ($250,000).
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"Master Agreement" means the Master Agreement among GSI, GST,
Pacwest, PLI and Tomen America dated October 24, 1994, as amended.
"Material Adverse Effect" means a material adverse effect on
(a) construction or operation of the Phase I Project or the Phase II Project, or
the business, assets, operations or financial or other condition of Borrower at
any time or on the financial or other condition of any other Major Project
Participant during the Construction Loan Availability Period, (b) the ability of
Borrower or any Major Project Participant to perform its obligations under the
Credit Documents or other Operative Documents, (c) the validity or
enforceability of the TLI Credit Agreement or any other Credit Document or any
related document, instrument or agreement, or the rights and remedies of Lender
hereunder or thereunder, or (d) the Lender's interest in a Project Phase, the
value of the Collateral, or Lender's security interests in the Collateral or the
perfection or priority of such security interests.
"Material Project Documents" means the documents specified in
Section 3.1(b)(A) through 3.1(b)(G) of the TLI Credit Agreement.
"Maturity" or "maturity" means, with respect to the amount due
with respect to the Loan Facility, interest, fees or other amounts payable by
Borrower under the TLI Credit Agreement or the other Credit Documents, the date
such amounts becomes due, whether upon the stated maturity or due date, upon
acceleration or otherwise.
"Maturity Date" means the earlier of the date which is nine
(9) years from the Closing Date or eight (8) years from the Term Conversion Date
or such earlier date on which the entire outstanding principal balance of the
Loan Facility, together with all unpaid interest, fees, charges and costs,
become due and payable under the TLI Credit Agreement.
"Maximum Legal Rate" has the meaning given in the Note.
"Milestone Disbursement Schedule" means the milestone
disbursement schedule for the Project delivered by Borrower at the Closing Date.
"Multiemployer Plan" means any multiemployer plan within the
meaning of section 3(37) of ERISA maintained or contributed to by Borrower or
any ERISA Affiliate.
"NDC" has the meaning given in Section 3.1(g) of the TLI
Credit Agreement.
"Net Cash Flow" means with respect to a Development Company
and the applicable period:
(a) the sum of:
(i) the gross receipts of the Development Company
from all sources (other than capital contributions, proceeds from the Credit
Agreement with Tomen America or a Tomen Affiliate or other loans), including but
not limited to receipts from (1) the sale of
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products and services, (2) interest and other investment income on investments
and reserves, and (3) insurance proceeds;
(ii) any amounts released from reserves, the
distribution of which is permissible and in accordance with the provisions of
the Credit Agreement; and
(iii) any Net Cash Flow from a prior period not
distributed but the distribution of which is permissible;
less (b) the sum of:
(i) all costs and expenses which the Development
Company paid during such period in connection with the construction, ownership,
management (except as provided herein), operation and maintenance of the Network
Project, including, but not limited to, (1) utility costs, (2) business taxes
and real and personal property tax and assessments, and fees and expenses in
connection with the preparation of the Development Company's tax returns, (3)
insurance premiums, (4) the actual documented costs of Network Project
management, not to include management fees paid to Greenstar or any Affiliate in
excess of such actual costs, (5) expenditures for capital improvements and the
repair, maintenance and restoration of the improvements (including any portion
of the same to the extent not covered by insurance proceeds), (6) expenditures
required or deemed advisable to be made under or in connection with any contract
of the Development Company, and (7) all other costs and expenses, including
capital expenditures and the purchase of spare parts and other inventory and
replacement items, required to be made by the Development Company (but excluding
any such amounts to the extent paid out of reserves); and
(ii) all principal and interest and other sums and
amounts payable by the Development Company to repay any Loan from Tomen or any
of its Affiliates payable for the applicable or pertinent period.
"Net Cash Flow Account Security Agreements" has the meaning
given in Section 2.7(a) of the TLI Credit Agreement.
"Net Cash Flow Agreements" means the agreements in the form of
Exhibit K entered into pursuant to Section 3.1(a) and Section 5.17 of the TLI
Credit Agreement.
"Network Project Credit Agreement" means a credit agreement
between Lender or one of its Affiliates, as lender and a Development Company, as
borrower, to finance an alternative access network telecommunications project.
"Network Projects" means alternative access network
telecommunications projects to be developed or existing alternative access
projects to be expanded by GSI and/or GST in the Territory.
"1934 Act" means the Securities Exchange Act of 1934, as
amended.
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"Note Holder" means the registered owner of any Note.
"Note" has the meaning given in Section 2.1(f) of the TLI
Credit Agreement.
"Notice of Borrowing" has the meaning given in Section
2.1(a)(ii) of the TLI Credit Agreement.
"Notice of Interest Rate Conversion" has the meaning given in
Section 2.1(d) of the TLI Credit Agreement.
"Notice of Term Conversion" has the meaning given in Section
2.1(b)(ii) of the TLI Credit Agreement.
"Obligations" means and includes, with respect to any Person,
all loans, advances, debts, liabilities, and obligations, howsoever arising,
owed by such Person to a lender of every kind and description (whether or not
evidenced by any note or instrument, and whether or not for the payment of
money), direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, pursuant to the terms of a credit agreement or
any other credit document, including all interest, fees, charges, expenses,
attorneys' fees and accountants fees chargeable to such Person in connection
with its dealings with such lender and payable by such Person hereunder or
thereunder. The term "Obligations" shall also mean and include any amounts owing
to Lender which arise because payments as to past transactions are rescinded or
otherwise required to be surrendered by Lender after receipt.
"Operating Account" has the meaning given in Section 7.1 of
the TLI Credit Agreement.
"Operation and Maintenance Costs" means all actual cash
maintenance and operation costs incurred and paid, or if appropriate, to be
incurred and paid, for the Project in any particular calendar or fiscal year or
period to which said term is applicable, including payments for fuel, additives
or chemicals and transportation costs related thereto, local taxes, insurance,
consumables, payments under any Lease, payments pursuant to the agreements for
the management, operation and maintenance of the Project, reasonable legal fees
and expenses paid by Borrower in connection with the management, maintenance or
operation of the Project (but excluding legal fees and expenses related to
litigation), fees paid in connection with obtaining, transferring, maintaining
or amending any Applicable Permits and reasonable general and administrative
expenses, but exclusive in all cases of non-cash charges, including depreciation
or obsolescence charges or reserves therefor, amortization of intangibles or
other bookkeeping entries of a similar nature, and also exclusive of all
interest charges and charges for the payment or amortization of principal of
indebtedness of Borrower (other than those relating to Debt permitted pursuant
to Section 6.3 of the TLI Credit Agreement).
"Operative Documents" means the Credit Documents, the Project
Documents and any Additional Project Documents.
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<PAGE>
"Other Taxes" has the meaning given in Section 2.3(c)(i) of
the TLI Credit Agreement.
"Pacwest" means Pacwest Network L.L.C., an Oregon limited
liability company and its Affiliates.
"Parts" means any part, appliance, instrument, appurtenance,
accessory or other property of any nature necessary or useful to the operation,
maintenance, service or repair of the project.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under Title IV of ERISA.
"Permit" means any action, approval, consent, waiver,
exemption, variance, franchise, order, permit, authorization, right or license
of or from a Governmental Authority.
"Permitted Investments" means (a) direct obligations of the
United States of America (including obligations issued or held in book-entry
form on the books of the Department of the Treasury of the United States of
America) or obligations the timely payment of the principal of and interest on
which are fully guaranteed by the United States of America; (b) obligations,
debentures, notes or other evidence of indebtedness issued or guaranteed by any
of the following: Export-Import Lender of the United States, Federal Housing
Administration or other agency or instrumentality of the United States; (c)
interest-bearing demand or time deposits (including certificates of deposit)
which are either (i) insured by the Federal Deposit Insurance Corporation, or
(ii) held in banks and savings and loan associations, having general obligations
rated at least "AA" or equivalent by Standard & Poor's Corporation ("S&P") or
Moody's Investors Service, Inc. ("Moody's), or if not so rated, secured at all
times, in the manner and to the extent provided by law, by collateral security
described in clauses (a) or (b) of this definition, of a market value of no less
than the amount of moneys so invested; (d) commercial paper rated (on the date
of acquisition thereof) at least A-1 or P-1 or equivalent by S&P or Moody's,
respectively (or an equivalent rating by another nationally recognized credit
rating agency of similar standing if neither of such corporations is then in the
business of rating commercial paper), maturing not more than 270 days from the
date of creation thereof; (e) any corporate evidence of indebtedness rated at
least "A-" or equivalent by S&P or Moody's; or (f) any advances, loans or
extensions of credit or any stock, bonds, notes, debentures or other securities
as Lender may from time to time approve in its sole and absolute discretion.
"Permitted Liens" means (a) the rights and interests of Lender
as provided in the Operative Documents, (b) Liens for any tax, assessment or
other governmental charge, either secured by a bond reasonably acceptable to
Lender or not yet due or being contested in good faith and by appropriate
proceedings, so long as (i) such proceedings shall not involve any substantial
danger of the sale, forfeiture or loss of the Project or any Applicable
Easements, as the case may be, title thereto or any interest therein and shall
not interfere in any material respect with the use or disposition of the Project
or any Applicable Easements, or (ii) a bond or other security acceptable to
Lender in its sole discretion has been posted or
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<PAGE>
provided in such manner and amount as to assure Lender that any taxes,
assessments or other charges determined to be due will be promptly paid in full
when such contest is determined, (c) materialmen's, mechanics', workers',
repairmen's, employees' or other like Liens arising in the ordinary course of
business or in connection with the construction of the Project, either for
amounts not yet due or for amounts being contested in good faith and by
appropriate proceedings, so long as (i) such proceedings shall not involve any
substantial danger of the sale, forfeiture or loss of any part of the Project or
any Applicable Easements, as the case may be, title thereto or any interest
therein and shall not interfere with the use or disposition of the Project or
any Applicable Easements, or (ii) a bond or other security acceptable to Lender
in its sole discretion has been posted or provided in such manner and amount as
to assure Lender that any amounts determined to be due will be promptly paid in
full when such contest is determined, (d) Liens arising out of judgments or
awards, but only so long as an appeal or proceeding for review is being
prosecuted in good faith with a reasonable likelihood of success and for the
payment of which adequate reserves, bonds or other security acceptable to Lender
in its sole discretion have been provided or are fully covered by insurance, (e)
mineral rights the use and enjoyment of which do not materially interfere with
the use and enjoyment of the Project or any Applicable Easements, (f) Liens,
deposits or pledges to secure statutory obligations or performance of bids,
tenders, contracts (other than for the repayment of borrowed money) or leases,
or for purposes of like general nature in the ordinary course of its business,
(g) Liens incident to the ordinary course of business that are not incurred in
connection with the obtaining of any loan, advance or credit and that do not in
the aggregate materially impair the use of the property or assets of Borrower or
the value of such property or assets for the purposes of such business, (h)
Liens of trade vendors created in connection with Debt allowed under Section 6.3
of the TLI Credit Agreement, and (i) Liens created in connection with a Net Cash
Flow Agreement.
"Person" means and includes an individual, a partnership, a
firm, an association, a corporation (including a business trust), a joint stock
company, an unincorporated association, a joint venture, a Governmental
Authority or any other entity whether acting in an individual, fiduciary or
other capacity.
"Phase I Collocation Agreements" means the Collocation
Agreement between Borrower and U.S. West and any other collocation agreements
entered into or to be entered into with respect to the Phase I Project.
"Phase I Construction Contracts" means that certain
Professional Services agreement dated June 21, 1995 between NDC and GST; that
certain underground Construction Contract dated April 6, 1995, between Borrower
and Manuel Bros. and the other Construction Agreements to be entered into with
respect to the construction of the Phase I Project, subject to the terms and
conditions of the TLI Credit Agreement.
"Phase I Interconnection Agreements" means the Building Space
License Agreement for Shared Customer-Provided Access between Borrower and AT&T
dated November 10, 1995, with respect to AT&T's central office building at 112
E. Alameda Street, Tucson, Arizona; the Occupancy Agreement between Borrower and
AT&T dated November 28, 1995, with respect to AT&T's conduit system at 112 E.
Alameda Street,
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<PAGE>
Tucson, Arizona; the Master Capacity Agreement between GST and MCI dated
November 13, 1995 (with respect to Borrower); the Competitive Access Provider
Agreement between GST and Sprint dated October 12, 1995; and any other
interconnection agreement entered into or to be entered into with respect to the
Phase I Project.
"Phase I Leases" means any lease of property necessary or
entered into in connection with the Phase I Project.
"Phase I Pole and Conduit Use Agreements" means the Facilities
Use Agreement between Tucson Electric Power Company and Borrower dated January
16, 1996; the General License Agreement for Innerduct Occupancy between U.S.
West and Borrower dated October 12, 1994; the License Agreement for Usage of
Communications Poles between U.S. West and Borrower dated July 21, 1994; the
City of Tucson License; and any other agreements entered into or to be entered
into with respect to the use of poles, conduits, the lease of fiber optic
cables, or rights of way for the Phase I Project's fiber optic cable and other
equipment.
"Phase I Project" means the development, construction and
operation of fiber optic transmission equipment and optical fiber cable for the
Service District all as more particularly described in Schedule 1 to the TLI
Credit Agreement, together with all Easements, all alterations thereto or
replacements thereof, all fixtures, attachments, appliances, equipment,
machinery and other articles attached thereto or used in connection therewith
and all Parts which may from time to time be incorporated or installed in or
attached thereto, all contracts and agreements for the purchase or sale of
commodities or other personal property related thereto, all leases of real or
personal property related thereto, and all other real and tangible and
intangible personal property owned by Borrower and placed upon or used in
connection therewith.
"Phase II Collocation Agreements" means the collocation
agreement between Borrower and U.S. West and any other collocation agreements
entered into or to be entered into with respect to the Phase II Project.
"Phase II Construction Contracts" means the Construction
Agreements to be entered into with respect to the construction of the Phase II
Project, subject to the terms and conditions of the TLI Credit Agreement.
"Phase II Interconnection Agreements" means the Phase I
Interconnection Agreements and any other interconnection agreements to be
entered into with respect to the Phase II Project.
"Phase II Leases" means any lease of property necessary or
entered into in connection with the Phase II Project.
"Phase II Pole and Conduit Use Agreements" means the Phase I
Pole and Conduit Use Agreements, and any other agreements entered into or to be
entered into with
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<PAGE>
respect to the use of poles, conduits, the lease of fiber optic cables, or
rights of way for the Phase II Project's fiber optic cable and other equipment.
"Phase II Project" means the development, construction and
operation of fiber optic transmission equipment and optical fiber cable for the
Service District all as more particularly described in Schedule 2 to the TLI
Credit Agreement, together with all Easements, all alterations thereto or
replacements thereof, all fixtures, attachments, appliances, equipment,
machinery and other articles attached thereto or used in connection therewith
and all Parts which may from time to time be incorporated or installed in or
attached thereto, all contracts and agreements for the purchase or sale of
commodities or other personal property related thereto, all leases of real or
personal property related thereto, and all other real and tangible and
intangible personal property owned by Borrower and placed upon or used in
connection therewith.
"Plans and Specifications" means the plans and specifications
for the construction and design of the relevant Project Phase, including any
document describing the scope of work performed by the Contractors under the
Construction Contracts or any other contract or subcontract for the construction
of the relevant Project Phase, including, without limitation, the Collocation
Agreements, the Interconnection Agreements and the Pole and Conduit Agreements,
all work drawings, engineering and construction schedules, project schedules,
project monitoring systems, specifications status lists, material and
procurement ledgers, drawings and drawing lists, manpower allocation documents,
management and project procedures documents, project design criteria, and any
other document referred to in the Construction Contracts or any of the documents
referred to in this definition.
"Pledge Agreement" has the meaning given in Section 2.6 of the
TLI Credit Agreement.
"Pole and Conduit Use Agreements" means the Phase I Pole and
Conduit Use Agreements and the Phase II Pole and Conduit Use Agreements.
"Proceeds" has the meaning given in Section 7.4 of the TLI
Credit Agreement.
"Procurement Agent" means construction equipment and materials
procurement agent for the development and construction of the Network Projects.
"Project" means the Phase I Project and the Phase II Project.
"Project Costs" means the combined Project Phase Costs for the
Phase I Project plus the Phase II Project and the amount of any dividend to GST
of capital previously contributed to TLI in excess of $4,000,000.
"Project Documents" means the documents listed in Section
3.1(b) of the TLI Credit Agreement, and any other material agreement or document
relating to the development, construction, operation, maintenance and repair of
the Project or Phase thereof.
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<PAGE>
"Project Loan" means a loan in the amount of 75% of the
Project Costs of a Network Project provided by Lender or one of its affiliates
to a Development Company pursuant to a Network Project Credit Agreement.
"Project Phase" means either the Phase I Project or the Phase
II Project.
"Project Phase Budget" has the meaning given in Section
3.1(l)(ii) of the TLI Credit Agreement.
"Project Phase Costs" means (a) the cost of designing,
equipping, procuring, constructing, starting up and testing the Project Phase,
(b) the cost of acquiring any lease, the Applicable Easements and any other
necessary interest in the Project Phase, (c) local property taxes and insurance
premiums payable with respect to the Project Phase during the Construction Loan
Availability Period, (d) interest payable on any Note for the Project Phase
during the Construction Loan Availability Period, (e) reasonable initial working
capital requirements of the Project Phase as approved by Lender, (f) the costs
of acquiring Permits for the Project Phase during the Construction Loan
Availability Period, (g) other fees and expenses relating to the Project Phase,
including financial, legal (excluding litigation) and consulting fees and
expenses, all as described in the Project Phase Budget.
"Project Revenues" means all income and receipts derived from
the ownership or operation of the Project, including payments due Borrower under
the Construction Contracts, proceeds of any business interruption or other
insurance, income derived from the Project, together with any receipts derived
from the sale of any property pertaining to the Project or incidental to the
operation of the Project, all as determined in conformity with cash accounting
principles, the investment income on amounts in the Accounts, the proceeds of
any drawing under a letter of credit of which Borrower is the beneficiary,
proceeds of any insurance, condemnation or litigation or arbitration awards
relating to the Project and proceeds from the Collateral Documents, but not
including sums paid to Borrower in satisfaction of a contractual obligation to
indemnify Borrower for third party liability to the extent such sums do not
exceed the actual damage, loss or cost suffered by Borrower in connection
therewith.
"Project Schedule" means the Project Schedule/Milestone
Disbursement Schedule for each Project Phase delivered by Borrower at the
Closing.
"Proportionate Share" has the meaning given to it in Section
9.1 of the TLI Credit Agreement, and as set forth in Attachment 1 of the
Assignment Agreement.
"Prudent Practices" means those practices, methods, equipment,
specifications and standards of safety and performance, as the same may change
from time to time, as are commonly used by facilities similar to the Project of
a type and size similar to the Project as good, safe and prudent engineering
practices in connection with the design, construction, operation, maintenance,
repair and use thereof with commensurate standards of safety, performance,
dependability, efficiency and economy.
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<PAGE>
"PU Code" means the Arizona Revised Statutes Sections 40-101
et seq., as amended.
"Receipts Account" has the meaning given in Section 7.1(a) of
TLI Credit Agreement.
"Receivables" has the meaning given in Section 2(a) of the
Security Agreement.
"Refinancing Notice" shall mean a written notice of proposed
financing by Borrower in substantially the same form of Exhibit F to the TLI
Credit Agreement.
"Rules" shall mean the Commercial Arbitration Rules of The
American Arbitration Association.
"SEC" means the U.S. Securities and Exchange Commission.
"Security Agreement" has the meaning given in Section
2.7(a)(i) of the TLI Credit Agreement.
"Service District" means the geographic district to be served
by the Project in Tucson, Arizona as further described in Schedules 1 and 2.
"Site" means the Lease Sites and the Easement Properties.
"Substantial Completion" means substantial completion of a
Project Phase in accordance with the Plans and Specifications and the
requirements of all Applicable Permits and as certified by an independent
engineer to the satisfaction of the Lender in its sole discretion.
"Taxes" has the meaning given in Section 2.3(c) of the TLI
Credit Agreement.
"Term Conversion" means the accomplishment of the conversion
of Construction Loans to a Term Loan pursuant to Section 2.1(b)(i) of the TLI
Credit Agreement.
"Term Conversion Date" means the date on which Term Conversion
occurs.
"Term Loan" has the meaning given in Section 2.1(b) of the TLI
Credit Agreement.
"Territory" means North America, Central America and South
America.
"TLI" means GST Tucson Lightwave, Inc., an Arizona corporation
formerly known as "Tucson Lightwave, Inc.".
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<PAGE>
"TLI Common Stock" means the common stock, no par value, of
TLI.
"TLI Credit Agreement" means the Credit Agreement between TM
Communications LLC (as lender) and TLI (as borrower) dated May 24, 1996.
"TLI Project" means the Project.
"Tomen" means Tomen Corporation, a corporation organized under
the laws of Japan.
"Tomen America" means Tomen America Inc., a New York
Corporation.
"Tomen Indemnitees" has the meaning given in Section 6.1 of
the TLI Stock Purchase Agreement.
"Total Construction Loan Commitment" has the meaning given in
Section 2.2(a) of the TLI Credit Agreement.
"Total Term Loan Commitment" has the meaning given in Section
2.2(b) of the TLI Credit Agreement.
"UCC" means the Uniform Commercial Code of the jurisdiction
the law of which governs the document in which such term is used.
"U.S." means the United States of America.
<PAGE>
RULES OF INTERPRETATION
1. All terms defined in the TLI Credit Agreement or any other
Credit Document in the singular form shall have comparable meanings in the
plural form and vice versa.
2. The word "or" is not exclusive.
3. A reference to a Governmental Rule includes any amendment
or modification to such Governmental Rule.
4. A reference to a Person includes such Person's permitted
successors and permitted assigns.
5. The words "include", "includes" and "including" and words
of similar import are not limiting or exclusive.
6. A reference in a Credit Document to an Article, Section,
Exhibit, Schedule, Annex, Attachment or Appendix is to the Article, Section,
Exhibit, Schedule, Annex, Attachment or Appendix of such Credit Document unless
otherwise indicated. Exhibits, Schedules, Annexes, Attachments or Appendices to
any document shall be deemed incorporated by reference in such document.
7. References to any document, instrument or agreement (a)
shall include all exhibits, schedules and other attachments thereto, (b) shall
include all documents, instruments or agreements issued or executed in
replacement thereof, and (c) shall mean such document, instrument or agreement,
or replacement or predecessor thereto, as amended, modified and supplemented
from time to time and in effect at any given time.
8. The words "hereof," "herein" and "hereunder" and words of
similar import when used in any Credit Document shall refer to such Credit
Document as a whole and not to any particular provision of such document.
9. References to "days" shall mean calendar days, unless the
term "Business Days" is used. References to a time of day shall mean such time
in New York, New York unless otherwise specified.
10. The Credit Documents are the result of negotiations
between, and have been reviewed by Borrower, Lender and their respective
counsel. Accordingly, the Credit Documents shall be deemed to be the product of
all parties thereto, and no ambiguity shall be construed in favor of or against
Borrower or Lender.
AMENDED AND RESTATED CONSULTING AGREEMENT
-----------------------------------------
AMENDED AND RESTATED CONSULTING AGREEMENT made as of the 1st
day of September 1995, by and between SUNWEST VENTURES, INC., a British Columbia
corporation with its principal place of business at 999 West Hastings Street,
Vancouver, British Columbia V6C 2W2 ("Consultant"), and GST USA, INC. ("GUSA")
and GST TELECOM INC. ("Telecom" and, together with GUSA, the "Corporations"),
each Delaware corporations with their principal offices at 4317 N.E.
Thurston Way, Vancouver, Washington 98662.
W I T N E S S E T H:
WHEREAS, Consultant has heretofore been retained to render
consulting services to the Corporations' parent corporation, GST
Telecommunications, Inc. ("GST"), pursuant to that certain Consulting Agreement
dated as of December 30, 1994 between Consultant and GST; and
WHEREAS, Consultant, GST and the Corporations desire to amend
and restate the terms of Consultant's retention and to provide that Consultant
shall be jointly retained by the Corporations;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter contained, the parties hereto agree as follows:
1. Retention of Consultant. The Corporations hereby
retain Consultant to render to the Corporations, GST and their
subsidiaries (collectively, the "GST Companies") financial
consulting services, which shall include, without limitation, the
<PAGE>
development and evaluation of financing, merger and acquisition proposals,
preparation of reports and studies thereon when advisable, and assistance in
negotiations and discussions pertaining thereto and such other consulting
services in connection with the operations of the GST Companies as shall be
mutually agreed. All services to be rendered by Consultant hereunder shall be
rendered by W. Gordon Blankstein ("Blankstein"), who hereby agrees to provide
such services, and the performance of Consultant's duties hereunder may not be
delegated by Consultant (except to Blankstein) or by Blankstein to any other
person, firm, corporation or entity, without the prior written consent of the
Corporations first had and obtained in each instance. Consultant hereby accepts
such retention and agrees that, for so long as it shall be retained by the
Corporations, it shall devote such time, attention, knowledge and skills as
shall be required, faithfully and to the best of its ability, in the performance
of its duties on behalf of the Corporations.
2. Compensation. As compensation for the services described in
Paragraph 1 hereof, the Corporations shall pay to Consultant a fee of $190,000
annually, or such greater amount as the Board of Directors of GST (the "GST
Board") may from time to time determine, in equal installments no less
frequently than monthly until the earliest to occur of the events specified in
Paragraph 3(a).
3. Term; Termination for Cause.
(a) Consultant's retention by the Corporations hereunder
shall commence on the date hereof and shall continue through February 28, 1999,
or until Blankstein shall die or become
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Disabled (as hereinafter defined) or until this Agreement is terminated by the
Corporations for Cause (as hereinafter defined).
(b) The term Cause when utilized herein with respect to the
termination of this Agreement shall mean (i) the willful and repeated failure of
Consultant to perform any material duties hereunder or gross negligence of
Consultant in the performance of such duties, and if such failure or gross
negligence is susceptible of cure by Consultant, the failure to effect such cure
within 20 days after written notice of such failure or gross negligence is given
to Consultant; (ii) excessive use of alcohol or illegal drugs by Blankstein
interfering with the performance of Consultant's duties hereunder; (iii) theft,
embezzlement, fraud, misappropriation of funds, other acts of dishonesty or the
violation of any law or ethical rule relating to Consultant's retention; (iv)
the conviction of a felony or other crime involving moral turpitude by
Consultant or Blankstein; or (v) the breach by Consultant of any other material
provision of this Agreement, and if such breach is susceptible of cure by
Consultant, the failure to effect such cure within 30 days after written notice
of such breach is given to Consultant. For purposes of this Agreement, an action
shall be considered "willful" if it is done intentionally, purposely or
knowingly, distinguished from an act done carelessly, thoughtlessly or
inadvertently. In any such event, Consultant shall be entitled to receive its
compensation provided hereunder to and including the date of termination. Should
Consultant in good faith dispute its termination for Cause, it shall give prompt
written notice thereof to the Corporations, in which event such dispute shall be
submitted to and determined by arbitration in San
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<PAGE>
Francisco, California before an arbitrator appointed pursuant to the rules of
the American Arbitration Association (the "Arbitrator"). Such arbitration shall
be conducted in accordance with such rules as shall be promulgated by the
Arbitrator, which may include any or all of the rules then obtaining of the
American Arbitration Association. Any award or decision of the Arbitration shall
be conclusive in the absence of fraud and judgment thereon may be entered in any
court having jurisdiction thereof. The costs of such arbitration shall be borne
by the party against whom any award or decision is rendered. Consultant shall
not be entitled to receive any compensation for periods subsequent to its
dismissal pursuant to this Paragraph 3(b).
4. Additional Benefits. In addition to the compensation
payable to Consultant hereunder, Blankstein (and his family) shall be entitled
to participate, to the extent he is (and they are) eligible under the terms and
conditions thereof, in any profit sharing, pension, retirement, hospitalization,
insurance, disability, medical service, stock option, bonus or other employee
benefit plan available to the executive officers of the Corporations that may be
in effect from time to time during the period of Consultant's retention
hereunder. The Corporations shall be under no obligation to institute or
continue the existence of any such employee benefit plan.
5. Reimbursement of Expenses. The Corporations shall reimburse
Consultant in accordance with applicable policies of the GST Companies for all
expenses reasonably incurred by it in connection with the performance of its
duties hereunder and the
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<PAGE>
business of the GST Companies, upon the submission to the Corporations of
appropriate receipts or vouchers.
6. Restrictive Covenant. In consideration of the retention of
Consultant hereunder, Consultant and Blankstein agree that during the period of
Consultant's retention hereunder and, in the event of termination of this
Agreement (i) by Consultant otherwise than for Principal Breach (as such term is
defined herein) or (ii) by the Corporation for Cause, for a further period
ending on the earlier of two years after such termination or February 28, 2000,
they will not (a) directly or indirectly own, manage, operate, join, control,
participate in, invest in, or otherwise be connected with, in any manner,
whether as an officer, director, employee, partner, investor or otherwise, any
business entity that is engaged in the design, development, construction or
operation of alternate access or other telecommunications networks, in providing
long distance or other telecommunications services or in any other business in
which the GST Companies, or any of them, are engaged during such period, within
the United States of America (1) in all locations in which the GST Companies, or
any of them, are doing business, and (2) in all locations in respect of which
the GST Companies are actively planning for and/or pursuing a business
opportunity, whether or not the GST Companies, or any of them, theretofore have
submitted any bids, provided that if such planning and/or pursuit relates to a
business opportunity that is not a competitive access project (a "CAP") such
planning and/or pursuit must have involved material efforts on the part of the
GST Companies, or any of them, (b) for themselves or on behalf of any other
person, partnership, corporation or entity, call on any
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<PAGE>
customer of the GST Companies for the purpose of soliciting, diverting or taking
away any customer from the GST Companies (1) in all locations in which the GST
Companies, or any of them, are doing business, and (2) in all locations in
respect of which the GST Companies, or any of them, are actively planning for
and/or pursuing a business opportunity, whether or not the GST Companies, or any
of them, theretofore have submitted any bids, provided that if such planning
and/or pursuit relates to a business opportunity that is not a CAP, such
planning and/or pursuit must have involved material efforts on the part of the
GST Companies, or any of them, or (c) induce, influence or seek to induce or
influence any person engaged as an employee, representative, agent, independent
contractor or otherwise by the GST Companies, or any of them, to terminate his
or her relationship with the GST Companies, or any of them. Nothing herein
contained shall be deemed to prohibit Consultant and Blankstein from (x)
investing their funds in securities of an issuer if the securities of such
issuer are listed for trading on a national securities exchange or are traded in
the over-the-counter market and their holdings therein represent less than 2% of
the total number of shares or principal amount of the securities of such issuer
outstanding, (y) owning securities, regardless of amount, of GST.
Consultant and Blankstein acknowledge that the provisions of
this Paragraph 6 are reasonable and necessary for the protection of the GST
Companies, and that each provision, and the period or periods of time,
geographic areas and types and scope of restrictions on the activities specified
herein are, and are intended to be, divisible. In the event that any provision
of this
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<PAGE>
Paragraph 6, including any sentence, clause or part hereof, shall be deemed
contrary to law or invalid or unenforceable in any respect by a court of
competent jurisdiction, the remaining provisions shall not be affected, but
shall, subject to the discretion of such court, remain in full force and effect
and any invalid and unenforceable provisions shall be deemed, without further
action on the part of the parties hereto, modified, amended and limited to the
extent necessary to render the same valid and enforceable.
7. Confidential Information. Consultant and Blankstein shall
hold in a fiduciary capacity for the benefit of the GST Companies all
information, knowledge and data relating to or concerned with their operations,
sales, business and affairs, and they shall not, at any time for a period of two
years after termination of Consultant's retention hereunder, use, disclose or
divulge any such information, knowledge or data to any person, firm or
corporation (unless the GST Companies no longer treat such information as
confidential) other than to the GST Companies or their designees and employees
or except as may otherwise be required in connection with the business and
affairs of the GST Companies; provided, however, that Consultant and Blankstein
may use, disclose or divulge such information, knowledge or data that (i) was
known to Blankstein at the commencement of Consultant's retention by GST; (ii)
is or becomes generally available to the public through no wrongful act on
Consultant's or Blankstein's part; or (iii) becomes available to Consultant or
Blankstein from a person or entity other than the GST Companies or their agents
not bound by this or a similar agreement with the GST Companies; and
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<PAGE>
provided, further, that the provisions of this Paragraph 8 shall not apply to
Blankstein's know how to the extent utilized by him in subsequent retention or
employment so long as such retention or employment is not in breach of this
Agreement.
8. Equitable Relief. The parties hereto acknowledge that
Consultant's services are unique and that, in the event of a breach or a
threatened breach by Consultant of any of its obligations under this Agreement,
the Corporations will not have an adequate remedy at law. Accordingly, in the
event of any such breach or threatened breach by Consultant, the Corporations
shall be entitled to such equitable and injunctive relief as may be available to
restrain Consultant, Blankstein and any business, firm, partnership, individual,
corporation or entity participating in such breach or threatened breach from the
violation of the provisions hereof. Nothing herein shall be construed as
prohibiting the Corporations from pursuing any other remedies available at law
or in equity for such breach or threatened breach, including the recovery of
damages and the immediate termination of the retention of Consultant hereunder.
9. Survival of Provisions; Death of Blankstein. Neither the
termination of this Agreement, nor of Consultant's retention hereunder, shall
terminate or affect in any manner any provision of this Agreement that is
intended by its terms to survive such termination.
In the event of termination of this Agreement by reason of
Blankstein's death, the Corporations shall pay a benefit (the "Benefit Payment")
to such person or persons as Consultant shall, at its option, from time to time
designate by written
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<PAGE>
instrument delivered to the Corporations, each subsequent designation to revoke
all prior designations, or if no such designation is made, to Consultant (the
"Payment Beneficiary"). The Benefit Payment shall be in an amount equal to one
and one-half times Consultant's then current annual compensation payable
hereunder, and shall be payable to the Payment Beneficiary in equal quarterly
installments over a period of one and one-half years, provided that if the GST
Companies, or any of them, then maintain a life insurance policy on the life of
Blankstein under which they are the beneficiary, the amount of the death benefit
payable thereunder, to a maximum amount equal to the Benefit Payment, less
installments of the Benefit Payment theretofore paid, shall be paid to the
Payment Beneficiary on the Benefit Payment installment payment date next
succeeding the date on which the GST Companies receive such death benefit
proceeds, and the remainder of the Benefit Payment, if any, shall be paid in
equal quarterly installments as provided above.
10. Disability of Blankstein. In the event that during the
term of this Agreement Blankstein shall become Disabled, Consultant shall
continue to receive the full amount of the compensation to which it was
theretofore entitled for a period of six months after Blankstein shall be deemed
to have become Disabled (the "First Disability Payment Period"). If the First
Disability Payment Period shall end prior to February 28, 1999, Consultant
thereafter shall be entitled to receive compensation at an annual rate equal to
one-half of its then current compensation for a further period ending on the
earlier of (i) one year thereafter, or (ii) February 28, 1999 (the "Second
Disability Payment Period").
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<PAGE>
Upon the expiration of the Second Disability Payment Period, Consultant shall
not be entitled to receive any further payments on account of its compensation
until Blankstein shall cease to be Disabled and Consultant shall have resumed
its duties hereunder and provided that the Corporations shall not have
theretofore terminated this Agreement as hereinafter provided. The Corporations
may terminate this Agreement and Consultant's engagement hereunder at any time
after Blankstein is Disabled, upon at least 10 days' prior written notice. For
the purposes of this Agreement, Blankstein shall be deemed to have become
Disabled when (x) by reason of physical or mental incapacity of Blankstein,
Consultant is not able to perform a substantial portion of its duties hereunder
for a period of 135 consecutive days or for 135 days in any consecutive 225-day
period or (y) when Blankstein's physician or a physician designated by the
Corporations shall have determined that by reason of Blankstein's physical or
mental incapacity, Consultant will not be able to perform its duties under this
Agreement. In the event that Consultant shall dispute any determination of
Blankstein's Disability pursuant to clauses (x) or (y) above, the matter shall
be resolved by the determination of three physicians qualified to practice
medicine in the United States of America or Canada, one to be selected by each
of the Corporations and Consultant and the third to be selected by the
designated physicians. If Blankstein shall receive benefits under any disability
policy maintained by the GST Companies, the Corporations shall be entitled to
deduct the amount equal to the benefits so received from compensation that they
otherwise would have been required to pay to Consultant as provided above.
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<PAGE>
11. Termination for Breach by Corporations. Consultant may
upon written notice to the Corporations terminate this Agreement (a termination
for "Principal Breach") in the event of the breach by the Corporations of any
material provision of this Agreement (and the occurrence of any of the events
described in subparagraph (i) of Paragraph 12 hereof shall be deemed a breach by
the Corporations of a material provision of the Agreement), and if such breach
relates to a provision of this Agreement other than Paragraph 12 and is
susceptible of cure, the failure to effect such cure within 30 days after
written notice of such breach is given to the Corporations.
12. Change of Control. (i) If prior to the termination of this
Agreement, there is a Change of Control (as such term is defined herein) and
thereafter any of the following occur: (a) Blankstein ceases to serve as
Chairman of the Board of GST; (b) Blankstein ceases to serve as a member of the
GST Board or the Boards of Directors of the Corporations (the "Boards"); (c)
Consultant is assigned duties which, if performed, would result in a significant
change in the functions or duties of Consultant; (d) any breach of Paragraphs 2,
4 or 5 of this Agreement; or (e) any requirement of the Corporations that the
location at which Consultant performs its principal duties for the Corporations
be outside a radius of 50 miles from the location at which Consultant performed
such duties immediately prior to the Change of Control, then this Agreement
shall be deemed to have been terminated by the Corporations otherwise than by
reason of Cause and the Corporations shall pay to Consultant within five days
after notice from Consultant to such effect, as liquidated damages, a lump sum
cash
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<PAGE>
payment equal to 2.99 times the "base amount" of Consultant's compensation. For
purposes hereof, "base amount" shall have the meaning provided in Section 280G
(b) (2) (A) of the Internal Revenue Code of 1986, as amended, and the Proposed
Regulations thereunder.
(ii) For the purposes of this Agreement, a Change of Control
means (A) the direct or indirect, sale, lease, exchange or other transfer of all
or substantially all (50% or more) of the assets of GST or the Corporations to
any person or entity or group of persons or entities acting in concert as a
partnership or other group (a "Group of Persons") excluding the GST Companies,
(B) the merger, consolidation or other business combination of GST or the
Corporations with or into another corporation with the effect that the
shareholders of GST or the Corporations, as the case may be, immediately
following the merger, consolidation or other business combination, hold 50% or
less of the combined voting power of the then outstanding securities of the
surviving corporation of such merger, consolidation or other business
combination ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors, (C) the
replacement of a majority of the GST Board or any committee of the GST Board or
of either of the Boards in any given year as compared to the directors who
constituted the GST Board or such committee or either of the Boards at the
beginning of such year, and such replacement shall not have been approved by the
GST Board or the Boards, as the case may be, as constituted at the beginning of
such year, (D) a person or Group of Persons shall, as a result of a tender or
exchange offer, open market purchases, privately negotiated purchases or
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otherwise, have become the beneficial owner (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as amended) of securities of GST or
either of the Corporations representing 50% or more of the combined voting power
of the then outstanding securities of such corporation ordinarily (and apart
from rights accruing under special circumstances) having the right to vote in
the election of directors.
13. Independent Contractor. Consultant shall, for all
purposes, be deemed an independent contractor. The Corporations shall not be
obligated to deduct social security, withholding or any other payroll or related
taxes from any payments to be made to Consultant under this Agreement.
Consultant shall not be deemed to have been granted any right or authority to
assume or create any obligation or responsibility, express or implied, on behalf
of or in the name of the Corporations in any way, except as may be specifically
authorized in writing by the Corporations from time to time. The Corporations
shall assume no responsibility for Consultant, its agents, servants, or
employees, for any injury to any of the foregoing or to any third party, and
Consultant and Blankstein hereby assume all such responsibility and agree to
indemnify and hold the Corporations free and harmless from any liability
therefor or on account thereof.
14. Notices. Any notice required, permitted or desired to be
given pursuant to any of the provisions of this Agreement shall be deemed to
have been sufficiently given or served for all purposes if delivered in person
or by responsible overnight delivery service or sent by certified mail, return
receipt requested, postage and fees prepaid as follows:
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<PAGE>
If to the Corporations, at their address set forth
above, Attention: Chief Executive Officer, with a
copy to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attention: Stephen Irwin
If to Consultant, at its address set forth above.
Any of the parties hereto may at any time and from time to time change the
address to which notice shall be sent hereunder by notice to the other parties
given under this Paragraph 14. The date of the giving of any notice hand
delivered or delivered by responsible overnight carrier shall be the date of its
delivery and of any notice sent by mail shall be the date five days after the
date of the posting of the mail.
15. No Assignment; Binding Effect. Neither this Agreement, nor
the right to receive any payments hereunder, may be assigned by Consultant or
the Corporations without the prior written consent of the other parties hereto.
This Agreement shall be binding upon Consultant and the Corporations, their
respective successors and permitted assigns.
16. Waivers. No course of dealing nor any delay on the part of
the Corporations in exercising any rights hereunder shall operate as a waiver of
any such rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.
17. Invalidity. If any clause, paragraph, section or part of
this Agreement shall be held or declared to be void, invalid or illegal, for any
reason, by any court of competent jurisdiction, such provision shall be
ineffective but shall not in
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any way invalidate or affect any other clause, paragraph, section or part of
this Agreement.
18. Further Assurances. Each of the parties shall execute such
documents and take such other actions as may be reasonably requested by the
other party to carry out the provisions and purposes of this Agreement in
accordance with its terms.
19. Attorneys' Fees. If any action, suit or proceeding is
filed by any party to enforce or rescind this Agreement or otherwise with
respect to the subject matter of this Agreement, the party prevailing on an
issue shall be entitled to recover with respect to such issue, in addition to
costs, reasonable attorneys' fees incurred in preparation or in prosecution or
defense of such action, suit or proceeding as fixed by the arbitrator or trial
court, and if any appeal is taken from the decision of the trial court,
reasonable attorneys' fees as fixed on appeal.
20. Entire Agreement; Modification. This Agreement contains
the full understanding of the parties hereto with respect to the subject matter
hereof and there are no representations, warranties, agreements or
understandings other than expressly contained herein. No termination,
alteration, modification or variation or waiver of this Agreement or any of the
provisions hereof shall be effective unless in writing executed by the parties
hereto, or in the case of a waiver, by the party or parties waiving compliance.
21. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware,
except that body of law relating to choice of laws.
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<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Consulting
Agreement has been made and executed as of the day and year first above written.
GST USA, INC.
By: /s/ John Warta
-------------------------------------
Name: John Warta
Title:
GST TELECOM INC.
By: /s/ John Warta
-------------------------------------
Name:
Title:
SUNWEST VENTURES, INC.
By: /s/ Gordon Blankstein
-------------------------------------
Gordon Blankstein, President
ACKNOWLEDGED AND AGREED:
/s/ Gordon Blankstein
- -------------------------------------
GORDON BLANKSTEIN, Individually
GST TELECOMMUNICATIONS, INC.
By: /s/ John Warta
- -------------------------------------
Name: John Warta
Title:
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<PAGE>
PERSONAL SERVICES AGREEMENT
---------------------------
AGREEMENT made as of this 1st day of October, 1995, by and
between GST USA, INC. and GST TELECOM INC., each Delaware corporations with
their principal offices at 4317 N.E. Thurston Way, Vancouver, Washington 98662
(the "Corporations"), and STEPHEN IRWIN, with an office at 15 Eisenhower Drive,
Cresskill, New Jersey 02626 ("Irwin").
W I T N E S S E T H :
WHEREAS, Irwin is an attorney at law with extensive experience
in the representation of publicly held corporations and otherwise advising
management of publicly held corporations in respect of corporate matters; and
WHEREAS, the Corporations desire to retain Irwin to render
management and legal services to the Corporations, their parent corporation, GST
Telecommunications, Inc. ("GST"), and their subsidiaries (collectively, the "GST
Companies"), and Irwin is willing to be retained to render such services;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter set forth, the parties hereto agree as follows:
1. Retention of Irwin. The Corporations hereby retain Irwin to
render management and legal services to the GST Companies, subject at all times
to the control and direction of the Board of Directors of the Corporations.
Irwin shall be appointed as a director and Vice Chairman of the Board of
Directors of GST. He shall be elected to such additional offices of the GST
Companies as determined by the Board of Directors of GST.
<PAGE>
2. Acceptance of Retention. Irwin hereby accepts such
retention and agrees that throughout the period of such retention, he will
devote one-half of his working time and attention to the performance of his
duties hereunder. Irwin further agrees to devote his knowledge and skills,
faithfully, diligently and to the best of his ability, in furtherance of the
business of the GST Companies, and to perform the duties assigned to him
pursuant to Paragraph 1 hereof, subject, at all times, to the direction and
control of the Board of Directors of the Corporations and GST. Irwin shall at
all times be subject to, observe and carry out such rules, regulations,
policies, directions and restrictions as the GST Companies shall from time to
time establish. The Corporations acknowledge that Irwin will continue to provide
legal and management services to persons and entities other than the GST
Companies. The performance of such services shall not constitute a breach of
this Agreement, provided that they do not interfere with the performance by
Irwin of his duties hereunder. Apart from any travel required to perform Irwin's
duties hereunder, he shall not be required to be regularly based outside the New
York metropolitan area without his prior written consent (which may be withheld
in his discretion).
3. Term. Except as otherwise provided herein, the term of
Irwin's retention hereunder shall commence as of the date hereof and shall
continue to and including the 28th day of February, 1999.
4. Compensation. As compensation for his services hereunder,
and in lieu of billings for his services through the firm of Olshan Grundman
Frome & Rosenzweig LLP, or any other law firm with which he may hereafter become
affiliated, the
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Corporations shall pay to Irwin a retainer at the rate of $280,000 per annum, or
such greater amount as the Board of Directors of GST (the "GST Board") may from
time to time determine, in equal installments no less frequently than
semi-monthly, and such incentive compensation and bonuses as the GST Board may
from time to time determine to award him. Irwin shall, for all purposes, be
deemed an independent contractor. The Corporations shall not be obligated to
deduct social security, withholding or any other payroll or related taxes from
any payments to be made to Irwin under this Agreement.
5. Additional Benefits. In addition to such retainer, Irwin
(and his family) shall be entitled to participate, to the extent he is (and they
are) eligible under the terms and conditions thereof, in any profit sharing,
pension, retirement, hospitalization, insurance, disability, medical service,
stock option, bonus or other benefit plan generally available to the executive
officers of the Corporations that may be in effect from time to time during the
period of Irwin's retention hereunder. The Corporations shall be under no
obligation to institute or continue the existence of any such benefit plan. By
separate agreement, GST is issuing and delivering to Irwin a five-year warrant
to purchase 300,000 of its Common Shares at a price of $6.75 per share, such
warrant to become exercisable in three equal annual installments on October 1,
1996, 1997 and 1998.
6. Reimbursement of Expenses. The Corporations shall reimburse
Irwin in accordance with applicable policies of the GST Companies for all
expenses reasonably incurred by him in connection with the performance of his
duties hereunder and the business of
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the GST Companies, upon the submission to the Chief Financial Officer of either
of the Corporations of appropriate receipts or vouchers therefor.
7. Facilities and Personnel. Irwin shall be provided such
facilities, supplies, personnel and services as shall be required or reasonably
requested for the performance of his duties hereunder.
8. Vacation. Irwin shall be entitled to paid vacation for such
periods annually as are consistent with those taken by senior executives of the
Corporations, such vacation to be taken at times mutually agreeable to Irwin and
the Board of Directors of the Corporations.
9. D&O Insurance Coverage. The Corporations shall use their
best efforts to cause GST to obtain and maintain, at GST's cost and expense,
directors' and officers' liability insurance coverage for the directors and
officers of GST, including Irwin. Nothing herein shall be deemed to require GST
to provide such coverage for Irwin if it is not then providing such coverage
generally to its directors and officers.
10. Restrictive Covenant. In consideration of his retention
hereunder, Irwin agrees that during the period of such retention, he will not
(a) directly or indirectly own, manage, operate, join, control, participate in
or invest in, whether as an officer, director, employee, partner or investor,
any business entity that is engaged in the design, development, construction or
operation of alternate access or other telecommunications networks, in providing
long distance or other telecommunications services or in any other business in
which the GST Companies, or any of them,
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<PAGE>
are engaged during such period within the United States of America (1) in all
locations in which the GST Companies or any of them are doing business, and (2)
in all locations in respect of which the GST Companies are actively planning for
and/or pursuing a business opportunity, whether or not the GST Companies, or any
of them theretofore have submitted any bids, provided that if such planning
and/or pursuit relates to a business opportunity that is not a competitive
access project (a "CAP") such planning and/or pursuit must have involved
material efforts on the part of the GST Companies or any of them, (b) for
himself or on behalf of any other person, partnership, corporation or entity,
call on any customer of the GST Companies for the purpose of soliciting,
diverting or taking away any customer from the GST Companies (1) in all
locations in which the GST Companies or any of them are doing business, and (2)
in all locations in respect of which the GST Companies or any of them are
actively planning for and/or pursuing a business opportunity, whether or not the
GST Companies or any of them theretofore have submitted any bids, provided that
if such planning and/or pursuit relates to a business opportunity that is not a
CAP, such planning and/or pursuit must have involved material efforts on the
part of the GST Companies or any of them, or (c) induce, influence or seek to
induce or influence any person engaged as an employee, representative, agent,
independent contractor or otherwise by the GST Companies or any of them, to
terminate his or her relationship with the GST Companies or any of them. Nothing
herein contained shall be deemed to prohibit Irwin from (x) investing his funds
in securities of an issuer if the securities of such issuer are listed for
trading on a national securities
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<PAGE>
exchange or are traded in the over-the-counter market and Irwin's holdings
therein represent less than 2% of the total number of shares or principal amount
of the securities of such issuer outstanding, (y) owning securities, regardless
of amount, of GST or (z) representing as legal counsel firms or individuals
engaged in any aspect of the telecommunications industry.
Irwin acknowledges that the provisions of this Paragraph 10
are reasonable and necessary for the protection of the GST Companies, and that
each provision, and the period or periods of time, geographic areas and types
and scope of restrictions on the activities specified herein are, and are
intended to be, divisible. In the event that any provision of this Paragraph 10,
including any sentence, clause or part hereof, shall be deemed contrary to law
or invalid or unenforceable in any respect by a court of competent jurisdiction,
the remaining provisions shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect and any invalid and
unenforceable provisions shall be deemed, without further action on the part of
the parties hereto, modified, amended and limited to the extent necessary to
render the same valid and enforceable.
11. Confidential Information. Irwin shall hold in a fiduciary
capacity for the benefit of the GST Companies all information, knowledge and
data relating to or concerned with their operations, sales, business and
affairs, and he shall not, at any time for a period of two years after
termination of his retention hereunder, use, disclose or divulge any such
information, knowledge or data to any person, firm or corporation (unless the
GST Companies no longer treat such information as confidential) other
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than to the GST Companies or their designees and employees or except as may
otherwise be required in connection with the business and affairs of the GST
Companies; provided, however, that Irwin may use, disclose or divulge such
information, knowledge or data that (i) is known to Irwin at the commencement of
his employment hereunder; (ii) is or becomes generally available to the public
through no wrongful act on Irwin's part; or (iii) becomes available to Irwin
from a person or entity other than the GST Companies or their agents not bound
by this or a similar agreement with the GST Companies.
12. Equitable Relief. The parties hereto acknowledge that
Irwin's services are unique and that, in the event of a breach or a threatened
breach by Irwin of any of his obligations under this Agreement, the Corporations
will not have an adequate remedy at law. Accordingly, in the event of any such
breach or threatened breach by Irwin, the Corporations shall be entitled to such
equitable and injunctive relief as may be available to restrain Irwin and any
business, firm, partnership, individual, corporation or entity participating in
such breach or threatened breach from the violation of the provisions hereof.
Nothing herein shall be construed as prohibiting the Corporations from pursuing
any other remedies available at law or in equity for such breach or threatened
breach, including the recovery of damages and the immediate termination of the
retention of Irwin hereunder.
13. Survival of Provisions. Neither the termination of this
Agreement, nor of Irwin's retention hereunder, shall terminate or affect in any
manner any provision of this Agreement that is intended by its terms to survive
such termination.
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<PAGE>
14. Death. In the event of termination of Irwin's retention
hereunder by reason of his death, the Corporations shall pay a benefit (the
"Benefit Payment") to such person or persons as Irwin shall, at his option, from
time to time designate by written instrument delivered to the Corporations, each
subsequent designation to revoke all prior designations, or if no such
designation is made, to Irwin's estate (the "Payment Beneficiary"). The Benefit
Payment shall be in an amount equal to one and one-half times Irwin's then
current annual retainer, and shall be payable to the Payment Beneficiary in
equal quarterly installments over a period of one and one-half years, provided
that if the GST Companies, or any of them, then maintain a life insurance policy
on the life of Irwin under which they are the beneficiary, the amount of the
death benefit payable thereunder, to a maximum amount equal to the Benefit
Payment, less installments of the Benefit Payment theretofore paid, shall be
paid to the Payment Beneficiary on the Benefit Payment installment payment date
next succeeding the date on which the GST Companies receive such death benefit
proceeds, which shall satisfy in full the Corporations' obligations under this
Paragraph 14.
15. Disability. In the event that during the term of his
retention by the Corporations Irwin shall become Disabled (as such term is
hereinafter defined) he shall continue to receive the full amount of the
retainer to which he was theretofore entitled for a period of six months after
he shall be deemed to have become Disabled (the "First Disability Payment
Period"). If the First Disability Payment Period shall end prior to February 28,
1999, Irwin thereafter shall be entitled to receive a retainer at an
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<PAGE>
annual rate equal to one-half of his then current retainer for a further period
ending on the earlier of (i) one year thereafter, or (ii) February 28, 1999 (the
"Second Disability Payment Period"). Upon the expiration of the Second
Disability Payment Period, Irwin shall not be entitled to receive any further
payments on account of his retainer until he shall cease to be Disabled and
shall have resumed his duties hereunder and provided that the Corporations shall
not have theretofore terminated this Agreement as hereinafter provided. The
Corporations may terminate this Agreement and Irwin's retention hereunder at any
time after Irwin is Disabled, upon at least 10 days' prior written notice. For
the purposes of this Agreement, Irwin shall be deemed to have become Disabled
when (x) by reason of physical or mental incapacity, Irwin is not able to
perform a substantial portion of his duties hereunder for a period of 135
consecutive days or for 135 days in any consecutive 225-day period or (y) when
Irwin's physician or a physician designated by the Corporations shall have
determined that Irwin shall not be able, by reason of physical or mental
incapacity, to perform a substantial portion of his duties hereunder. If Irwin
shall receive benefits under any disability policy maintained by the GST
Companies, the Corporations shall be entitled to deduct the amount equal to the
benefits so received from the retainer that they otherwise would have been
required to pay to Irwin as provided above.
The foregoing provisions regarding disability shall be
adjusted during the term hereof to match the most favorable disability benefits
provided to any other senior executive of the Corporations.
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<PAGE>
16. Termination for Cause. The Corporations may at any time
upon written notice to Irwin terminate Irwin's retention for Cause. For purposes
of this Agreement, the following shall constitute Cause: (i) the willful and
repeated failure of Irwin to perform any material duties hereunder or gross
negligence of Irwin in the performance of such duties, and if such failure or
gross negligence is susceptible of cure by Irwin, the failure to effect such
cure within 20 days after written notice of such failure or gross negligence is
given to Irwin; (ii) excessive use of alcohol or illegal drugs interfering with
the performance of Irwin's duties hereunder; (iii) theft, embezzlement, fraud,
misappropriation of funds, other acts of dishonesty or the violation of any law
or ethical rule relating to Irwin's retention; (iv) the conviction of a felony
or other crime involving moral turpitude by Irwin; or (v) the breach by Irwin of
any other material provision of this Agreement, and if such breach is
susceptible of cure by Irwin, the failure to effect such cure within 20 days
after written notice of such breach is given to Irwin. For purposes of this
Agreement, an action shall be considered "willful" if it is done intentionally,
purposely or knowingly, distinguished from an act done carelessly, thoughtlessly
or inadvertently. In any such event, Irwin shall be entitled to receive his
retainer to and including the date of termination. Should Irwin in good faith
dispute his termination for Cause, he shall give prompt written notice thereof
to the Corporations, in which event such dispute shall be submitted to and
determined by arbitration in New York, New York before an arbitrator appointed
pursuant to the rules of the American Arbitration Association (the
"Arbitrator"). Such arbitration shall
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be conducted in accordance with such rules as shall be promulgated by the
Arbitrator, which shall include a discovery period not to exceed 30 days in
length and which may include any or all of the rules then obtaining of the
American Arbitration Association. Any award or decision of the Arbitration shall
be conclusive in the absence of fraud and judgment thereon may be entered in any
court having jurisdiction thereof. The costs of such arbitration shall be borne
by the party against whom any award or decision is rendered. Irwin shall not be
entitled to receive any compensation for periods subsequent to his dismissal
pursuant to this Paragraph 16.
17. Change of Control.
(i) If prior to the termination of this Agreement,
there is a Change of Control (as such term is defined herein) and thereafter any
of the following occur: (a) Irwin is placed in any position of lesser stature
than that of Vice Chairman of the Board of Directors of GST; is assigned duties
inconsistent with those theretofore performed by him or duties which, if
performed, would result in a significant change in the nature or scope of the
functions or duties theretofore performed by him; is assigned performance
requirements or working conditions that are at variance with the performance
requirements and working conditions in effect on the date hereof; or is accorded
treatment on a general basis that is in derogation of his status as Vice
Chairman of the Board of GST; (b) Irwin ceases to serve as a member of the GST
Board; (c) any breach of Paragraph 2 or Paragraphs 4 through 8, inclusive, of
this Agreement; or (d) any requirement of the Corporations that the location at
which Irwin performs his principal duties for the
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<PAGE>
Corporations be outside a radius of 50 miles from the location at which Irwin
performed such duties immediately prior to the Change of Control, then the
Agreement shall be deemed to have been terminated by the Corporation otherwise
than by reason of Cause and the Corporations shall pay to Irwin within five days
after notice from Irwin to such effect, as liquidated damages, a lump sum cash
payment equal to 2.99 times the "base amount" of Irwin's compensation hereunder.
For purposes hereof, "base amount" shall have the meaning provided in Section
280G (b) (2) (A) of the Internal Revenue Code of 1986, as amended, and the
Proposed Regulations thereunder.
(ii) For the purposes of this Agreement, a Change of Control
means (i) the direct or indirect sale, lease, exchange or other transfer of all
or substantially all (50% or more) of the assets of GST or the Corporations to
any person or entity or group of persons or entities acting in concert as a
partnership or other group (a "Group of Persons") excluding the GST Companies
(ii) the merger, consolidation or other business combination of GST or the
Corporations with or into another corporation with the effect that the
shareholders of GST or the Corporations, as the case may be, immediately
following the merger, consolidation or other business combination, hold 50% or
less of the combined voting power of the then outstanding securities of the
surviving corporation of such merger, consolidation or other business
combination ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors, (iii) the
replacement of a majority of the GST Board or of any committee of the GST Board
or of either of the Boards in any given year as compared to the
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<PAGE>
directors who constituted the GST Board or such committee or either of the
Boards at the beginning of such year, and such replacement shall not have been
approved by the GST Board or the Boards, as the case may be, as constituted at
the beginning of such year, (iv) a person or Group of Persons shall, as a result
of a tender or exchange offer, open market purchases, privately negotiated
purchases or otherwise, have become the beneficial owner (within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities
of GST or either of the Corporations representing 50% or more of the combined
voting power of the then outstanding securities of such corporation ordinarily
(and apart from rights accruing under special circumstances) having the right to
vote in the election of directors.
18. Insurance Policies. The GST Companies shall have the right
from time to time to purchase, increase, modify or terminate insurance policies
on the life of Irwin for the benefit of the Corporation, in such amounts as the
GST Companies shall determine in their sole discretion. In connection therewith,
Irwin shall, at such place or places as the GST Companies may reasonably direct,
submit himself to physical examinations on an annual basis (or more frequently)
should an insurer or prospective insurer so require, and execute and deliver
such documents as the GST Companies may deem necessary to obtain such insurance
policies.
19. Entire Agreement; Amendment. This Agreement constitutes
the entire agreement of the parties hereto with respect to the subject matter
hereof, and any prior agreement between the Corporations and Irwin with respect
to the subject matter hereof is hereby superseded and terminated effective
immediately and shall be
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<PAGE>
without further force or effect. No amendment or modification himself shall be
valid or binding unless made in writing and signed by the party against whom
enforcement thereof is sought.
20. Notices. Any notice required, permitted or desired to be
given pursuant to any of the provisions of this Agreement shall be deemed to
have been sufficiently given or served for all purposes if delivered in person
or by responsible overnight delivery service or sent by certified mail, return
receipt requested, postage and fees prepaid to the parties at their respective
addresses set forth above (in the case of the Corporations, Attention: Chief
Executive Officer). Any of the parties hereto may at any time and from time to
time change the address to which notice shall be sent hereunder by notice to the
other parties given under this Paragraph 20. The date of the giving of any
notice hand delivered or delivered by responsible overnight carrier shall be the
date of its delivery and of any notice sent by mail shall be the date five days
after the date of the posting of the mail.
21. No Assignment; Binding Effect. Neither this Agreement, nor
the right to receive any payments hereunder, may be assigned by Irwin or the
Corporations without the prior written consent of the other parties hereto. This
Agreement shall be binding upon Irwin, his heirs, executors and administrators
and upon the Corporations, their respective successors and permitted assigns.
22. Waivers. No course of dealing nor any delay on the part of
the Corporations in exercising any rights hereunder shall operate as a waiver of
any such rights. No waiver of any default
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<PAGE>
or breach of this Agreement shall be deemed a continuing waiver or a waiver of
any other breach or default.
23. Governing Law; Forum. This Agreement shall be governed,
interpreted and construed in accordance with the laws of the State of Delaware,
except that body of law relating to choice of laws. Except as otherwise provided
in Paragraph 16 hereof, any action, suit or proceeding with respect to this
Agreement and the respective rights, remedies, duties and liabilities of the
parties hereunder shall be brought in the courts of the State of New York
located in New York, New York or in the United States District Court for the
Southern District of New York, and by execution and delivery of this Agreement,
each party accepts for itself, generally and unconditionally, the jurisdiction
of such courts. The parties hereto irrevocably waive any objection that they may
now or hereafter have to the commencement of any such action, suit or proceeding
in such courts.
24. Invalidity. If any clause, paragraph, section or part of
this Agreement shall be held or declared to be void, invalid or illegal, for any
reason, by any court of competent jurisdiction, such provision shall be
ineffective but shall not in any way invalidate or affect any other clause,
paragraph, section or part of this Agreement.
25. Further Assurances. Each of the parties shall execute such
documents and take such other actions as may be reasonably requested by the
other party to carry out the provisions and purposes of this Agreement in
accordance with its terms.
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<PAGE>
26. Attorneys' Fees. If any action, suit or proceeding is
filed by any party to enforce or rescind this Agreement or otherwise with
respect to the subject matter of this Agreement, the party prevailing on an
issue shall be entitled to recover with respect to such issue, in addition to
costs, reasonable attorneys' fees incurred in preparation or in prosecution or
defense of such action, suit or proceeding as fixed by the arbitrator or trial
court, and if any appeal is taken from the decision of the trial court,
reasonable attorneys' fees as fixed on appeal.
IN WITNESS WHEREOF, the parties hereto have caused this
Personal Services Agreement to be duly executed as of the day and year first
above written.
GST USA, INC.
By: /s/ Gordon Blankstein
-----------------------------------------
(Title)
GST TELECOM INC.
By: /s/ Gordon Blankstein
-----------------------------------------
(Title)
/s/ Stephen Irwin
-----------------------------------------
STEPHEN IRWIN
THE FOREGOING AGREEMENT IS
CONSENT TO AND ACKNOWLEDGED:
GST TELECOMMUNICATIONS, INC.
By: /s/ Gordon Blankstein
- --------------------------------
(Title)
By: /s/ John Warta
- --------------------------------
(Title)
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<PAGE>
RESTATED AND AMENDED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS RESTATED AND AMENDED EMPLOYMENT AGREEMENT made as of this
1st day of September, 1995, by and between GST USA, INC. ("GUSA") and GST
TELECOM INC. ("Telecom" and together with GUSA, the "Corporations"), each
Delaware corporations with their principal offices at 4317 N.E. Thurston Way,
Vancouver, Washington 98662, and JOHN WARTA, residing at 13513 N.E. 132nd
Avenue, Brush Prairie, Washington 98606 (the "Executive").
W I T N E S S E T H :
WHEREAS, Executive has heretofore been employed pursuant to an
Employment Agreement dated as of March 1, 1994 between Telecom and Executive;
and
WHEREAS, Telecom and Executive desire to restate and amend the
terms of Executive's employment and to provide that Executive shall be jointly
employed by GUSA and Telecom;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter set forth, the parties hereto agree as follows:
1. Employment of Executive. The Corporations hereby employ
Executive as their Chief Executive Officer, to perform the duties and
responsibilities incident to such office, subject at all times to the control
and direction of the Boards of Directors of the Corporations (the "Boards").
2. Acceptance of Employment; Time and Attention. Executive
hereby accepts such employment and agrees that throughout the period of his
employment hereunder, except as hereinafter provided, he will devote
substantially all his time, attention, knowledge and skills, faithfully,
diligently and to the best of his
<PAGE>
ability, in furtherance of the business of the Corporations, their parent
corporation, GST Telecommunications, Inc. ("GST") and their subsidiaries
(collectively, the "GST Companies"), and will perform the duties assigned to him
pursuant to Paragraph 1 hereof, subject, at all times, to the direction and
control of the Boards. Executive shall be the principal executive officer of the
GST Companies and shall in general manage and control all of the day-to-day
operations of the GST Companies. Executive shall also perform such specific
duties and shall exercise such specific authority related to the management of
the day-to-day operations of the Corporations consistent with his position as
Chief Executive Officer as may be assigned to Executive from time to time by the
Boards. Executive shall at all times be subject to, observe and carry out such
rules, regulations, policies, directions and restrictions as the GST Companies
shall from time to time establish. During the period of his employment
hereunder, Executive shall not, except as hereinafter provided, directly or
indirectly, accept employment or compensation from, or perform services of any
nature for, any business enterprise other than the GST Companies. The
Corporations acknowledge that Executive (i) is a party to that certain
Consulting Agreement dated December 29, 1993 with Tomen Telecom International,
Inc. ("Tomen"), pursuant to which he has agreed to provide consulting services,
(ii) will also provide marketing services to Tomen, (iii) will render services
to the Hi-Rim Projects, as such term is defined in the Restated and Amended
Agreement effective as of June 21, 1994, by and among GST, GUSA, Pacwest Network
L.L.C., Executive, Clifford V. Sander and Telecom (the "Shareholder Agreement"),
(iv) will continue to
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conduct business through Green Arbor Development, Pacwest Telecom, Inc. and
Pacwest Network Inc. and (iv) proposes to engage in charitable activities.
Neither the performance of such services, nor such engagement, shall constitute
a breach of this Agreement, provided that they do not interfere with the
performance by Executive of his duties hereunder, and provided, further, that
the services referred to in clauses (i), (ii), (iii) and (iv) hereof do not
require the devotion of more than five percent of Executive's working hours in
any year. Apart from any travel required to perform Executive's employment
duties, Executive shall not be required to be regularly based at any office of
the Corporation located outside the metropolitan areas of Portland, Oregon or
Vancouver, Washington, without Executive's prior written consent (which may be
withheld in Executive's discretion). Executive shall be elected or appointed to
such offices of the GST Companies other than the Corporations as shall be
determined from time to time by the Board of Directors of GST (the "GST Board").
During the period of Executive's employment hereunder, he shall not be entitled
to additional compensation for serving in any offices of the GST Companies other
than the Corporations to which he is elected or appointed.
3. Term. Except as otherwise provided herein, the term of
Executive's employment hereunder shall commence as of the date hereof and shall
continue to and including the 28th day of February, 1999.
4. Compensation. As compensation for his services hereunder,
the Corporations shall pay to Executive (i) a base salary at the rate of
$200,000 per annum, payable in equal
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<PAGE>
installments no less frequently than semi-monthly and (ii) such incentive
compensation and bonuses, if any, as the GST Board (or the Compensation
Committee thereof) in its absolute discretion may determine to award Executive;
provided that this Agreement shall in no event be construed to require the
payment to Executive of incentive compensation or bonuses. At least annually,
the GST Board or the Compensation Committee thereof shall review Executive's
base salary and shall determine whether any adjustment thereof is warranted. If
it is determined to adjust Executive's base salary, such adjustment shall be
based upon (i) the nature, magnitude and quality of the services performed by
Executive for the GST Companies, (ii) the condition (financial and other) and
results of operations of the GST Companies and (iii) the compensation paid for
positions of comparable responsibility and authority within the
telecommunications industry, provided that no such adjustment shall reduce such
base salary below $200,000 per annum. All compensation paid to Executive shall
be subject to withholding and other employment taxes imposed by applicable law.
5. Additional Benefits. In addition to such base salary and
any incentive compensation and bonuses awarded Executive, he (and his family)
shall be entitled to participate, to the extent he is (and they are) eligible
under the terms and conditions thereof, in any profit sharing, pension,
retirement, hospitalization, insurance, disability, medical service, stock
option, bonus or other employee benefit plan generally available to the
executive officers of the Corporations that may be in effect from time to time
during the period of Executive's employment hereunder. The Corporations shall be
under no obligation to institute or continue the existence of any such employee
benefit plan.
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<PAGE>
6. Reimbursement of Expenses. The Corporations shall reimburse
Executive in accordance with applicable policies of the GST Companies for all
expenses reasonably incurred by him in connection with the performance of his
duties hereunder and the business of the GST Companies, upon the submission to
the Corporations of appropriate receipts or vouchers.
7. Facilities and Personnel. Executive shall be provided a
private office, secretarial services and such other facilities, supplies,
personnel and services as shall be required or reasonably requested for the
performance of his duties hereunder.
8. Motor Vehicle Allowance. Executive shall be entitled to
receive a non-accountable expense allowance of $400 per month to reimburse him
for the cost and expense of operating and maintaining a motor vehicle in
furtherance of the services rendered by him hereunder, which costs and expenses
may include without limitation, vehicle loan and lease payments, insurance
premiums, gasoline and repair expenditures and other similar charges.
9. Vacation. Executive shall be entitled to five weeks' paid
vacation in respect of each 12-month period during the term of his employment
hereunder, such vacation to be taken at times mutually agreeable to Executive
and the Boards. Vacation time shall not be cumulative from one 12-month period
to the next, but Executive shall receive vacation pay at the then current salary
rate for any vacation time not taken by him.
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<PAGE>
10. D&O Insurance Coverage. The Corporations shall use their
best efforts to cause GST to obtain and maintain, at GST's cost and expense,
directors' and officers' liability insurance coverage for the directors and
officers of GST, including Executive. Nothing herein shall be deemed to require
GST to provide such coverage for Executive if it is not then providing such
coverage generally to its directors and officers.
11. Restrictive Covenant. In consideration of his employment
hereunder, Executive agrees that during the period of his employment hereunder
and, in the event of termination of this Agreement (i) by Executive otherwise
than for Employer Breach (as such term is defined herein) or (ii) by the
Corporation for Cause (as such term is defined herein), for a further period
ending on the earlier of two years after such termination or February 28, 2000,
he will not (a) directly or indirectly own, manage, operate, join, control,
participate in, invest in, or otherwise be connected with, in any manner,
whether as an officer, director, employee, partner, investor or otherwise, any
business entity that is engaged in the design, development, construction or
operation of alternate access or other telecommunications networks, in providing
long distance or other telecommunications services or in any other business in
which the GST Companies, or any of them, are engaged during such period, within
the United States of America (1) in all locations in which the GST Companies, or
any of them, are doing business, and (2) in all locations in respect of which
the GST Companies are actively planning for and/or pursuing a business
opportunity, whether or not the GST Companies, or any of them, theretofore have
submitted any bids, provided that if such planning
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<PAGE>
and/or pursuit relates to a business opportunity that is not a competitive
access project (a "CAP") such planning and/or pursuit must have involved
material efforts on the part of the GST Companies, or any of them, (b) for
himself or on behalf of any other person, partnership, corporation or entity,
call on any customer of the GST Companies for the purpose of soliciting,
diverting or taking away any customer from the GST Companies (1) in all
locations in which the GST Companies, or any of them, are doing business, and
(2) in all locations in respect of which the GST Companies, or any of them, are
actively planning for and/or pursuing a business opportunity, whether or not the
GST Companies, or any of them, theretofore have submitted any bids, provided
that if such planning and/or pursuit relates to a business opportunity that is
not a CAP, such planning and/or pursuit must have involved material efforts on
the part of the GST Companies, or any of them, or (c) induce, influence or seek
to induce or influence any person engaged as an employee, representative, agent,
independent contractor or otherwise by the GST Companies, or any of them, to
terminate his or her relationship with the GST Companies, or any of them.
Nothing herein contained shall be deemed to prohibit Executive from (x)
investing his funds in securities of an issuer if the securities of such issuer
are listed for trading on a national securities exchange or are traded in the
over-the-counter market and Executive's holdings therein represent less than 2%
of the total number of shares or principal amount of the securities of such
issuer outstanding, (y) owning securities, regardless of amount, of GST or (z)
holding an equity interest in Hi-Rim's Cuba
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<PAGE>
Project or in Hi-Rim's Honduras Cellular System, (y) holding up to 5,925 shares
of Teletek and up to 1,700 shares of Intermedia.
Executive acknowledges that the provisions of this Paragraph
11 are reasonable and necessary for the protection of the GST Companies, and
that each provision, and the period or periods of time, geographic areas and
types and scope of restrictions on the activities specified herein are, and are
intended to be, divisible. In the event that any provision of this Paragraph 11,
including any sentence, clause or part hereof, shall be deemed contrary to law
or invalid or unenforceable in any respect by a court of competent jurisdiction,
the remaining provisions shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect and any invalid and
unenforceable provisions shall be deemed, without further action on the part of
the parties hereto, modified, amended and limited to the extent necessary to
render the same valid and enforceable.
12. Confidential Information. Executive shall hold in a
fiduciary capacity for the benefit of the GST Companies all information,
knowledge and data relating to or concerned with its operations, sales, business
and affairs, and he shall not, at any time for a period of two years after
termination of his employment hereunder, use, disclose or divulge any such
information, knowledge or data to any person, firm or corporation (unless the
GST Companies no longer treat such information as confidential) other than to
the GST Companies or their designees and employees or except as may otherwise be
required in connection with the business and affairs of the GST Companies;
provided, however, that Executive may use, disclose or divulge such information,
knowledge or data
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<PAGE>
that (i) was known to Executive at the commencement of his employment by
Telecom; (ii) is or becomes generally available to the public through no
wrongful act on Executive's part; or (iii) becomes available to Executive from a
person or entity other than the GST Companies or their agents not bound by this
or a similar agreement with the GST Companies; and provided, further, that the
provisions of this Paragraph 12 shall not apply to Executive's know how to the
extent utilized by him in subsequent employment so long as such employment is
not in breach of this Agreement.
13. Equitable Relief. The parties hereto acknowledge that
Executive's services are unique and that, in the event of a breach or a
threatened breach by Executive of any of his obligations under this Agreement,
the Corporations will not have an adequate remedy at law. Accordingly, in the
event of any such breach or threatened breach by Executive, the Corporations
shall be entitled to such equitable and injunctive relief as may be available to
restrain Executive and any business, firm, partnership, individual, corporation
or entity participating in such breach or threatened breach from the violation
of the provisions hereof. Nothing herein shall be construed as prohibiting the
Corporations from pursuing any other remedies available at law or in equity for
such breach or threatened breach, including the recovery of damages and the
immediate termination of the employment of Executive hereunder.
14. Survival of Provisions; Death. Neither the termination of
this Agreement, nor of Executive's employment hereunder, shall terminate or
affect in any manner any provision of this Agreement that is intended by its
terms to survive such termination.
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<PAGE>
In the event of termination of Executive's employment
hereunder by reason of his death, the Corporations shall pay a benefit (the
"Benefit Payment") to such person or persons as Executive shall, at his option,
from time to time designate by written instrument delivered to the Corporations,
each subsequent designation to revoke all prior designations, or if no such
designation is made, to Executive's estate (the "Payment Beneficiary"). The
Benefit Payment shall be in an amount equal to one and one-half times
Executive's then current base salary, and shall be payable to the Payment
Beneficiary in equal quarterly installments over a period of one and one-half
years, provided that if the GST Companies, or any of them, then maintain a life
insurance policy on the life of Executive under which they are the
beneficiaries, the amount of the death benefit payable thereunder, to a maximum
amount equal to the Benefit Payment, less installments of the Benefit Payment
theretofore paid, shall be paid to the Payment Beneficiary on the Benefit
Payment installment payment date next succeeding the date on which the GST
Companies receive such death benefit proceeds, and the remainder of the Benefit
Payment, if any, shall be paid in equal quarterly installments as provided
above.
15. Disability. In the event that during the term of his
employment by the Corporations Executive shall become Disabled (as such term is
hereinafter defined) he shall continue to receive the full amount of the base
salary to which he was theretofore entitled for a period of six months after he
shall be deemed to
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<PAGE>
have become Disabled (the "First Disability Payment Period"). If the First
Disability Payment Period shall end prior to February 28, 1999, Executive
thereafter shall be entitled to receive salary at an annual rate equal to
one-half of his then current base salary for a further period ending on the
earlier of (i) one year thereafter, or (ii) February 28, 1999 (the "Second
Disability Payment Period"). Upon the expiration of the Second Disability
Payment Period, Executive shall not be entitled to receive any further payments
on account of his base salary until he shall cease to be Disabled and shall have
resumed his duties hereunder and provided that the Corporations shall not have
theretofore terminated this Agreement as hereinafter provided. The Corporations
may terminate this Agreement and Executive's employment hereunder at any time
after Executive is Disabled, upon at least 10 days' prior written notice. For
the purposes of this Agreement, Executive shall be deemed to have become
Disabled when (x) by reason of physical or mental incapacity, Executive is not
able to perform a substantial portion of his duties hereunder for a period of
135 consecutive days or for 135 days in any consecutive 225-day period or (y)
when Executive's physician or a physician designated by the Corporations shall
have determined that Executive shall not be able, by reason of physical or
mental incapacity, to perform a substantial portion of his duties hereunder. In
the event that Executive shall dispute any determination of his Disability
pursuant to clauses (x) or (y) above, the matter shall be resolved by the
determination of three physicians qualified to practice medicine in the State of
Washington, one to be selected by each of the Corporations and Executive and the
third to be selected
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<PAGE>
by the designated physicians. If Executive shall receive benefits under any
disability policy maintained by the GST Companies, the Corporations shall be
entitled to deduct the amount equal to the benefits so received from base salary
that they otherwise would have been required to pay to Executive as provided
above.
The foregoing provisions regarding disability shall be
adjusted during the term hereof to match the most favorable disability benefits
provided to any other senior executive of the Corporations.
16. Termination for Cause. The Corporations may at any time
upon written notice to Executive terminate Executive's employment for Cause. For
purposes of this Agreement, the following shall constitute Cause: (i) the
willful and repeated failure of Executive to perform any material duties
hereunder or gross negligence of Executive in the performance of such duties,
and if such failure or gross negligence is susceptible of cure by Executive, the
failure to effect such cure within 20 days after written notice of such failure
or gross negligence is given to Executive; (ii) excessive use of alcohol or
illegal drugs interfering with the performance of Executive's duties hereunder;
(iii) theft, embezzlement, fraud, misappropriation of funds, other acts of
dishonesty or the violation of any law or ethical rule relating to Executive's
employment; (iv) the conviction of a felony or other crime involving moral
turpitude by Executive; or (v) the breach by Executive of any other material
provision of this Agreement, and if such breach is susceptible of cure by
Executive, the failure to effect such cure within 20 days after written notice
of such breach is given to Executive. For purposes of this
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Agreement, an action shall be considered "willful" if it is done intentionally,
purposely or knowingly, distinguished from an act done carelessly, thoughtlessly
or inadvertently. In any such event, Executive shall be entitled to receive his
base salary to and including the date of termination. Should Executive in good
faith dispute his termination for Cause, he shall give prompt written notice
thereof to the Corporations, in which event such dispute shall be submitted to
and determined by arbitration in Seattle, Washington before an arbitrator
appointed pursuant to the rules of the American Arbitration Association (the
"Arbitrator"). Such arbitration shall be conducted in accordance with such rules
as shall be promulgated by the Arbitrator, which shall include a discovery
period not to exceed 30 days in length and which may include any or all of the
rules then obtaining of the American Arbitration Association. Any award or
decision of the Arbitration shall be conclusive in the absence of fraud and
judgment thereon may be entered in any court having jurisdiction thereof. The
costs of such arbitration shall be borne by the party against whom any award or
decision is rendered. Executive shall not be entitled to receive any
compensation for periods subsequent to his dismissal pursuant to this Paragraph
16.
17. Termination for Employer Breach. Executive may upon
written notice to the Corporations terminate this Agreement (a termination for
"Employer Breach") in the event of the breach by the Corporations of (i) any
material provision of this Agreement (and the occurrence of any of the events
described in subparagraph (i) of Paragraph 18 hereof shall be deemed a breach by
the Corporations of a material provision of this Agreement), and if
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such breach relates to a provision of this Agreement other than Paragraph 18 and
is susceptible of cure, the failure to effect such cure within 20 days after
written notice of such breach is given to the Corporation; or (ii) any material
provision of the Shareholder Agreement, after the expiration of any applicable
cure or grace periods.
18. Change of Control.
(i) If prior to the termination of this Agreement,
there is a Change of Control (as such term is defined herein) and thereafter any
of the following occur: (a) Executive is placed in any position of lesser
stature than that of a senior executive officer of the Corporations; is assigned
duties inconsistent with a senior executive officer or duties which, if
performed, would result in a significant change in the nature or scope of
powers, authority, functions or duties inherent in such position on the date
hereof; is assigned performance requirements or working conditions which are at
variance with the performance requirements and working conditions in effect on
the date hereof; or is accorded treatment on a general basis that is in
derogation of his status as a senior executive officer; (b) Executive ceases to
serve as a member of any of the GST Board or the Boards; (c) any breach of
Paragraph 2 or Paragraphs 4 through 8, inclusive, of this Agreement; or (d) any
requirement of the Corporations that the location at which Executive performs
his principal duties for the Corporations be outside a radius of 50 miles from
the location at which Executive performed such duties immediately prior to the
Change of Control, then the Agreement shall be deemed to have been terminated by
the Corporations otherwise than by reason of Cause
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and the Corporations shall pay to Executive within five days after notice from
Executive to such effect, as liquidated damages, a lump sum cash payment equal
to 2.99 times the "base amount" of Executive's compensation. For purposes
hereof, "base amount" shall have the meaning provided in Section 280G (b) (2)
(A) of the Internal Revenue Code of 1986, as amended, and the Proposed
Regulations thereunder.
(ii) For the purposes of this Agreement, a Change of Control
means (i) the direct or indirect sale, lease, exchange or other transfer of all
or substantially all (50% or more) of the assets of GST or the Corporations to
any person or entity or group of persons or entities acting in concert as a
partnership or other group (a "Group of Persons") excluding the GST Companies
(ii) the merger, consolidation or other business combination of GST or the
Corporations with or into another corporation with the effect that the
shareholders of GST or the Corporations, as the case may be, immediately
following the merger, consolidation or other business combination, hold 50% or
less of the combined voting power of the then outstanding securities of the
surviving corporation of such merger, consolidation or other business
combination ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors, (iii) the
replacement of a majority of the GST Board or of any committee of the GST Board
or of either of the Boards in any given year as compared to the directors who
constituted the GST Board or such committee or either of the Boards at the
beginning of such year, and such replacement shall not have been approved by the
GST Board or the Boards, as the case may be, as constituted at the beginning of
such year, (iv) a
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person or Group of Persons shall, as a result of a tender or exchange offer,
open market purchases, privately negotiated purchases or otherwise, have become
the beneficial owner (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) of securities of GST or either of the
Corporations representing 50% or more of the combined voting power of the then
outstanding securities of such corporation ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the election
of directors.
19. Insurance Policies. The GST Companies shall have the right
from time to time to purchase, increase, modify or terminate insurance policies
on the life of Executive for the benefit of the GST Companies, in such amounts
as the GST Companies shall determine in their sole discretion. In connection
therewith, Executive shall, at such place or places as the GST Companies may
reasonably direct, submit himself to physical examinations on an annual basis
(or more frequently) should an insurer or prospective insurer so require, and
execute and deliver such documents as the GST Companies may deem necessary to
obtain such insurance policies.
20. Entire Agreement; Amendment. This Agreement constitutes
the entire agreement of the parties hereto with respect to the subject matter
hereof, and any prior agreement between the Corporations and Executive with
respect to the subject matter hereof is hereby superseded and terminated
effective immediately and shall be without further force or effect. No amendment
or modification himself shall be valid or binding unless made in writing and
signed by the party against whom enforcement thereof is sought.
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<PAGE>
21. Notices. Any notice required, permitted or desired to be
given pursuant to any of the provisions of this Agreement shall be deemed to
have been sufficiently given or served for all purposes if delivered in person
or by responsible overnight delivery service or sent by certified mail, return
receipt requested, postage and fees prepaid as follows:
If to the Corporations, at their address set forth
above, Attention: Chief Operating Officer, with a
copy to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attention: Stephen Irwin
If to Executive, at his address set forth above, with
a copy to:
Kennedy & Kennedy
Pioneer Tower - Suite 1170
888 S.W. Fifth Avenue
Portland, Oregon 97204
Any of the parties hereto may at any time and from time to time change the
address to which notice shall be sent hereunder by notice to the other parties
given under this Paragraph 21. The date of the giving of any notice hand
delivered or delivered by responsible overnight carrier shall be the date of its
delivery and of any notice sent by mail shall be the date five days after the
date of the posting of the mail.
22. No Assignment; Binding Effect. Neither this Agreement, nor
the right to receive any payments hereunder, may be assigned by Executive or the
Corporations without the prior consent of the other parties hereto. This
Agreement shall be binding upon Executive, his heirs, executors and
administrators and upon the Corporations, their respective successors and
permitted assigns.
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<PAGE>
23. Waivers. No course of dealing nor any delay on the part of
the Corporations in exercising any rights hereunder shall operate as a waiver of
any such rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.
24. Governing Law; Forum. This Agreement shall be governed,
interpreted and construed in accordance with the laws of the State of Delaware,
except that body of law relating to choice of laws. Except as otherwise provided
in Paragraph 16 hereof, any action, suit or proceeding with respect to this
Agreement and the respective rights, remedies, duties and liabilities of the
parties hereunder shall be brought in the courts of the State of Washington
located in Seattle, Washington or in the United States District Court for the
district in which Seattle, Washington is located, and by execution and delivery
of this Agreement, each party accepts for itself, generally and unconditionally,
the jurisdiction of such courts. The parties hereto irrevocably waive any
objection that they may now or hereafter have to the commencement of any such
action, suit or proceeding in such courts.
25. Invalidity. If any clause, paragraph, section or part of
this Agreement shall be held or declared to be void, invalid or illegal, for any
reason, by any court of competent jurisdiction, such provision shall be
ineffective but shall not in any way invalidate or affect any other clause,
paragraph, section or part of this Agreement.
26. Further Assurances. Each of the parties shall execute such
documents and take such other actions as may be
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<PAGE>
reasonably requested by the other party to carry out the provisions and purposes
of this Agreement in accordance with its terms.
27. Attorneys Fees. If any action, suit or proceeding is filed
by any party to enforce or rescind this Agreement or otherwise with respect to
the subject matter of this Agreement, the party prevailing on an issue shall be
entitled to recover with respect to such issue, in addition to costs, reasonable
attorneys' fees incurred in preparation or in prosecution or defense of such
action, suit or proceeding as fixed by the arbitrator or trial court, and if any
appeal is taken from the decision of the trial court, reasonable attorneys' fees
as fixed on appeal.
IN WITNESS WHEREOF, the parties hereto have caused this
Employment Agreement to be duly executed as of the day and year first above
written.
GST USA, INC.
By: /s/ Gordon Blankstein
------------------------------------------
(Title)
GST TELECOM INC.
By: /s/ Gordon Blankstein
------------------------------------------
(Title)
/s/ John Warta
------------------------------------------
JOHN WARTA
THE FOREGOING AGREEMENT IS
CONSENTED TO AND ACKNOWLEDGED:
GST TELECOMMUNICATIONS, INC.
By: /s/ Gordon Blankstein
- -------------------------------------
(Title)
-19-
<PAGE>
RESTATED AND AMENDED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS RESTATED AND AMENDED EMPLOYMENT AGREEMENT made as of this
1st day of September, 1995, by and between GST USA, INC. ("GUSA") and GST
TELECOM INC. ("Telecom" and, together with GUSA, the "Corporations"), each
Delaware corporations with their principal offices at 4317 N.E. Thurston Way,
Vancouver, Washington 98662, and ROBERT H. HANSON, residing at Four Bear Ranch,
P.O. Box 144, Wapiti, Wyoming 82450 (the "Executive").
W I T N E S S E T H :
WHEREAS, Executive has heretofore been employed pursuant to an
Employment Agreement dated as of August 1, 1994 between GUSA and Executive; and
WHEREAS, GUSA and Executive desire to restate and amend the
terms of Executive's employment and to provide that Executive shall be jointly
employed by GUSA and Telecom;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter set forth, the parties hereto agree as follows:
1. Employment of Executive. The Corporations hereby employ
Executive as a senior executive officer to perform the duties and
responsibilities incident to such position, subject at all times to the control
and direction of the Boards of Directors of the Corporations (the "Boards") and
the Chief Executive Officers of the Corporations.
2. Acceptance of Employment; Time and Attention. Executive
hereby accepts such employment and agrees that throughout the period of his
employment hereunder, except as hereinafter provided, he will devote
substantially all his time, attention,
<PAGE>
knowledge and skills, faithfully, diligently and to the best of his ability, in
furtherance of the business of the Corporations, their parent corporation, GST
Telecommunications, Inc. ("GST"), and their subsidiaries (collectively, the "GST
Companies"), and will perform the duties and responsibilities assigned to him
pursuant to Paragraph 1 hereof, subject, at all times, to the direction and
control of the Boards and the Chief Executive Officers of the Corporations. As a
senior executive officer, Executive shall perform such specific duties and shall
exercise such specific authority related to the management of the day-to-day
operations of the Corporation consistent with his position as a senior executive
officer as may be assigned to Executive from time to time by the Boards and the
Chief Executive Officers of the Corporations. Executive shall at all times be
subject to, observe and carry out such rules, regulations, policies, directions
and restrictions as the GST Companies shall from time to time establish. During
the period of his employment hereunder, Executive shall not, directly or
indirectly, accept employment or compensation from, or perform services of any
nature for, any business enterprise other than the GST Companies.
Notwithstanding the foregoing, the Corporations acknowledge that Executive
proposes to engage in charitable activities and such engagement shall not
constitute a breach of this Agreement. Executive shall be elected to such
offices of the GST Companies as may from time to time be determined by the Board
of Directors of GST (the "GST Board"). During the period of Executive's
employment hereunder, he shall not be entitled to additional compensation for
serving in any offices of the GST Companies to which he is elected or appointed.
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<PAGE>
3. Term. Except as otherwise provided herein, the term of
Executive's employment hereunder shall commence as of the date hereof and shall
continue to and include the 28th day of February, 1999.
4. Compensation. As compensation for his services hereunder,
the Corporation shall pay to Executive (i) a base salary at the rate of $120,000
per annum, or such greater amount as may be determined from time to time by the
GST Board, payable in equal installments no less frequently than semi-monthly
and (ii) such incentive compensation and bonuses as the GST Board may from time
to time determine to award Executive. All compensation paid to Executive shall
be subject to withholding and other employment taxes imposed by applicable law.
5. Additional Benefits. In addition to such base salary and
any incentive compensation and bonuses awarded Executive, he (and his family)
shall be entitled to participate, to the extent he is (and they are) eligible
under the terms and conditions thereof, in any profit sharing, pension,
retirement, hospitalization, insurance, disability, medical service, stock
option, bonus or other employee benefit plan available to the executive officers
of the Corporations that may be in effect from time to time during the period of
Executive's employment hereunder. The Corporations shall be under no obligation
to institute or continue the existence of any such employee benefit plan.
6. Reimbursement of Expenses. The Corporations shall reimburse
Executive in accordance with applicable policies of the GST Companies for all
expenses reasonably incurred by him in connection with the performance of his
duties hereunder and the
-3-
<PAGE>
business of the GST Companies, upon the submission to the Corporations of
appropriate receipts or vouchers.
7. Facilities and Personnel. Executive shall be provided a
private office, secretarial services and such other facilities, supplies,
personnel and services as shall be required or reasonably requested for the
performance of his duties hereunder.
8. Vacation. Executive shall be entitled to five weeks' paid
vacation in respect of each 12-month period during the term of his employment
hereunder, such vacation to be taken at times mutually agreeable to Executive
and the Boards. Vacation time shall not be cumulative from one 12-month period
to the next, but Executive shall receive vacation pay at the then current salary
rate for any vacation time not taken by him.
9. D&O Insurance Coverage. The Corporations shall use their
best efforts to cause GST to obtain and maintain, at GST's cost and expense,
directors' and officers' liability insurance coverage for the directors and
officers of GST, including Executive. Nothing herein shall be deemed to require
GST to provide such coverage for Executive if it is not then providing such
coverage generally to its directors and officers.
10. Restrictive Covenant. In consideration of his employment
hereunder, Executive agrees that during the period of his employment hereunder
and, in the event of termination of this Agreement (i) by Executive otherwise
than for Employer Breach (as such term is defined herein) or (ii) by the
Corporation for Cause (as such term is defined herein), for a further period
ending on the earlier of two years after such termination or February 28,
-4-
<PAGE>
2000, he will not (a) directly or indirectly own, manage, operate, join,
control, participate in, invest in, or otherwise be connected with, in any
manner, whether as an officer, director, employee, partner, investor or
otherwise, any business entity that is engaged in the design, development,
construction or operation of alternate access or other telecommunications
networks, in providing long distance or other telecommunications services or in
any other business in which the GST Companies, or any of them, are engaged
during such period, within the United States of America (1) in all locations in
which the GST Companies, or any of them, are doing business, and (2) in all
locations in respect of which the GST Companies are actively planning for and/or
pursuing a business opportunity, whether or not the GST Companies, or any of
them, theretofore have submitted any bids, provided that if such planning and/or
pursuit relates to a business opportunity that is not a competitive access
project (a "CAP") such planning and/or pursuit must have involved material
efforts on the part of the GST Companies, or any of them, (b) for himself or on
behalf of any other person, partnership, corporation or entity, call on any
customer of the GST Companies for the purpose of soliciting, diverting or taking
away any customer from the GST Companies (1) in all locations in which the GST
Companies, or any of them, are doing business, and (2) in all locations in
respect of which the GST Companies, or any of them, are actively planning for
and/or pursuing a business opportunity, whether or not the GST Companies, or any
of them, theretofore have submitted any bids, provided that if such planning
and/or pursuit relates to a business opportunity that is not a CAP, such
planning and/or pursuit must have involved
-5-
<PAGE>
material efforts on the part of the GST Companies, or any of them, or (c)
induce, influence or seek to induce or influence any person engaged as an
employee, representative, agent, independent contractor or otherwise by the GST
Companies, or any of them, to terminate his or her relationship with the GST
Companies, or any of them. Nothing herein contained shall be deemed to prohibit
Executive from (x) investing his funds in securities of an issuer if the
securities of such issuer are listed for trading on a national securities
exchange or are traded in the over-the-counter market and Executive's holdings
therein represent less than 2% of the total number of shares or principal amount
of the securities of such issuer outstanding, or (y) owning securities,
regardless of amount, of GST.
Executive acknowledges that the provisions of this Paragraph
10 are reasonable and necessary for the protection of the GST Companies, and
that each provision, and the period or periods of time, geographic areas and
types and scope of restrictions on the activities specified herein are, and are
intended to be, divisible. In the event that any provision of this Paragraph 10,
including any sentence, clause or part hereof, shall be deemed contrary to law
or invalid or unenforceable in any respect by a court of competent jurisdiction,
the remaining provisions shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect and any invalid and
unenforceable provisions shall be deemed, without further action on the part of
the parties hereto, modified, amended and limited to the extent necessary to
render the same valid and enforceable.
-6-
<PAGE>
11. Confidential Information. Executive shall hold in a
fiduciary capacity for the benefit of the GST Companies all information,
knowledge and data relating to or concerned with their operations, sales,
business and affairs, and he shall not, at any time for a period of two years
after termination of his employment hereunder, use, disclose or divulge any such
information, knowledge or data to any person, firm or corporation (unless the
GST Companies no longer treat such information as confidential) other than to
the GST Companies or their designees and employees or except as may otherwise be
required in connection with the business and affairs of the GST Companies;
provided, however, that Executive may use, disclose or divulge such information,
knowledge or data that (i) was known to Executive at the commencement of his
employment by GUSA; (ii) is or becomes generally available to the public through
no wrongful act on Executive's part; or (iii) becomes available to Executive
from a person or entity other than the GST Companies or their agents not bound
by this or a similar agreement with the GST Companies; and provided, further,
that the provisions of this Paragraph 11 shall not apply to Executive's know how
to the extent utilized by him in subsequent employment so long as such
employment is not in breach of this Agreement.
12. Equitable Relief. The parties hereto acknowledge that
Executive's services are unique and that, in the event of a breach or a
threatened breach by Executive of any of his obligations under this Agreement,
the Corporations will not have an adequate remedy at law. Accordingly, in the
event of any such breach or threatened breach by Executive, the Corporations
shall be entitled to such equitable and injunctive relief as may be
-7-
<PAGE>
available to restrain Executive and any business, firm, partnership, individual,
corporation or entity participating in such breach or threatened breach from the
violation of the provisions hereof. Nothing herein shall be construed as
prohibiting the Corporations from pursuing any other remedies available at law
or in equity for such breach or threatened breach, including the recovery of
damages and the immediate termination of the employment of Executive hereunder.
13. Survival of Provisions; Death. Neither the termination of
this Agreement, nor of Executive's employment hereunder, shall terminate or
affect in any manner any provision of this Agreement that is intended by its
terms to survive such termination.
In the event of termination of Executive's employment
hereunder by reason of his death, the Corporations shall pay a benefit (the
"Benefit Payment") to such person or persons as Executive shall, at his option,
from time to time designate by written instrument delivered to the Corporations,
each subsequent designation to revoke all prior designations, or if no such
designation is made, to Executive's estate (the "Payment Beneficiary"). The
Benefit Payment shall be in an amount equal to one and one-half times
Executive's then current base salary, and shall be payable to the Payment
Beneficiary in equal quarterly installments over a period of one and one-half
years, provided that if the GST Companies, or any of them, then maintain a life
insurance policy on the life of Executive under which they are the beneficiary,
the amount of the death benefit payable thereunder, to a maximum amount equal to
the Benefit Payment, less installments of
-8-
<PAGE>
the Benefit Payment theretofore paid, shall be paid to the Payment Beneficiary
on the Benefit Payment installment payment date next succeeding the date on
which the GST Companies receive such death benefit proceeds and the remainder of
the Benefit Payment, if any, shall be paid in equal quarterly installments as
provided above.
14. Disability. In the event that during the term of his
employment by the Corporations Executive shall become Disabled (as such term is
hereinafter defined) he shall continue to receive the full amount of the base
salary to which he was theretofore entitled for a period of six months after he
shall be deemed to have become Disabled (the "First Disability Payment Period").
If the First Disability Payment Period shall end prior to February 28, 1999,
Executive thereafter shall be entitled to receive salary at an annual rate equal
to one-half of his then current base salary for a further period ending on the
earlier of (i) one year thereafter, or (ii) February 28, 1999 (the "Second
Disability Payment Period"). Upon the expiration of the Second Disability
Payment Period, Executive shall not be entitled to receive any further payments
on account of his base salary until he shall cease to be Disabled and shall have
resumed his duties hereunder and provided that the Corporations shall not have
theretofore terminated this Agreement as hereinafter provided. The Corporations
may terminate this Agreement and Executive's employment hereunder at any time
after Executive is Disabled, upon at least 10 days' prior written notice. For
the purposes of this Agreement, Executive shall be deemed to have become
Disabled when (x) by reason of physical or mental incapacity, Executive is not
able to perform a substantial portion of his duties hereunder for
-9-
<PAGE>
a period of 135 consecutive days or for 135 days in any consecutive 225-day
period or (y) when Executive's physician or a physician designated by the
Corporations shall have determined that Executive shall not be able, by reason
of physical or mental incapacity, to perform a substantial portion of his duties
hereunder. In the event that Executive shall dispute any determination of his
Disability pursuant to clauses (x) or (y) above, the matter shall be resolved by
the determination of three physicians qualified to practice medicine in the
United States of America or Canada, one to be selected by each of the
Corporations and Executive and the third to be selected by the designated
physicians. If Executive shall receive benefits under any disability policy
maintained by the GST Companies, the Corporations shall be entitled to deduct
the amount equal to the benefits so received from base salary that they
otherwise would have been required to pay to Executive as provided above.
The foregoing provisions regarding disability shall be
adjusted during the term hereof to match the most favorable disability benefits
provided to any other senior executive of the Corporations.
15. Termination for Cause. The Corporations may at any time
upon written notice to Executive terminate Executive's employment for Cause. For
purposes of this Agreement, the following shall constitute Cause: (i) the
willful and repeated failure of Executive to perform any material duties
hereunder or gross negligence of Executive in the performance of such duties,
and if such failure or gross negligence is susceptible of cure by Executive, the
failure to effect such cure within 20 days after
-10-
<PAGE>
written notice of such failure or gross negligence is given to Executive; (ii)
excessive use of alcohol or illegal drugs interfering with the performance of
Executive's duties hereunder; (iii) theft, embezzlement, fraud, misappropriation
of funds, other acts of dishonesty or the violation of any law or ethical rule
relating to Executive's employment; (iv) the conviction of a felony or other
crime involving moral turpitude by Executive; or (v) the breach by Executive of
any other material provision of this Agreement, and if such breach is
susceptible of cure by Executive, the failure to effect such cure within 30 days
after written notice of such breach is given to Executive. For purposes of this
Agreement, an action shall be considered "willful" if it is done intentionally,
purposely or knowingly, distinguished from an act done carelessly, thoughtlessly
or inadvertently. In any such event, Executive shall be entitled to receive his
base salary to and including the date of termination. Should Executive in good
faith dispute his termination for Cause, he shall give prompt written notice
thereof to the Corporations, in which event such dispute shall be submitted to
and determined by arbitration in San Francisco, California before an arbitrator
appointed pursuant to the rules of the American Arbitration Association (the
"Arbitrator"). Such arbitration shall be conducted in accordance with such rules
as shall be promulgated by the Arbitrator, which may include any or all of the
rules then obtaining of the American Arbitration Association. Any award or
decision of the Arbitration shall be conclusive in the absence of fraud and
judgment thereon may be entered in any court having jurisdiction thereof. The
costs of such arbitration shall be borne by the party against whom any
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<PAGE>
award or decision is rendered. Executive shall not be entitled to receive any
compensation for periods subsequent to his dismissal pursuant to this Paragraph
15.
16. Termination for Employer Breach. Executive may upon
written notice to the Corporations terminate this Agreement (a termination for
"Employer Breach") in the event of the breach by the Corporations of any
material provision of this Agreement (and the occurrence of any of the events
described in subparagraph (i) of Paragraph 17 hereof shall be deemed a breach by
the Corporations of a material provision of the Agreement), and if such breach
relates to a provision of this Agreement other than Paragraph 17 and is
susceptible of cure, the failure to effect such cure within 30 days after
written notice of such breach is given to the Corporation.
17. Change of Control.
(i) If prior to the termination of this Agreement,
there is a Change of Control (as such term is defined herein) and thereafter any
of the following occur: (a) Executive is placed in any position of lesser
stature than that of a senior executive officer of the Corporations; is assigned
duties inconsistent with a senior executive officer or duties which, if
performed, would result in a significant change in the nature or scope of
powers, authority, functions or duties inherent in such position on the date
hereof; is assigned performance requirements or working conditions which are at
variance with the performance requirements and working conditions in effect on
the date hereof; or is accorded treatment on a general basis that is in
derogation of his status as a senior executive officer; (b) Executive ceases to
serve as a
-12-
<PAGE>
member of any of the GST Board or the Boards; (c) any breach of Paragraph 2 or
Paragraphs 4 through 8, inclusive, of this Agreement; or (d) any requirement of
the Corporations that the location at which Executive performs his principal
duties for the Corporations be outside a radius of 50 miles from the location at
which Executive performed such duties immediately prior to the Change of
Control, then the Agreement shall be deemed to have been terminated by the
Corporations otherwise than by reason of Cause and the Corporations shall pay to
Executive within five days after notice from Executive to such effect, as
liquidated damages, a lump sum cash payment equal to 2.99 times the "base
amount" of Executive's compensation. For purposes hereof, "base amount" shall
have the meaning provided in Section 280G (b) (2) (A) of the Internal Revenue
Code of 1986, as amended, and the Proposed Regulations thereunder.
(ii) For the purposes of this Agreement, a Change of Control
means (i) the direct or indirect sale, lease, exchange or other transfer of all
or substantially all (50% or more) of the assets of GST or the Corporations to
any person or entity or group of persons or entities acting in concert as a
partnership or other group (a "Group of Persons") excluding the GST Companies
(ii) the merger, consolidation or other business combination of GST or the
Corporations with or into another corporation with the effect that the
shareholders of GST or the Corporations, as the case may be, immediately
following the merger, consolidation or other business combination, hold 50% or
less of the combined voting power of the then outstanding securities of the
surviving corporation of such merger, consolidation or other business
combination ordinarily (and
-13-
<PAGE>
apart from rights accruing under special circumstances) having the right to vote
in the election of directors, (iii) the replacement of a majority of the GST
Board or of any committee of the GST Board or of either of the Boards in any
given year as compared to the directors who constituted the GST Board or such
committee or either of the Boards at the beginning of such year, and such
replacement shall not have been approved by the GST Board or the Boards, as the
case may be, as constituted at the beginning of such year, (iv) a person or
Group of Persons shall, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases or otherwise, have become the
beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934, as amended) of securities of GST or either of the Corporations
representing 50% or more of the combined voting power of the then outstanding
securities of such corporation ordinarily (and apart from rights accruing under
special circumstances) having the right to vote in the election of directors.
18. Insurance Policies. The GST Companies shall have the right
from time to time to purchase, increase, modify or terminate insurance policies
on the life of Executive for the benefit of the GST Companies, in such amounts
as the GST Companies shall determine in their sole discretion. In connection
therewith, Executive shall, at such place or places as the GST Companies may
reasonably direct, submit himself to physical examinations on an annual basis
(or more frequently) should an insurer or prospective insurer so require, and
execute and deliver such documents as the GST Companies may deem necessary to
obtain such insurance policies.
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<PAGE>
19. Entire Agreement; Amendment. This Agreement constitutes
the entire agreement of the parties hereto with respect to the subject matter
hereof, and any other prior agreement between the Corporations and Executive
with respect to the subject matter hereof is hereby superseded and terminated
effective immediately and shall be without further force or effect. No amendment
or modification himself shall be valid or binding unless made in writing and
signed by the party against whom enforcement thereof is sought.
20. Notices. Any notice required, permitted or desired to be
given pursuant to any of the provisions of this Agreement shall be deemed to
have been sufficiently given or served for all purposes if delivered in person
or by responsible overnight delivery service or sent by certified mail, return
receipt requested, postage and fees prepaid as follows:
If to the Corporations, at their address set forth
above, Attention: Chief Executive Officer, with a
copy to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attention: Stephen Irwin
If to Executive, at his address set forth above.
Any of the parties hereto may at any time and from time to time change the
address to which notice shall be sent hereunder by notice to the other parties
given under this Paragraph 20. The date of the giving of any notice hand
delivered or delivered by responsible overnight carrier shall be the date of its
delivery and of any notice sent by mail shall be the date five days after the
date of the posting of the mail.
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<PAGE>
21. No Assignment; Binding Effect. Neither this Agreement, nor
the right to receive any payments hereunder, may be assigned by Executive or the
Corporations without the prior written consent of the other parties hereto. This
Agreement shall be binding upon Executive, his heirs, executors and
administrators and upon the Corporations, their respective successors and
permitted assigns.
22. Waivers. No course of dealing nor any delay on the part of
the Corporations in exercising any rights hereunder shall operate as a waiver of
any such rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.
23. Invalidity. If any clause, paragraph, section or part of
this Agreement shall be held or declared to be void, invalid or illegal, for any
reason, by any court of competent jurisdiction, such provision shall be
ineffective but shall not in any way invalidate or affect any other clause,
paragraph, section or part of this Agreement.
24. Further Assurances. Each of the parties shall execute such
documents and take such other actions as may be reasonably requested by the
other party to carry out the provisions and purposes of this Agreement in
accordance with its terms.
25. Attorneys' Fees. If any action, suit or proceeding is
filed by any party to enforce or rescind this Agreement or otherwise with
respect to the subject matter of this Agreement, the party prevailing on an
issue shall be entitled to recover with respect to such issue, in addition to
costs, reasonable attorneys' fees incurred in preparation or in prosecution or
defense of such
-16-
<PAGE>
action, suit or proceeding as fixed by the arbitrator or trial court, and if
any appeal is taken from the decision of the trial court, reasonable attorneys'
fees as fixed on appeal.
26. Governing Law. This Agreement shall be governed,
interpreted and construed in accordance with the terms of the State of Delaware,
except that body of law relating to choice of laws.
IN WITNESS WHEREOF, the parties hereto have caused this
Restated and Amended Employment Agreement to be duly executed as of the day and
year first above written.
GST USA, INC.
By: /s/ Gordon Blankstein
---------------------------------------------
Name: Gordon Blankstein
Title:
GST TELECOM INC.
By: /s/ Gordon Blankstein
---------------------------------------------
Name: Gordon Blankstein
Title:
/s/ Robert H. Hanson
---------------------------------------------
ROBERT H. HANSON
THE FOREGOING AGREEMENT IS
CONSENTED TO AND ACKNOWLEDGED:
GST TELECOMMUNICATIONS, INC.
By: /s/ Gordon Blankstein
- --------------------------------
Name:
Title:
-17-
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT made as of this
1st day of September, 1995, by and between GST USA, INC. ("GUSA") and GST
TELECOM INC. ("Telecom" and together with GUSA, the "Corporations"), each
Delaware corporations with their principal offices at 4317 N.E. Thurston Way,
Vancouver, Washington 98662, and CLIFFORD V. SANDER, residing at 15305 S.E.
River Crest Drive, Vancouver, Washington 98683 (the "Executive").
W I T N E S S E T H :
WHEREAS, Executive has heretofore been employed pursuant to an
Employment Agreement dated as of March 1, 1994 between Telecom and Executive;
and
WHEREAS, Telecom and Executive desire to restate and amend the
terms of Executive's employment and to provide that Executive shall be jointly
employed by GUSA and Telecom;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter set forth, the parties hereto agree as follows:
1. Employment of Executive. GUSA hereby employs executive as
its Chief Accounting Officer and Telecom hereby employs Executive as its Chief
Financial Officer, to perform the duties and responsibilities incident to such
offices, subject at all times to the control and direction of the Boards of
Directors of the Corporations (the "Boards") and the Chief Executive Officers of
the Corporations.
2. Acceptance of Employment; Time and Attention. Executive
hereby accepts such employment and agrees that throughout the period of his
employment hereunder, except as hereinafter
<PAGE>
provided, he will devote substantially all his time, attention, knowledge and
skills, faithfully, diligently and to the best of his ability, in furtherance of
the business of the Corporations, their parent corporation, GST
Telecommunications, Inc. ("GST") and their subsidiaries (collectively, the "GST
Companies"), and will perform the duties assigned to him pursuant to Paragraph 1
hereof, subject, at all times, to the direction and control of the Boards and
the Chief Executive Officers of the Corporations. Executive shall at all times
be subject to, observe and carry out such rules, regulations, policies,
directions and restrictions as the GST Companies shall from time to time
establish. During the period of his employment hereunder, Executive shall not,
except as hereinafter provided, directly or indirectly, accept employment or
compensation from, or perform services of any nature for, any business
enterprise other than the GST Companies. The Corporations acknowledge that
Executive may render financial, accounting or other consulting services to
persons or entities not in competition with the GST Companies. The performance
of such services shall not constitute a breach of this Agreement, provided that
(i) they do not interfere with the performance by Executive of his duties
hereunder, and (ii) they do not require the devotion of more than five percent
of Executive's working hours in any year. Apart from any travel required to
perform Executive's employment duties, Executive shall not be required to be
regularly based at any office of the Corporations located outside the
metropolitan areas of Portland, Oregon or Vancouver, Washington, without
Executive's prior written consent (which may be withheld in Executive's
discretion). Executive shall be elected or appointed to such
-2-
<PAGE>
offices of the GST Companies other than the Corporations as shall be determined
from time to time by the Board of Directors of GST (the "GST Board"). During the
period of Executive's employment hereunder, he shall not be entitled to
additional compensation for serving in any offices of the GST Companies other
than the Corporations to which he is elected or appointed.
3. Term. Except as otherwise provided herein, the term of
Executive's employment hereunder shall commence as of the date hereof and shall
continue to and including the 28th day of February, 1999.
4. Compensation. As compensation for his services hereunder,
the Corporations shall pay to Executive (i) a base salary at the rate of
$120,000 per annum, payable in equal installments no less frequently than
semi-monthly and (ii) such incentive compensation and bonuses, if any, as the
GST Board or the Compensation Committee thereof in its absolute discretion may
determine to award Executive; provided that this Agreement shall in no event be
construed to require the payment to Executive of incentive compensation or
bonuses. At least annually, the GST Board or the Compensation Committee thereof
shall review Executive's base salary and shall determine whether any adjustment
thereof is warranted. If it is determined to adjust Executive's base salary,
such adjustment shall be based upon (i) the nature, magnitude and quality of the
services performed by Executive for the GST Companies, (ii) the condition
(financial and other) and results of operations of the GST Companies and (iii)
the compensation paid for positions of comparable responsibility and authority
within the telecommunications industry, provided that no
-3-
<PAGE>
such adjustment shall reduce such base salary below $120,000 per annum. All
compensation paid to Executive shall be subject to withholding and other
employment taxes imposed by applicable law.
5. Additional Benefits. In addition to such base salary and
any incentive compensation and bonuses awarded Executive, he (and his family)
shall be entitled to participate, to the extent he is (and they are) eligible
under the terms and conditions thereof, in any profit sharing, pension,
retirement, hospitalization, insurance, disability, medical service, stock
option, bonus or other employee benefit plan generally available to the
executive officers of the Corporations that may be in effect from time to time
during the period of Executive's employment hereunder. The Corporations shall be
under no obligation to institute or continue the existence of any such employee
benefit plan.
6. Reimbursement of Expenses. The Corporations shall reimburse
Executive in accordance with applicable policies of the GST Companies for all
expenses reasonably incurred by him in connection with the performance of his
duties hereunder and the business of the GST Companies, upon the submission to
the Corporations of appropriate receipts or vouchers.
7. Facilities and Personnel. Executive shall be provided a
private office, secretarial services and such other facilities, supplies,
personnel and services as shall be required or reasonably requested for the
performance of his duties hereunder.
8. Motor Vehicle Allowance. Executive shall be entitled to
receive a non-accountable expense allowance of $400 per
-4-
<PAGE>
month to reimburse him for the cost and expense of operating and maintaining a
motor vehicle in furtherance of the services rendered by him hereunder, which
costs and expenses may include without limitation, vehicle loan and lease
payments, insurance premiums, gasoline and repair expenditures and other similar
charges.
9. Vacation. Executive shall be entitled to five weeks' paid
vacation in respect of each 12-month period during the term of his employment
hereunder, such vacation to be taken at times mutually agreeable to Executive
and the Boards. Vacation time shall not be cumulative from one 12-month period
to the next, but Executive shall receive vacation pay at the then current salary
rate for any vacation time not taken by him.
10. D&O Insurance Coverage. The Corporations shall use their
best efforts to cause GST to obtain and maintain, at GST's cost and expense,
directors' and officers' liability insurance coverage for the directors and
officers of GST, including Executive. Nothing herein shall be deemed to require
GST to provide such coverage for Executive if it is not then providing such
coverage generally to its directors and officers.
11. Restrictive Covenant. In consideration of his employment
hereunder, Executive agrees that during the period of his employment hereunder
and, in the event of termination of this Agreement (i) by Executive otherwise
than for Employer Breach (as such term is defined herein) or (ii) by the
Corporation for Cause (as such term is defined herein), for a further period
ending on the earlier of two years after such termination or February 28, 2000,
he will not (a) directly or indirectly own, manage, operate, join, control,
participate in, invest in, or otherwise be connected
-5-
<PAGE>
with, in any manner, whether as an officer, director, employee, partner,
investor or otherwise, any business entity that is engaged in the design,
development, construction or operation of alternate access or other
telecommunications networks, in providing long distance or other
telecommunications services or in any other business in which the GST Companies,
or any of them, are engaged during such period, within the United States of
America (1) in all locations in which the GST Companies, or any of them, are
doing business, and (2) in all locations in respect of which the GST Companies
are actively planning for and/or pursuing a business opportunity, whether or not
the GST Companies, or any of them, theretofore have submitted any bids, provided
that if such planning and/or pursuit relates to a business opportunity that is
not a competitive access project (a "CAP") such planning and/or pursuit must
have involved material efforts on the part of the GST Companies, or any of them,
(b) for himself or on behalf of any other person, partnership, corporation or
entity, call on any customer of the GST Companies for the purpose of soliciting,
diverting or taking away any customer from the GST Companies (1) in all
locations in which the GST Companies, or any of them, are doing business, and
(2) in all locations in respect of which the GST Companies, or any of them, are
actively planning for and/or pursuing a business opportunity, whether or not the
GST Companies, or any of them, theretofore have submitted any bids, provided
that if such planning and/or pursuit relates to a business opportunity that is
not a CAP, such planning and/or pursuit must have involved material efforts on
the part of the GST Companies, or any of them, or (c) induce, influence or seek
to induce or influence any person
-6-
<PAGE>
engaged as an employee, representative, agent, independent contractor or
otherwise by the GST Companies, or any of them, to terminate his or her
relationship with the GST Companies, or any of them. Nothing herein contained
shall be deemed to prohibit Executive from (x) investing his funds in securities
of an issuer if the securities of such issuer are listed for trading on a
national securities exchange or are traded in the over-the-counter market and
Executive's holdings therein represent less than 2% of the total number of
shares or principal amount of the securities of such issuer outstanding, or (y)
owning securities, regardless of amount, of GST.
Executive acknowledges that the provisions of this Paragraph
11 are reasonable and necessary for the protection of the GST Companies, and
that each provision, and the period or periods of time, geographic areas and
types and scope of restrictions on the activities specified herein are, and are
intended to be, divisible. In the event that any provision of this Paragraph 11,
including any sentence, clause or part hereof, shall be deemed contrary to law
or invalid or unenforceable in any respect by a court of competent jurisdiction,
the remaining provisions shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect and any invalid and
unenforceable provisions shall be deemed, without further action on the part of
the parties hereto, modified, amended and limited to the extent necessary to
render the same valid and enforceable.
12. Confidential Information. Executive shall hold in a
fiduciary capacity for the benefit of the GST Companies all information,
knowledge and data relating to or concerned with their
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<PAGE>
operations, sales, business and affairs, and he shall not, at any time for a
period of two years after termination of his employment hereunder, use, disclose
or divulge any such information, knowledge or data to any person, firm or
corporation (unless the GST Companies no longer treat such information as
confidential) other than to the GST Companies or their designees and employees
or except as may otherwise be required in connection with the business and
affairs of the GST Companies; provided, however, that Executive may use,
disclose or divulge such information, knowledge or data that (i) was known to
Executive at the commencement of his employment by Telecom; (ii) is or becomes
generally available to the public through no wrongful act on Executive's part;
or (iii) becomes available to Executive from a person or entity other than the
GST Companies or their agents not bound by this or a similar agreement with the
GST Companies; and provided, further, that the provisions of this Paragraph 12
shall not apply to Executive's know how to the extent utilized by him in
subsequent employment so long as such employment is not in breach of this
Agreement.
13. Equitable Relief. The parties hereto acknowledge that
Executive's services are unique and that, in the event of a breach or a
threatened breach by Executive of any of his obligations under this Agreement,
the Corporations will not have an adequate remedy at law. Accordingly, in the
event of any such breach or threatened breach by Executive, the Corporations
shall be entitled to such equitable and injunctive relief as may be available to
restrain Executive and any business, firm, partnership, individual, corporation
or entity participating in such breach or threatened breach from the violation
of the
-8-
<PAGE>
provisions hereof. Nothing herein shall be construed as prohibiting the
Corporations from pursuing any other remedies available at law or in equity for
such breach or threatened breach, including the recovery of damages and the
immediate termination of the employment of Executive hereunder.
14. Survival of Provisions; Death. Neither the termination of
this Agreement, nor of Executive's employment hereunder, shall terminate or
affect in any manner any provision of this Agreement that is intended by its
terms to survive such termination.
In the event of termination of Executive's employment
hereunder by reason of his death, the Corporations shall pay a benefit (the
"Benefit Payment") to such person or persons as Executive shall, at his option,
from time to time designate by written instrument delivered to the Corporations,
each subsequent designation to revoke all prior designations, or if no such
designation is made, to Executive's estate (the "Payment Beneficiary"). The
Benefit Payment shall be in an amount equal to one and one-half times
Executive's then current base salary, and shall be payable to the Payment
Beneficiary in equal quarterly installments over a period of one and one-half
years, provided that if the GST Companies, or any of them, then maintain a life
insurance policy on the life of Executive under which they are the
beneficiaries, the amount of the death benefit payable thereunder, to a maximum
amount equal to the Benefit Payment, less installments of the Benefit Payment
theretofore paid, shall be paid to the Payment Beneficiary on the Benefit
Payment installment payment date next succeeding the date on which the GST
Companies receive such
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<PAGE>
death benefit proceeds, and the remainder of the Benefit Payment, if any, shall
be paid in equal quarterly installments as provided above.
15. Disability. In the event that during the term of his
employment by the Corporations Executive shall become Disabled (as such term is
hereinafter defined) he shall continue to receive the full amount of the base
salary to which he was theretofore entitled for a period of six months after he
shall be deemed to have become Disabled (the "First Disability Payment Period").
If the First Disability Payment Period shall end prior to February 28, 1999,
Executive thereafter shall be entitled to receive salary at an annual rate equal
to one-half of his then current base salary for a further period ending on the
earlier of (i) one year thereafter, or (ii) February 28, 1999 (the "Second
Disability Payment Period"). Upon the expiration of the Second Disability
Payment Period, Executive shall not be entitled to receive any further payments
on account of his base salary until he shall cease to be Disabled and shall have
resumed his duties hereunder and provided that the Corporations shall not have
theretofore terminated this Agreement as hereinafter provided. The Corporations
may terminate this Agreement and Executive's employment hereunder at any time
after Executive is Disabled, upon at least 10 days' prior written notice. For
the purposes of this Agreement, Executive shall be deemed to have become
Disabled when (x) by reason of physical or mental incapacity, Executive is not
able to perform a substantial portion of his duties hereunder for a period of
135 consecutive days or for 135 days in any consecutive 225-day period or (y)
when Executive's physician or a physician
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<PAGE>
designated by the Corporations shall have determined that Executive shall not be
able, by reason of physical or mental incapacity, to perform a substantial
portion of his duties hereunder. In the event that Executive shall dispute any
determination of his Disability pursuant to clauses (x) or (y) above, the matter
shall be resolved by the determination of three physicians qualified to practice
medicine in the State of Washington, one to be selected by each of the
Corporations and Executive and the third to be selected by the designated
physicians. If Executive shall receive benefits under any disability policy
maintained by the GST Companies, the Corporations shall be entitled to deduct
the amount equal to the benefits so received from base salary that they
otherwise would have been required to pay to Executive as provided above.
The foregoing provisions regarding disability shall be
adjusted during the term hereof to match the most favorable disability benefits
provided to any other senior executive of the Corporations.
16. Termination for Cause. The Corporations may at any time
upon written notice to Executive terminate Executive's employment for Cause. For
purposes of this Agreement, the following shall constitute Cause: (i) the
willful and repeated failure of Executive to perform any material duties
hereunder or gross negligence of Executive in the performance of such duties,
and if such failure or gross negligence is susceptible of cure by Executive, the
failure to effect such cure within 20 days after written notice of such failure
or gross negligence is given to Executive; (ii) excessive use of alcohol or
illegal drugs interfering with the performance of Executive's duties hereunder;
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<PAGE>
(iii) theft, embezzlement, fraud, misappropriation of funds, other acts of
dishonesty or the violation of any law or ethical rule relating to Executive's
employment; (iv) the conviction of a felony or other crime involving moral
turpitude by Executive; or (v) the breach by Executive of any other material
provision of this Agreement, and if such breach is susceptible of cure by
Executive, the failure to effect such cure within 20 days after written notice
of such breach is given to Executive. For purposes of this Agreement, an action
shall be considered "willful" if it is done intentionally, purposely or
knowingly, distinguished from an act done carelessly, thoughtlessly or
inadvertently. In any such event, Executive shall be entitled to receive his
base salary to and including the date of termination. Should Executive in good
faith dispute his termination for Cause, he shall give prompt written notice
thereof to the Corporations, in which event such dispute shall be submitted to
and determined by arbitration in Seattle, Washington before an arbitrator
appointed pursuant to the rules of the American Arbitration Association (the
"Arbitrator"). Such arbitration shall be conducted in accordance with such rules
as shall be promulgated by the Arbitrator, which shall include a discovery
period not to exceed 30 days in length and which may include any or all of the
rules then obtaining of the American Arbitration Association. Any award or
decision of the Arbitration shall be conclusive in the absence of fraud and
judgment thereon may be entered in any court having jurisdiction thereof. The
costs of such arbitration shall be borne by the party against whom any award or
decision is rendered. Executive shall not be entitled to
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<PAGE>
receive any compensation for periods subsequent to his dismissal pursuant to
this Paragraph 16.
17. Termination for Employer Breach. Executive may upon
written notice to the Corporations terminate this Agreement (a termination for
"Employer Breach") in the event of the breach by the Corporations of (i) any
material provision of this Agreement (and the occurrence of any of the events
described in subparagraph (i) of Paragraph 18 hereof shall be deemed a breach by
the Corporations of a material provision of this Agreement), and if such breach
relates to a provision of this Agreement other than Paragraph 18 and is
susceptible of cure, the failure to effect such cure within 20 days after
written notice of such breach is given to the Corporation; or (ii) any material
provision of the Restated and Amended Agreement effective as of June 21, 1994,
by and among GST, GUSA, Pacwest Network L.L.C., John Warta, Executive and
Telecom, after the expiration of any applicable cure or grace periods.
18. Change of Control.
(i) If prior to the termination of this Agreement,
there is a Change of Control (as such term is defined herein) and thereafter any
of the following occur: (a) Executive is placed in any position of lesser
stature than that of a senior executive officer of the Corporations; is assigned
duties inconsistent with a senior executive officer or duties which, if
performed, would result in a significant change in the nature or scope of
powers, authority, functions or duties inherent in such position on the date
hereof; is assigned performance requirements or working conditions which are at
variance with the performance requirements and working conditions in effect on
the date hereof; or is accorded
-13-
<PAGE>
treatment on a general basis that is in derogation of his status as a senior
executive officer; (b) Executive ceases to serve as a member of any of the GST
Board or the Boards; (c) any breach of Paragraph 2 or Paragraphs 4 through 8,
inclusive, of this Agreement; or (d) any requirement of the Corporations that
the location at which Executive performs his principal duties for the
Corporations be outside a radius of 50 miles from the location at which
Executive performed such duties immediately prior to the Change of Control, then
the Agreement shall be deemed to have been terminated by the Corporations
otherwise than by reason of Cause and the Corporations shall pay to Executive
within five days after notice from Executive to such effect, as liquidated
damages, a lump sum cash payment equal to 2.99 times the "base amount" of
Executive's compensation. For purposes hereof, "base amount" shall have the
meaning provided in Section 280G (b) (2) (A) of the Internal Revenue Code of
1986, as amended, and the Proposed Regulations thereunder.
(ii) For the purposes of this Agreement, a Change of Control
means (i) the direct or indirect sale, lease, exchange or other transfer of all
or substantially all (50% or more) of the assets of GST or the Corporations to
any person or entity or group of persons or entities acting in concert as a
partnership or other group (a "Group of Persons") excluding the GST Companies
(ii) the merger, consolidation or other business combination of GST or the
Corporations with or into another corporation with the effect that the
shareholders of GST or the Corporations, as the case may be, immediately
following the merger, consolidation or other business combination, hold 50% or
less of the combined voting power of the
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<PAGE>
then outstanding securities of the surviving corporation of such merger,
consolidation or other business combination ordinarily (and apart from rights
accruing under special circumstances) having theright to vote in the election of
directors, (iii) the replacement of a majority of the GST Board or of any
committee of the GST Board or of either of the Boards in any given year as
compared to the directors who constituted the GST Board or such committee or
either of the Boards at the beginning of such year, and such replacement shall
not have been approved by the GST Board or the Boards, as the case may be, as
constituted at the beginning of such year, (iv) a person or Group of Persons
shall, as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases or otherwise, have become the beneficial owner
(within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) of securities of GST or either of the Corporations representing 50% or
more of the combined voting power of the then outstanding securities of such
corporation ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors.
19. Insurance Policies. The GST Companies shall have the right
from time to time to purchase, increase, modify or terminate insurance policies
on the life of Executive for the benefit of the GST Companies, in such amounts
as the GST Companies shall determine in their sole discretion. In connection
therewith, Executive shall, at such time or times and at such place or places as
the GST Companies may reasonably direct, submit himself to such physical
examinations on an annual basis (or more frequently) should an insurer or
prospective insurer so require, and execute
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<PAGE>
and deliver such documents as the GST Companies may deem necessary to obtain
such insurance policies.
20. Entire Agreement; Amendment. This Agreement constitutes
the entire agreement of the parties hereto with respect to the subject matter
hereof, and any prior agreement between the Corporations and Executive with
respect to the subject matter hereof is hereby superseded and terminated
effective immediately and shall be without further force or effect. No amendment
or modification himself shall be valid or binding unless made in writing and
signed by the party against whom enforcement thereof is sought.
21. Notices. Any notice required, permitted or desired to be
given pursuant to any of the provisions of this Agreement shall be deemed to
have been sufficiently given or served for all purposes if delivered in person
or by responsible overnight delivery service or sent by certified mail, return
receipt requested, postage and fees prepaid as follows:
If to the Corporations, at their address set forth
above, Attention: Chief Executive Officer, with a
copy to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attention: Stephen Irwin
If to Executive, at his address set forth above, with
a copy to:
Kennedy & Kennedy
Pioneer Tower - Suite 1170
888 S.W. Fifth Avenue
Portland, Oregon 97204
Any of the parties hereto may at any time and from time to time change the
address to which notice shall be sent hereunder by
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notice to the other parties given under this Paragraph 21. The date of the
giving of any notice hand delivered or delivered by responsible overnight
carrier shall be the date of its delivery and of any notice sent by mail shall
be the date five days after the date of the posting of the mail.
22. No Assignment; Binding Effect. Neither this Agreement, nor
the right to receive any payments hereunder, may be assigned by Executive or the
Corporations without the prior written consent of the other parties hereto. This
Agreement shall be binding upon Executive, his heirs, executors and
administrators and upon the Corporations, their respective successors and
permitted assigns.
23. Waivers. No course of dealing nor any delay on the part of
the Corporations in exercising any rights hereunder shall operate as a waiver of
any such rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.
24. Governing Law; Forum. This Agreement shall be governed,
interpreted and construed in accordance with the laws of the State of Delaware,
except that body of law relating to choice of laws. Except as otherwise provided
in Paragraph 16 hereof, any action, suit or proceeding with respect to this
Agreement and the respective rights, remedies, duties and liabilities of the
parties hereunder shall be brought in the courts of the State of Washington
located in Seattle, Washington or in the United States District Court for the
district in which Seattle, Washington is located, and by execution and delivery
of this Agreement, each party accepts for itself, generally and unconditionally,
the jurisdiction of such
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courts. The parties hereto irrevocably waive any objection that they may now or
hereafter have to the commencement of any such action, suit or proceeding in
such courts.
25. Invalidity. If any clause, paragraph, section or part of
this Agreement shall be held or declared to be void, invalid or illegal, for any
reason, by any court of competent jurisdiction, such provision shall be
ineffective but shall not in any way invalidate or affect any other clause,
paragraph, section or part of this Agreement.
26. Further Assurances. Each of the parties shall execute such
documents and take such other actions as may be reasonably requested by the
other party to carry out the provisions and purposes of this Agreement in
accordance with its terms.
27. Attorneys Fees. If any action, suit or proceeding is filed
by any party to enforce or rescind this Agreement or otherwise with respect to
the subject matter of this Agreement, the party prevailing on an issue shall be
entitled to recover with respect to such issue, in addition to costs, reasonable
attorneys' fees incurred in preparation or in prosecution or defense of such
action, suit or proceeding as fixed by the arbitrator or trial court, and if any
appeal is taken from the decision of the trial court, reasonable attorneys' fees
as fixed on appeal.
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IN WITNESS WHEREOF, the parties hereto have caused this
Employment Agreement to be duly executed as of the day and year first above
written.
GST USA, INC.
By: /s/ Gordon Blankstein
--------------------------------------
(Title)
GST TELECOM INC.
By: /s/ Gordon Blankstein
--------------------------------------
(Title)
/s/ Clifford V. Sander
--------------------------------------
CLIFFORD V. SANDER
THE FOREGOING AGREEMENT IS
CONSENTED TO AND ACKNOWLEDGED:
GST TELECOMMUNICATIONS, INC.
By: /s/ Gordon Blankstein
- --------------------------------------
(Title)
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AGREEMENT AND PLAN OF MERGER
By and Among
Call America Business Communications Corporation
Call America Business Communications of Fresno, Inc.
Call America Business Communications of Bakersfield, Inc.
The Selling Shareholders listed in Exhibit A
GST Newco of California, Inc.
and
GST Telecommunications, Inc.
------------------------------------------------------------
Dated as of September 26, 1996
------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
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<TABLE>
<CAPTION>
ARTICLE I
TRANSACTIONS AND TERMS OF THE MERGER
<C> <S> <C>
1.1 Merger............................................................2
1.2 Time and Place of Closing; Escrow.................................2
1.3 Effective Time....................................................2
1.4 Charter...........................................................3
1.5 Bylaws............................................................3
1.6 Directors and Officers............................................3
1.7 Conversion of Shares..............................................3
1.8 Anti-Dilution Provisions..........................................4
1.9 Fractional Shares.................................................4
1.10 Post-Closing Consideration.......................................5
ARTICLE II
EXCHANGE OF SHARES
2.1 Exchange Procedures...............................................5
2.2 Rights of Former Shareholders of each of the Call
America Companies.............................................6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE
CALL AMERICA COMPANIES AND THE SELLERS
3.1 Corporate Organization; Requisite Authority to
Conduct Business; Articles of Incorporation and
By-Laws.......................................................6
3.2 Capitalization and Shareholdings..................................7
3.3 Subsidiaries, Etc.................................................7
3.4 Authority Relative to and Validity of Agreements..................7
3.5 Required Filings and Consents; No Conflict........................8
3.6 Financial Statements and Net Revenues.............................9
3.7 No Undisclosed Liabilities........................................9
3.8 Absence of Certain Changes and Events.............................9
3.9 Taxes and Tax Returns............................................10
3.10 Employee Benefit Plans..........................................12
3.11 Title to Property...............................................12
3.12 Trademarks, Patents and Copyrights..............................13
3.13 Legal Proceedings, Claims, Investigations, etc..................14
3.14 Insurance.......................................................14
3.15 Material Contracts..............................................15
3.16 Certain Transactions............................................15
3.17 Broker..........................................................15
3.18 Environmental Matters...........................................16
3.19 Illegal Payments................................................16
3.20 Statements True and Correct.....................................17
3.21 Accounting, Tax and Regulatory Matters..........................17
</TABLE>
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Page
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<TABLE>
<CAPTION>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
<C> <S> <C>
4.1 Capitalization...................................................17
4.2 Authority Relative to and Validity of Agreements.................18
4.3 Required Filings and Consents; No Conflict.......................18
4.4 Broker...........................................................19
4.5 Investment.......................................................19
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BUYER
5.1 Corporate Organization; Requisite Authority to
Conduct Business; Articles of Incorporation and
By-Laws......................................................20
5.2 Authority Relative to and Validity of Agreements.................20
5.3 Required Filings; Consents.......................................21
5.4 Capitalization...................................................22
5.5 SEC Reports and Financial Statements.............................22
5.6 No Undisclosed Liabilities.......................................23
5.8 Legal Proceedings, Claims, Investigations, etc...................23
5.9 Vote Required....................................................23
5.10 Statements True and Correct.....................................23
5.11 Accounting, Tax and Regulatory Matters..........................24
Section 5.12 No Prior Activities.....................................24
ARTICLE VI
COVENANTS OF THE CALL AMERICA AND GST COMPANIES
6.1 Covenants of the Call America Companies Regarding
Conduct of Business Operations Pending the
Closing......................................................24
6.2 No Other Negotiations............................................26
6.3 Conduct of Business of GST.......................................26
ARTICLE VII
ADDITIONAL COVENANTS
7.1 Covenants of the Call America Companies, the
Sellers and the GST Companies................................27
7.2 Tax Treatment....................................................28
7.3 Employee Benefits and Contracts..................................29
7.4 Guarantee of Performance.........................................29
7.5 FABRIK Communications, Inc.......................................29
7.6 Stock Exchange Listing...........................................29
7.7 Certain Regulatory Approvals.................................30
7.8 Certain Agreements regarding the Shares......................30
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE CALL AMERICA COMPANIES AND THE SELLERS
8.1 Representations and Warranties True..............................30
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8.2 Performance of Covenants.........................................31
8.3 No Proceedings...................................................31
8.4 Escrow Agreement.................................................31
8.5 Employment Agreements............................................31
8.6 Registration Rights Agreement....................................31
8.7 Consents and Approvals...........................................31
8.8 Opinions of Counsel..............................................31
8.9 Tax Matters......................................................32
8.10 Material Changes.................................................32
8.11 Release of Loan Guarantees.......................................33
8.12 Listing of Shares................................................33
ARTICLE IX
CONDITIONS PRECEDENT TO
OBLIGATIONS OF THE GST COMPANIES
9.1 Representation and Warranties True...............................33
9.2 Performance of Covenants.........................................33
9.3 No Proceedings...................................................33
9.4 Consents and Approvals...........................................34
9.5 Escrow Agreement.................................................34
9.6 Employment Agreements............................................34
9.7 Registration Rights Agreement....................................34
9.8 Non-Competition Agreements.......................................34
9.9 Resignation of Officers and Directors............................34
9.10 Opinion of Counsel..............................................34
9.11 Material Changes................................................35
9.12 Waivers.........................................................35
ARTICLE X
INDEMNIFICATION
10.1 Indemnification by the Sellers..................................35
10.2 Indemnification by the Buyer....................................35
10.3 Special Indemnification for Tax Matters.........................36
10.4 Survival........................................................37
10.5 Limitations.....................................................37
10.6 Third Party Claims..............................................38
10.7 Reduction for Insurance.........................................39
10.8 Termination of Indemnification..................................39
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 Termination.....................................................40
11.2 Effect of Termination...........................................41
11.3 Amendment.......................................................41
11.4 Extension; Waiver...............................................41
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ARTICLE XII
MISCELLANEOUS
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12.1 Expenses........................................................41
12.2 Notices.........................................................41
12.3 Entire Agreement................................................42
12.4 Binding Effect, Benefits, Assignments...........................42
12.5 Applicable Law..................................................42
12.6 Jurisdiction....................................................43
12.7 Headings........................................................43
12.8 Counterparts....................................................43
12.9 Definitions.....................................................43
EXHIBITS
A List of Sellers
B Escrow Agreement
C Registration Rights Agreement
D Employment Agreement
E Non-Competition
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of September 26, 1996, by and among Call America Business Communications
Corporation, a California corporation ("Call America"), Call America Business
Communications of Fresno, Inc., a California corporation ("CA Fresno"), Call
America Business Communications of Bakersfield, Inc., a California corporation
("CA Bakersfield"), each of the persons listed in Exhibit A hereto
(individually, a "Seller" and collectively, the "Sellers"), GST Newco of
California, Inc., a Delaware corporation ("Sub"), and GST Telecommunications,
Inc., a federally chartered Canadian corporation (the "Buyer" or "GST").
Call America, CA Fresno and CA Bakersfield are individually a "Call America
Company" and collectively the "Call America Companies." The Call America
Companies are affiliated entities which are under the common ownership and
control of the Sellers.
Sub and GST are collectively the "GST Companies". Sub is a newly-formed
corporation which is a wholly-owned subsidiary of GST. GST is a public company
whose shares of Common Stock are traded on the Amex.
PREAMBLE
GST, GST Net, Inc., Call America and the Sellers are parties to a letter of
intent dated July 17, 1996, which sets forth the principal terms and conditions
involving a proposed business combination of GST and Call America. The Boards of
Directors of the Call America Companies and the GST Companies are of the opinion
that the transactions described herein are in the best interests of the parties
and their respective shareholders. This Agreement provides for the acquisition
of the Call America Companies by GST pursuant to a merger whereby CA
Bakersfield, CA Fresno and Sub will merge with and into Call America. At the
effective time of the Merger, the outstanding shares of the capital stock of
each of the Call America Companies shall be converted into the right to receive
shares of the common stock of GST. As a result, the Sellers shall become
shareholders of GST and the Call America Companies shall conduct their business
and operations as a wholly-owned subsidiary of GST.
The transactions described in this Agreement have been approved by the
Sellers, who constitute all of the shareholders of the Call America Companies,
and by GST, the sole shareholder of Sub; and are subject to obtaining certain
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regulatory approvals, and the satisfaction of certain other conditions described
in this Agreement.
It is the intention of the parties to this Agreement that the Merger shall
qualify for federal income tax purposes as a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code.
Certain terms used in this Agreement are defined in Section 12.9 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants, and agreements set forth herein, the parties agree
as follows:
ARTICLE I
TRANSACTIONS AND TERMS OF THE MERGER
Section 1.1 Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.3 hereof), CA Fresno, CA
Bakersfield and Sub shall be merged with and into Call America, in accordance
with the provisions of Section 1108 of the CGCL and Section 252 of the DGCL and
with the effect provided in Section 1107 of the CGCL and Sections 259 and 261 of
the DGCL (each a "Merger" and collectively, the "Merger"). Call America shall be
the Surviving Corporation of the Merger, and it shall be a wholly-owned
subsidiary of GST and shall be governed by the Laws of the State of California.
The Merger shall be consummated pursuant to the terms of this Agreement, which
has been approved and adopted by the respective Boards of Directors of each of
the Call America Companies, each of the GST Companies and the Sellers.
Section 1.2 Time and Place of Closing; Escrow.
(a) The closing of the transactions contemplated hereby (the "Closing")
will take place at 9:00 A.M. on the date that the Effective Time (as defined
below) occurs, or at such other time as the parties, acting through their
authorized officers, may mutually agree.
(b) The Closing shall be held at the office of GST's counsel, Olshan
Grundman Frome and Rosenzweig LLP, 505 Park Avenue, New York, New York.
Section 1.3 Effective Time. The Merger and other transactions contemplated
by this Agreement shall become effective on the date and at the time the
Agreement of Merger reflecting the Merger, together with officers' certificates
attached thereto and such additional documents as may be required by Section
1103 of the CGCL, are filed with the Secretary of State of the State of
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California, and the documents required by Section 252 of the DGCL are filed with
the Secretary of State of the State of Delaware (the "Effective Time"). Subject
to the terms and satisfaction of all conditions hereof, unless otherwise
mutually agreed upon in writing by authorized officers of each party, the
Effective Time shall occur, and the Merger Documents shall be filed, on the
second business day following the later of (i) the date that all of the
conditions to Closing specified in Articles VIII and IX hereof have been
satisfied or waived and (ii) the effective date (including expiration of any
applicable waiting period) of the last required Consent of any Regulatory
Authority having authority over and approving or exempting the Merger and which
is listed on Schedule 3.5.
Section 1.4 Charter. The Articles of Incorporation of Call America in
effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until otherwise amended or repealed.
Section 1.5 Bylaws. The Bylaws of Call America in effect immediately prior
to the Effective Time shall be the Bylaws of the Surviving Corporation until
otherwise amended or repealed.
Section 1.6 Directors and Officers. The directors and officers of Call
America in office immediately prior to the Effective Time, together with such
additional persons as may thereafter be elected, shall serve as the respective
directors and officers of the Surviving Corporation from and after the Effective
Time in accordance with the Bylaws of the Surviving Corporation.
Section 1.7 Conversion of Shares. Subject to the provisions of this Section
1.7 through Section 1.9, at the Effective Time, by virtue of the Merger and
without any action on the part of the Call America Companies, the GST Companies
or the shareholders of any of the foregoing, the shares of the constituent
corporations to the Merger shall be converted as follows:
(a) Each share of GST Capital Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and
after the Effective Time.
(b) Each share of Common Stock of Sub issued and outstanding
immediately prior to the Effective Time shall cease to be outstanding, and
shall be converted into an aggregate of 100 shares of fully paid and non
assessable common stock of the Surviving Corporation from and after the
Effective Time.
(c) All of the shares of Common Stock of the Call America Companies
issued and outstanding at the Effective Time (the "Call American Common
Stock") shall cease to be outstanding and shall be converted into an
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aggregate of 1,307,692 shares of fully paid and nonassessable GST Common
Stock (the "Consideration") plus the Post-Closing Consideration (as defined
in Section 1.10), if any. The Consideration and the Post-Closing
Consideration shall be allocated among the Call America Companies and each
of the Sellers in accordance with the percentage set forth opposite each
Seller's name in Exhibit A hereto. A portion of the Consideration to be
delivered to the Escrow Agent for distribution to the Sellers under Section
2.1 hereof, consisting of 130,000 shares (the "Escrow Shares") of GST
Common Stock (such portion to be allocated among all the Sellers in
accordance with the percentages set forth opposite each Seller's name in
Exhibit A hereto), shall be deposited with the Escrow Agent, to be held as
collateral for the indemnification obligations of the Sellers contained in
Article X hereof, and applied pursuant to the terms and provisions of the
Escrow Agreement in respect of the Sellers' obligations pursuant to Section
10.1 hereof.
Section 1.8 Anti-Dilution Provisions. In the event GST changes the number
of shares of GST Common Stock issued and outstanding prior to the Effective Time
as a result of a stock split, stock dividend, or similar recapitalization with
respect to such stock and the record date therefor (in the case of a stock
dividend) or the effective date thereof (in the case of a stock split or similar
recapitalization for which a record date is not established) shall be prior to
the Effective Time, the Consideration and Post-Closing Consideration shall be
adjusted to reflect the same ownership percentage in GST as such Consideration
and Post-Closing Consideration would have represented immediately prior to such
stock split, stock dividend or similar recapitalization.
Section 1.9 Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of Call America Common Stock exchanged pursuant
to the Merger who would otherwise have been entitled to receive a fraction of a
share of GST Common Stock (after taking into account all certificates delivered
by such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of GST Common Stock multiplied
by the market value of one share of GST Common Stock at the Effective Time. The
market value of one share of GST Common Stock at the Effective Time shall be the
last sale price of GST Common Stock on the Amex (as reported by The Wall Street
Journal or, if not reported thereby, any other authoritative source) on the last
trading day preceding the Effective Time. No such holder will be entitled to
dividends, voting rights, or any other rights as a shareholder in respect of any
fractional shares.
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Section 1.10 Post-Closing Consideration. (a) If the average closing sales
price of GST Common Stock for the Measurement Period (as hereinafter defined) is
less than $12.50 per share, then up to 114,489 shares of GST Common Stock shall
be distributed to the Sellers as promptly as practicable after the end of the
Measurement Period pursuant to Section 1.7(c) as the "Post-Closing
Consideration". The precise number of shares of GST Common Stock which shall
constitute the Post-Closing Consideration shall be equal to: (i) the difference
between (x) $12.50, and (y) the greater of the average closing sales price of
GST Common Stock for the Measurement Period and $11.25, (ii) divided by 1.25,
(iii) times 114,489.
(b) The "Measurement Period" for purposes of Section 1.10 shall mean the 10
consecutive trading day period ending two trading days prior to the date which
is 180 days after the Effective Time. The "average closing sales price" for
purposes of this Section 1.10 shall mean the average last sale price of GST
Common Stock on the Amex (as reported by the Wall Street Journal or, if not
reported thereby, by any other authoritative source) for the 10 trading days
during the Measurement Period.
(c) In the event GST changes the number of shares of GST Common Stock
issued and outstanding after the Effective Time but prior to the end of the
Measurement Period as a result of a stock split, stock dividend, or similar
recapitalization with respect to such stock and the record date therefor (in the
case of a stock dividend) or the effective date thereof (in the case of a stock
split or similar recapitalization for which a record date is not established)
shall be prior to the end of the Measurement Period, the Post-Closing
Consideration shall be adjusted to reflect the same ownership percentage in GST
as such Post-Closing Consideration would have represented immediately prior to
such stock split, stock dividend or similar recapitalization.
ARTICLE II
EXCHANGE OF SHARES
Section 2.1 Exchange Procedures. The conversion of shares of Call America
Common Stock into GST Common Stock as provided for by this Agreement shall occur
automatically at the Effective Time without further action by the holders
thereof. Until surrendered, each certificate that prior to the Effective Time
represented shares of Call America Common Stock will be deemed to evidence the
right to receive the number of shares of GST Common Stock into which such Call
America Common Stock has been converted. At the Closing, each holder of a
certificate or certificates theretofore representing a share or shares of Call
America Common Stock shall be entitled to receive from GST, in exchange for and
upon the surrender of all of such holder's Call America Common Stock
certificates duly endorsed, the number of shares of GST Common Stock to which
the holder of such certificates is entitled pursuant to Section 1.7(c) of this
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Agreement (less the number of shares of GST Common Stock being deposited in
escrow pursuant to this Agreement), together with all undelivered dividends or
distributions in respect of such shares (without interest thereon) pursuant to
Section 2.2 of this Agreement. Stock certificates for fractions of GST Common
Stock shall not be issued in the Merger and such fractional interests shall not
entitle the owners thereof to vote, to receive dividends or to exercise any
other right of a stockholder with respect to such fractional interest.
Section 2.2 Rights of Former Shareholders of each of the Call America
Companies. At the Effective Time, the stock transfer books of each of the Call
America Companies shall be closed as to holders of Common Stock immediately
prior to the Effective Time and no transfer of Common Stock by any such holder
shall thereafter be made or recognized. Whenever a dividend or other
distribution is declared by GST on the GST Common Stock, the record date for
which is at or after the Effective Time, the declaration shall include dividends
or other distributions on all shares of GST Common Stock issuable pursuant to
this Agreement, but no dividend or other distribution payable to the holders of
record of GST Common Stock as of any time subsequent to the Effective Time shall
be delivered to the holder of any certificate representing shares of Common
Stock of any of the Call America Companies issued and outstanding at the
Effective Time until such holder surrenders such certificate for exchange as
provided in Section 2.1 of this Agreement. However, upon surrender of such
certificate, both the GST Common Stock certificate and any undelivered dividends
or other distributions and cash payments payable hereunder (without interest)
shall be delivered and paid with respect to each share represented by such
certificate.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE
CALL AMERICA COMPANIES AND THE SELLERS
Each of the Call America Companies and each of the Sellers jointly and
severally hereby represent and warrant to the Buyer as follows:
Section 3.1 Corporate Organization; Requisite Authority to Conduct
Business; Articles of Incorporation and By-Laws. Each of the Call America
Companies is a corporation duly organized, validly existing and in good standing
under the laws of the State of California. Call America has provided the Buyer
with true and complete copies of the articles of incorporation of each of the
Call America Companies (certified by the Secretary of State of the State of
California) and By-laws of each of the Call America Companies (certified by the
respective Secretary of each of the Call America Companies) as in effect on the
date hereof. Prior to the Closing, the minute books of each of the Call America
Companies will be delivered to the Buyer, and will contain true and complete
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records of all meetings and consents in lieu of meeting of each of the Call
America Companies' Board of Directors and of each of the Call America Companies'
shareholders since the incorporation of each such entity, which accurately
reflect in all material respects all transactions referred to in such minutes
and consents in lieu of meeting. Each of the Call America Companies has all
corporate power and authority to own, operate and lease its properties and to
carry on its business as the same is now being conducted, except where the
failure to have such power and authority would not have a Material Adverse
Effect on the Call America Companies taken as a whole. Each of the Call America
Companies is duly qualified or licensed to do business and is in good standing
as a foreign corporation in every jurisdiction in which the conduct of its
business or the ownership or leasing of its properties requires it to be so
qualified or licensed, except where the failure to be so qualified or licensed
would not have a Material Adverse Effect on the Call America Companies taken as
a whole. Schedule 3.1 hereto contains a listing of each such foreign
jurisdiction with respect to each of the Companies.
Section 3.2 Capitalization and Shareholdings. The authorized and issued
stock of each of the Call America Companies is listed in Schedule 3.2. The
Sellers own all of the shares of Common Stock of each of the Call America
Companies free and clear of all liens, claims or encumbrances. The Sellers have
full right, power, legal capacity and authority to transfer and deliver the
shares of Common Stock of each of the Call America Companies pursuant to this
Agreement. The capital stock of each of the Call America Companies is duly
authorized and all issued capital stock has been duly and validly issued and is
fully paid and non-assessable. Except as disclosed in Schedule 3.2, none of the
Call America Companies has outstanding, and is not bound by or subject to, any
Rights, and no shares of capital stock of any of the Call America Companies are
reserved for issuance for any purpose.
Section 3.3 Subsidiaries, Etc. None of the Call America Companies owns
(directly or indirectly) any Rights in any corporation, partnership, limited
liability company, joint venture, association or other entity, except as
disclosed in Schedule 3.3.
Section 3.4 Authority Relative to and Validity of Agreements. Each of the
Call America Companies has full corporate power and authority to execute and
deliver this Agreement and to assume and perform all of its obligations
hereunder. The execution and delivery of this Agreement by each of the Call
America Companies and the performance by each of the Call America Companies of
its obligations hereunder has been duly authorized by its respective Board of
Directors and shareholders and no further authorization on the part of any of
the Call America Companies is necessary to authorize the execution and delivery
by it of, and the performance of its obligations under, this Agreement. Except
as disclosed on Schedule 3.4 hereto, there are no corporate, contractual,
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statutory or other restrictions of any kind upon the power and authority of any
of the Call America Companies to execute and deliver this Agreement and to
consummate the transactions contemplated hereunder, and no Consent by any
Regulatory Authority is necessary to make this Agreement a valid instrument
binding upon each of the Call America Companies in accordance with its terms,
except any Consents that may be required by the Canadian federal law and FCC,
state telecommunication and state utility regulations, and Consents and filings
under the CGCL and the DGCL or where any such restriction or the failure to
obtain such Consents would not have a Material Adverse Effect on the Call
America Companies taken as a whole. This Agreement has been duly executed and
delivered by each of the Call America Companies and constitutes a legal, valid
and binding obligation of each of the Call America Companies, enforceable in
accordance with their terms, except (i) as such enforceability may be limited by
or subject to any bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally, (ii) as such obligations are
subject to general principles of equity and (iii) as rights to indemnity may be
limited by federal or state securities laws or by public policy.
Section 3.5 Required Filings and Consents; No Conflict. Except as disclosed
on Schedule 3.5, none of the Call America Companies is required to submit any
notice, report or other filing with any Regulatory Authority in connection with
the execution, delivery or performance of this Agreement, except any filings
that may be required under the CGL, the DGCL and Canadian Federal law and FCC,
state utility and telecommunication regulations, or where failure to so file
would not have a Material Adverse Effect on the Call America Companies taken as
a whole. The execution, delivery and performance of this Agreement by each of
the Call America Companies and the consummation of the transactions contemplated
hereby do not and will not (a) conflict with or violate any law, regulation,
judgment, order or decree binding upon any of the Call America Companies, (b)
conflict with or violate any provision of its respective charter or Bylaws, or
(c) except as disclosed in Schedule 3.5 hereto, conflict with or result in a
breach of any condition or provision of, or constitute a Default under, or
result in the creation or imposition of any Lien upon any properties or assets
of any of the Call America Companies pursuant to, or cause or permit the
acceleration prior to maturity of any amounts owing under, any Contract to which
any of the Call America Companies is a party or which is binding upon any of the
Call America Companies or by which any of its properties are bound, except where
such conflict, violation, breach or default would not have a Material Adverse
Effect on the Call America Companies taken as a whole. The execution, delivery
and performance of this Agreement by each of the Call America Companies and the
consummation of the transactions contemplated hereby will not result in the loss
of any Permit possessed by any of the Call America Companies or give a right of
termination to any party to any agreement or other instrument to which any of
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the Call America Companies is a party or by which any of its properties are
bound except where such loss or right would not have a Material Adverse Effect
on the Call America Companies taken as a whole.
Section 3.6 Financial Statements and Net Revenues. (a) Call America has
heretofore delivered to Buyer (i) a balance sheet of each of the Call America
Companies at December 31, 1995 and December 31, 1994, and related statements of
income and retained earnings and changes in cash flows for the years then ended,
all of which have been certified by Glenn, Burdette, Phillips & Bryson, Call
America's independent auditors, and (ii) a balance sheet of each of the Call
America Companies at June 30, 1996 and related statement of income and retained
earnings and changes in cash flows for the quarter and six months then ended, as
certified by the Controller of Call America (collectively, together with the
notes thereto, the "Call America Financial Statements"). The Call America
Financial Statements have been prepared in accordance with United States
generally accepted accounting principles ("U.S. GAAP") applied on a consistent
basis throughout the periods involved (except as may be indicated therein or in
the notes thereto) and fairly present the financial position of the Call America
Companies, taken as a whole, as of the respective dates thereof and the results
of operations of the Call America Companies, taken as whole, for the periods
indicated, except as disclosed on Schedule 3.6 and except that the unaudited
interim financial statements are subject to normal and recurring year end
adjustments which are not expected to be material in amount.
Section 3.7 No Undisclosed Liabilities. None of the Call America Companies
has any Liability except:
(a) as disclosed on Schedule 3.7;
(b) those set forth or reflected in the financial statements delivered
to Buyer in accordance with Section 3.6 and that have not been paid or
discharged since the date thereof;
(c) those arising under agreements or other commitments expressly
identified in any Schedule hereto; and
(d) liabilities arising in the ordinary and usual course of business.
Section 3.8 Absence of Certain Changes and Events. Except as disclosed or
reflected in the Call America Financial Statements or on Schedule 3.8, since
June 30, 1996, through the date hereof there has not been, with respect to any
of the Call America Companies, (i) any Material Adverse Effect; (ii) any
material strike, picketing, work slowdown or labor disturbance; (iii) any
material damage, destruction or loss (whether or not covered by insurance) with
9
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respect to any material assets or properties; (iv) any redemption or other
acquisition of Common Stock of any of the Call America Companies or any
declaration or payment of any dividend or other distribution in cash, stock or
property with respect thereto; (v) any entry into any material commitment or
transaction (including, without limitation, any borrowing or capital
expenditure) other than in the ordinary course of business or as contemplated by
this Agreement; (vi) any transfer of, or rights granted under, any material
leases, licenses, agreements, patents, trademarks, trade names, or copyrights
other than those transferred or granted in the ordinary course of business and
consistent with past practice; (vii) any Lien on any material assets or
properties except in the ordinary course of business; any payment of any
Liabilities other than Liabilities currently due; any cancellation of any debts
or claims or forgiveness of amounts owed to any of the Call America Companies;
or (viii) any change in accounting principles or methods (except insofar as may
have been required by a change in U.S. GAAP). Except as disclosed or reflected
in the Call America Financial Statements or on Schedule 3.8, since June 30,
1996, through the date hereof each of the Call America Companies has conducted
its business only in the ordinary course and in a manner consistent with past
practice and has not made any material change in the conduct of its respective
business or operations. Except as disclosed or reflected in the Call America
Financial Statements or on Schedule 3.8, without limiting the generality of the
foregoing, since June 30, 1996, through the date hereof none of the Call America
Companies has made any payments (except in the ordinary course of business and
in amounts and in a manner consistent with past practice) under any Employee
Benefit Plan (as hereinafter defined) or to any employee, independent contractor
or consultant, entered into any new Employee Benefit Plan or any new consulting
agreement, granted or established any awards under any such Employee Benefit
Plan or agreement, in any such case providing for payments of more than $10,000
or adopted or otherwise amended any of the foregoing.
Section 3.9 Taxes and Tax Returns. (a) For purposes of this Agreement, (i)
the term "Taxes" shall mean all taxes, charges, fees, levies or other
assessments, including, without limitation, income, gross receipts, excise,
property, sales, license, payroll and franchise taxes, imposed by the United
States, or any state, local or foreign government or subdivision or agency
thereof whether computed on a unitary, combined or any other basis; and such
term shall include any interest and penalties or additions to tax; and (ii) the
term "Tax Return" shall mean any report, return or other information required to
be filed with, supplied to or otherwise made available to a taxing authority in
connection with Taxes.
(b) Except as disclosed on Schedule 3.9, each of the Call America Companies
has (i) duly filed with the appropriate taxing authorities all Tax Returns
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required to be filed by or with respect to its respective business, or are
properly on extension and all such duly filed Tax Returns are true, correct and
complete in all material respects, and (ii) paid in full or made adequate
provisions for on its respective balance sheet (in accordance with U.S. GAAP)
all Taxes shown to be due on such Tax Returns. Except as disclosed on Schedule
3.9, there are no liens for Taxes upon the assets of any of the Call America
Companies except for statutory liens for current Taxes not yet due and payable
or which may thereafter be paid without penalty or are being contested in good
faith. Except as disclosed on Schedule 3.9, none of the Call America Companies
has received any notice of audit, is not undergoing any audit of its Tax
Returns, or has received any notice of deficiency or assessment from any taxing
authority with respect to liability for Taxes of its respective business which
has not been fully paid or finally settled. Except as disclosed on Schedule 3.9,
there have been no waivers of statutes of limitations by any of the Call America
Companies with respect to any Tax Returns. None of the Call America Companies
has filed a request with the Internal Revenue Service for changes in accounting
methods within the last two years which change would effect the accounting for
tax purposes, directly or indirectly, of its respective business.
(c) Except as disclosed on Schedule 3.9, none of the Call America Companies
has executed an extension or waiver of any statute of limitations on the
assessment or collection of any Tax due (excluding such statutes that relate to
years currently under examination by the Internal Revenue Service or other
applicable taxing authorities) that is currently in effect.
(d) Except as disclosed on Schedule 3.9, the provision for Taxes, if any,
due or to become due for any of the Call America Companies for the period or
periods through and including the date of the respective Call America Financial
Statements that has been made and is reflected on such financial statements is
sufficient to cover all such Taxes.
(e) Deferred taxes, if any, of each of the Call America Companies included
in the Call America Financial Statements have been computed in accordance with
GAAP.
(f) None of the Call America Companies is a party to any Tax allocation or
Tax sharing agreement and none of the Call America Companies has been a member
of an affiliated group filing a consolidated federal income Tax Return or has
any Liability for Taxes of any Person under Treasury Regulation Section 1.1502-6
(or any similar provision of state, local or foreign Law) as a transferee or
successor or by Contract or otherwise.
(g) None of the Call America Companies has made any payments, is obligated
to make any payments, or is a party to any Contract that could obligate it to
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make any payments that would be disallowed as a deduction under Section 280G or
162(m) of the Internal Revenue Code.
Section 3.10 Employee Benefit Plans. Schedule 3.10 comprises a listing of
each bonus, stock option, stock purchase, benefit, profit sharing, savings,
retirement, liability, insurance, incentive, deferred compensation, and other
similar fringe or employee benefit plans, programs or arrangements for the
benefit of or relating to, any employee of, or independent contractor or
consultant to, and all other compensation practices, policies, terms or
conditions, whether written or unwritten (the "Employee Benefit Plans") which
each of the Call America Companies presently maintains, to which any of the Call
America Companies presently contributes or under which any of the Call America
Companies has any liability and which relate to employees or independent
contractors of any of the Call America Companies. Except as disclosed on
Schedule 3.10, each of the Employee Benefit Plans administered by each of the
Call America Companies have been administered in all material respects in
accordance with all requirements of applicable law and terms of each such plan.
Each Employee Benefit Plan that is required to be qualified under ERISA, or
registered or approved by a Regulatory Authority, has been so qualified,
registered or approved by the appropriate governmental agency or authority and
such qualification, registration or approval has not been revoked. Except as
disclosed on Schedule 3.10, all contributions (including premiums) required by
law or contract to have been made or accrued by each of the Call America
Companies under or with respect to Employee Benefit Plans have been paid or
accrued by each of the Call America Companies or will be paid in the ordinary
course within 90 days. Except as disclosed on Schedule 3.10, without limiting
the foregoing, there are no unfunded liabilities under any Employee Benefit
Plan. Except as disclosed on Schedule 3.10, none of the Call America Companies
has received notice of any investigations, litigation or other enforcement
actions against it with respect to any of the Employee Benefit Plans. To Call
America's Knowledge, there are no pending actions, suits or claims by former or
present employees of any of the Call America Companies (or their beneficiaries)
with respect to Employee Benefit Plans or the assets or fiduciaries thereof
(other than routine claims for benefits).
Section 3.11 Title to Property. Each of the Call America Companies has good
title, or valid leasehold or usage rights (in the case of leased property), to
all real property and all personal property owned or leased by it or used in the
operation of its respective business, free and clear of all encumbrances,
excluding (i) encumbrances disclosed or reflected in the Call America Financial
Statements, (ii) Liens for taxes, fees, levies, imposts, duties or governmental
charges of any kind which are not yet delinquent or are being contested in good
faith by appropriate proceedings which suspend the collection thereof; (iii)
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Liens for mechanics, materialmen, laborers, employees, suppliers or other which
are not yet delinquent or are being contested in good faith by appropriate
proceedings; (iv) Liens created in the ordinary course of business in connection
with the leasing or financing of office, computer and related equipment and
supplies; (v) the rights of third parties in and to such real and personal
property pursuant to the terms of any lease agreement or other agreement
pursuant to which the Companies are entitled to lease or utilize such property;
(vi) easements and similar encumbrances ordinarily created for fuller
utilization and enjoyment of property; and (vii) Liens or defects in title or
leasehold rights that either individually or in the aggregate do not and will
not have a Material Adverse Effect on the Call America Companies taken as a
whole. All of such owned or leased property with a value in excess of $20,000 is
listed on Schedule 3.11 hereto.
Section 3.12 Trademarks, Patents and Copyrights. (a) Except as disclosed on
Schedule 3.12 hereto, Call America owns or has the right to use all Intellectual
Property used in the conduct of the businesses of the Call America Companies as
being conducted as of the date hereof, except where the failure to own or
possess such right would not have a Material Adverse Effect on the Call America
Companies taken as a whole. Schedule 3.12 hereto lists each patent, patent
right, patent application, tradename registration, trademark registration,
copyright registration, copyright application, source and object code owned by
each of the Call America Companies;
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
material breach of any instrument or agreement governing any rights to
Intellectual Property of any of the Call America Companies, will not cause the
forfeiture or termination or give rise to a right of forfeiture or termination
of any Intellectual Property of any of the Call America Companies that is
material to the Call America Companies taken as a whole or materially impair the
right of any of the Call America Companies to use any Intellectual Property
currently being used by the Call America Companies in their business or any
portion thereof;
(c) Neither the manufacture, marketing, license, sale or intended use of
any product currently licensed or sold by any of the Call America Companies or
currently under development by any of the Call America Companies violates any
license or agreement between any of the Call America Companies and any third
party relating to such product or infringes any intellectual property right of
any other party, except where such violation or infringement would have a
Material Adverse Effect on the Call American Companies taken as a whole, and
there is no pending or, to the Knowledge of Call America, threatened claim or
litigation contesting the validity, ownership or right to use, sell, license or
dispose of any Intellectual Property, nor has any of the Call America Companies
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received any notice asserting that any Intellectual Property or the proposed
use, sale, license or disposition thereof conflicts or will conflict with the
rights of any other party, except to the extent such claim, litigation or
conflict would not have a Material Adverse Effect on the Call America Companies
taken as a whole; and
(d) Except as disclosed in Schedule 3.12 hereto, to the Knowledge of Call
America, no current or prior officers, employees or consultants of any of the
Call America Companies claim an ownership interest in any Intellectual Property
as a result of having been involved in the development of such property while
employed by or consulting to any of the Call America Companies or otherwise.
Section 3.13 Legal Proceedings, Claims, Investigations, etc. Except as
disclosed on Schedule 3.13, there is no litigation pending, or to the Knowledge
of Call America, threatened, against any of the Call America Companies, or to
Knowledge of Call America, any director, officer or employee thereof relating to
their respective business that would have a Material Adverse Effect on the Call
America Companies taken as a whole. Except as disclosed on Schedule 3.13, none
of the Call America Companies has been informed of any violation of or default
under, any laws, ordinances, regulations, judgments, injunctions, orders or
decrees (including without limitation, any immigration laws or regulations) of
any court, governmental department, commission, agency, instrumentality or
arbitrator applicable to the business of each of the Call America Companies.
None of the Companies is currently subject to any Order that would have a
Material Adverse Effect on the Call America Companies taken as a whole.
Section 3.14 Insurance. Schedule 3.14 hereto sets forth a list and brief
description of all existing insurance policies maintained by each of the Call
America Companies pertaining to its business properties, personnel or assets. To
the Knowledge of Call America, none of the Call America Companies is in Default
with respect to any provision contained in any insurance policy that would have
a Material Adverse Effect on the Call America Companies taken as a whole, and
has failed to give any notice or present any claim under any insurance policy in
due and timely fashion that would have a Material Adverse Effect on the Call
America Companies taken as a whole. Prior to the Closing, all such policies
shall have been delivered to the Buyer and shall continue to be in full force
and effect. All payments with respect to such policies are current and none of
the Call America Companies has received any notice threatening a suspension,
revocation, modification or cancellation of any such policy which if
implemented, would have a Material Adverse Effect on the Call America Companies
taken as a whole.
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Section 3.15 Material Contracts. (a) Except as set forth in Schedule 3.15
hereto, none of the Call America Companies is a party to and is bound by any
Contract which has a term in excess of one year and will result in payments in
excess of $15,000 over any 12 month period other than (i) Contracts entered into
in the ordinary course of business with vendors and customers and (ii) Contracts
cancelable upon not more than 30 days' notice. Each of the Contracts set forth
in Schedule 3.15 hereto to which any of the Call America Companies is a party,
is valid and existing, in full force and effect and there is no Default or claim
of Default against any of the Call America Companies or any notice of
termination with respect thereto, except where such invalidity or default would
not have a Material Adverse Effect on the Call America Companies taken as a
whole. Copies of all the written documents and a synopsis of all oral contracts
and commitments described in Schedule 3.15 hereto have heretofore been made
available to the Buyer and are true and complete and include all amendments and
supplements thereto and modifications thereof to and including the date hereof.
(b) Except as set forth in Schedule 3.15 hereto, none of the Call America
Companies is a party to any (i) Contract with any consultant, executive officer
or other key employee the benefits of which are contingent, or the terms of
which are materially altered, upon the occurrence of the transactions
contemplated by this Agreement, or (ii) benefit plan, including any stock option
plan, any of the benefits of which will be increased, or the vesting of the
benefits of which will be accelerated, by the occurrence of the transactions
contemplated by this Agreement.
Section 3.16 Certain Transactions. Except as disclosed on Schedule 3.16,
none of the Call America Companies, nor any officer, director or, to the
Knowledge of Call America, any employee of any of the Call America Companies,
nor any member of any such person's immediate family is presently a party to any
material transaction with any of the Call America Companies relating to its
respective business including without limitation, any Contract or other
arrangement (i) providing for the furnishing of services by, (ii) providing for
the rental of real or personal property from, or (iii) otherwise requiring
payments to (other than for services as officers, directors or employees of any
of the Call America Companies), any such person or any corporation, partnership,
trust or other entity in which any such person has a substantial interest as a
stockholder, officer, director, trustee or partner.
Section 3.17 Broker. Except for the engagement by GST of the Clark Company,
whose fees are to be paid solely by GST, no broker, finder or investment banker
is entitled to any brokerage or finder's fee or other commission in connection
with the transactions contemplated hereby based on the arrangements made by or
on behalf of any of the Call America Companies or the Sellers.
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Section 3.18 Environmental Matters. (a) None of the Call America Companies
is the subject of, or being threatened to be the subject of (i) any enforcement
proceeding, or (ii) to Call America's Knowledge any investigation, brought in
either case under any Environmental Law, at any time in effect or (iii) to Call
America's Knowledge any third party claim for liability relating to
environmental conditions on properties of any of the Call America Companies.
None of the Call America Companies has been notified that it must obtain any
permits and licenses or file documents for the operation of its business under
federal, state and local laws relating to pollution protection of the
environment. None of the Call America Companies has been notified of any
conditions on its respective properties which will give rise to any Liabilities,
under any Environmental Law, or as the result of any claim of any third party
with respect to any Environmental Law. For the purposes of this Section 3.18, an
investigation shall include, but is not limited to, any written notice received
by any of the Call America Companies which relates to the onsite or offsite
disposal, release, discharge or spill of any waste, waste water, pollutant or
contaminants.
(b) Except as disclosed on Schedule 3.18, there are no toxic wastes or
other toxic or hazardous substances or materials, pollutants or contaminants
which any of the Call America Companies (or, to the Knowledge of Call America,
any previous occupant of any of the Call America Companies' facilities) has
used, stored or otherwise held in or on any of the facilities of any of the Call
America Companies which, are present at or have migrated from the facilities,
whether contained in ambient air, surface water, groundwater, land surface or
subsurface strata in any such case that would have a Material Adverse Effect on
the Call America Companies taken as a whole. None of the Call America Companies
has disposed of or arranged (by Contract or otherwise) for the disposal of any
material or substance that was generated or used by any of the Call America
Companies at any off-site location that has been or is listed or proposed for
inclusion on any list promulgated by any Regulatory Authority for the purpose of
identifying sites which pose a danger to health and safety. Except as disclosed
on Schedule 3.18, there have been no environmental studies, reports and analyses
made or prepared in the last five years relating to the facilities of any of the
Call America Companies. None of the Call America Companies has installed any
underground storage tanks in any of its facilities and, to the Knowledge of Call
America, none of such facilities contain any underground storage tanks.
Section 3.19 Illegal Payments. None of the Call America Companies has,
directly or indirectly, paid or delivered any fee, commission or other sum of
money or item of property, however characterized, to any finder, agent,
government official or other party, in the United States or any other country,
which is in any manner related to their respective businesses or operations,
which any of the Call America Companies knows or has reason to believe to have
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been illegal under any Laws or the laws of any other country having
jurisdiction. None of the Call America Companies has participated, directly or
indirectly, in any boycotts affecting any of its actual or potential customers.
Section 3.20 Statements True and Correct. Except as disclosed on Schedule
3.20, no statement, certificate, instrument, or other writing furnished or to be
furnished by any of the Call America Companies, any Seller or any Affiliate
thereof to any of the GST Companies pursuant to this Agreement or any other
document, agreement, or instrument referred to herein contains or will contain
any untrue statement of material fact or will omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. None of the information supplied or to be
supplied by any of the Call America Companies or any Affiliate thereof for
inclusion in any documents to be filed by a Call America Company or any
Affiliate thereof with any Regulatory Authority in connection with the
transactions contemplated hereby, will, at the respective time such documents
are filed, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. All documents that
any of the Call America Companies or Affiliate thereof is responsible for filing
with any Regulatory Authority in connection with the transactions contemplated
hereby will comply as to form in all material respects with the provisions of
applicable Law.
Section 3.21 Accounting, Tax and Regulatory Matters. None of the Call
America Companies, or, to the Knowledge of Call America, any Affiliate thereof
has taken any action that is reasonably likely to (i) prevent any of the Mergers
from qualifying as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, or (ii) materially impede or delay receipt of any
Consents of Regulatory Authorities or result in the imposition of a condition or
restriction which could materially adversely impact the economic or business
benefits of the transaction contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each Seller hereby severally represents and warrants to the Buyer as
follows:
Section 4.1 Capitalization. Except for restrictions contained in the
Shareholders' Agreement (the "Shareholders' Agreement") dated May 28, 1996 by
and among Jerry Linthicum ("Linthicum"), Jeffrey Buckingham and F. Scott Hindes,
such Seller owns the shares of Common Stock of each of the Call America
Companies set forth opposite his name in Exhibit A, free and clear of all Liens.
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Such Seller has full right, power, legal capacity and authority to transfer and
deliver such shares pursuant to this Agreement.
Section 4.2 Authority Relative to and Validity of Agreements. Such Seller
has full power and authority to execute and deliver this Agreement, the Escrow
Agreement, the Registration Rights Agreement in the form attached hereto as
Exhibit C (the "Registration Rights Agreement"), the Employment Agreement in the
form attached hereto as Exhibit D (the "Employment Agreement") to which such
Seller is a party and the Non-Competition Agreement to which such Seller is a
party in the form attached hereto as Exhibit E (the "Non-Competition
Agreements"), and to assume and perform all of his obligations hereunder and
thereunder. There are no contractual, statutory or other restrictions of any
kind upon the power and authority of such Seller to execute and deliver this
Agreement, the Escrow Agreement, the Registration Rights Agreement, the
Employment Agreement to which such Seller is a party and the Non-Competition
Agreement to which such Seller is a party and to consummate the transactions
contemplated hereunder and thereunder and except Consents that may be required
by Canadian federal law, FCC and state telecommunications and state utility
regulations and filings that may be required by the CGCL and the DCGL, no
action, waiver or consent by any Regulatory Authority is necessary to make this
Agreement, the Escrow Agreement, the Registration Rights Agreement, the
Employment Agreement to which such Seller is a party and the Non-Competition
Agreements to which such Seller is a party, a valid instrument binding upon such
Seller in accordance with its terms, except where such failure to obtain such
Consent or where such restriction would not have a Material Adverse Effect on
the Call America Companies taken as a whole. This Agreement has been duly
executed and delivered by such Seller and constitutes, and the Escrow Agreement,
the Registration Rights Agreement, the Employment Agreement to which such Seller
is a party and the Non-Competition Agreement to which such Seller is a party,
when executed and delivered by such Seller in accordance with their terms will
constitute, legal, valid and binding obligations of such Seller, enforceable in
accordance with their terms, except (i) as such enforceability may be limited by
or subject to any bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally, (ii) as such obligations are
subject to general principles of equity and (iii) as rights to indemnity may be
limited by federal or state securities laws or by public policy.
Section 4.3 Required Filings and Consents; No Conflict. Except as disclosed
on Schedule 4.3, such Seller is not required to submit any notice, report or
other filing with any Regulatory Authority in connection with the execution,
delivery or performance of this Agreement, the Escrow Agreement, the
Registration Rights Agreement, the Employment Agreement to which such Seller is
a party and the Non-Competition Agreements to which such Seller is a party,
except under the CGCL, the DGCL, FCC, Canadian federal law and state
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telecommunication and state utility regulations where the failure to so submit
would not have a Material Adverse Effect on the Call America Companies taken as
a whole. The execution, delivery and performance of this Agreement, the Escrow
Agreement, the Registration Rights Agreement, the Employment Agreement to which
such Seller is a party and the Non-Competition Agreement to which such Seller is
a party by such Seller and the consummation of the transactions contemplated
hereby and thereby do not and will not (a) conflict with or violate any Law, or
(b) except as disclosed on Schedule 4.3, conflict with or result in a material
breach of any condition or provision of, or constitute a material Default under,
or result in the creation or imposition of any Lien upon any properties or
assets of such Seller pursuant to, or cause or permit the acceleration prior to
maturity of any amounts owing under, any Contract to which such Seller is a
party or which is binding upon such Seller or by which any of his properties are
bound, except where such conflict, violation, breach or default would not have a
Material Adverse Effect on the Call America Companies taken as a whole. The
execution, delivery and performance of this Agreement, the Escrow Agreement, the
Registration Rights Agreement, the Employment Agreement to which such Seller is
a party and the Non-Competition Agreement to which such Seller is a party by
such Seller and the consummation of the transactions contemplated hereby and
thereby will not result in the loss of any Permit possessed by such Seller or
give a right of termination to any party to any agreement or other instrument to
which such Seller is a party or by which any of his properties are bound, except
where such loss or right would not have a Material Adverse Effect on the Call
America Companies taken as a whole.
Section 4.4 Broker. Except for the engagement of the Clark Company by GST,
whose fees are to be paid solely by GST, no broker, finder or investment banker
is entitled to any brokerage or finder's fee or other commission in connection
with the transactions contemplated hereby based on the arrangements made by or
on behalf of such Seller.
Section 4.5 Investment. Such Seller is acquiring the consideration solely
for his own account as an investment and not with a view to any distribution or
resale thereof within the meanings of such terms under the Securities Act of
1933, as amended (the "Securities Act"). Such Seller is an "accredited investor"
as defined in Rule 501(a) promulgated under the Securities Act. Such Seller has
been advised by the Buyer that the Consideration to be acquired by such Seller
has not been registered under the Securities Act, or applicable state securities
laws, that such Consideration will be acquired by such Seller pursuant to
exemptions from the registration requirements of these laws and that the
reliance by the Buyer on these exemptions is predicated in part on such Seller's
representations contained in this Agreement. Such Seller has been advised by
Buyer that the certificate or certificates representing Consideration to be
acquired by such Seller under this Agreement shall contain a legend stating that
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the shares represented thereby have not been registered under the Securities Act
and referring to applicable restrictions on transferability.
Section 4.6. Certain Sellers. Carolyn C. Hindes and Theodore B. Hindes are
not employees of any of the Call America Companies.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to each of the Call America
Companies and the Sellers as follows:
Section 5.1 Corporate Organization; Requisite Authority to Conduct
Business; Articles of Incorporation and By-Laws. Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware; GST is a corporation duly organized, validly existing and in good
standing under the federal laws of Canada. The Buyer has provided the Sellers
with true and complete copies of the certificate of incorporation (certified by
the Secretary of State of the State of Delaware in the case of Sub and the
Director appointed under the Canada Business Corporation Act in the case of GST)
and By-laws of each of the GST Companies (certified by the respective Secretary
of each of the GST Companies) as in effect on the date hereof. Each of the GST
Companies has all corporate power and authority to own, operate and lease its
properties and to carry on its business as the same is now being conducted,
except where the failure to have such power and authority would not have a
Material Adverse Effect on any of the GST Companies. Each of the GST Companies
is duly qualified or licensed to do business and is in good standing as a
foreign corporation in every jurisdiction in which the conduct of its business
or the ownership or leasing of its properties requires it to be so qualified or
licensed, except where the failure to be so qualified or licensed would not have
a Material Adverse Effect on the GST Companies.
Section 5.2 Authority Relative to and Validity of Agreements. Each of the
GST Companies has full corporate power and authority to execute and deliver this
Agreement, the Escrow Agreement and the Registration Rights Agreement, as the
case may be, to assume and perform its obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery of each of this Agreement, the Escrow Agreement and the
Registration Rights Agreement and the performance by each of the GST Companies
of its obligations hereunder and thereunder has been duly authorized and
approved by its respective Board of Directors, as the case may be, and no
further action on the part of any of the GST Companies is necessary to authorize
the execution and delivery by it of, and the performance of its obligations
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under, this Agreement, the Escrow Agreement and the Registration Rights
Agreement. There are no corporate, contractual, statutory or other restrictions
of any kind upon the power and authority of any of the GST Companies to execute
and deliver this Agreement, the Escrow Agreement and the Registration Rights
Agreement and to consummate the transactions contemplated hereunder and
thereunder and no Consent by any Regulatory Authority is necessary to make this
Agreement, the Escrow Agreement and the Registration Rights Agreement a valid
instrument binding upon each of the GST Companies in accordance with its terms,
except any Consents that may be required by FCC and state telecommunications and
state utilities regulations and Consents and filings that may be required by
Canadian federal law, the CGCL or the DGCL, or where any such restrictions or
the failure to obtain such Consents would not have a Material Adverse Effect on
the GST Companies. This Agreement has been duly executed and delivered by each
of the GST Companies and constitutes, and the Escrow Agreement and the
Registration Rights Agreement will, when executed and delivered by each of the
Call America Companies and the Sellers in accordance with their terms will
constitute, legal, valid and binding obligations of each of the GST Companies,
enforceable against them in accordance with its terms, except (i) as such
enforceability may be limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, (ii) as such obligations are subject to general principles of equity
and (iii) as rights to indemnity may be limited by federal or state securities
laws or by public policy.
Section 5.3 Required Filings; Consents. Except for an Amex listing
application with respect to the Consideration, none of the GST Companies is
required to submit any notice, report or other filing with any Regulatory
Authority in connection with the execution, delivery or performance of this
Agreement, the Escrow Agreement and the Registration Rights Agreement, except
any filings that may be required under the CGCL, the DGCL, Canadian federal law,
the FCC and state telecommunications and state utilities regulations or where
failure to so file would not have a Material Adverse Effect on the GST Companies
taken as a whole. The execution, delivery and performance or this Agreement, the
Escrow Agreement and the Registration Rights Agreement by each of the GST
Companies party thereto and the consummation of the transactions contemplated
hereby and thereby does not and will not (a) conflict with or violate any law,
regulation, judgment, order or decree binding upon any of the GST Companies, (b)
conflict with or violate any provision of its respective charter or Bylaws, or
(c) conflict with or result in a breach of any condition or provision of, or
constitute a Default under, or result in the creation or imposition of any Lien
upon any properties or assets of any of the GST Companies pursuant to, or cause
or permit the acceleration prior to maturity of any amounts owing under, any
Contract to which any of the GST Companies is a party or which is binding upon
any of the GST Companies or by which any of its properties are bound, except
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where such conflict, violation, breach on default would not have a Material
Adverse Effect on the GST Companies. The execution, delivery and performance of
this Agreement by each of the GST Companies party thereto and the consummation
of the transactions contemplated hereby will not result in the loss of any
Permit possessed by any of the GST Companies or give a right of termination to
any party to any agreement or other instrument to which any of the GST Companies
is a party or by which any of its properties are bound except where such loss or
right would not have a Material Adverse Effect on the GST Companies taken as a
whole.
Section 5.4 Capitalization. (a) The authorized capital stock of GST
consists of (i) an unlimited number of GST Common Shares, 21,170,923 of which
are issued and outstanding as of June 30, 1996, and (ii) 10,000,000 Preference
Shares, none of which are issued and outstanding. The capital stock of GST is
duly authorized and all issued capital stock has been duly and validly issued
and is fully paid and nonassessable and free of preemptive rights. The
Consideration is duly authorized and when issued in accordance with the terms
and conditions of this Agreement shall be validly issued, fully paid and
nonassessable. The Consideration is not subject to any preemptive rights or
other similar restrictions. Except as set forth in the SEC Reports (as
hereinafter defined), as of May 31, 1996 none of the GST Companies had
outstanding, or was bound by or subject to, any Rights, and no shares of capital
stock of any of the GST Companies were reserved for issuance for any purpose.
(b) The authorized capital stock of Sub consists of 1,000 shares of common
stock, 100 of which are issued and outstanding as of the date hereof. All of
such issued shares are owned beneficially and of record by GST.
Section 5.5 SEC Reports and Financial Statements. GST has filed with the
Securities and Exchange Commission (the "SEC"), and has heretofore made
available to the Sellers true and complete copies of all forms, reports,
schedules, statements and other documents required to be filed by it since
January 1, 1995 under the Securities Act and the Securities Exchange Act of
1934, as amended (the "Exchange Act") (as such documents have been amended or
supplemented since the time of their filing, collectively, the "SEC Reports").
As of their respective dates, the SEC Reports (including without limitation, any
financial statements or schedules included therein) (a) did not contain any
untrue statement of a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading, and (b) complied in all material respects
with the applicable requirements of the Securities Act and Exchange Act (as the
case may be) and all applicable rules and regulations of the SEC promulgated
thereunder. Each of the consolidated financial statements included in the SEC
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Reports have been prepared from, and are in accordance with the books and
records of GST, comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with U.S. GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present in all material respects the consolidated
financial position of GST and its consolidated subsidiaries as of the date
thereof and their consolidated results of operations and cash flows (and changes
in financial position, if any) for the periods presented therein.
Section 5.6 No Undisclosed Liabilities. Except as described in the SEC
Reports, GST has no Liabilities, except as incurred in the ordinary course of
business, that would have a Material Adverse Effect on GST.
Section 5.7 Broker. Except for the engagement by GST of the Clark Company,
whose fees are to be paid solely by GST, no broker, finder or investment banker
is entitled to any brokerage or finder's fee or other commission in connection
with the transactions contemplated hereby based upon the arrangements made by or
on behalf of any of the GST Companies.
Section 5.8 Legal Proceedings, Claims, Investigations, etc. There is no
litigation pending, or to the Knowledge of GST, threatened, against any of the
GST Companies, or to Knowledge of GST, any director, officer or employee thereof
relating to their respective business that would have a Material Adverse Effect
on the GST Companies. None of the GST Companies has been informed of any
violation of or default under, any laws, ordinances, regulations, judgments,
injunctions, orders or decrees (including without limitation, any immigration
laws or regulations) of any court, governmental department, commission, agency,
instrumentality or arbitrator applicable to the business of each of the GST
Companies. None of the GST Companies is currently subject to any Order that
would have a Material Adverse Effect on the GST Companies.
Section 5.9 Vote Required. The vote of the holders of GST's capital stock
is not required to approve the issuance of the GST Common Stock in the Merger;
nor is it required to approve the Merger.
Section 5.10 Statements True and Correct. No statement, certificate,
instrument, or other writing furnished or to be furnished by any of the GST
Companies to any of the Call America Companies or the Sellers pursuant to this
Agreement or any other document, agreement, or instrument referred to herein
contains or will contain any untrue statement of material fact or will omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
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information supplied or to be supplied by any of the GST Companies for inclusion
in any documents to be filed by a GST Company with any Regulatory Authority in
connection with the transactions contemplated hereby, will, at the respective
time such documents are filed, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. All documents that any of the GST Companies is responsible for
filing with any Regulatory Authority in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
provisions of applicable Law.
Section 5.11 Accounting, Tax and Regulatory Matters. None of the GST
Companies, or, to the Knowledge of GST, any Affiliate thereof has taken any
action that is reasonably likely to (i) prevent any of the Mergers from
qualifying a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code, or (ii) materially impede or delay receipt of any Consents of
Regulatory Authorities or result in the imposition of a condition or restriction
which could materially adversely impact the economic or business benefits of the
transaction contemplated by this Agreement.
Section 5.12 No Prior Activities. Except for obligations incurred in
connection with its incorporation or organization or the negotiation and
consummation of this Agreement and the transactions contemplated hereby, Sub has
neither incurred any obligation or liability nor engaged in any business or
activity of any type or kind whatsoever or entered into any agreement or
arrangement with any person.
ARTICLE VI
COVENANTS OF THE CALL AMERICA AND GST COMPANIES
Section 6.1 Covenants of the Call America Companies Regarding Conduct of
Business Operations Pending the Closing. Except as disclosed on Schedule 6.1,
each of the Call America Companies covenants and agrees that between the date of
this Agreement and the Closing Date, each of the Call America Companies will
carry on its business in the ordinary course and consistent with past practice,
will use its best efforts to (i) preserve its respective business organization
intact, (ii) retain the services of its respective present employees, and (iii)
preserve the good will of its respective suppliers and customers, and will not,
except in the ordinary course of business, purchase, sell, lease or dispose of
any property or assets or incur any liability or enter into any other
extraordinary transaction. Except as disclosed on Schedule 6.1, by way of
amplification and not limitation, none of the Call America Companies shall,
between the date of this Agreement and the Closing Date, directly or indirectly,
do any of the following without the prior written consent of the Buyer:
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(a) (i) issue, sell, pledge, dispose of, encumber, authorize, or propose
the issuance, sale, pledge, disposition, encumbrance or authorization of any
shares of its capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of its capital
stock, or any other ownership interest; (ii) amend or propose to amend its
Articles of Incorporation; (iii) split, combine or reclassify any of its
outstanding shares, or declare, set aside or pay any dividend or other
distribution payable in cash, stock, property or otherwise with respect thereto;
or (iv) redeem, purchase or otherwise acquire any shares of its capital stock;
(b) (i) make any acquisition (by merger, consolidation, or acquisition of
stock or assets) of any corporation, partnership or other business organization
or division thereof; (ii) except in the ordinary course of business and in a
manner consistent with past practice, sell, pledge, dispose of, or encumber or
authorize or propose the sale, pledge, disposition or encumbrance of any of its
assets; (iii) other than under any existing credit facility, incur any
indebtedness for borrowed money, assume, guarantee, endorse or otherwise become
responsible for the obligations of any other individual, partnership, firm or
corporation, or make any loans or advances to any individual, partnership, firm,
or corporation, or enter into any contract or agreement to do so, except in the
ordinary course of business and consistent with past practice; (iv) authorize
any single capital expenditure or series of related capital expenditures each of
which is in excess of $50,000; or (v) release or assign any indebtedness owed to
it or any claims held by it, except in the ordinary course of business and
consistent with past practice;
(c) take any action other than in the ordinary course of business and in a
manner consistent with past practice with respect to the grant of any severance
or termination pay (otherwise than pursuant to its policies in effect on the
date hereof) or with respect to any increase of benefits payable under its
severance or termination pay policies in effect on the date hereof;
(d) make any payments (except in the ordinary course of business and in
amounts and in a manner consistent with past practice) under any Employee
Benefit Plan to any employee, independent contractor or consultant, enter into
any new Employee Benefit Plan or any new consulting agreement, grant or
establish any awards under such Employee Benefit Plan or agreement, in any such
case providing for payments or awards having a fair market value of more than,
$10,000, or adopt or otherwise amend any of the foregoing;
(e) change any accounting policies or procedures (including without
limitation its procedures with respect to the payment of accounts payable),
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other than such changes deemed necessary to comply with U.S. GAAP or required as
a result of a change in law;
(f) enter into or terminate any material contract or agreement or make any
material change in any of its material contracts or agreements, other than (i)
Contracts entered into, and amendments thereof, in the ordinary course of
business, (ii) relating to indebtedness incurred in clause (b)(iii) above or
(iii) agreements, if any, relating to the transactions contemplated hereby;
(g) enter into any contract or commitment for network capacity services,
switching equipment or services in excess of $50,000; or
(h) take, or agree in writing or otherwise to take, any of the foregoing
actions or any action which would make any of its representations or warranties
contained in this Agreement untrue or incorrect in any material respect as of
the date when made or, except for the representations and warranties contained
in Section 3.8 hereof, as of a future date.
Section 6.2 No Other Negotiations. Each of the Call America Companies and
the Sellers agrees that until the termination of this Agreement pursuant to the
provisions of Article XI hereof (the "Termination Date"), neither the Call
America Companies nor the Sellers will, nor will it permit any of its affiliates
(including any officers, directors, employees, financial advisors, brokers,
stockholders or any other person acting on their behalf) to, (i) enter into any
agreement with a third party with respect to the acquisition, directly or
indirectly, of shares or other securities of any of the Call America Companies
or a material part of their respective assets, (ii) enter into discussions or
negotiations with a third party regarding such an agreement, or (iii) provide a
third party with general access to their books, records or employees for the
purpose of enabling such third party to conduct a due diligence investigation of
the legal, financial or business condition of them.
Section 6.3 Conduct of Business of GST. Except as contemplated by this
Agreement, during the period from the date hereof to the Closing Date, GST will,
and will cause each of its subsidiaries to, conduct their operations with no
less diligence and effort than would be applied in the absence of this
Agreement, seek to preserve intact its current business organizations, keep
available the service of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it to the end that goodwill and ongoing businesses shall be unimpaired at the
Closing Date. Without limiting the generality of the foregoing, except as
otherwise expressly provided in this Agreement, prior to the Closing Date,
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neither GST nor any of its subsidiaries will, without the prior written consent
of Call America:
(a) knowingly take any action that would result in a failure to
maintain the trading of the GST Common Stock on the Amex;
(b) adopt or propose to adopt any amendment to its charter documents,
which would have an adverse impact on the consummation of the transactions
contemplated by this Agreement or the value of the Consideration;
(c) take, or agree in writing or otherwise to take, any of the actions
described in Sections 6.3(a) through 6.3(b) hereof or any action which
would make any of the representations or warranties of GST contained in
this Agreement untrue or incorrect.
ARTICLE VII
ADDITIONAL COVENANTS
Section 7.1 Covenants of the Call America Companies, the Sellers and the
GST Companies. Each of the Call America Companies, the Sellers and the GST
Companies covenants and agrees:
(a) Reasonable Efforts. To proceed diligently and use its reasonable
efforts to take or cause to be taken all actions and to do or cause to be done
all things necessary, proper and advisable to consummate the transactions
contemplated by this Agreement, including the execution and delivery of the
Escrow Agreement, the Registration Rights Agreement, the Non-Competition
Agreements and the Employment Agreement and satisfaction of all conditions to
the Merger; provided, however, that no party shall be required to pay money to
any third party for the purpose of obtaining any Consent to the transaction.
(b) Compliance. Subject to Section 7.7 hereof, to comply in all material
respects with all applicable rules and regulations of any Regulatory Authority
in connection with the execution, delivery and performance of this Agreement and
the transactions contemplated hereby; to use all reasonable efforts to obtain in
a timely manner all necessary waivers, consents and approvals and to take, or
cause to be taken, all other actions and to do, or cause to be done, all other
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement;
provided, however, that no party shall be required to pay money to any third
party for the purpose of obtaining any Consent to the transaction.
(c) Notice. To give prompt notice to the other party of (i) the occurrence,
or failure to occur, of any event whose occurrence or failure to occur, would be
likely to cause any representation or warranty contained in this Agreement to be
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untrue or incorrect in any material respect as of the date hereof or as of the
Closing Date, and (ii) any material failure on its part, or on the part of any
of its officers, directors, employees or agents, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any such notice shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
(d) Access. To cause its affiliates, officers, directors, employees,
auditors and agents to afford the officers, employees and agents of the other
party hereto complete access at all reasonable times and upon reasonable notice
to its properties, offices and other facilities and to all books and records,
and shall furnish such other party with all financial, operating and other data
and information as the other party through its officers, employees or agents,
may reasonably request, provided that the party providing such access and
furnishing such data and information to the other party incurs no cost in doing
so.
(e) Confidentiality. All access and information obtained or furnished in
connection with the transactions contemplated by this Agreement shall be subject
to the terms and conditions of those certain Confidentiality Agreements (the
"Confidentiality Agreements") dated July 17, 1996, by and between GST and Call
America.
(f) Announcements. That all announcements, reports, statements and press
releases to the public, the trade or the press or any other third party
concerning the transactions contemplated by this Agreement (including any
disclosure by GST of the transaction or any information or financial data
relating to the Call America Companies in any filing with the Securities and
Exchange Commission) shall be mutually agreed to by Call America and the Buyer
before the issuance or the making thereof and, subject to the advice of counsel,
no party shall issue any such announcement, report, statement or press releases
or make any such public statement prior to such mutual agreement, except as may
be required by law. Copies of any such announcement, report, statements or press
release, including any announcement or disclosure required by law or by any
Governmental Authority, shall be delivered to each of the parties hereto prior
to release.
Section 7.2 Tax Treatment. Each of the parties hereto undertakes and agrees
to use its reasonable efforts to cause the Merger, and to take no action which
would cause any of the Mergers not, to qualify for treatment as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code for federal income tax purposes. On or before the Closing Date, GST and Sub
shall execute and deliver to Call America a tax certificate in a form mutually
agreed upon by the parties hereto (the "GST Tax Certificate"), which GST and Sub
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acknowledge is a condition to the ability of Call America's counsel to render
the tax opinion contemplated by Section 8.9.
Section 7.3 Employee Benefits and Contracts. Following the Effective Time,
GST shall provide all employees of the Call America Companies (including
officers of the Call America Companies who become employees of the Surviving
Corporation) employee benefits under employee benefit and welfare plans (other
than stock option or other plans involving the potential issuance of GST Common
Stock), on terms and conditions which when taken as a whole are substantially
similar to those currently provided by GST to its similarly situated employees.
For purposes of participation, vesting and (except in the case of GST retirement
plans) benefit accrual under GST's employee benefit plans, the service of the
employees of the GST Companies prior to the Effective Time shall be treated as
service with GST. GST also shall cause the Surviving Corporation to honor in
accordance with their terms all employment, severance, consulting and other
compensation Contracts disclosed in Schedule 3.15 between any of the Call
America Companies and any current or former director, officer, or employee
thereof, and all provisions for vested benefits or other vested amounts earned
or accrued through the Effective Time under the Employee Benefit Plans.
Section 7.4 Guarantee of Performance. GST hereby guarantees the performance
by Sub of its obligations under this Agreement.
Section 7.5 FABRIK Communications, Inc. Following the Effective Time, the
Surviving Corporation shall, and GST and Jeffrey Buckingham (for as long as he
is employed by the Surviving Corporation) agree to use their best efforts to
cause the Surviving Corporation to, (i) comply with the terms and conditions of
that certain Services Agreement between FABRIK and Call America dated October
21, 1994, (ii) not take any act, or omit to take any action, which would result
in a Default thereunder or which would give rise to or constitute a Termination
Event (as such term is defined in the Stock Purchase Agreement between FABRIK
and Call America (the "FABRIK Agreement")) or otherwise cause the Purchase
Option (as defined in the FABRIK Agreement) to become exercisable, (iii) not
sell, assign, or transfer the shares of common stock of FABRIK (the "FABRIK
Shares") owned by the Surviving Corporation, or grant any rights to acquire such
shares to any person and (iv) not take any act, or omit to take any action,
which would create any lien, charge or encumbrance on the FABRIK Shares.
Section 7.6 Stock Exchange Listing. GST shall use all reasonable efforts to
cause the shares of GST Common Stock to be issued in the Merger to be approved
for listing on the Amex, subject to official notice of issuance, prior to the
Closing Date.
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Section 7.7 Certain Regulatory Approvals. GST and GST Sub covenant and
agree to proceed diligently and use their reasonable efforts to obtain in a
timely manner all necessary waivers, consents and approvals with respect of the
FCC and state telecommunications and utilities regulations in order to
consummate and make effective the transactions contemplated by this Agreement.
Section 7.8 Certain Agreements regarding the Shares (a) Each of the Sellers
shall waive any all pre-emptive rights to purchase the Shares of the other
Sellers under all agreements and arrangements, including, without limitation,
the Buy/Sell Agreement by and among certain of the Sellers and Call America
dated April 18, 1989 and the Shareholders' Agreement, and the Sellers who are
parties to the Shareholders' Agreement shall cause the Shareholders' Agreement
to be terminated and null and void before the Closing Date.
(b) The Sellers and the Call America Companies shall obtain from Mark
Scully, without any cost to the Call America Companies, the waiver of any and
all rights, including, without limitation pursuant to the acceleration
paragraphs of the Promissory Notes dated May 1, 1995 from Private Exchange
Network, CA Fresno and CA Bakersfield to Mark Scully, to (i) acquire shares of
GST Common Stock in connection with the transactions contemplated by this
Agreement or (ii) participate in the transactions contemplated by this
Agreement, except for the payment in cash of the unpaid principal and accrued
and unpaid interest on such Notes to the extent that such amounts become due
thereunder.
Section 7.9 Certain Insurance Policies. Call America will use its best
efforts to transfer on or before the Closing Date, at no cost to Call America,
the life insurance policies for the benefit of the Sellers set forth on Schedule
3.14(1), provided however, that each Seller to whom such a policy is transferred
shall be responsible for the payment of premiums and all other costs and
expenses relating to such insurance policy after the Closing Date.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE CALL AMERICA COMPANIES AND THE SELLERS
The obligations of the Call America Companies and Sellers under this
Agreement are subject to the satisfaction, on or prior to the Closing Date,
unless waived in writing, of each of the following conditions:
Section 8.1 Representations and Warranties True. The representations and
warranties of each of the GST Companies contained in this Agreement shall be
true and correct in all material respects as of the date when made and at and as
of the Closing Date, except as and to the extent that the facts and conditions
upon which such representations and warranties are based are expressly required
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or permitted to be changed by the terms hereof, with the same force and effect
as if made on and as of the Closing Date, and Call America shall have received a
certificate to that effect and as to the matters set forth in Section 8.2
hereof, dated the Closing Date, from the President or Chief Executive Officer of
GST.
Section 8.2 Performance of Covenants. Each of the GST Companies shall have
performed or complied in all material respects with all agreements, conditions
and covenants required by this Agreement to be performed or complied with by it
on or before the Closing Date.
Section 8.3 No Proceedings. No statute, rule or regulation shall have been
enacted and no preliminary or permanent injunction or other order (including a
temporary restraining order) of any state, federal or local court or other
governmental agency or of any foreign jurisdiction shall have been issued or
entered and remain in effect which prohibits the consummation of the
transactions which are the subject of this Agreement or prohibits the Merger or
operation of the business of any of the GST Companies.
Section 8.4 Escrow Agreement. The Escrow Agreement shall have been executed
by the parties thereto.
Section 8.5 Employment Agreements. The Employment Agreement shall have been
executed by the parties thereto.
Section 8.6 Registration Rights Agreement. The Registration Rights
Agreement shall have been executed by the parties thereto.
Section 8.7 Consents and Approvals. All filings and registrations with, and
notifications to, all federal, state, local and foreign authorities required for
consummation of the transactions contemplated by this Agreement shall have been
made, and all consents, approvals and authorizations of all federal, state,
local and foreign authorities and parties to material contracts, licenses,
agreements or instruments required for consummation of the transactions
contemplated by this Agreement the absence of which would have a Material
Adverse Effect on the Call America Companies taken as a whole, shall have been
received and shall be in full force and effect.
Section 8.8 Opinions of Counsel. Call America and the Sellers shall have
received the opinion, dated the Closing Date in form reasonably satisfactory to
Call America, of (i) O'Neill and Company, Canadian counsel to the Buyer,
substantially to the effect that the Consideration has been duly authorized and
validly issued and is fully-paid and nonassessable and (ii) Olshan Grundman
Frome & Rosenzweig LLP, counsel to the Buyer (which opinion shall be limited to
the United States federal law, DGCL and the laws of the State of New York and to
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the extent that the laws of any other state or jurisdiction or the commercial
laws of Delaware are applicable, such counsel is entitled to assume that such
laws are the same as the laws of the State of New York) substantially to the
effect that: (a) each of the GST Companies is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation; (b) each of the GST Companies has the corporate power to enter
into this Agreement, the Escrow Agreement, the Employment Agreement and the
Registration Rights Agreement, as the case may be, and to consummate the
transactions contemplated hereby and thereby; (c) the execution and delivery of
this Agreement, the Escrow Agreement, the Employment Agreement and the
Registration Rights Agreement, and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all requisite
corporate action on the part of each of the GST Companies as the case may be;
(d) each of this Agreement, the Escrow Agreement, the Employment Agreement and
the Registration Rights Agreement, has been duly executed and delivered by each
of the GST Companies, as the case may be, and (assuming that each is a valid and
binding obligation of the other parties thereto) is a valid and binding
obligation of each of the GST Companies enforceable against each of them in
accordance with its terms, subject to customary exceptions; and (e) none of the
execution, delivery or performance of this Agreement, the Escrow Agreement, the
Employment Agreement and the Registration Rights Agreement by each of the GST
Companies, as the case may be, and the consummation by each of the GST Companies
of the transactions herein and therein contemplated, conflict with or result in
a breach of, or default under, their respective certificates of incorporation or
bylaws or, to such counsel's knowledge, any material indenture, mortgage, deed
of trust, voting trust agreement, stockholders agreement, note agreement or
other material agreement or other material instrument to which any of them is a
party or by which any of them is bound or to which any of their property is
subject.
Section 8.9 Tax Matters. The Sellers shall have received an opinion or
other advice of counsel and/or accountants, in form reasonably satisfactory to
the Sellers (the "Tax Opinion"), to the effect that, for U.S. federal income tax
purposes, the exchange in the Merger of Common Stock of the Call America
Companies for GST Common Stock will not give rise to gain or loss to the
shareholders of any of the Call America Companies with respect to such exchange
(except to the extent of any cash received).
Section 8.10 Material Changes. Since April 1, 1996, there shall not have
been any Material Adverse Change in the business, operations, financial
condition, assets, liabilities, prospects or regulatory status of GST and its
subsidiaries, taken as a whole; provided, however, that the incurrence by GST
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and its subsidiaries of losses from operations shall not, taken alone,
constitute any such Material Adverse Change.
Section 8.11 Release of Loan Guarantees. As of the Closing Date, GST shall
have obtained the release of the Sellers listed on Schedule 8.11 hereto as
guarantors of the loans described therein, and there shall be delivered to those
Sellers documentation to that effect which is satisfactory to them in form and
substance.
Section 8.12 Listing of Shares. The shares of GST Common Stock issuable to
the Sellers pursuant to this Agreement shall have been authorized for listing on
the Amex, subject to official notice of issuance.
ARTICLE IX
CONDITIONS PRECEDENT TO
OBLIGATIONS OF THE GST COMPANIES
The obligations of the GST Companies under this Agreement are subject to
the satisfaction, on or prior to the Closing Date, unless waived in writing, of
each of the following conditions:
Section 9.1 Representation and Warranties True. The representations and
warranties of each of the Call America Companies and the Sellers contained in
this Agreement shall be true and correct in all material respects as of the date
when made and at and as of the Closing Date (except for the representations and
warranties contained in Section 3.8 hereof, which need only to be true and
correct as of the date hereof), except as and to the extent that the facts and
conditions upon which such representations and warranties are based are
expressly required or permitted to be changed by the terms hereof with the same
force and effect as if made on and as of the Closing Date, and the Buyer shall
have received a certificate to that effect and as to the matters set forth in
Section 9.2 hereof, dated the Closing Date, from the President or Chief
Executive Officer of Call America and from each of the Sellers.
Section 9.2 Performance of Covenants. Each of the Call America Companies
and the Sellers shall have performed or complied in all material respects with
all agreements, conditions and covenants required by this Agreement to be
performed or complied with by them on or before the Closing Date.
Section 9.3 No Proceedings. No statute, rule or regulation shall have been
enacted and no preliminary or permanent injunction or other order (including a
temporary restraining order) of any state, federal or local court or other
governmental agency or of any foreign jurisdiction shall have been issued or
entered and remain in effect which prohibits the consummation of the
transactions which are the subject of this Agreement or prohibits the Merger or
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operation of the business of any of the Call America Companies.
Section 9.4 Consents and Approvals. All filings and registrations with, and
notifications to, all federal, state, local and foreign authorities required for
consummation of the transactions contemplated by this Agreement shall have been
made, and all consents, approvals and authorizations of all federal, state,
local and foreign authorities and parties to material contracts, licenses,
agreements or instruments required for consummation of the transactions
contemplated by this Agreement, the absence of which would have a Material
Adverse Effect on the GST Companies shall have been received and shall be in
full force and effect.
Section 9.5 Escrow Agreement. The Escrow Agreement shall have been executed
by the parties thereto.
Section 9.6 Employment Agreements. The Employment Agreement shall have been
executed by the parties thereto.
Section 9.7 Registration Rights Agreement. The Registration Rights
Agreement shall have been executed by the parties hereto.
Section 9.8 Non-Competition Agreements. Each of the Sellers other than
Jeffrey Buckingham, Theodore B. Hindes and Carolyn C. Hindes shall have executed
a non-competition agreement substantially in the form of Annex D hereto.
Section 9.9 Resignation of Officers and Directors. GST shall have received
the resignation of each of the officers and directors of Call America as
required by GST.
Section 9.10 Opinion of Counsel. The Buyer shall have received the opinion
of Gibson, Dunn & Crutcher LLP, counsel to the Call America Companies (which
opinion shall be limited to the United States federal law, DGCL and the laws of
the State of California and to the extent that the laws of any other state or
jurisdiction or the commercial laws of Delaware are applicable, such counsel is
entitled to assume that such laws are the same as the laws of the State of
California), dated the Closing Date, in form reasonably satisfactory to the
Buyer, substantially to the effect that: (i) each of the Call America Companies
is a corporation duly organized, validly existing and in good standing under the
laws of the State of California; (ii) each of the Call America Companies has the
corporate power to enter into this Agreement and to consummate the transactions
contemplated hereby; (iii) the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby has been duly authorized by
all requisite corporate action taken on the part of each of the Call America
Companies party thereto; (iv) this Agreement has been duly executed and
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delivered by each of the Call America Companies and (assuming that it is a valid
and binding obligation of the other parties thereto) is a valid and binding
obligation of each of the Call America Companies enforceable against each of
them in accordance with its terms, subject to customary exceptions; (v) the
shares of Common Stock of each of the Call America Companies are duly
authorized, validly issued, fully paid and nonassessable, and (vi) none of the
execution, delivery or performance of this Agreement by each of the Call America
Companies of the transactions herein and therein contemplated, to the best of
such counsel's knowledge, conflict with or result in a breach of, or default
under, their respective Certificates of Incorporation or Bylaws or any Contracts
identified with an asterisk on Schedule 3.15 hereto.
Section 9.11 Material Changes. Except as disclosed on Schedule 9.11, since
May 1, 1996, there shall not have been any Material Adverse Change in the
business, operations, financial condition, assets, liabilities, prospects or
regulatory status of the Call America Companies, taken as a whole.
Section 9.12 Waivers. The Sellers and the Call America Companies shall have
obtained the waivers contemplated by Section 7.8 (b) and there shall be
delivered to GST documentation to that effect which is satisfactory to GST in
form and substance.
ARTICLE X
INDEMNIFICATION
Section 10.1 Indemnification by the Sellers. Subject to the limits set
forth in this Article X, the Sellers agree, jointly and severally, to indemnify,
defend and hold the Buyer and each of its directors and officers harmless from
and against any and all loss, liability, damage, costs and expenses (including
interest, penalties and attorneys' fees) (collectively, "Losses") that the Buyer
or any of its affiliates may incur or become subject to arising out of or due to
(i) the claims of any broker or finder engaged by the Sellers (other than those
of the Clark Company which shall borne entirely by GST) and (ii) any breach of
any representation or the breach of any warranty of any of the Call America
Companies or any Seller contained in Article III or Article IV of this
Agreement. The Sellers will reimburse the Buyer and each controlling person for
any legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding.
Section 10.2 Indemnification by the Buyer. Subject to the limits set forth
in this Article X, the Buyer agrees to indemnify, defend and hold each Seller
harmless from and against any and all Losses that the Seller or its affiliates
may incur or become subject to arising out of or due to (i) the claims of any
broker or finder engaged by any of the GST Companies; (ii) any breach of any
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representation or the breach of any warranty of any of the GST Companies
contained in Article V of this Agreement; (iii) any tax liability of the Sellers
incurred in connection with the Merger; (iv) any personal injury, death or
property damage attributable to products manufactured, processed or sold by any
of the Call America Companies and which are sold to any third party after the
Closing Date and (v) any breach of the covenant of the GST Companies contained
in Section 7.5 of this Agreement unless such breach is caused by Jeffrey
Buckingham. The Buyer will reimburse the Sellers for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding.
Section 10.3 Special Indemnification for Tax Matters.
(a) The GST Companies understand and acknowledge that the Sellers are
entering into the transactions contemplated hereby on the understanding that the
conditions set forth in Treasury Regulation ss.ss. 1.367(a)-3T(c)(l)(i), (ii),
(iii) and (iv)(A) will be satisfied with respect to each merger comprising the
Merger and with respect to each Seller, as applicable, that following the
Closing, Buyer will cause Call America, as successor to each Call America
Company, to comply with the reporting requirements of Treasury Regulation ss.
1.367(a)-3T(c)(4), and that following the Closing the GST Companies will comply
with such other requirements as may be necessary in order to ensure that each
merger constitutes a "reorganization" within the meaning of Section 368(a) of
the Internal Revenue Code. The GST Companies hereby agree to indemnify and hold
harmless each Seller from and against any cost, expense, liability and other
damages, including, but not limited to, attorneys and accountants fees, taxes,
interest and penalties, arising from or as a result of any of the Mergers of
Sub, CA Bakersfield and CA Fresno into Call America and the Merger not
qualifying as a "reorganization" within the meaning of Section 368(a) of the
Code by reason of (a) the failure to satisfy the requirements of Treasury
Regulation ss. 1.367(a)-3T(c)(l)(i), (ii) or (iii), (b) the treatment of any
Seller as a "five-percent transferee shareholder," as defined in Treasury
Regulation ss. 1.367(a)-3T(c)(6)(ii), (c) the failure of Call America on behalf
of each Call America Company, to file on a timely basis and in a correct manner
the statement described in Treasury Regulation ss. 1.367(a)-3T(c)(4), (d) the
failure by the GST Companies, on behalf of each Seller, to file with the
Internal Revenue Service in a timely and correct manner the information required
by Treasury Regulation ss. 1.6038B-1T, or (e) the failure of any such merger to
satisfy the requirements for a "reorganization" as defined in Section 368(a) of
the Internal Revenue Code by virtue of any action or inaction of any GST Company
and, following the Effective Time, Call America.
(b) The indemnification provided under this Section 10.3 shall not be
reduced by any tax benefit arising from an increase in the tax basis of a Seller
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in such Seller's shares of GST Common Stock received in the Merger by virtue of
a merger not constituting a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code unless and until such benefit is realized in
the form of a refund or a reduction in taxes otherwise actually payable.
Section 10.4 Survival. The representations and warranties of each of the
Call America Companies and the Sellers set forth in Articles III and IV of this
Agreement shall survive the Closing until the first anniversary of the Closing
Date. The representations and warranties of the GST Companies set forth in
Article V of this Agreement shall survive the closing until the first
anniversary of the Closing Date. The covenants and agreements of the parties
shall not survive the Closing Date, except for the covenants and agreements set
forth under this Article X and Sections 7.3 and 7.5.
Section 10.5 Limitations. (a) No party shall assert, and no party shall be
liable for, any claim against the other for indemnification hereunder with
respect to any inaccuracy or breach of such warranties, representations,
covenants or agreements unless and until the amount of all such claims shall
exceed on a cumulative basis $75,000, and then only to the extent such claim for
indemnification exceeds that amount; provided, however, that a claim for
indemnification hereunder with respect to any breach of the covenants contained
in Section 7.5 shall not be subject to any threshold.
(b) All representations and warranties made by the parties herein shall be
deemed to have been relied upon notwithstanding any investigation. The
liability, including expenses, of the Sellers pursuant to Section 10.1 shall be
limited to the return to GST of the Escrow Shares. No Seller shall be directly
liable to GST or any other indemnified party for any indemnification under
Section 10.1 and GST acknowledges that the indemnified parties' sole recourse
for any Losses for which they are entitled to indemnification under Section 10.1
shall be the return of the Escrow Shares. For purposes of this Article X, the
fair market value of one share of GST Common Stock shall be the closing sales
price of a share of GST Common Stock on the AMEX (as reported by The Wall Street
Journal or, if not reported thereby, by any other authoritative source) on the
date of the Effective Time (the "Effective Date"). In the event GST or another
party to be indemnified pursuant to Section 10.1 suffers any Losses for which it
is entitled to indemnification, the Escrow Agent shall, subject to the
procedures set forth in the Escrow Agreement, deliver to the party to be
indemnified out of escrow the lesser of: (a) the number of the Escrow Shares (in
whole shares) that has an aggregate market value (determined as provided above)
most nearly equal to the amount of the Losses thus to be satisfied, or (b) all
of the Escrow Shares. If any distribution referred to in this Section 10.5(b)
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involves fewer than all of the Escrow Shares, it shall be allocated pro rata
against the Escrow Shares therein based on the Escrow Shares beneficially owned
by each Seller. The liability, including expenses, of the GST Companies pursuant
to Sections 10.2 and 10.3 shall not exceed the fair market value of the Escrow
Shares on the Effective Date and shall be payable in cash.
(c) Buyer acknowledges and agrees that, from and after the Closing, its
sole and exclusive remedy with respect to any and all claims relating to the
subject matter of this Agreement shall be pursuant to the indemnification
provisions set forth in this Article X. In furtherance of and subject to the
foregoing, Buyer hereby waives, from and after the Closing Date, to the fullest
extent permitted under applicable law, any and all rights, claims and causes of
action (other than claims of, or causes of action arising from, fraud) it, the
GST Companies, or any of their subsidiaries may have against the Sellers
relating to the subject matter of this Agreement arising under or based on any
Federal, state or local statute, law, ordinance, rule or regulation or
otherwise.
Section 10.6 Third Party Claims. In order for a party (the "indemnified
party") to be entitled to any indemnification provided for under this Agreement
in respect of, arising out of, or involving a claim or demand or written notice
made by any third party against the indemnified party (a "Third Party Claim")
after the Closing Date, such indemnified party must notify the indemnifying
party (the "indemnifying party") in writing and in reasonable detail of the
Third Party Claim within 30 business days after receipt by such indemnified
party of written notice of the Third Party Claim; provided that the failure of
any indemnified party to give timely notice shall not affect his right of
indemnification hereunder except to the extent the indemnifying party has
actually been prejudiced or damaged thereby (except that the indemnifying party
shall not be liable for any expenses during the period in which the indemnified
party failed to give notice). If a Third Party Claim is made against an
indemnified party, the indemnifying party shall be entitled, if it so chooses,
to assume the defense thereof with counsel selected by the indemnifying party
(which counsel shall be reasonably satisfactory to the indemnified party). If
the indemnifying party assumes the defense of a Third Party Claim, the
indemnified party will cooperate in all reasonable respects with the
indemnifying party in connection with such defense, and shall have the right to
participate in such defense with counsel selected by it. The fees and
disbursements of such counsel, however, shall be at the expense of the
indemnified party; provided, however, that, in the case of any Third Party Claim
of which the indemnifying party has not employed counsel to assume the defense,
the fees and disbursements of such counsel shall be at the expense of the
indemnifying party.
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The indemnified party shall deliver to the indemnifying party, within five
business days after the indemnified party's receipt thereof, copies of all
notices and documents (including court papers) received by the indemnified party
relating to the Third Party Claim. If the indemnifying party chooses to defend
or prosecute any Third Party Claim, all the parties hereto shall cooperate in
the defense or prosecution thereof. Such cooperation shall include the retention
and (upon the indemnifying party's request) the provision to the indemnifying
party of records and information which are reasonably relevant to such Third
Party Claim, and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. Whether or not the indemnifying party shall have assumed the defense
of a Third Party Claim, the indemnified party shall not admit any liability with
respect to, or settle, compromise or discharge, such Third Party Claim without
the indemnifying party's prior written consent (which consent shall not be
unreasonably withheld).
In the event GST or any of the persons entitled to indemnification pursuant
to Section 10.1 is an "indemnified party" with respect to a third party claim,
no Escrow Shares shall be released by the Escrow Agent in settlement of any
indemnification obligation unless and until a final, non-appealable settlement
or judgment is reached with respect to such claim.
Section 10.7 Reduction for Insurance. The gross amount which an
indemnifying party is liable to, for, or on behalf of the indemnified party
pursuant to this Article X (the "Indemnifiable Loss") shall be reduced
(including, without limitation, retroactively) by any insurance proceeds
actually recovered by or on behalf of such indemnified party related to the
Indemnifiable Loss. If an indemnified party shall have received or shall have
had paid on its behalf an indemnity payment in respect of an Indemnifiable Loss
and shall subsequently receive directly or indirectly insurance proceeds in
respect of such Indemnifiable Loss, then such indemnified party shall pay to
such indemnifying party the net amount of such insurance proceeds or, if less,
the amount of such indemnity payment.
Section 10.8 Termination of Indemnification. The obligations to indemnify
and hold harmless a party hereto (i) pursuant to Sections 10.1 and 10.2 hereof
shall terminate one year after the Closing Date and (ii) pursuant to Section
10.3 hereof shall terminate at the time the applicable statutes of limitations
with respect to the Tax liabilities in question expire (giving effect to any
extension thereof); provided, however, that such obligations to indemnify and
hold harmless shall not terminate with respect to any item as to which the
person to be indemnified or the related party hereto shall have, before the
expiration of the applicable period, previously made a claim by delivering a
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notice (stating in reasonable detail the basis of such claim) to the
indemnifying party.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
Section 11.1 Termination. This Agreement may be terminated and the
transactions contemplated by this Agreement abandoned at any time prior to the
Closing:
(a) By mutual written consent of GST and Call America;
(b) By either GST or Call America if the transactions contemplated by
this Agreement shall not have been consummated on or before January 31,
1997.
(c) by Call America if (i) there shall have been a breach of any
representation or warranty on the part of GST or Sub set forth in this
Agreement, or if any representation or warranty of GST or Sub shall have
become untrue, in either case such that the conditions set forth in Section
8.1 would be incapable of being satisfied by January 31, 1997 (or as
otherwise extended) or (ii) there shall have been a breach by GST or Sub of
any of their respective covenants or agreements hereunder having a Material
Adverse Effect on GST or materially adversely affecting (or materially
delaying) the consummation of the Merger, and GST or Sub, as the case may
be, has not cured such breach within 20 business days after notice by Call
America thereof, provided that Call America has not materially breached any
of its obligations hereunder.
(d) by GST if (i) there shall have been a breach of any representation
or warranty on the part of the Call America Companies set forth in this
Agreement, or if any representation or warranty of the Call America
Companies shall have become untrue, in either case such that the conditions
set forth in Section 9.1 hereof would be incapable of being satisfied by
January 31, 1997 (or as otherwise extended), or (ii) there shall have been
a breach by the Call America Companies of their covenants or agreements
hereunder having a Material Adverse Effect on the Call America Companies
taken as a whole or materially adversely affecting (or materially delaying)
the consummation of the Merger, and the Call America Companies have not
cured such breach within 20 business days after notice by GST or Sub
thereof, provided that neither GST nor Sub has materially breached any of
their respective obligations hereunder.
(e) By either GST or Call America if a court of competent jurisdiction
or Regulatory Authority shall have issued a final, non-appealable order,
decree or ruling or taken any other action (which order, decree or ruling
the parties hereto shall use their best efforts to lift), in each case
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permanently restraining, enjoining or otherwise prohibiting any of the
transactions contemplated by this Agreement.
Section 11.2 Effect of Termination. The termination of this Agreement in
accordance with Section 11.1 hereof shall have no effect on whatever rights and
remedies the parties hereto may have against one another as a result of any
breach of this Agreement.
Section 11.3 Amendment. This Agreement may be amended by the written
agreement of the parties hereto.
Section 11.4 Extension; Waiver. At any time prior to the Effective Time,
each party hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document, certificate or writing delivered pursuant hereto or (iii) waive
compliance by the other party with any of the agreements or conditions contained
herein. Any agreement on the part of any party hereto to any such extension or
waiver shall be valid only if set forth in writing signed on behalf of such
party. The failure of a party hereto to assert any of its rights hereunder shall
not constitute a waiver of such rights.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Expenses. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs and expenses (except that Call America shall also
bear the costs and expenses of the Sellers, if any), regardless of the
termination of this Agreement or the failure to consummate the transactions
contemplated hereby .
Section 12.2 Notices. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when delivered personally
or by facsimile transmission, in either case with receipt acknowledged, or three
days after being sent by registered or certified mail, return receipt requested,
postage prepaid:
(a) If to any of the GST Companies to:
GST Telecommunications, Inc.
4317 N.E. Thurston Way
Vancouver, Washington 98662
Attention: John Warta
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with a copy to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attention: Stephen Irwin, Esq.
(b) If to the Sellers or any of the Call America Companies to:
Call America Business Communications, Inc.
4251 South Higuera
Suite 800
San Luis Obispo, California 93401
Attention: Jeffrey Buckingham
with a copy to:
Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, California 90071-3197
Attention: Bradford P. Weirick, Esq.
or to such other address as any party shall have specified by notice in writing
to the other in compliance with this Section 12.2.
Section 12.3 Entire Agreement. This Agreement (including the Schedules,
letter agreements and other documents delivered as of the date hereof)
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof and supersedes all prior agreements,
representations and understandings among the parties hereto including the letter
of intent dated July 17, 1996 among the parties hereto except as provided in
Section 7.1(e) with respect to the Confidentiality Agreements.
Section 12.4 Binding Effect, Benefits, Assignments. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns; nothing in this Agreement, expressed or
implied, is intended to confer on any other person, other than the parties
hereto or their respective successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement. This Agreement
may not be assigned without the prior written consent of the other parties
hereto, except that GST may assign this Agreement to any of its direct
wholly-owned subsidiaries.
Section 12.5 Applicable Law. This Agreement and the legal relations between
the parties hereto shall be governed by and construed in accordance with the
laws of the State of Delaware, without regard to principles of conflicts of law.
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Section 12.6 Jurisdiction. (a) Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled by
arbitration in Denver, Colorado, administered by the American Arbitration
Association in accordance with its applicable rules, and judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitration shall be conducted before a panel of three neutral
arbitrators, all of whom shall be members of the Colorado state bar actively
engaged in the practice of law or retired members of the state or federal
judiciary. Call America and GST shall bear equally the cost of such arbitration.
(b) Notwithstanding the provisions of Section 12.6(a), the parties hereto
shall have the right to seek and obtain from a court of competent jurisdiction a
temporary restraining order, injunction, specific performance or other equitable
relief to enforce the provisions of this Agreement.
Section 12.7 Headings. The headings and captions in this Agreement are
included for purposes of convenience only and shall not affect the construction
or interpretation of any of its provisions.
Section 12.8 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 12.9 Definitions.
(a) Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
"Affiliate" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person; (ii) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity or
voting interest of such Person; or (iii) any other Person for which a Person
described in clause (ii) acts in any such capacity.
"Agreement" shall mean this Agreement and Plan of Merger, including the
Exhibits, schedules, letter agreements and other documents delivered as of the
date hereof, delivered pursuant hereto and incorporated herein by reference.
"Agreement of Merger" shall mean the Merger Agreement in a form not
inconsistent with the terms of this Agreement and to be mutually agreed upon by
the parties hereto and to be filed with the Secretary of State of the State of
California relating to the Merger as contemplated by Section 1.1 of this
Agreement and/or the Certificate of Merger in a form not inconsistent with the
terms of this Agreement and to be mutually agreed upon by the parties hereto and
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to be filed with the Secretary of State of the State of Delaware relating to the
Merger as contemplated by Section 1.1 of this Agreement.
"Amex" shall mean the American Stock Exchange, or such other securities
exchange or market system where the GST Common Stock may be primarily traded.
"Assets" of a Person shall mean all of the assets, properties, businesses
and rights of such Person of every kind, nature, character and description,
whether real, personal or mixed, tangible or intangible, accrued or contingent,
or otherwise relating to or utilized in such Person's business, directly or
indirectly, in whole or in part, whether or not carried on the books and records
of such Person, and whether or not owned in the name of such Person or any
Affiliate of such Person and wherever located.
"CGCL" shall mean the California General Corporation Law.
"Closing Date" shall mean the date on which the Closing occurs.
"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, franchise agreement, indenture, instrument,
lease, license, obligation, plan, practice, restriction, understanding or
undertaking of any kind or character, or other document to which any Person is a
party or that is binding on any Person or its capital stock, Assets or business.
"Default" shall mean (i) any breach or violation of or default under any
Contract, Order or Permit, (ii) any occurrence of any event that with the
passage of time or the giving of notice or both would constitute a breach or
violation of or default under any Contract, Order or Permit, or (iii) any giving
of notice giving rise to a right to terminate or revoke, change the current
terms of, or renegotiate, or to accelerate, increase, or impose any Liability
under, any Contract, Order or Permit.
"DGCL" shall mean the Delaware General Corporation Law.
"Environmental Laws" shall mean all Laws relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface or subsurface strata) and which are
administered, interpreted or enforced by the United States Environmental
Protection Agency and state and local agencies with jurisdiction over, and
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including common law in respect of, pollution or protection of the environment,
including the Comprehensive Environmental Response Compensation and Liability
Act, as amended, 42 U.S.C. 9601 et seq. ("CERCLA"), the Resource Conservation
and Recovery Act, as amended, 42 U.S.C. 6901 et seq. ("RCRA"), and other Laws
relating to emissions, discharges, releases or threatened releases of any
Hazardous Material, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any
Hazardous Material.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" shall mean
"Escrow Agreement" shall mean the Escrow Agreement by and among the
Sellers, GST, and the Escrow Agent, substantially in the form of Exhibit B.
"FABRIK" shall mean FABRIK Communications, Inc.
"FCC" shall mean Chapter 5 of Title 47 of the United States Code and the
rules and regulations promulgated thereunder.
"GST Capital Stock" shall mean, collectively, the GST Common Stock and any
other class or series of capital stock of GST.
"GST Common Stock" shall mean the no par value common stock of GST.
"Hazardous Material" shall mean (i) any hazardous substance, hazardous
material, hazardous waste, regulated substance or toxic substance (as those
terms are defined by any applicable Environmental Laws) and (ii) any chemicals,
pollutants, contaminants, petroleum, petroleum products, or oil (and
specifically shall include asbestos requiring abatement, removal or
encapsulation pursuant to the requirements of governmental authorities and any
polychlorinated biphenyls).
"Intellectual Property" shall mean all worldwide industrial and
intellectual copyrights, patents, trademarks, service marks, service names,
trade names, technology rights and licenses, computer software (including any
source or object codes therefor or documentation relating thereto), trade
secrets, franchises, know-how, inventions, and other intellectual property
rights used in the business of the Call America Companies or the GST Companies,
as the case may be.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
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"Knowledge" as used with respect to a Person (including references to such
Person being aware of a particular matter) shall mean those facts that are known
by the Chairman, President and Chief Financial Officer of such Person.
"Law" shall mean any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute applicable to a Person or its Assets,
Liabilities or business, including those promulgated, interpreted or enforced by
any Regulatory Authority.
"Liability" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including costs
of investigation, collection and defense), claim, deficiency, guaranty or
endorsement of or by any Person (other than endorsements of notes, bills,
checks, and drafts presented for collection or deposit in the ordinary course of
business) of any type, whether accrued, absolute or contingent, liquidated or
unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title retention
or other security arrangement, or any adverse right or interest, charge,or claim
of any nature whatsoever of,on, or with respect to any property or property
interest, other than (i) Liens for current property Taxes not yet due and
payable, and (iii) Liens which do not materially impair the use of or title to
the Assets subject to such Lien.
"Litigation" shall mean any action, arbitration, cause of action, claim,
complaint, criminal prosecution or demand letter, or notice (written or oral) by
any Person of governmental or other examination or investigation, hearing,
inquiry, administrative or other proceeding alleging potential Liability, or any
Regulatory Authority or other federal, state or local governmental agency or
department requesting information relating to or affecting a Party, its
business, its Assets (including Contracts related to it), or the transactions
contemplated by this Agreement.
"Material Adverse Effect" on a party shall mean an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has a material adverse impact on (i) the financial condition,
business, or results of operations of such party and its Subsidiaries, taken as
a whole, or (ii) the ability of such party to perform its obligations under this
Agreement or to consummate the Merger or the other transactions contemplated by
this Agreement, provided that "material adverse impact" shall not be deemed to
include the impact of (a) changes in Laws of general applicability or
interpretations thereof by courts or governmental authorities, (b) changes in
generally accepted accounting principles or regulatory accounting principles,
(c) actions and omissions of a party (or any of its subsidiaries) taken with the
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prior informed written Consent of the other party in contemplation of the
transactions contemplated hereby, and (z) the Merger on the operating
performance of the Parties, including expenses incurred by the parties in
consummating the transactions contemplated by this Agreement.
"Merger Documents" shall mean the documents to be filed with the
Secretaries of State of the States of California and Delaware pursuant to
Section 1.1 and the first sentence of Section 1.3 hereof.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or writ
of any federal, state, local or foreign or other court, arbitrator, mediator,
tribunal, administrative agency or Regulatory Authority.
"Permit" shall mean any federal, state, local, and foreign governmental
approval, authorization, certificate, easement, filing, franchise, license,
notice, permit, or right to which any Person is a party or that is or may be
binding upon or inure to the benefit of any Person or its securities, Assets or
business.
"Person" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting in a
representative capacity.
"Regulatory Authorities" shall mean, collectively, the Amex, the SEC, the
Federal Trade Commission, the United States Department of Justice, the Federal
Communications Commission, and all other federal, state, county, local or other
foreign or domestic governmental or regulatory agencies, authorities,
instrumentalities, commissions, boards or bodies having jurisdiction over the
Parties and their respective Subsidiaries.
"Rights" shall mean all arrangements, calls, commitments, Contracts,
options, rights to subscribe to, scrip, understandings, warrants, or other
binding obligations of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of the capital stock of a
Person or by which a Person is or may be bound to issue additional shares of its
capital stock or other Rights.
"Subsidiaries" shall mean all those corporations, associations, or other
business entities of which the entity in question either (i) owns or controls
50% or more of the outstanding equity securities either directly or through an
unbroken chain of entities as to each of which 50% or more of the outstanding
equity securities is owned directly or indirectly by its parent (provided, there
shall not be included any such entity the equity securities of which are owned
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or controlled in a fiduciary capacity), or (ii) in the case of partnerships,
serves as a general partner.
"Surviving Corporation" shall mean Call America as the surviving
corporation resulting from the Merger.
"Tax Return" shall mean any report, return, information return, or other
information required to be supplied to a taxing authority in connection with
Taxes, including any return of an affiliated or combined or unitary group that
includes a Party or its Subsidiaries.
"Tax" or "Taxes" shall mean any federal, state, county, local, or foreign
income, profits, franchise, gross receipts, payroll, sales, employment, use,
property, withholding, excise, occupancy, and other taxes, assessments, charges,
fares, or impositions, including interest, penalties, and additions imposed
thereon or with respect thereto.
(b) The terms set forth below shall have the meanings ascribed thereto in
the referenced sections:
Call America Financial Statements Section 3.6
Call America Common Stock Section 1.7(c)
Closing Section 1.2
Confidentiality Agreements Section 7.1(e)
Consideration Section 1.7(c)
Effective Date Section 10.5(b)
Effective Time Section 1.3
Employee Benefit Plans Section 3.10
Employment Agreement Section 4.2
Escrow Shares Section 1.7(c)
FABRIK Agreement Section 7.5
GST Surviving Conditions Precedent Section 1.2(b)
GST Tax Certificate Section 7.2
Indemnifiable Loss Section 10.7
indemnified party Section 10.6
indemnifying party Section 10.6
Merger Section 1.1
Non-Competition Agreements Section 4.2
Post-Closing Consideration Section 1.10(a)
Registration Rights Agreement Section 4.2
Representative Section 1.2(a)
SEC Section 5.5
SEC Reports Section 5.5
Seller Surviving Conditions Precedent Section 1.2(b)
Shareholders' Agreement Section 4.1
Tax Opinion Section 8.9
Termination Date Section 6.2
Third Party Claim Section 10.6
U.S. GAAP Section 3.6(a)
(c) Any singular term in this Agreement shall be deemed to include the
plural, and any plural term the singular. Whenever the words "include,"
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"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation."
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year hereinabove first set forth.
GST TELECOMMUNICATIONS, INC.
By: /s/ Stephen Irwin
----------------------------------------
Name: Stephen Irwin
Title: Secretary
CALL AMERICA BUSINESS
COMMUNICATIONS CORP.
By: /s/ Jeffrey C. Buckingham
----------------------------------------
Name: Jeffrey C. Buckingham
Title: President
GST NEWCO OF CALIFORNIA, INC.
By: /s/ Stephen Irwin
----------------------------------------
Name: Stephen Irwin
Title: President
CALL AMERICA BUSINESS COMMUNICATIONS
OF FRESNO, INC.
By: /s/ Jeffrey C. Buckingham
----------------------------------------
Name: Jeffrey C. Buckingham
Title: President
CALL AMERICA BUSINESS COMMUNICATIONS
OF BAKERSFIELD, INC.
By: /s/ Jeffrey C. Buckingham
----------------------------------------
Name: Jeffrey C. Buckingham
Title: President
50
<PAGE>
SELLERS:
/s/ Jeffrey C. Buckingham
- ----------------------------------------
Name: Jeffrey C. Buckingham
/s/ F. Scott Hindes
- ----------------------------------------
Name: F. Scott Hindes
Trustee U/A dated 2/14/84
/s/ Jerry A. Linthicum
- ----------------------------------------
Name: Jerry A. Linthicum
/s/ Carolyn C. Hindes
- ----------------------------------------
Name: Carolyn C. Hindes
/s/ Theodore B. Hindes
- ----------------------------------------
Name: Theodore B. Hindes
CONSENTED AND AGREED:
/s/ Joan E. Buckingham
- ----------------------------------------
Joan E. Buckingham
/s/ Euleta F. Linthicum
- ----------------------------------------
Euleta F. Linthicum
100609.10
51
NTFC CAPITAL CORPORATION
EQUIPMENT LOAN AND SECURITY AGREEMENT
This EQUIPMENT LOAN AND SECURITY AGREEMENT ("Agreement"), is dated as of
December 19, 1996, by and between the following parties:
LENDER/SECURED PARTY: NTFC CAPITAL CORPORATION, a Delaware corporation
with offices at 220 Athens Way, Nashville, Tennessee 37228
("Lender")
BORROWER/DEBTOR: GST Equipco, Inc, a Washington corporation with its
principal place of business at 4317 N.E. Thurston Way,
Vancouver, Washington 98662 ("Borrower")
This Loan and Security Agreement includes the general terms and conditions
contained herein and all the exhibits and schedules attached hereto, all of
which are incorporated herein. In the event of a conflict between the general
terms and conditions and any schedule, the additional terms and conditions
stated in the schedule shall control.
By executing this Loan and Security Agreement, Lender agrees to make loans to
Borrower, and Borrower agrees to borrow from Lender and to provide collateral to
secure such loans, all on the terms and conditions set forth herein.
IN WITNESS WHEREOF, the parties have executed this Loan and Security Agreement
by their duly authorized representatives:
LENDER: BORROWER:
- ------- ---------
NTFC CAPITAL CORPORATION GST EQUIPCO, INC.
BY: /s/ authorized signatory BY: /s/ Clifford V. Sander
- ------------------------------- -------------------------------
TITLE: Secretary TITLE: Vice President & CEO
- ------------------------------- -------------------------------
DATE: 12/19/96 DATE: 12/19/96
- ------------------------------- -------------------------------
<PAGE>
ARTICLE 1: DEFINITIONS
1.1 Certain Definitions........................................1
1.2 Accounting Principles; Subsidiaries........................9
1.3 UCC Terms.................................................10
1.4 General Construction; Captions............................10
1.5 References to Documents and Laws..........................10
ARTICLE 2: LOANS
2.1 Commitment................................................10
2.2 Note and Payment Terms....................................10
2.3 Procedures for Borrowing..................................12
2.4 Prepayments...............................................13
2.5 Computation of Interest...................................13
2.6 Payments..................................................13
2.7 Indemnity.................................................14
2.8 Use of Proceeds...........................................14
2.9 Fees......................................................14
2.10 Lender's Expenses.........................................14
2.11 Guaranty..................................................15
ARTICLE 3: COLLATERAL AND SECURITY AGREEMENT
3.1 Grant of Security Interest................................15
3.2 Priority of Security Interests............................15
3.3 Further Documentation; Pledge of Instruments..............15
3.4 Further Identification of Collateral......................16
3.5 Remedies..................................................16
3.6 Standard of Care..........................................16
3.7 Advances to Protect Collateral............................16
3.8 License to Use............................................16
ARTICLE 4: REPRESENTATIONS AND WARRANTIES
4.1 Organization and Qualification............................17
4.2 Authority and Authorization...............................17
4.3 Execution and Binding Effect..............................17
4.4 Governmental Authorizations...............................17
4.5 Regulatory Authorizations.................................17
4.6 Material Agreement; Absence of Conflicts..................17
4.7 No Restrictions...........................................18
4.8 Financial Statements......................................18
4.9 Financial Accounting Practices............................18
4.10 Accurate and Complete Disclosure..........................18
4.11 No Event of Default; Compliance with Material Agreements..19
4.12 Litigation................................................19
4.13 Rights to Property........................................19
4.14 Financial Condition.......................................19
4.15 Taxes.....................................................19
4.16 No Material Adverse Change................................19
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4.17 No Regulatory Event.......................................19
4.18 Trade Relations...........................................19
4.19 No Brokerage Fees.........................................19
4.20 Margin Stock; Regulation U................................20
4.21 Investment Company; Public Utility Holding Company........20
4.22 Personal Holding Company; Subchapter S....................20
4.23 ERISA.....................................................20
4.24 Environmental Warranties..................................20
4.25 Security Interests........................................20
4.26 Place of Business.........................................21
4.27 Location of Collateral....................................21
4.28 Clear Title To Collateral.................................21
4.29 Assumed Names.............................................21
4.30 Transactions with Affiliates..............................21
4.31 NTI Purchase Agreement....................................21
ARTICLE 5: CONDITIONS OF CLOSING......................................21
5.1 Closing Certificates......................................21
5.2 Opinion of Counsel........................................21
5.3 Closing Documents.........................................22
ARTICLE 6: CONDITIONS OF LENDING
6.1 Conditions for Initial Advance............................22
6.2 Conditions for All Advances...............................23
6.3 Affirmation of Representations and Warranties.............24
6.4 Deadline for Funding Conditions...........................24
ARTICLE 7: AFFIRMATIVE COVENANTS
7.1 Reporting and Information Requirements....................25
7.2 Other Notices.............................................26
7.3 Notice of Pension-Related Events..........................26
7.4 Inspection Rights.........................................27
7.5 Preservation of Corporate Existence and Qualification.....27
7.6 Continuation of Business..................................27
7.7 Insurance.................................................27
7.8 Payment of Taxes, Charges, Claims and Current Liabilities.28
7.9 Financial Accounting Practices............................29
7.10 Compliance with Laws......................................29
7.11 Use of Proceeds...........................................29
7.12 Government Authorizations; Regulatory Authorizations, Etc.29
7.13 Contracts and Franchises..................................30
7.14 Consents..................................................30
7.15 Construction and Storage..................................30
7.16 Upgrade NTI Equipment.....................................30
ARTICLE 8: NEGATIVE COVENANTS
8.1 Additional Indebtedness...................................30
8.2 Restrictions on Liens and Sale of Collateral..............30
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8.3 Limitation on Contingent Obligations......................31
8.4 Fees and Commissions......................................31
8.5 Prohibition of Mergers, Acquisitions, Name, Office
or Business Changes .....................................31
8.6 Prohibition Against Changes to Leases. ...................32
8.7 Limitation on Investments, Advances and Loans.............32
8.8 Capital Expenditures......................................32
8.9 Limitation on Leases......................................32
8.10 Termination of NTI Purchase Agreement.....................32
8.11 Removal of Collateral.....................................32
8.12 Assumed Names.............................................32
ARTICLE 9: EVENTS OF DEFAULT
9.1 Events of Default.........................................33
9.2 Consequences of an Event of Default.......................35
9.3 Exercise of Rights........................................35
9.4 Rights of Secured Party...................................36
9.5 Notices, Etc. Waived......................................36
9.6 Additional Remedies.......................................36
9.7 Application of Proceeds...................................37
9.8 Discontinuance of Proceedings.............................37
9.9 Power of Attorney.........................................37
9.10 Regulatory Matters........................................38
ARTICLE 10: GENERAL CONDITIONS/MISCELLANEOUS
10.1 Modifications and Waivers.................................38
10.2 Advances Not Implied Waivers..............................39
10.3 Deviation from Covenants..................................39
10.4 Holidays..................................................39
10.5 Records...................................................39
10.6 Notices...................................................39
10.7 FCC and PUC Approval......................................40
10.8 Lender Sole Beneficiary...................................40
10.9 Lender's Review of Information............................40
10.10 No Joint Venture..........................................41
10.11 Severability..............................................41
10.12 Rights Cumulative.........................................41
10.13 Duration; Survival........................................41
10.14 Governing Law.............................................41
10.15 Counterparts..............................................41
10.16 Successors and Assigns....................................41
10.17 Participation.............................................42
10.18 Time of Essence...........................................42
10.19 Disclosures and Confidentiality...........................42
10.20 Jurisdiction and Venue....................................43
10.21 Jury Waiver...............................................43
10.22 Limitation on Liability...................................44
10.23 Borrower Waivers..........................................44
10.24 Schedules.................................................44
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10.25 Agreement to Govern.......................................44
10.26 Entire Agreement..........................................44
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<PAGE>
SCHEDULES TO LOAN AND SECURITY AGREEMENT
----------------------------------------
Schedule 1 Borrower Information and Defined Terms
Schedule 2.1 Maximum Loan Amount
Schedule 2.2 Payment Terms and Governing Law
Schedule 2.9 Fees
Schedule 4.4 Required Consents
Schedule 4.7 Restrictions on Loans
Schedule 4.8 Financial Statements
Schedule 4.12 Pending Litigation
Schedule 4.25 UCC Filing Offices
Schedule 4.26 Principal Offices and Location of Collateral
Schedule 4.29 Assumed Names
Schedule 4.30 Permitted Transactions with Affiliates
Schedule 4.31 NTI Purchase Agreement
Schedule 6.2 Post-Closing Items
Schedule 7.7 Insurance/Certificate
Schedule 8.1 Permitted Specific Indebtedness
Schedule 8.2 Permitted Specific Encumbrances
EXHIBITS TO LOAN AND SECURITY AGREEMENT
---------------------------------------
Exhibit A Form of Note
Exhibit B Form of Borrowing Certificate
Exhibit C Form of Opinion of Counsel for Borrower and for Guarantor
Exhibit D Form of Landlord's Consent
Exhibit E Form of Lease
Exhibit F Form of Guaranty
Exhibit G Certificate Financial Condition
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is dated as of the "Closing
Date" set forth on Schedule 1 hereto, by and between the entity or entities
described on Schedule 1 hereto (collectively, "Borrower") and NTFC CAPITAL
CORPORATION, a Delaware corporation ("Lender"), with offices at 220 Athens Way,
Nashville, Tennessee 37228.
B A C K G R O U N D:
A. Borrower has entered into a certain purchase agreement with Northern
Telecom Inc., as described on Schedule 1 hereto, providing for Borrower's
purchase of certain telecommunications equipment and the license of associated
software, all as described therein, and has requested Lender to extend credit to
Borrower to finance such purchase and license, as described on Schedule 1
hereto.
B. Borrower is affiliated with certain operating Affiliates (defined
below), to whom it will lease the Equipment and other Collateral defined below,
subject to Lender's prior security interests and rights hereunder.
C. GST USA, Inc., the direct or indirect owner of all the capital stock of
Borrower, and the Affiliates that will lease the Equipment, has partially
guaranteed the obligations of Borrower hereunder.
D. Lender is willing to extend such credit to Borrower upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE 1: DEFINITIONS
1.1 Certain Definitions. Certain terms are defined on Schedule 1 hereto. In
addition to other words and terms defined in the preamble hereof or elsewhere in
this Agreement, or on the Schedules hereto, the following words and terms shall
have the following meanings unless the context otherwise clearly requires:
"Advance(s)": any advance or loan of funds made by Lender to Borrower
pursuant to this Agreement.
"Affiliate": as applied to any Person, any second Person directly or
indirectly controlling, controlled by, or under common control with that Person,
or related to such Person by blood, marriage or adoption. For purposes of this
definition and the definition of "Subsidiary", a Person shall be deemed to
control another Person if such first Person possesses, directly or indirectly,
the power to direct, or to cause the direction of, the management and policies
of such other Person, whether through ownership of voting securities, by
contract or otherwise. The "Affiliates" of Borrower shall also include
Affiliates that lease Equipment from Borrower and the Owners.
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"Basic Agreements": a collective reference to this Agreement, the Note, and
the Security Documents.
"Borrowing Certificate": a certificate substantially in the form of Exhibit
B hereto.
"Borrowing Date": any Business Day on which an Advance is made to Borrower
hereunder.
"Business Day": a day other than a Saturday, Sunday or other day on which
commercial banks in Nashville, Tennessee are authorized or required by law to
close.
"Calendar Quarter": each three month period starting on each January 1,
April 1, July 1, and October 1, during the term of this Agreement.
"Carrier": a provider of telecommunications services by interconnection
with the System or contract with Borrower.
"Cash": at any time, the cash, cash equivalents or marketable investment
grade securities held by Borrower free of any claims or encumbrances.
"Certificate of Financial Condition": a certificate in the form of Exhibit
G hereto, executed by Borrower.
"Change in Control": any change in the direct or indirect control of, or
the ability or right to control, a majority of the voting shares of any class of
securities or ownership rights in the Borrower or in the right and/or the power
to control the election of the board of directors of the Borrower.
"Closing Date": as defined on Schedule 1 hereto.
"Code": the Internal Revenue Code of 1986, as amended from time to time.
"Collateral": as defined in Section 3.1 hereof.
"Commitment": as defined in Section 2.1 hereof.
"Communications Law": any and all of (i) the Communications Act of 1934, as
amended, and any similar or successor federal statute, and the rules and
regulations of the FCC thereunder, (ii) any state law governing the provision of
telecommunications services, and the rules and regulations of the PUC, all as
the same may be in effect from time to time.
"Contingent Obligation": as to any Person, any obligation of such Person
guaranteeing, directly or indirectly, any Indebtedness, leases, dividends or
other obligations ("primary obligations") of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, any obligation of such Person, whether or not contingent, (a) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (b) to advance or supply funds (i) for the purchase
or payment of any such primary obligation or (ii) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (c) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make
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payment of such primary obligation or (d) otherwise to assure or hold harmless
the owner of such primary obligation against loss in respect thereof.
"Conversion Date": as defined on Schedule 2.2 hereto.
"Debt Service": for any fiscal period of Borrower, the sum of all principal
and interest payments that Borrower is required to make during such period on
account of all of its Indebtedness including, without limitation, (a) amounts
due during such period on account of capitalized leases, (b) the then current
portion of any long-term Indebtedness, (c) amounts due on short-term
Indebtedness, and (d) amounts due under this Agreement and the Note.
"Default": any of the conditions or occurrences specified in Section 9.1,
whether or not any requirement for the giving of notice, the lapse of time, or
both, or any other condition has been satisfied.
"Default Rate": a rate of interest equal to the lesser of (i) three percent
(3%) over the Interest Rate, or (ii) the maximum permissible rate under
applicable law in effect at any time.
"Environmental Law": any current or future federal, state and local law
(including common law), statute, regulation, ordinance, rulings, codes, judicial
order, administrative order or terms of licenses or permits applicable to
environmental conditions (including without limitation conditions relating to
ambient air, surface water, groundwater, land surface or subsurface strata),
including without limitation all such laws governing employment, the generation,
use, storage, disposal or transportation of toxic or hazardous substances or
wastes (including, without limitation, asbestos and petroleum products), the
Comprehensive Environmental Response, Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Superfund Amendment and
Reauthorization Act of 1986, the Toxic Substances Control Act, the Clean Air
Act, the Water Pollution Control Act, the Hazardous Waste Management Act, the
Mineral Lands and Leasing Act, the Surface Mining Control and Reclamation Act,
U.S. Department of Transportation Regulations, and all similar state and local
laws, regulations, all as now or hereafter amended.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time, and any successor statute.
"Equipment": as defined in Section 3.1 hereof.
"Equity Payment": any distribution of earnings or capital to any Owner, or
any redemption of stock or other ownership interests, either directly or
indirectly, whether in cash or property or in obligations of the Borrower.
"Event of Default": any of the events specified in Section 9.1 hereof,
provided that any requirement for the giving of notice, the lapse of time, or
both, or any other condition, under Section 9.1 or otherwise, has been
satisfied.
"Financing Termination Date": as defined on Schedule 2.2 hereto.
"FCC": the Federal Communications Commission of the United States of
America, and any successor, in whole or in part, to its jurisdiction.
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"First Borrowing Date": the date of the first borrowing by Borrower
hereunder.
"GAAP": subject to Section 1.2 hereof, generally accepted accounting
principles in the United States of America (as such principles may change from
time to time) applied on a consistent basis (except for changes in application
in which Borrower's independent certified public accountants concur), applied
both to classification of items and amounts.
"General Intangibles": as defined in Section 3.1 hereof.
"Governmental Actions": actions by any Governmental Authority.
"Governmental Authority": the federal government, any state or political
subdivision thereof, any city or municipal entity, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GST Telecommunications": GST Telecommunications, Inc.", a Canadian
corporation
"Guarantor": as defined on Schedule 1 hereto.
"Guaranty": the Guaranty executed by Guarantor, pursuant to Section 2.11
hereof, substantially in the form of Exhibit F hereto.
"Indebtedness": as to any Person, at a particular time, (a) indebtedness
for borrowed money or for the deferred purchase price of property or services in
respect of which such Person is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or in respect of which such Person otherwise assures a
creditor against loss, (b) obligations under leases which shall have been or
should be, in accordance with GAAP, recorded as capital leases in respect of
which obligations such Person is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or in respect of which obligations such Person assures a
creditor against loss (c) obligations of such Person to purchase or repurchase
accounts receivable, chattel paper or other payment rights sold or assigned by
such Person, and (d) indebtedness or obligations of such Person under or with
respect to letters of credit, notes, bonds or other debt instruments.
"Indenture": the Senior Notes Indenture dated as of December 19, 1995,
among GST USA, Inc., GST Telecommunications, Inc. and United States Trust
Company of New York, as Trustee, as it may be amended from time to time.
"Initial Payment Date": as defined on Schedule 2.2 hereto.
"Interest Only Period": as defined on Schedule 2.2 hereto.
"Interest Payment Date": as defined on Schedule 2.2 hereto.
"Interest Rate": as defined on Schedule 2.2 hereto.
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"Landlord Consent": a consent substantially in the form of Exhibit D hereto
or in other form acceptable to Lender, to be executed by the owner/landlord,
sublessor and/or licensor of any real property where any of the Collateral is to
be located.
"Law": any law (including common law), constitution, statute, regulation,
rule, ordinance, order, injunction, writ, decree or award of any governmental
body or court of competent jurisdiction or of any arbitrator (including but not
limited to ERISA, the Code, the UCC, any applicable tax law, product safety law,
occupational safety or health law, Communications Law, Environmental Law and/or
securities laws).
"Lease": a Lease of the Equipment by Borrower as lessor and an Affiliate of
Borrower as lessee.
"Lender's Expenses": as defined in Section 2.10 hereof.
"LIBOR": London Interbank Offered Rates as quoted from time to time in The
Wall Street Journal.
"LIBOR Period": any calendar quarter during which a Loan is outstanding.
"Lien": any mortgage, pledge, hypothecation, lien (statutory or other),
judgment lien, security interest, security agreement, charge or other
encumbrance, or other security arrangement of any nature whatsoever, including,
without limitation, any installment contract, conditional sale or other title
retention arrangement, any sale of accounts receivable or chattel paper, and any
assignment, deposit arrangement or lease intended as, or having the effect of,
security and the filing of any financing statement under the UCC or comparable
law of any jurisdiction.
"Loan Documents": a collective reference to this Agreement, the Note, the
Security Documents, the Guaranty, and all other documents, instruments,
agreements and certificates evidencing or securing any advance hereunder or any
obligation for the payment or performance thereof and/or executed and delivered
in connection with any of the foregoing.
"Mandatory Prepayments: as defined in Section 2.4(b) hereof.
"Material Adverse Effect" or "Material Adverse Change": a material adverse
effect on, or material adverse change in, (i) the business, operations or
financial condition of Borrower, (ii) the ability of Borrower to perform its
obligations under this Loan Agreement, the Note, or the other Loan Documents, or
(iii) the Lender's ability to enforce the rights and remedies granted under this
Agreement or the other Loan Documents, in all cases whether attributable to a
single circumstance or event or an aggregation of circumstances or events, such
that it is unable to utilize the essential remedies provided herein.
"Maturity Date": the date defined on Schedule 2.2 hereto, on which all
principal, interest, premium, expenses, fees, penalties and other amounts due
under the Note shall be finally due and payable.
"Management Agreement": the Services Agreement dated as of December 17,
1996 between the Borrower and the Guarantor.
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"Note": collectively, one or more promissory notes issued by Borrower to
Lender pursuant to this Agreement, and all extensions, renewals, modifications,
replacements, amendments, restatements and refinancings thereof.
"NTI": Northern Telecom Inc., a Delaware corporation.
"NTI Equipment": the equipment and licensed or sub-licensed software
manufactured or supplied by NTI to Borrower at any time pursuant to the NTI
Purchase Agreement or any purchase order issued by Borrower to NTI, including
installation and construction services provided by NTI pursuant thereto.
"NTI Purchase Agreement": the NTI Purchase Agreement identified on Schedule
4.31 hereto, together with any amendments or supplements thereto, and any other
purchase agreement between NTI and Borrower for Equipment.
"Obligations": all indebtedness, liabilities and obligations of Borrower to
Lender of any class or nature, whether arising under or in connection with this
Agreement and/or the other Loan Documents or otherwise, whether now existing or
hereafter incurred, direct or indirect, absolute or contingent, secured or
unsecured, matured or unmatured, joint or several, whether for principal,
interest, fees, expenses, lease obligations, indemnities or otherwise,
including, without limitation, future advances of any sort, all future advances
made by Lender for taxes, levies, insurance and/or repairs to or maintenance of
the Collateral, the unpaid principal amount of, and accrued interest on, the
Note, and any expenses of collection or protection of Lender's rights, including
reasonable attorneys' fees.
"Organizational Documents": with respect to a corporation, the articles of
incorporation and by-laws of such corporation; with respect to a partnership,
the certificate of partnership (or limited partnership, as applicable) and
partnership agreement, together with the analogous documents for any corporate
or partnership general partner; with respect to a limited liability company, the
articles of organization and operating agreement of such limited liability
company; and in any case, any other document governing the formation and conduct
of business by such entity.
"Owners": all presently existing and future shareholders of Borrower and
all other Persons with direct ownership interests in Borrower.
"Payment Date": as defined on Schedule 2.2 hereto.
"Payment Schedule": as defined on Schedule 2.2 hereto.
"PBGC": the Pension Benefit Guaranty Corporation established under Title IV
of ERISA or any other governmental agency, department or instrumentality
succeeding to its functions.
"Permits": all consents, licenses, notices, approvals, authorizations,
filings, orders, registrations, and permits required by any Governmental
Authority for the operation of the Equipment (excluding Regulatory
Authorizations), issued or obtained as and when required in accordance with all
Requirements of Law.
"Permitted Encumbrances": the Liens permitted under Section 8.2 hereof.
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"Person": an individual, corporation, limited liability company,
partnership, business or other trust, unincorporated association, joint venture,
joint-stock company, Governmental Authority or any other entity.
"Plan": any employee pension benefit plan to which Section 4021 of ERISA
applies and (i) which is maintained for employees of Borrower or (ii) to which
Borrower made, or was required to make, contributions at any time within the
preceding five (5) years.
"Proceeds": as defined in Section 3.1 hereof.
"PUC": the public utilities commission for the state or any other
jurisdiction in which the Borrower operates its telecommunications business or
any portion of the Equipment is located, or any successor agency, and any
successor, in whole or in part, to its functions or jurisdictions.
"Qualifying Lease": a Lease to an Affiliate of Borrower in a form
substantially similar to Exhibit E hereto.
"Regulatory Authorizations": all approvals, authorizations, licenses,
filings, notices, registrations, consents, permits, exemptions, registrations,
qualifications, designations, declarations, or other actions or undertakings now
or hereafter made by, to or in respect of any telecommunications governmental or
other regulatory authority, including, without limitation, any certificates of
public convenience and all grants, approvals, licenses, filings and
registrations from or to the FCC or PUC or under any Communications Law
necessary in order to enable the Borrower to own and maintain the Equipment, and
any authorizations specified on Schedule 1 hereto.
"Regulatory Event": any of the following events: (i) Lender becomes subject
to regulation as a "carrier," a "telephone company," a "common carrier," a
"public utility" under any applicable law or governmental regulation, federal,
state or local, solely as a result of the transactions contemplated by this
Agreement and the other Loan Documents, or (ii) Borrower becomes subject to
regulation by any Governmental Authority in any way that is materially different
from the regulation existing at the Closing Date and that could materially
adversely affect Borrower's ability to perform its material obligations under
the Loan Documents or Lender's rights thereunder, or (iii) the FCC or PUC issues
an order revoking, denying or refusing to renew, or recommending the revocation,
denial or non- renewal of, any Regulatory Authorization.
"Reportable Event": (i) a reportable event described in Section 4043 of
ERISA and regulations thereunder, (ii) a withdrawal by a substantial employer
from a Plan to which more than one employer contributes, as referred to in
Section 4063(b) of ERISA, or (iii) a cessation of operations at a facility
causing more than twenty percent (20%) of Plan participants to be separated from
employment, as referred to in Section 4062(f) of ERISA.
"Required Consents": the Governmental Authority approvals or consents of
other Persons required with respect to the Borrower's execution, delivery and
performance of this Agreement and the other Loan Documents, as described in
Section 4.4 hereto.
"Requirement of Law": as to any Person, the Organizational Documents of
such Person, and any law, treaty, rule or regulation, or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its properties or
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transactions or to which such Person or any of its property or transactions is
subject, including without limitation, all applicable common law and equitable
principles, all provisions of all applicable state and federal constitutions,
statutes, rules, regulations and orders of governmental bodies, all Permits or
Regulatory Authorizations issued to Borrower, all Communications Laws, and all
Environmental Laws.
"Responsible Officer": with respect to a corporation, its Chairman,
President or any Vice President, its Chief Financial Officer or Treasurer; with
respect to a partnership, its general partner (or the President, any Vice
President or Treasurer of any corporate general partner, as applicable); with
respect to a limited liability company, a member or manager (or the Chairman,
President, any Vice President, Chief Financial Officer or Treasurer of any
corporate member or manager), or the President or any Vice President of any
other Person.
"Security Documents": this Agreement, the Landlord Consents, all financing
statements, and any other documents granting, evidencing, or perfecting any
security interest or Lien with respect to or securing any of the Obligations.
"Site(s)": any of the sites where Equipment is or is to be located.
"Software" and "Software Licenses": any software now or hereafter owned by,
or licensed to, Borrower or with respect to which Borrower has or may have
license or use rights, which software is used in connection with the operation
of Equipment.
"Subsidiary": as to any Person, any corporation or other entity that is an
Affiliate of such Person and of which shares of stock or equity interests having
ordinary voting power with respect to the election of one or more directors or
other managers of such corporation are at the time directly or indirectly owned
or controlled by such Person (regardless of any contingency which does or may
suspend or dilute the voting rights of such class).
"System": the complete telecommunications network or system of which the
Equipment forms or will form a part, as described on Schedule 1 hereto.
"Total Debt": at any time, the total outstanding liabilities of the
Borrower, including, without limitation, current liabilities, long term
Indebtedness, all lease obligations under finance leases, operating leases
and/or capital leases, all Contingent Obligations, and all the Obligations.
"UCC": the Uniform Commercial Code as the same may from time to time be in
effect in the State of New York, or the Uniform Commercial Code of another
jurisdiction, to the extent it may be required to apply to any item or items of
Collateral.
"Working Capital": unencumbered and unrestricted capital of Borrower
available for general operational purposes after provision for all current
liabilities.
1.2 Accounting Principles; Subsidiaries. Except as otherwise provided in
this Agreement, all computations and determinations as to accounting or
financial matters and all financial statements to be delivered pursuant to this
Agreement shall be made and prepared in accordance with GAAP (including
principles of consolidation where appropriate), consistently applied, and all
accounting or financial terms shall have the meanings ascribed to such terms by
GAAP. If at any time Borrower has any Subsidiaries, all accounting and financial
terms herein shall be deemed to include references to
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consolidated and consolidating principles, and covenants, representations and
agreements with respect to the Borrower and its properties and activities shall
be deemed to refer to the Borrower and its consolidated Subsidiaries
collectively.
1.3 UCC Terms. Except as otherwise provided or amplified (but not limited)
herein, terms used in this Agreement that are defined in Article 9 of the UCC
shall have the same meanings herein.
1.4 General Construction; Captions. All definitions and other terms used in
this Agreement shall be equally applicable to the singular and plural forms
thereof, and all references to any gender shall include all other genders. The
words "hereof", "herein" and "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, and Section, subsection, schedule and
exhibit references are to this Agreement unless otherwise specified. The
captions and table of contents in this Agreement and the other Loan Documents
are for convenience only, and in no way limit or amplify the provisions hereof.
1.5 References to Documents and Laws. All defined terms and references in
this Agreement or the other Loan Documents with respect to any agreements,
notes, instruments, certificates or other documents shall be deemed to refer to
such documents and to any amendments, modifications, renewals, extensions,
replacements, restatements, substitutions and supplements of and to such
documents. All references to statutes and related regulations shall include any
amendments thereof and any successor statutes and regulations.
ARTICLE 2: LOANS
2.1 Commitment. Subject to the terms and conditions herein provided, and so
long as no Event of Default has occurred and is continuing hereunder, Lender
agrees to lend to Borrower from time to time before the Financing Termination
Date, an aggregate principal amount not to exceed the amount set forth on
Schedule 2.1 hereto as the maximum principal amount (the "Commitment"). If
Borrower or NTI should terminate the NTI Purchase Agreement at any time prior to
the Initial Payment Date, then the Commitment shall automatically terminate,
subject to Lender's right to make further Advances hereunder, including, but not
limited to, Advances under Section 2.3 hereof. All amounts advanced hereunder
shall be used solely for the purchase of NTI Equipment and related services
(exclusive of sales tax) from NTI, and amounts not exceeding the amount (if any)
specified on Schedule 2.1 hereto may be used for legal fees, charges, expenses
and closing costs and other expenses incurred by Borrower or incurred by Lender
and payable by Borrower under Section 2.10 hereof.
2.2 Note and Payment Terms.
(a) Promissory Note. The Loans shall be evidenced by the Note
substantially in the form of Exhibit A hereto, with appropriate insertions.
The Note shall be executed by Borrower, payable to the order of Lender, and
shall evidence the obligation of Borrower to repay all principal amounts
advanced under or pursuant to this Agreement, together with interest and
all other amounts due thereunder. The Note shall be dated the Closing Date,
have a stated maturity that is the Maturity Date, and bear interest on
amounts outstanding from time to time at the Interest Rate from the First
Borrowing Date until the Note or any amount thereunder is paid in full
(whether on the Maturity Date, by acceleration or otherwise). All schedules
attached to the Note shall be deemed a part thereof. Any such schedule may
be
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amended by Lender from time to time to reflect changes in the amounts of
principal and interest due thereunder, but the failure to attach or amend
any schedule shall not diminish the obligation of Borrower to repay all
amounts due hereunder or on the Note.
(b) Interest Payments. Interest shall continue to accrue on the
principal amount outstanding on the Note at the Interest Rate and shall be
payable, in arrears, on each Interest Payment Date. Interest only shall be
payable during the Interest Only Period, if any, and thereafter all accrued
interest shall be payable, in arrears, with the principal payments
described below.
(c) Principal Payments. On the Conversion Date, the Note shall
automatically convert to a term note, and all principal amounts due with
respect to the Note shall be payable in installments in accordance with the
Payment Schedule set forth on Schedule 2.2 hereto, commencing on the
Initial Payment Date and on each Payment Date thereafter until the Maturity
Date. The amount of each such principal installment payment shall be
calculated, at the outset, by taking the applicable percentage (as
described on Schedule 2.2 hereto) of the amount of all principal amounts
outstanding on the Conversion Date; provided, however, that the principal
payment amounts shall be recalculated by Lender (based on applicable
percentages) if any Advances are made hereunder after the Conversion Date,
based on the aggregate amount of all Advances made at any time. Borrower
and Lender understand that this payment schedule is intended to amortize
fully the principal amount of the Note and any other principal and interest
amounts outstanding will be added to the final payment on the Maturity
Date. In any event, the entire outstanding principal amount of the Note and
all accrued but unpaid interest and all other outstanding amounts due
thereunder shall be paid on the Maturity Date.
(d) Late Payments and Default Rate. Notwithstanding the foregoing, if
Borrower shall fail to pay within ten (10) days after the due date any
principal amount or interest or other amount payable under this Agreement
or under the Note, Borrower shall pay to Lender, to defray the
administrative costs of handling such late payments, an amount equal to
interest on the amount unpaid, to the extent permitted under applicable
law, at the Default Rate (instead of the Interest Rate), from the due date
until such overdue principal amount, interest or other unpaid amount is
paid in full (both before and after judgment) whether or not any notice of
default in the payment thereof has been delivered under Section 9.1 hereof.
In addition, but without duplication, upon the occurrence and during the
continuance of an Event of Default, all outstanding amounts hereunder shall
bear interest at the Default Rate (instead of the Interest Rate) until such
amounts are paid in full or such Event of Default is cured by Borrower or
waived in writing by Lender.
(e) Excess Interest. Notwithstanding any provision of the Note, this
Agreement or any other Loan Document to the contrary, it is the intent of
Lender and Borrower that Lender or any subsequent holder of the Note shall
never be entitled to receive, collect, reserve or apply, as interest, any
amount in excess of the maximum rate of interest permitted to be charged by
applicable Law, as amended or enacted from time to time. In the event
Lender, or any subsequent holder of the Note, ever receives, collects,
reserves or applies, as interest, any such excess, such amount which would
be excessive interest shall be deemed a partial prepayment of principal and
treated as such, or, if the principal indebtedness and all other amounts
due are paid in full, any remaining excess funds shall immediately be
applied to any
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other outstanding indebtedness of Borrower due to Lender, and if none is
outstanding, shall be paid to Borrower. In determining whether or not the
interest paid or payable, under any specific contingency, exceeds the
highest lawful rate, Borrower and Lender shall, to the maximum extent
permitted under applicable law, (a) exclude voluntary prepayments and the
effects thereof as it may relate to any fees charged by Lender, and (b)
amortize, prorate, allocate, and spread, in equal parts, the total amount
of interest throughout the entire term of the indebtedness; provided that
if the indebtedness is paid and performed in full prior to the end of the
full contemplated term hereof, and if the interest received for the actual
period of existence hereof exceeds the maximum lawful rate, Lender or any
subsequent holder of any Note shall refund to Borrower the amount of such
excess or credit the amount of such excess against the principal portion of
the indebtedness, as of the date it was received, and, in such event,
Lender shall not be subject to any penalties provided by any laws for
contracting for, charging, reserving or receiving interest in excess of the
maximum lawful rate.
2.3 Procedures for Borrowing.
(a) Timing of Advances. Advances shall not be made more than once per
calendar month, and all Advances in any calendar month shall be made on the
same Borrowing Date. Each Advance (other than the last Advance) shall be in
an aggregate principal amount of not less than $100,000. No amounts may be
borrowed hereunder on or after the Financing Termination Date. Lender is
hereby authorized to retain from each Advance all amounts of Lender's
Expenses accrued and unpaid by Borrower, for which invoices have been sent
to Borrower at least five (5) Business Days before such Advance. In any
event, all outstanding legal fees, charges and expenses not paid by
Borrower prior to any Borrowing Date shall be paid before any Advance is
made or concurrently with such Advance.
(b) Borrowing Certificates. To request an Advance hereunder, Borrower
shall send to Lender, at least ten (10) Business Days prior to the
requested Borrowing Date, a completed Borrowing Certificate, along with
invoices and such other supporting documentation as Lender may reasonably
request. Lender is hereby authorized to add to any Borrowing Certificate
all amounts payable by Borrower to Lender in respect of legal fees, charges
and expenses arising or incurred by Lender, to the extent such fees,
charges and expenses have then been incurred or charged and may be paid
from proceeds of the Loan.
(c) Transmission of Advances. Advances shall be made by wire transfer
to the account(s) specified in the applicable Borrowing Certificate, except
that (i) proceeds of the Loans may be transmitted, at Lender's option,
directly to an NTI account for payment of any unpaid NTI invoices, and (ii)
Advances shall be made to Borrower only to the extent that Borrower
provides Lender with satisfactory evidence that the amount of such Advance
has been paid to NTI. No further authorization shall be necessary for any
such direct disbursements, and each such Advance shall satisfy pro tanto
the obligations of the Lender under this Agreement.
(d) Borrowing Dates. Advances shall be made by Lender on the Borrowing
Date specified in the applicable Borrowing Certificate if all conditions
for such Advance have been satisfied, or on such later Business Date as all
conditions for such Advance shall have been satisfied, as determined by
Lender.
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(e) Advances After Default. At its option, after the occurrence and
continuance of a Default, Lender may but shall not be obligated to make
advances of portions of the Loan proceeds to any Person (including without
limitation NTI, suppliers, sub-contractors and materialmen) to whom Lender
in good faith determines payment is due with respect to the Equipment, and
any proceeds so disbursed by Lender shall be deemed disbursed as of the
date on which the Person to whom payment is made receives the same. No
further authorization from Borrower shall be necessary to warrant such
direct advances, and the execution of this Loan Agreement by Borrower
shall, and hereby does, constitute an irrevocable authorization and power
of attorney so to advance proceeds hereunder. All such Advances shall
satisfy pro tanto the obligations of Lender hereunder and shall be secured
by the Security Documents as fully as if made directly to Borrower.
2.4 Prepayments.
(a) Voluntary Prepayments. On or after the Initial Payment Date, the
Borrower may, at its option, at any time and from time to time, prepay the
Loans in whole or in part, upon at least thirty (30) Business Days prior
written notice to the Lender specifying the date and amount of prepayment,
in a minimum amount of $1,000,000, plus the premium described below (if
applicable), or the remaining amounts outstanding under this Agreement or
the Note, if less, and all accrued but unpaid interest thereon. Such notice
shall be irrevocable and the principal amount specified in such notice
shall be due and payable on the date specified together with accrued
interest on the amount prepaid. Amounts prepaid may not be reborrowed and
shall be applied as provided in Section 2.4(c). In the event any prepayment
is made or required to be made during any LIBOR Period (other than on an
Interest Payment Date), Borrower shall pay a prepayment premium calculated
in accordance with Schedule 2.2 hereto. No voluntary prepayments shall be
permitted prior to the Initial Payment Date.
(b) Mandatory Prepayment. Upon Lender's demand, if Borrower leases any
Equipment other than pursuant to a Qualifying Lease, or if any Lease ceases
to be a Qualifying Lease, Borrower shall prepay the Loans to the extent
proceeds thereof were used to purchase such Equipment and related Software.
All such prepayments shall include all principal, accrued interest,
prepayment premium (if any), and expenses then outstanding and due (the
"Mandatory Prepayments")
(c) Application of Prepayments. Any prepayments shall be applied first
to interest, then to premium, then to expenses, and then to the
installments of principal in reverse chronological order.
2.5 Computation of Interest. Interest shall be calculated daily on the
basis of a 360-day year for the actual days elapsed in the period during which
it accrues.
2.6 Payments. All payments and prepayments to be made in respect of
principal, interest, prepayment premiums or other amounts due from Borrower
hereunder or under the Note shall be payable on or before 1:00 p.m., Nashville
time, on the day when due, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived, and an action therefor shall
immediately accrue. Such payments shall be made to Lender at Lender's office at
220 Athens Way, Nashville, Tennessee 37228-1399, or by wire at the account of
Lender at Bankers Trust Company, New York, New York, ABA Routing No. 021001033,
Bank Account No. 50-232-803, or such other
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location specified in writing by Lender, in immediately available funds, without
setoff, recoupment, counterclaims or any other deduction of any nature.
2.7 Indemnity. Borrower hereby indemnifies Lender against any losses,
claims, penalties, expenses, actions, suits, obligations, liabilities and Liens
(and all costs and expenses, including reasonable attorneys' fees incurred in
connection therewith), that Lender has sustained or incurred or may sustain or
incur in connection with any of the Collateral, or the enforcement, performance
or administration of the Loan Documents or as a consequence of any default by
Borrower in the performance or observance of any covenant or condition contained
in this Agreement or the Loan Documents, including without limitation, the
breach of any representation or warranty, any failure of Borrower to pay when
due (by acceleration or otherwise) any principal, interest, fee or any other
amount due hereunder or under the Note, the actions of any Affiliate pursuant to
any Lease, or the failure of any Lease to be or remain a Qualifying Lease, and
any failure of Borrower to comply with all applicable Requirements of Law
(collectively, "Claims") except to the extent of any Claims caused solely by
Lender's gross negligence or willful misconduct. Borrower's obligations under
this Section 2.7 shall be part of the Obligations and shall be secured by the
Collateral. Borrower agrees that upon written notice by Lender of the assertion
of any Claims, Borrower shall, at Lender's option, either assume full
responsibility for, or reimburse Lender for the reasonable costs and expenses
of, the defense thereof. Lender shall have no liability for consequential or
incidental damages of any nature. The provisions of this Section 2.7 shall
survive the termination of this Agreement and payment of the Obligations.
2.8 Use of Proceeds. The proceeds of the Advances hereunder shall be used
by Borrower only for the purposes and in the amounts described in Section 2.1
hereof, and no amounts repaid may be reborrowed.
2.9 Fees. Borrower shall pay Lender the fees described on Schedule 2.9
hereto in connection with this Agreement.
2.10 Lender's Expenses. Borrower agrees (a) to pay or reimburse Lender for
all its reasonable costs, fees, charges and expenses incurred or arising in
connection with the negotiation, review, preparation and execution of this
Agreement, the Loan Documents, any commitment or proposal letter, or any
amendment, supplement, waiver, modification to, or restructuring of this
Agreement, the Obligations or the other Loan Documents, including, without
limitation, reasonable legal fees and disbursements, expenses, document charges
and other charges and expenses of Lender, (b) to pay or reimburse Lender for all
its reasonable costs, fees, charges and expenses incurred in connection with the
administration of the Loans or the enforcement, protection or preservation of
any rights under or in connection with this Agreement or any other Loan
Documents, including, without limitation, reasonable legal fees and
disbursements, audit fees and charges, and all out-of-pocket expenses, (c) to
pay, indemnify, and to hold Lender harmless from, any and all recording and
filing fees and taxes and any and all liabilities with respect to, or resulting
from any delay in paying, stamp, excise and other taxes (excluding income and
franchise taxes and taxes of similar nature), if any, which may be payable or
determined to be payable in connection with the execution and delivery or
recordation or filing of, or consummation of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Agreement and the other Loan Documents.
All of the amounts described in this Section are referred to collectively as the
"Lender's Expenses", shall be payable upon Lender's demand, and shall accrue
interest at the Interest Rate in effect when such demand is made from five (5)
days after the date of
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demand until paid in full. All Lender's Expenses, and interest thereon, shall be
part of the Obligations and shall be secured by the Collateral. The agreements
in this Section 2.10 shall survive repayment of the Obligations. All Lender's
Expenses that are outstanding on any Borrowing Date shall be paid before or with
such advance. If Borrower has not paid to Lender the amount of all Lender's
Expenses billed to Borrower at least five (5) Business Days before such
Borrowing Date, Lender shall be authorized to retain from any Advance on such
Borrowing Date the amount of such Lender's Expenses that remain unpaid.
Borrower's obligation to pay Lender's Expenses shall not be limited by any
limitation on the amount of the Commitment that may be designated as available
for such purposes, and any amounts so designated shall be used to pay Lender's
Expenses accrued at the time of any Advance before any of Borrower's legal fees
or similar expenses.
2.11 Guaranty. The Guarantor shall unconditionally guarantee prompt payment
and performance of all the Obligations pursuant to the Guaranty, subject only to
the limitations expressed therein..
ARTICLE 3: COLLATERAL AND SECURITY AGREEMENT
3.1 Grant of Security Interest. Borrower (as debtor) hereby assigns to
Lender as collateral, and grants to Lender (as secured party) a continuing
security interest in and to, all of the Borrower's right, title and interest in
and to the following kinds and types of property, whether now owned or hereafter
acquired or arising, wherever located (collectively, the "Collateral"):
(a) All the equipment, goods and products of NTI and any and all
additions, substitutions, and replacements to or of any of the foregoing,
together with all attachments, components, parts, improvements, upgrades,
and accessions installed thereon or affixed thereto, in each case to the
extent that the purchase thereof by Borrower was financed with the proceeds
of Advances made by Lender under this Agreement ("Equipment").
(b) All general intangibles and intangible property constituting part
of, or provided by or through NTI in connection with, the Equipment,
including without limitation the software and software licenses, other
licenses, license rights, rights in intellectual property, computer
programming (including source codes, object codes and all other embodiments
of computer programming or information), warranties and indemnification
rights, in each case to the extent that the purchase thereof by Borrower
was financed with the proceeds of Advances made by Lender under this
Agreement ("General Intangibles"); and
(c) All proceeds any of the foregoing ("Proceeds").
3.2 Priority of Security Interests. The security interests granted by
Borrower to Lender are and shall be continuing and indefeasible first-priority
security interests in the Collateral, subject to no Liens except for Liens
permitted under Section 8.2 hereof.
3.3 Further Documentation; Pledge of Instruments. At any time and from time
to time, upon the written request of the Lender, and at the sole expense of the
Borrower, the Borrower shall promptly execute, deliver and record any documents,
instruments, agreements and amendments, and take all such further action, as the
Lender may reasonably deem desirable in obtaining the full benefits of this
Agreement and of the rights and powers herein granted, including, without
limitation, the filing
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of any financing statements or amendments under the UCC. The Borrower also
hereby authorizes the Lender to file any such financing statement or amendment
thereto, without the signature of the Borrower, or with a copy or telecopy of
the Borrower's signature, to the extent permitted by applicable law, or to
execute any financing statement or amendment thereof on behalf of the Borrower
as Borrower's attorney-in-fact. If any amount payable under or in connection
with any of the Collateral shall be or become evidenced by any promissory note
or other instrument or any certificated securities, such note, instrument or
certificate shall be immediately pledged and delivered to the Lender hereunder,
duly endorsed in a manner satisfactory to the Lender.
3.4 Further Identification of Collateral. Borrower shall furnish to the
Lender from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Lender may reasonably request, all in reasonable detail.
3.5 Remedies. Lender shall have all the rights and remedies of a secured
party under the UCC, and shall be entitled to exercise any and all remedies
available under Article 9 hereof or otherwise available at law or in equity upon
the occurrence of an Event of Default.
3.6 Standard of Care. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder,
Lender shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral. Lender shall be deemed to have exercised
reasonable care in the custody and preservation of any of the Collateral in its
possession if such Collateral is accorded treatment substantially equal to that
which Lender accords its own property, and no failure of Lender to preserve or
protect any rights with respect to such Collateral against prior parties, shall
be deemed a failure to exercise reasonable care in the custody or preservation
of such Collateral.
3.7 Advances to Protect Collateral. All insurance expense and all expenses
of protecting, storing, warehousing, insuring, handling, maintaining and
shipping the Collateral (including, without limitation, all rent payable by
Borrower to any landlord of any premises where any of the Collateral may be
located), and, any and all taxes incurred in connection with the foregoing shall
be borne and paid by Borrower. Lender may (but shall not be obligated to) make
advances to preserve, protect or obtain any of the Collateral, including
advances to cure defaults under any of the System Agreements or advances to pay
taxes, insurance and the like, and all such advances shall become part of the
Obligations owing to Lender hereunder and shall be payable to Lender on demand,
with interest thereon from the date of such advance until paid at the Default
Rate in effect on the date of such advance.
3.8 License to Use. Lender is hereby granted a license or other right to
use, without charge, Borrower's and Affiliate's labels, patents, copyrights,
rights of use of any name, trade secrets, tradenames, trademarks and advertising
matter, or any tangible or intangible property or rights of a similar nature,
solely as it pertains to the Collateral, in advertising for sale and selling any
Collateral, and Borrower's and Affiliate's rights under all licenses and
franchise agreements with respect to the Collateral shall inure to Lender's
benefit to the fullest extent permitted by applicable law.
ARTICLE 4: REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender as follows:
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4.1 Organization and Qualification. The Borrower and each Affiliate to
which any Equipment is leased is duly organized, validly existing and in good
standing as a corporation under the laws of its state of organization. Borrower
each Affiliate to which any Equipment is leased is duly qualified to do business
and in good standing in each jurisdiction in which the failure to receive or
retain such qualification would have a Material Adverse Effect.
4.2 Authority and Authorization. Borrower has all requisite corporate
right, power, authority and legal right to execute and deliver and perform its
obligations under this Agreement, to make the borrowings provided for herein,
and to execute and deliver and to perform its obligations under the Note.
Borrower's execution, delivery and performance of the Basic Agreements have been
duly and validly authorized by all necessary corporate proceedings on the part
of Borrower. Each Affiliate to which any Equipment is leased has all requisite
corporate right, power, authority and legal right to execute and deliver and
perform its obligations under the applicable Lease.
4.3 Execution and Binding Effect. This Agreement, the Note and all other
Basic Agreements have been or will be duly and validly executed and delivered by
the Borrower, and constitute or, when executed and delivered will constitute,
the legal, valid and binding obligations of Borrower enforceable in accordance
with their respective terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, receivership, moratorium or other laws
affecting creditors' rights generally.
4.4 Governmental Authorizations. Except for the consents identified on
Schedule 4.4 hereto (the "Required Consents"), no authorization, consent,
approval, license, exemption or other action by, and no registration,
qualification, designation, declaration or filing with, any Governmental
Authority (other than the filing of financing statements and continuation
statements) is or will be necessary in connection with execution and delivery of
this Agreement, the Note or any other Loan Documents by Borrower, or the
execution or performance of any Lease by any Affiliate, consummation of the
transactions herein or therein contemplated, performance of or compliance by
Borrower or any Affiliate of Borrower with the terms and conditions hereof or
thereof or the legality, validity and enforceability hereof or thereof.
4.5 Regulatory Authorizations. The Guarantor, Borrower and each Affiliate
to which any Equipment is leased, holds all authorizations, permits and licenses
required by the FCC or the PUC or any Communications Law for the use of the
Equipment, and all such Regulatory Authorizations are in full force and effect,
are subject to no further administrative or judicial review and are therefore
final. Lender will not solely by reason of the execution, delivery and
performance (other than the enforcement of remedies) of any of the Loan
Documents, be subject to the regulation or control of either the FCC or the PUC.
4.6 Material Agreement; Absence of Conflicts. The execution and delivery of
this Agreement, the Note and the other Loan Documents, the consummation of the
transactions herein or therein contemplated and the performance of or compliance
with the terms and conditions hereof or thereof by Borrower will not (a)
materially violate any applicable Law; (b) conflict with or result in a material
breach of or a default under the Organizational Documents of the Borrower or any
agreement or instrument to which the Guarantor, Borrower or each Affiliate to
which any Equipment is leased, is a party or by which it and its properties is
bound; or (c) result in the creation or imposition of any Lien upon any property
(now owned or hereafter acquired) of Borrower except as otherwise contemplated
by this Agreement.
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4.7 No Restrictions. Borrower is not a party or subject to any contract,
agreement, or restriction in its Organizational Documents that materially and
adversely affects its business or the use or ownership of any of its properties
or operation of its business. Neither of the Guarantor nor the Borrower is a
party or subject to any contract or agreement which restricts its right or
ability to incur Indebtedness, other than the Indenture or as set forth on
Schedule 4.7, none of which prohibit the Borrower's execution of or compliance
with this Agreement. Borrower has not agreed or consented to cause or permit in
the future (upon the happening of a contingency or otherwise) any of the
Collateral, whether now owned or hereafter acquired, to be subject to a Lien
that is not a Permitted Encumbrance.
4.8 Financial Statements. Borrower has furnished to Lender the most recent
annual or quarterly financial statements (on a consolidated basis) of GST
Telecommunications, the direct parent company of the Guarantor and the indirect
parent company of Borrower. Borrower has also furnished Lender with a balance
sheet and income statement of the Borrower as of November 30, 1996, certified by
a Responsible Officer of the Borrower, consisting of a balance sheet, attached
as Schedule 4.8 hereof. Such financial statements (including, in the case of GST
Telecommunications only, the notes thereto) present fairly the financial
condition of GST Telecommunications and Borrower, as the case may be, as of the
end of such fiscal periods and the results of their respective operations and
the changes in their financial position for the fiscal period then ended, all in
conformity with GAAP applied on a basis consistent with that of the preceding
fiscal period, except that, in the case of the Borrower's financial statements,
no notes to financials are contained in such financial statements. Any
projections and pro forma financial statements delivered by Borrower to Lender
were prepared in good faith, based on reasonable assumptions, including without
limitation, the cost of capital. Borrower agrees and Lender acknowledges that
such projections will be based on reasonable assumptions at the time of their
preparation, but that there can be no assurance that such projections will be
realized or that actual events will not result in variations from such
projections.
4.9 Financial Accounting Practices. Borrower has made and kept books,
records and accounts which, in reasonable detail, accurately and fairly reflect
its respective transactions and dispositions of its assets, and Borrower shall
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (a) transactions are executed in accordance with
management's general or specific authorization, (b) transactions are recorded as
necessary (i) to permit preparation of financial statements in conformity with
GAAP and (ii) to maintain accountability for assets, (c) access to assets is
permitted only in accordance with management's general or specific authorization
and (d) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect to
any differences.
4.10 Accurate and Complete Disclosure. No representation or warranty made
by Borrower under this Agreement and no statement made by Borrower or by any
Owner or Guarantor in any financial statement, certificate, report, exhibit or
document furnished by Borrower or any Owner or Guarantor to Lender pursuant to
or in connection with this Agreement (including without limitation any filings
with the Securities Exchange Commission, the FCC or the PUC) is or was false or
misleading as of the date made in any material respect (including by omission of
material information necessary to make such representation, warranty or
statement not misleading) in light of the circumstances in which it was made.
There are no facts that evidence or create a Material Adverse Effect, or, so far
as the Borrower can now foresee, will evidence or create a Material Adverse
Effect, which has not been set forth in the financial statements referred to in
Section 4.8 hereof or otherwise disclosed herein or in writing to the Lender
prior to the First Borrowing Date.
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4.11 No Event of Default; Compliance with Material Agreements. No event has
occurred and is continuing and no condition exists which constitutes a Default
or an Event of Default after giving effect to the Advance to be made on the
First Borrowing Date. As of the date hereof, Borrower is not in violation of any
term of its material agreements or instruments to which it is a party or by
which it or its properties is bound.
4.12 Litigation. Except as set forth in Schedule 4.12, there is no pending
action, suit or threatened proceeding by or before any Governmental Authority
against or affecting Borrower or any of its properties, rights or licenses which
if adversely decided would have a Material Adverse Effect.
4.13 Rights to Property; Intellectual Property. Borrower has good and
marketable title, subject only to the Permitted Encumbrances, to the Collateral
and to all personal and real property purported to be owned by it as reflected
in the most recent balance sheet referred to in Section 4.8 hereof (except as
sold or otherwise disposed of in the ordinary course of business as no longer
used or useful in the conduct of the business). Borrower owns or possesses the
right to use all patents, trademarks, service marks, trade names, copyrights,
know-how, franchises, software and software licenses necessary for the operation
of its business, free from burdensome restrictions.
4.14 Financial Condition. The Borrower's financial condition is accurately
described in the Certificate of Financial Condition executed by Borrower
pursuant hereto.
4.15 Taxes. Borrower's federal tax identification number is set forth on
Schedule 1 hereto. All tax returns required to be filed by Borrower have been
properly prepared, executed and filed, and all taxes, assessments, fees and
other governmental charges upon Borrower or upon any of its respective
properties, incomes, sales or franchises which are shown to be due and payable
thereon have been paid, other than taxes or assessments the validity or amount
of which Borrower is contesting in good faith. Any reserves and provisions for
taxes on the books of Borrower are adequate for all open years and for its
current fiscal period.
4.16 No Material Adverse Change. Since the date of the financial statements
referenced in Section 4.8, there has been no Material Adverse Change.
4.17 No Regulatory Event. No Regulatory Event has occurred and is
continuing.
4.18 Trade Relations. There exists no actual or threatened termination,
cancellation or limitation of, or any modification or change in, the business
relationship between Borrower or any Affiliate to which any Equipment is leased,
and any Carrier, any labor organizations, any customer or any group thereof,
which individually or in the aggregate, if terminated, cancelled, or so limited
or modified and would have a Material Adverse Effect on the business of Borrower
or the Guarantor, or with any material Supplier, and there exists no present
condition or state of facts or circumstances which would have a Material Adverse
Effect on or prevent Borrower from conducting its business after the
consummation of the transaction contemplated by this Agreement.
4.19 No Brokerage Fees. No brokerage or other fee, commission or
compensation is to be paid by Borrower to any Person in connection with the
loans to be made hereunder. Borrower hereby indemnifies Lender against any
claims brought against Lender for brokerage fees or commissions of any Person
based on an agreement with Borrower and agrees to pay all expenses incurred by
Lender
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in connection with the defense of any action or proceeding brought to collect
any such brokerage fees or commissions.
4.20 Margin Stock; Regulation U. Borrower is not engaged principally, or as
one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock. The making of the Advances and
the use of the proceeds thereof will not violate Regulations G, U or X of the
Board of Governors of the Federal Reserve System.
4.21 Investment Company; Public Utility Holding Company. Borrower is not an
"investment company" or a "company controlled by an investment company" within
the meaning of the Investment Company Act of 1940, as amended, or a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company," within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
4.22 Personal Holding Company; Subchapter S. Borrower is not a "personal
holding company" as defined in Section 542 of the Code, and Borrower is not a
"Subchapter S" corporation within the meaning of the Code.
4.23 ERISA. (i) With respect to any Plan, to the Borrower's knowledge,
there is no Reportable Event currently under consideration by the PBGC which may
reasonably result in any material liability to the PBGC with respect to any
Plan, (ii) no Plan has been terminated, (iii) no trustee has been appointed by
any United States District Court to administer any Plan, (iv) the PBGC has not
instituted proceedings to terminate any Plan or to appoint a trustee to
administer any such Plan, (v) neither the Borrower nor any Affiliate to which
Equipment is being leased has withdrawn, completely or partially, from any Plan
and (vi) neither the Borrower nor any Affiliate to which Equipment is being
leased has incurred secondary liability for withdrawal liability payments under
any Plan.
4.24 Environmental Warranties. Borrower is in compliance with all
Environmental Laws applicable to Borrower or its business or to the real or
personal property owned, leased or operated by Borrower. Borrower has not
received notice of, and is not aware of, any violations or alleged violations,
or any liability or asserted liability, under any such Environmental Laws, with
respect to Borrower or its business or its properties.
4.25 Security Interests. The provisions of Article 3 hereof are effective
to create in favor of Lender a legal, valid and enforceable Lien on or security
interest in all of the Collateral, and, when the recordings and filings
described on Schedule 4.25 hereto have been effected in the public offices
listed on said Schedule 4.25 (in each case, as such Schedule may be amended from
time to time), this Agreement will create a perfected first-priority security
interest in all right, title, estate and interest of Borrower in the Collateral,
and subject to no other Liens except for Permitted Encumbrances. All action
necessary or desirable to protect and perfect such security interest in each
item of the Collateral will have been duly taken prior to the First Borrowing
Date. The recordings and filings shown on said Schedule 4.25 (as such Schedule
may be amended from time to time) are all the actions necessary or advisable in
order to establish, protect and perfect the security interest of Lender in the
Collateral granted hereunder.
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4.26 Place of Business. The chief executive offices of Borrower and each
Affiliate to which Equipment will be leased are identified on Schedule 4.26
hereto (as such Schedule may be amended from time to time). The Borrower's
principal place of business in the state(s) where the Equipment is to be located
is identified on Schedule 4.26 hereto. The Borrower's records concerning the
Collateral are kept at its principal place of business.
4.27 Location of Collateral. The Collateral is and will be kept at the
locations identified on Schedule 4.26 hereto (as such Schedule may be amended
from time to time) or such other locations as may be permitted under Section
8.12.
4.28 Clear Title To Collateral. The Borrower is the sole owner of each item
of the Collateral, having good and marketable title thereto, free and clear of
any and all Liens, claims, or rights of others, except for the security interest
granted herein to the Lender and the other Permitted Encumbrances.
4.29 Assumed Names. Except as set forth on Schedule 4.29 hereto, neither
Borrower nor any Affiliate to which any Equipment is leased conducts business
under any assumed names or trade names, and has not conducted business under any
other names, or any assumed names or trade names, at any time prior to the date
hereof.
4.30 Transactions with Affiliates. No Affiliate and no officer, director or
Owner of Borrower or any individual related by blood, marriage, adoption or
otherwise to any such officer, director or Owner, or any Person in which any
such officer, director, Owner or individual related thereto owns any beneficial
interest, is a party to any agreement, contract, commitment or transaction with
the Borrower or has any material interest in any material property used by the
Borrower, except for Qualifying Leases or as set forth on Schedule 4.30 hereto.
4.31 NTI Purchase Agreement. The NTI Purchase Agreement has been duly
executed and delivered by the Borrower and NTI, is in full force and effect, and
a true, correct and complete copy thereof (including all annexes, attachments
and amendments thereto) has been delivered to Lender, and there are no other
side letters, waivers or other agreements affecting the terms thereof.
ARTICLE 5: CONDITIONS OF CLOSING
On or before the Closing Date, the following conditions shall have been
satisfied:
5.1 Closing Certificates. A certificate of Borrower signed by a duly
authorized Responsible Officer, certifying as to (i) true copies of
Organizational Documents of Borrower in effect on such date; (ii) true copies of
all corporate action taken by Borrower relative to this Agreement, the Note and
the other Loan Documents; and (iii) the names, true signatures and incumbency of
the Responsible Officers of Borrower authorized to execute and deliver this
Agreement, the Note and the other Loan Documents.
5.2 Opinion of Counsel. Lender shall have received a written opinion of
counsel for Borrower and the Guarantor, substantially in the form of Exhibit C
hereto, dated as of the Closing Date.
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5.3 Closing Documents. Lender shall have received the following documents,
all in form and substance satisfactory to Lender:
(a) Agreement. This Agreement, duly executed by Borrower;
(b) Note. The Note, duly executed by Borrower;
(c) Financing Statements. All UCC-1 financing statements necessary to
perfect the Liens granted hereby will be duly executed by Borrower and duly
recorded in all the offices identified on Schedule 4.25 hereto in
accordance with Section 6.2(k) hereof;
(d) NTI Purchase Agreement. A copy of the executed NTI Purchase
Agreement;
(e) Insurance. Policies and certificates of insurance required by
Section 7.7, accompanied by evidence of the payment of the premiums
therefor;
(f) Financial Statements. The financial statements described in
Section 4.8 hereof;
(g) Balance Sheet. A balance sheet of the Borrower, dated as of the
end of the month preceding the Closing Date, certified by a Responsible
Officer as fairly presenting the financial condition of the Borrower.
(h) Certificate of Financial Condition. A Certificate of Financial
Condition, duly executed by a Responsible Officer of the Borrower.
(i) Pre-Closing Lien Searches. Lien searches from all jurisdictions
reasonably determined by Lender to be appropriate, effective as of a date
reasonably close to the Closing Date, reflecting no other Liens (other than
Permitted Encumbrances) on any of the Collateral.
(j) Guaranty. The Guaranty, duly executed by Guarantor, substantially
in the form of Exhibit F.
(k) Leases. Copies of all executed Leases, each of which must be a
Qualifying Lease in substantially the form of Exhibit E hereto.
(l) Lease Schedule. An updated Schedule 4.30, which contains an
accurate list of all executed and proposed Leases and their status.
ARTICLE 6: CONDITIONS OF LENDING
6.1 Conditions for Initial Advance. On or before the First Borrowing Date,
the following conditions shall have been met:
(a) Post-Closing Lien Searches. Lender shall have received
satisfactory results of Lien searches in all jurisdictions reasonably
determined by Lender to be appropriate, reflecting the filing of financing
statements in favor of Lender pursuant hereto and no other Liens other than
Permitted Encumbrances in accordance with Section 6.2(k) hereof.
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(b) Required Consents. Lender shall have received satisfactory
evidence of the Borrower's obtaining the Required Consents.
(c) Fees. Lender shall have received the fee(s) described in Section
2.9 hereof.
(d) Lease Schedule. An updated Schedule 4.30, which contains an
accurate list of all executed and proposed Leases and their status.
6.2 Conditions for All Advances. The obligation of Lender to make any
Advance hereunder is subject to the Borrower's performance of its obligations
hereunder on or before the date of such Advance, and to the satisfaction of the
following further conditions on or before the Borrowing Date for any Advance,
including the first Advance:
(a) Filings, Registrations and Recordings. Any financing statements or
other recordings required hereunder shall have been properly filed,
registered or recorded in each office in each jurisdiction required in
order to create in favor of the Lender a perfected first- priority Lien on
the Collateral, subject to no other Lien; the Lender shall have received
acknowledgment copies of all such filings, registrations and recordations
stamped by the appropriate filing officer; and Lender shall have received
results of searches of such filing offices, and satisfactory evidence that
any other Liens (other than Permitted Encumbrances) on the Collateral have
been duly released, that all necessary filing fees, recording fees, taxes
and other expenses related to such filings, registrations and recordings
have been paid in full.
(b) Borrowing Certificate. Lender shall have received a duly executed
Borrowing Certificate in the form of Exhibit B, including a detailed
itemization of all costs of goods and services to be paid with the proceeds
of the Advance and accompanied by supporting documentation reasonably
satisfactory to Lender.
(c) Reporting Requirements. Borrower shall have provided Lender with
all relevant reports and information required under Article 7 hereof.
(d) No Regulatory Event. No Regulatory Event (in either Borrower's or
Lender's reasonable determination) shall have occurred and be continuing or
would exist upon the consummation of transactions to occur on such
Borrowing Date.
(e) No Default or Event of Default. No Default or Event of Default
shall have occurred and be continuing or would exist upon the consummation
of transactions to occur on such Borrowing Date.
(f) No Material Adverse Change. No Material Adverse Change shall have
occurred, or would occur after giving effect to such Advance, since the
date of the last financial statements delivered to Lender pursuant to
Section 4.8 or 7.1 hereof.
(g) Representations and Warranties. The representations and warranties
contained in Article 4 hereof shall be true in all material respects on and
as of the date of each such Advance hereunder.
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(h) Lender's Expenses. All closing costs, and other Lender's Expenses
shall have been paid in full, (or shall be paid first from such Advance as
provided in Section 2.3 hereof).
(i) Details, Proceedings and Documents. All legal details and
proceedings in connection with the transactions contemplated by this
Agreement shall be reasonably satisfactory to Lender and Lender shall have
received all such counterpart originals or certified or other copies of
such documents and proceedings in connection with such transactions, in
form and substance reasonably satisfactory to Lender, as Lender may from
time to time request.
(j) Lease Schedule. An updated Schedule 4.30, which contains an
accurate list of all executed and proposed Leases and their status.
(k) Post-Closing Items. The post-closing items described on Schedule
6.2 hereto, if any, shall have been completed in the time permitted, and
Borrower shall have provided Lender with satisfactory evidence thereof.
6.3 Affirmation of Representations and Warranties. Any Borrowing
Certificate or other request for any Advance hereunder shall constitute a
representation and warranty that (a) the representations and warranties
contained in Article 4 hereof are true and correct in all material respects on
and as of the date of such request with the same effect as though made on and as
of the date of such request and (b) on the date of such request no Default or
Event of Default has occurred and is continuing or exists or will occur or exist
after giving effect to such Advance (for this purpose such Advance being deemed
to have been made on the date of such request). Failure of Lender to receive
notice from Borrower to the contrary before such Advance is made shall
constitute a further representation and warranty by Borrower that (x) the
representations and warranties of Borrower contained in the first sentence of
this Section 6.3 are true and correct on and as of the date of such Advance with
the same effect as though made on and as of the date of such Advance and (y) on
the date of the Advance no Default or Event of Default has occurred and is
continuing or exists or will occur or exist after giving effect to such Advance.
6.4 Deadline for Funding Conditions. Lender shall have no obligation to
make any Advances hereunder if all of the conditions set forth in Article 5 and
in Sections 6.1 and 6.2 hereof have not been fully satisfied or waived by
Lender.
ARTICLE 7: AFFIRMATIVE COVENANTS
Borrower hereby agrees that as long as the commitment hereunder remains in
effect, the Note remains outstanding or unpaid or any other amount is owing to
Lender hereunder or under any of the Loan Documents, Borrower shall keep and
perform fully each and all of the following covenants:
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7.1 Reporting and Information Requirements.
(a) Annual and Other Reports. Promptly after GST Telecommunications
files its Form 10-K, Form 10-Q or any other report or registration
statement containing financial information with the Securities and Exchange
Commission, Borrower shall furnish or cause to be furnished to Lender such
report or registration statement. Each Form 10-K of GST Telecommunications
delivered to Lender shall contain the requisite consolidated financial
statements of GST Telecommunications and contain a report of an independent
public accounting firm of recognized national standing selected by GST
Telecommunications and reasonably satisfactory to Lender, which report
shall be without qualification that causes or would reasonably be expected
to cause a Material Adverse Effect. At such time as Borrower is required to
deliver to Lender any Form 10-K filed by GST Telecommunications with the
Securities and Exchange Commission, Borrower shall also provide Lender with
separate unaudited annual financial statements of Borrower as of the close
of the same annual period. At such time as Borrower is required to deliver
to Lender any Form 10-Q filed by GST Telecommunications with the Securities
and Exchange Commission, Borrower shall also provide Lender with separate
unaudited quarterly financial statements of Borrower consisting of balance
sheet and related statement of income, retained earnings and changes in
financial position as of the close of the same quarterly period.
(b) Compliance Certificates. Within sixty (60) days after the end of
each Calendar Quarter (other than fiscal year end), Borrower shall deliver
to Lender a certificate dated as of the end of such Calendar Quarter,
signed on behalf of Borrower by a Responsible Officer of Borrower (i)
stating that as of the date thereof no Event of Default has occurred and is
continuing or exists, or if an Event of Default has occurred and is
continuing or exists, specifying in detail the nature and period of
existence thereof and any action with respect thereto taken or contemplated
to be taken by Borrower; and (ii) stating that the signer has personally
reviewed this Agreement and that such certificate is based on an
examination made by or under the supervision of the signer sufficient to
assure that such certificate is accurate.
(c) Projections. If requested by Lender, Borrower shall deliver to
Lender within thirty (30) days prior to the beginning of each calendar year
projections of its anticipated income, expenses, cash flow, assets and
liabilities for each month of such calendar year, prepared in good faith
and in a manner and format consistent with other financial statements
provided by Borrower to Lender. Such projections shall present fairly the
anticipated financial condition of the Borrower and shall be certified by a
Responsible Officer of the Borrower. Borrower agrees and Lender
acknowledges that such projections will be based on reasonable assumptions
at the time of their preparation but that there can be no assurance that
such projections will be realized or that actual events will not result in
variations from such projections. Upon Lender's request, or following any
material change in the Borrower's financial condition or business, such
reports shall be provided to Lender quarterly, within thirty (30) days
prior to the beginning of each Calendar Quarter.
(d) Other Reports and Information. Promptly upon their becoming
available to Borrower, Borrower shall deliver to Lender copies of (i) all
regular or special reports or effective registration statements which
Borrower shall file with Governmental Authorities, the FCC or the PUC (or
any successor thereto) or any securities exchange, (ii) financial
statements, material reports, and other information distributed by Borrower
to its creditors or
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the financial community in general, and (iii) all press releases issued by
or concerning Borrower or the System.
(e) Further Information. Borrower will promptly furnish to Lender such
other information (including any report by independent auditors) in such
form as Lender may reasonably request.
7.2 Other Notices. Promptly upon a Responsible Officer of Borrower becoming
aware of any of the following, Borrower shall give Lender notice thereof,
together with a written statement of a Responsible Officer of Borrower setting
forth the details thereof and any action with respect thereto taken or
contemplated to be taken by Borrower:
(a) a Default or Event of Default;
(b) any Material Adverse Change;
(c) a material default or breach by Borrower or any Affiliate which is
leasing any Equipment under any other obligation the default under which
would cause a Material Adverse Effect, to which it is a party or by which
it or its properties is bound;
(d) any event that the Borrower reasonably determines would
constitute a Regulatory Event with respect to the Borrower or any
Affiliate which has leased any Equipment;
(e) the commencement, existence or threat of any proceeding by or
before any Governmental Authority against Borrower which, if adversely
decided, would have a Material Adverse Effect;
(f) Borrower's receipt of any notice of violation of, or liability
under, any Environmental Laws affecting Borrower or any Affiliate which has
leased any Equipment or any of its properties;
(g) the failure of any Lease to be or remain a Qualifying Lease;
(h) any Change in Control or any material change in the management of
Borrower or the Guarantor;
(i) Borrower's entering into any transaction with any Affiliate of
Borrower other than (a) the Management Services Agreement or (b) any
Qualifying Lease; or
(j) any change in Borrower's Certificate of Incorporation or By-Laws.
7.3 Notice of Pension-Related Events. The Borrower shall promptly furnish
Lender with written notice upon the receipt by the Borrower or the administrator
of any Plan of any notice, correspondence or other communication from the PBGC,
the IRS, the Secretary of Treasury, the Department of Labor, or any other
Person, as the case may be, relating to (i) any Reportable Event, (ii) any
funding deficiency with respect to any Plan, (iii) any liability, either primary
or secondary, with respect to complete or partial withdrawal from any Plan, (iv)
proceedings to terminate any Plan
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or (v) the appointment of a trustee for any Plan. Such notice shall be
accompanied by any pertinent documents including, but not limited to, the
relevant notice, correspondence or other communication and a statement of a
Responsible Officer of the Borrower describing the event or the action taken and
the reasons therefor.
7.4 Inspection Rights. Borrower shall upon reasonable notice permit such
persons as Lender may designate to visit and inspect the Collateral or any other
properties of Borrower, to examine its books and records and take copies and
extracts therefrom and discuss its respective affairs with its officers,
employees and independent engineers at such times and as often as Lender may
reasonably request. Borrower hereby authorizes such officers, employees, and
independent engineers to discuss with Lender the affairs of Borrower.
7.5 Preservation of Corporate Existence and Qualification. Borrower and
each Affiliate which leases any Equipment shall maintain its existence, good
standing and rights in full force and effect in its jurisdiction of
organization. Borrower shall qualify to do business and remain qualified and in
good standing and shall obtain all necessary authorizations to do business in
each jurisdiction in which failure to receive or retain such would have a
Material Adverse Effect.
7.6 Continuation of Business. Borrower and any Affiliate which leases any
Equipment shall continue to engage solely in the business described on Schedule
1 hereto, and shall acquire and maintain in full force and effect all rights,
privileges, franchises and licenses necessary for the operation and maintenance
of the System (including, without limitation any license or authorization
required by the FCC or any PUC).
7.7 Insurance.
(a) Borrower shall provide and maintain or cause to be maintained at
all times insurance in such forms and covering such risks and hazards and
in such amounts and with an insurance corporation with a Best rating of "A"
or above, licensed to do business in the states where the System and the
Borrower are located, including coverage of all leased Equipment, as shown
on Schedule 7.7 hereto, and otherwise as may be required by the Security
Documents.
(b) Borrower shall cause (i) all physical damage insurance policies to
contain a lender's or mortgagee's loss payable provision acceptable to
Lender with respect to the Collateral, and (ii) all such insurance policies
to provide that no assignment, cancellation, modification, reduction in
amount or adverse change in coverage thereof shall be effective until at
least thirty (30) days after receipt by Lender of written notice thereof,
(iii) all such insurance policies to insure the interests of Lender with
respect to the Collateral regardless of any breach of or violation by
Borrower of any warranties, declarations or conditions contained therein
and (iv) all such insurance policies to provide that Lender shall have no
obligation or liability for premiums, commissions, assessments or calls in
connection with such insurance. Lender shall be under no obligation to
verify the adequacy or existence of any insurance coverage. Borrower shall
furnish Lender copies of, or acceptable certificates with respect to, all
such policies prior to the Closing Date, and shall provide to Lender, at
least thirty days prior to each policy expiration date, evidence of the
insurance being maintained by Borrower in compliance with this Section
7.7(b).
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(c) If the Collateral is partially or totally damaged or destroyed,
Borrower shall give prompt notice to Lender, and all insurance proceeds,
less the costs of collection thereof, shall be paid to or retained by
Lender. Settlements, adjustments or compromises of any claims for loss,
damage or destruction to the Collateral shall be made by Borrower and
Lender as long as no Event of Default has occurred and is continuing, and
otherwise shall be made solely by Lender. Borrower hereby authorizes and
directs any affected insurance company to pay such proceeds directly to
Lender, and to rely on Lender's statement as to whether an Event of Default
has occurred. Borrower shall pay all costs of collection of insurance
proceeds payable on account of such damage or destruction. If no Default or
Event of Default has occurred and is continuing on the date the Collateral
is partially or totally damaged or destroyed, Lender shall make available
to Borrower the proceeds of any physical damage insurance actually paid to
Lender in respect of such damage or destruction of the Collateral (after
deducting therefrom any sums retained by Lender in reimbursement for
Lender's costs of collection) to pay the cost of restoration, and Borrower
shall proceed promptly with the work of restoration of the Collateral and
shall pursue the work of restoration diligently to completion. Any
insurance proceeds remaining after completion of work or restoration shall
be paid over to Borrower. Upon completion of any restoration, Borrower
shall deliver to Lender a certificate stating that the restoration has been
duly completed and accounting for the use of any insurance proceeds in such
restoration. If any Default or Event of Default has occurred and is
continuing either on the date of such damage or destruction or on the date
such insurance proceeds are paid, or if any Default or Event of Default
shall occur prior to completion of such work of restoration, then Lender,
at its option, may apply such insurance proceeds in payment of any of the
Obligations, in such order as Lender may elect in its sole discretion.
7.8 Payment of Taxes, Charges, Claims and Current Liabilities. Borrower
shall pay or discharge:
(a) on or prior to the date on which penalties thereto accrue, all
taxes, assessments and other government charges or levies imposed upon it
or any of its properties or income or any Equipment, Software or other
Collateral (including such as may arise under Section 4062, Section 4063 or
Section 4064 of ERISA, or any similar provision of law);
(b) on or prior to the date when due, all lawful claims of
materialmen, mechanics, carriers, warehousemen, and other like persons
which could result in creation of a Lien upon any such property;
(c) on or prior to the date when due, all other lawful claims which,
if unpaid, might result in the creation of a Lien upon any such property
(other than Permitted Encumbrances) or which, if unpaid, might give rise to
a claim entitled to priority over general creditors of Borrower in a case
under Title 11 (Bankruptcy) of the United States Code, as amended, or in
any insolvency proceeding or dissolution or winding-up involving Borrower
or any Affiliate which leases any Equipment; and
(d) all other material current liabilities of Borrower so that none is
overdue more than sixty (60) days.
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Notwithstanding the foregoing, Borrower shall be entitled to contest or
appeal the requirements of any Law or Governmental Authority or the payment of
any tax, assessment, charge, levy or claim, or any judgment entered against the
Borrower (collectively, in this Section 7.8, the "requirements"), and such
occurrence shall not constitute a Default or an Event of Default as long as (i)
such requirements are being contested in good faith by appropriate proceedings
diligently conducted; (ii) Borrower has given Lender written notice of such
requirements and its intent to contest them, with supporting reasons for such
contest, before the addition of any interest or penalties that may accrue on
such requirements; (iii) Borrower maintains adequate cash reserves and makes
other appropriate provisions as may be required by GAAP to provide for any
liability arising from such requirements; (iv) the contesting of, or failure to
comply with, such requirements does not in any way jeopardize the Borrower's
ability or authority to operate all or any part of the Collateral or the
continuing priority of Lender's security interests in the Collateral; (vi) the
contesting of, or failure to comply with, such requirements does not have a
Material Adverse Effect; and (vii) any foreclosure, attachment, execution, sale
or similar proceeding against the Borrower or any of its properties in
connection with any such requirements is duly stayed by posting of a bond or
security deposit or by other action sufficient under applicable law to stay such
foreclosure, attachment, execution, sale or other proceedings.
7.9 Financial Accounting Practices. Borrower shall make and keep books,
records and accounts which, in reasonable detail, accurately and fairly reflect
its transactions and dispositions of its assets and maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(a) transactions are executed in accordance with management's general or
specific authorization, (b) transactions are recorded as necessary (i) to permit
preparation of financial statements in conformity with GAAP and (ii) to maintain
accountability for assets, (c) access to assets is permitted only in accordance
with management's general or specific authorization and (d) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
7.10 Compliance with Laws. Borrower shall comply and shall cause any
Affiliate which leases any Equipment to comply in all respects with all Laws
applicable to Borrower or such Affiliate, provided that Borrower shall not be
deemed to be in violation of this Section 7.10 as a result of any failure to
comply which would not result in any liability or exposure to Lender or any
fines, penalties, injunctive relief or other civil or criminal liabilities
which, in the aggregate, would have a Material Adverse Affect on the business,
operations or financial condition of Borrower or such Affiliate or the ability
of Borrower or such Affiliate to perform its obligations under this Agreement,
or any Lease, or the Note.
7.11 Use of Proceeds. Borrower shall use the proceeds of Advances hereunder
only as set forth in Section 2.1 hereof.
7.12 Government Authorizations; Regulatory Authorizations, Etc. Borrower
and each Affiliate which is leasing any Equipment shall at all times obtain and
maintain in force all Regulatory Authorizations and all other authorizations,
permits, consents, approvals, licenses, exemptions and other actions by, and all
registrations, qualifications, designations, declarations and other filings
with, any Governmental Authority necessary in connection with execution and
delivery of this Agreement, or any Lease, or the Note, consummation of the
transactions herein or therein contemplated, performance of or compliance with
the terms and conditions hereof or thereof or to ensure the legality, validity
and enforceability hereof or thereof.
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7.13 Contracts and Franchises. Borrower shall comply with all agreements or
instruments to which it is a party or by which it or any of its properties (now
owned or hereafter acquired) may be subject or bound and shall maintain any and
all franchises it may have or hereafter acquire, provided that Borrower shall
not be deemed to be in violation of this Section 7.13 as a result of any failure
to comply with any agreement if such failure would not have Material Adverse
Effect.
7.14 Consents. Borrower shall obtain Landlord's Consents for each location
identified under Schedule 4.26 within 30 days following the Closing Date and
will use its best efforts to obtain such other third party consents (which
efforts shall not require the payment of any amounts to such third party) as
Lender shall reasonably request to protect its Liens and its access to the
Collateral. Borrower's failure to obtain a Landlord's Consent from a particular
owner/landlord, sublessor and/or licensor of any real property where any of the
Collateral is to be located shall not constitute a Default or an Event of
Default if Guarantor agrees in writing to indemnify Lender against all costs and
expenses (including reasonable attorney's fees and expenses) incurred by Lender
in any action by Lender against such owner/landlord, sublessor and/or licensor
to enforce or protect Lender's rights in the Collateral.
7.15 Construction and Storage. The Collateral shall be installed and
equipped in full compliance with the Requirements of Law affecting the
Collateral except to the extent a failure to so comply would not have a Material
Adverse Effect on the construction or operation of the Collateral. All Equipment
financed with the proceeds of the Loan shall be safeguarded and stored until
installed in appropriate storage facilities owned or leased by Borrower. In the
event of any cessation of construction for more than fifteen (15) successive
calendar days, Borrower shall make adequate provision, reasonably acceptable to
Lender, for the protection of all Collateral stored on site against
deterioration, loss or damage.
7.16 Upgrade NTI Equipment. Borrower shall update or cause to be updated
the software used with any Equipment with software customarily used in equipment
of the same type as such Equipment within two releases of the most current batch
change supplement release. Borrower shall maintain the Equipment in good working
order and shall upgrade its functionality to include batch change supplements
releases generally available to NTI customers and batch change supplements
upgrades included in the original purchase price of the NTI Purchase Agreement
in the form in effect on the Closing Date.
ARTICLE 8: NEGATIVE COVENANTS
Borrower hereby agrees that so long as the Commitment hereunder remains in
effect or the Note remains outstanding and unpaid or any other amount is owing
to Lender hereunder or under any of the Loan Documents, Borrower shall not
directly or indirectly without prior written consent of Lender, do or permit to
exist any of the following:
8.1 Additional Indebtedness. Create, incur, assume or suffer to exist at
any one time any Indebtedness other than any Indebtedness (i) owed by any
Affiliate of the Borrower and (ii) described in Schedule 8.1 hereto.
8.2 Restrictions on Liens and Sale of Collateral. Create or suffer to exist
any Lien on the Collateral, or any part thereof, whether superior or subordinate
to the Lien of the Security Documents,
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or assign, convey, sell or otherwise dispose of or encumber its interest in the
Collateral, or any part thereof (including, without limitation, execution of any
lease), nor permit any such action to be taken, except for the following
permitted dispositions and encumbrances (the "Permitted Encumbrances"): (i) the
Lien created hereby and any purchase money Liens in favor of NTI created by the
NTI Purchase Agreement; (ii) Liens for taxes not yet due, or which are being
contested in good faith and by appropriate proceedings in accordance with
Section 7.8 hereof; (iii) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business which
are overdue for a period not longer than sixty (60) days or which are being
contested in good faith and by appropriate proceedings in accordance with
Section 7.8 hereof; (iv) pledges or liens in connection with workers'
compensation, unemployment insurance and other social security legislation; (v)
deposits to secure the performance of bids, trade contracts (other than for
borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business; (vi) easements, rights-of-way, restrictions and
other similar encumbrances that are not substantial in amount, and which do not
in any case materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the business of Borrower; (vii) judgment
liens with respect to which execution has been stayed within ten (10) days by
appropriate judicial proceedings and the posting of adequate security which may
not be any of the Collateral; (viii) Qualifying Leases; and (ix) specific liens,
if any, identified on Schedule 8.2 hereto.
8.3 Limitation on Contingent Obligations. Agree to, or assume, guarantee,
endorse or otherwise in any way be or become responsible or liable for, directly
or indirectly, any Contingent Obligation except for (i) those created or
contemplated by the Loan Documents, and (ii) Contingent Obligations in respect
of any Affiliate of the Borrower.
8.4 Fees and Commissions. Without Lender's prior written consent, which
will not be unreasonably withheld, obligate itself to pay fees, expenses and/or
commissions (other than management fees paid in the ordinary course of business)
in connection with any sale of equity interests, placement of debt or other
financial transaction with any entity other than the Lender or an Affiliate of
the Lender.
8.5 Prohibition of Mergers, Acquisitions, Name, Office or Business Changes,
Etc.
(a) Enter into or become the subject of, any transaction of merger,
acquisition or consolidation or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, transfer or
otherwise dispose of, in one transaction or a series of transactions, any
of the Collateral.
(b) Change its name or corporate structure without giving Lender at
least thirty (30) days advance written notice of such change, and ensuring
that any steps that Lender may deem necessary to continue the perfection
and priority of Lender's security interests in the Collateral shall have
been taken.
(c) Change the fiscal year end of Borrower from September 30, except
with the prior written consent of Lender, which consent shall not be
unreasonably withheld.
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(d) Amend, restate or otherwise modify, or violate any terms of, its
Organizational Documents without the prior written consent of Lender, which
consent will not be unreasonably withheld.
(e) Conduct any business other than that expressly permitted by the
Borrower's Articles of Incorporation.
8.6 Prohibition Against Changes to Leases. Permit or acquiesce in any
change, waiver or other alteration with respect to any Lease that would have a
Material Adverse Effect., provided, however, that the Leases may be amended
without Lender's consent to the extent permitted by the terms of the Form of
Lease set forth in Exhibit E hereof.
8.7 Limitation on Investments, Advances and Loans. (i) Organize, create,
acquire, capitalize or own any Subsidiaries without Lender's prior written
consent or (ii) make or commit to make any advance, loan, guarantee of any
Indebtedness, extension of credit or capital contribution to, or hold or invest
in or purchase or otherwise acquire any stock, bonds, notes, debentures or other
securities of, or make any other investment in, any Person (other than any
Affiliate of Borrower).
8.8 Capital Expenditures. Directly or indirectly make or commit to make any
expenditure in respect of the purchase or other acquisition (including
installment purchases or capital leases) of fixed or capital assets, except for
(i) expenditures in accordance with any projections furnished pursuant to
Section 7.1(c), (ii) normal replacements and maintenance which are properly
charged to current operations and (iii) purchases by Borrower under the NTI
Purchase Agreement.
8.9 Limitation on Leases. Enter into any agreement, or be or become liable
under any agreement, not in existence as of the date hereof and reflected on
Borrower's financial statements, for the lease, hire or use of any real or
personal, including, without limitation, capital or operating leases, except for
Qualifying Leases; provided that Borrower may, in the ordinary course of
business and on terms consistent with standard in the industry, enter into
leases or agreements office space, office equipment, vehicles or tools.
8.10 Termination of NTI Purchase Agreement. Fail to satisfy its minimum
purchase obligations under the NTI Purchase Agreement.
8.11 Removal of Collateral. Remove or permit the removal of any material
part of the Collateral (except for sales or leases of Inventory in the ordinary
course of business) from the locations identified on Schedule 4.25, without
giving Lender thirty (30) days prior written notice of such move and ensuring
that any steps the Lender may deem necessary to continue the perfection and
priority of Lender's security interest in the Collateral shall have been taken.
8.12 Assumed Names. Transact or engage in business under any assumed name,
fictitious name, tradestyle or "d/b/a."
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ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES
9.1 Events of Default. An Event of Default shall mean the occurrence or
existence of one or more of the following events or conditions (whatever the
reason for such Event of Default and whether voluntary, involuntary or effected
by operation of Law):
(a) Payment Default. If Borrower fails to pay any sum, whether of
principal or interest on the Note or any prepayment premiums, or any other
amount due hereunder or under the Note within ten (10) calendar days after
such amount becomes due; or
(b) False Statement. If any statement, representation or warranty made
by Borrower or by any Owner, Guarantor or Affiliate in any Loan Document or
made in any financial statement, certificate, report, exhibit or document
furnished to Lender pursuant to any Loan Document, proves to have been
untrue, incomplete, false or misleading in any material respect as of the
time when made (including by omission of material information necessary to
make such representation, warranty or statement not misleading) and such
untruth, falsity, misleading statement or omission shall not have been
corrected or remedied to the satisfaction of Lender within twenty (20)
calendar days after the earlier of Borrower's (or the Owner's, Guarantor's
or Affiliate's) knowledge thereof or receipt of written notice thereof from
Lender; or
(c) Covenant Defaults. If Borrower defaults in the performance or
observance of any covenant or agreement in this Agreement, and such default
continues for a period of twenty (20) calendar days after the Borrower's
receipt of written notice from Lender thereof, except for violations of
Section 7.8(d), which shall become an Event of Default at the end of the
sixty (60) day period stated therein and except for specific Defaults
listed elsewhere in this Section 9.1, as to which no notice or cure period
shall apply unless specified; or
(d) Undischarged Judgments. If one or more judgments for the payment
of money has been entered against Borrower, or if a writ or warrant of
attachment, garnishment, execution, distraint or similar process has been
issued against Borrower or any of its properties having an aggregate value
in an amount in excess of $250,000, and any such judgment, writ or other
process has remained undischarged and unstayed for a period of thirty (30)
calendar days, unless the validity thereof is contested in compliance with
Section 7.8 hereof; or
(e) Default Under Third Party Agreements. If a default, or event or
condition which with notice or lapse of time or both would become a
default, occurs in any Lease and is not cured in the time permitted in the
Lease, or if any Lease ceases to be a Qualifying Lease and Lender has not
waived such event in writing; or that gives the creditor the right to
accelerate payment in respect of any other obligation of Borrower for
borrowed money (including lease obligations) in the amount of $250,000 in
the aggregate, or under any two or more such other obligations of any
amount; or
(f) Dissolution; Discontinuance of Business, Etc. If Borrower, the
Guarantor or any Affiliate which is leasing any Equipment discontinues its
usual business, dissolves, has its Organizational Document revoked and not
reinstated, winds up or liquidates itself or its business; or
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(g) Involuntary Bankruptcy or Receivership Proceedings. If a receiver,
custodian, liquidator, or trustee of Borrower, any Owner, the Guarantor, or
any Affiliate which is leasing any Equipment, or of any of its property is
appointed by the order or decree of any court or agency or supervisory
authority having jurisdiction; or an order is entered adjudicating
Borrower, any Owner, the Guarantor, or any Affiliate which is leasing any
Equipment as bankrupt or insolvent and such order is not vacated within
thirty (30) days; or any of the property of Borrower, any Owner, the
Guarantor, or any Affiliate which is leasing any Equipment is placed under
the control of a receiver or other third party by court order; or a
petition is filed against Borrower, any Owner, the Guarantor, or any
Affiliate who is leasing any Equipment under any state or federal
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution, liquidation, or receivership law of any jurisdiction, whether
now or hereafter in effect; or
(h) Voluntary Bankruptcy. If Borrower, any Owner, the Guarantor, or
any Affiliate which has leased any Equipment takes affirmative steps to
prepare to file, or files, a petition in voluntary bankruptcy or to seek
relief under any provision of any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution, or liquidation law of any
jurisdiction, whether now or hereafter in effect, or consents to the filing
of any petition against it under any such law; or
(i) Assignments for Benefit of Creditors, Etc. If Borrower, any Owner,
the Guarantor, or any Affiliate which is leasing any Equipment makes an
assignment for the benefit of creditors, or admits in writing its inability
to pay its debts generally as they become due, or consents to the
appointment of a receiver, trustee, or liquidator of itself or of all or
any part of its properties; or
(j) Non-compliance with Governmental Requirements. If Borrower fails
to comply with any requirement of any Governmental Authority within twenty
(20) calendar days after notice in writing of such requirement shall have
been given to Borrower by such Governmental Authority, or such longer
period of time permitted Borrower by such Governmental Authority and such
noncompliance causes or unreasonably can be expected to cause a Material
Adverse Effect; or
(k) Regulatory Authorizations. If any Regulatory Authorization in
connection with this Agreement or any other Loan Document or Lease, or any
such Regulatory Authorization now or hereafter necessary to make this
Agreement or the other Loan Documents or Leases legal, valid, enforceable
and admissible in evidence or to permit Borrower or any Affiliate which has
leased any Equipment to conduct its business is not obtained or has ceased
to be in full force and effect or has been modified or amended or has been
held to be illegal or invalid or is revoked or terminated, and is not being
contested by Borrower in compliance with Section 7.8 hereof and Lender has
reasonably determined in good faith (which determination shall be
conclusive) that such event or occurrence may have a Material Adverse
Effect; or
(l) Damage or Destruction. If the proceeds of any physical damage
insurance actually paid in respect of the partial or total damage or
destruction of the Collateral, together with other authorized funds of
Borrower or funds contributed by third parties, are insufficient to cover
the cost of the restoration thereof or if Lender determines that such
damage or
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destruction is so extensive that repair or restoration cannot be expected
within a time period short enough to prevent a Material Adverse Effect;
(m) Change in Control. If any Change in Control should occur without
Lender's prior written consent, which may be withheld in Lender's sole and
absolute discretion; or
(n) ERISA Defaults. If, with respect to any Plan, (i) there has
occurred a Reportable Event being considered by the PBGC which may
reasonably result in any material liability to the PBGC with respect to any
Plan, (ii) a Plan has been terminated, (iii) a trustee has been appointed
by a United States District Court to administer a Plan, (iv) a PBGC or any
other person has instituted proceedings to terminate a Plan or to appoint a
trustee to administer any such Plan, (v) either the Borrower or any
Affiliate has withdrawn, completely or partially, from any Plan (vi) either
the Borrower or any Affiliate has incurred secondary liability for
withdrawal liability payments under any Plan or (vii) a Plan has failed to
meet the minimum funding standards established under the Code or ERISA; or
(o) Defaults Under Other Loan Documents. If any default,
misrepresentation or breach should occur under any Security Document or
other Loan Document and is not cured or waived within the time permitted
therein, or any such Loan Documents should cease to be in full force and
effect, or any party thereto (other than Lender) should assert any
unenforceability of, or deny liability on, or admit inability to perform
under, any such Loan Document.
9.2 Consequences of an Event of Default. If any Event of Default shall
occur and be continuing or shall exist, Lender may, by notice to the Borrower
(i) declare its obligation to make Advances hereunder and any remaining
commitment hereunder to be terminated, where upon the same shall immediately
terminate, and (ii) Lender may, by notice to Borrower, declare the unpaid
principal amount of the Note, interest accrued thereon and all other amounts
owing by Borrower hereunder or under the Note to be immediately due and payable
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived, and an action therefor shall immediately accrue.
Such consequences shall occur automatically upon the occurrence of an Event of
Default under Section 9.1 (g) or (h), without any notice or demand. Upon the
occurrence of an Event of Default, Lender may, in its sole discretion, exercise
any and all remedies available to it under this Article 9 or under any of the
Loan Documents or under applicable law without further notice or period of grace
or opportunity to cure.
9.3 Exercise of Rights. Subject to any requirements for FCC or other
governmental approval upon the occurrence of any Event of Default, the rights,
powers and privileges provided in this Section and all other remedies available
to Lender under this Agreement or by statute or by rule of law may be exercised
by Lender at any time from time to time whether or not the Obligations shall be
due and payable, and whether or not Lender shall have instituted any foreclosure
or other action for the enforcement of this Agreement or the Note. No failure to
exercise nor any delay in exercising on the part of Lender, any right, remedy,
power or privilege hereunder or under any of the other Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege hereunder or thereunder preclude any other or future
exercise thereof or the exercise of any other right, remedy, power or privilege.
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9.4 Rights of Secured Party; Possession or Sale of Collateral. Without
limiting the generality of the foregoing, Lender shall have all the rights and
remedies of a secured party under the UCC, and Lender may, to the fullest extent
permitted by applicable law, without demand and without advertisement or notice,
all of which Borrower waives, at any time or times, sell and deliver any or all
Collateral held by or for it at public or private sale, for cash, upon credit or
otherwise, at such prices and upon such terms as Lender deems advisable, in its
sole discretion, and/or collect, or enforce the collection of, the Collateral.
Lender may be the purchaser at any such sale. Upon the occurrence of an Event of
Default and upon Lender's request, Borrower shall assemble, at its own expense,
any or all Equipment and other Collateral at a convenient place acceptable to
Lender and shall pay to Lender or reimburse Lender for, on demand, all costs of
collection of all amounts due, and enforcement of all rights hereunder,
including reasonable attorneys' fees and legal expenses, and expenses of any
repairs to any realty or other property to which any of such Collateral may be
affixed. Upon an Event of Default Lender may, to the fullest extent permitted by
applicable law, without notice, advertisement, hearing or process of law of any
kind, enter upon any premises where any of the Collateral may be located and
take possession of and remove such Collateral.
9.5 Notices, Etc. Waived. Except as expressly provided in this Article 9,
Borrower hereby expressly waives, to the fullest extent permitted by applicable
law, presentment, demand, protest, any and all notices of any kind,
advertisements, hearing or process of law in connection with the exercise by
Lender of any of its rights and remedies upon the occurrence of an Event of
Default. If any notification of intended disposition of any of the Collateral is
required by law, such notification shall be deemed reasonably and properly given
if given in accordance with Section 10.6 hereto at least ten (10) days before
such disposition.
9.6 Additional Remedies. Lender's remedies upon the occurrence and during
the continuance of an Event of Default shall include, in addition to, and not in
lieu of, such remedies as are available at law or in equity or provided for in
any of the Loan Documents, the following to the fullest extent permitted by
applicable law:
(a) Foreclosure; Receivership. Lender shall be entitled to file one or
more suits at law or in equity to collect the Obligations and/or to
foreclose on Lender's Liens on and security interests created by this
Agreement or the Security Documents. Lender may apply or require Borrower
to apply for any necessary transfers, assignments, orders, consents or
licenses in connection with the operation or abandonment of the Collateral
or any part thereof, and the Lender shall also be entitled as a matter of
right and without notice and without requiring bond (notice and bond being
hereby waived), without regard to the solvency or insolvency of the
Borrower at the time of application and without regard to the value of the
Collateral at that time, to have a receiver appointed by a court of
competent jurisdiction in order to manage, protect, and preserve the
Collateral and to continue the operation of the business of Borrower, and
to collect all revenues and profits thereof and apply the same to the
payment of all expenses and other charges of such receivership until the
sale or other final disposition of the Collateral. Borrower hereby consents
to the appointment of such receiver.
(b) Right to Cure. If Borrower fails in any material respect to
perform or comply with any of its agreements contained herein or in any of
the other Loan Documents or Leases, Lender may take whatever actions it may
deem appropriate to perform or comply or otherwise cause performance or
compliance with such agreement, all at the risk, cost and expense of
Borrower.
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(c) Setoff. If the unpaid principal amount of the Note, interest
accrued thereon or any other amount owing by Borrower hereunder or under
the Note shall have become due and payable (by acceleration or otherwise),
Lender shall have the right, in addition to all other rights and remedies
available to it, without notice to Borrower, to setoff against and to
appropriate and apply to such due and payable amounts any debt owing to,
and any other funds held in any manner for the account of, Borrower by
Lender. Such right shall exist whether or not Lender shall have given
notice or made any demand hereunder or under the Note, whether or not such
debt owing to or funds held for the account of Borrower is or are matured
or unmatured, and regardless of the existence or adequacy of any
collateral, guaranty or any other security, right or remedy available to
Lender. Borrower hereby consents to and confirms the foregoing arrangements
and confirms Lender's rights of setoff.
9.7 Application of Proceeds. Any proceeds of any of the Collateral,
received by Lender through sale or disposition of the Collateral or otherwise,
may be applied by Lender toward the payment of the Obligations, including
expenses in connection with the Collateral (including reasonable fees and legal
expenses) in such order of application as Lender may from time to time elect.
9.8 Discontinuance of Proceedings. If Lender should proceed to enforce any
right or remedy under this Agreement or any other Loan Document, and then
discontinue or abandon such proceeding for any reason, all rights, powers and
remedies of Lender hereunder shall continue as if no such proceeding had been
taken.
9.9 Power of Attorney. For the purpose of carrying out the provisions and
exercising the rights, powers and privileges granted by the Loan Documents,
including, without limitation, this Article 9, Borrower hereby irrevocably
constitutes and appoints Lender its true and lawful attorney-in-fact to execute,
acknowledge and deliver any instruments and do and perform any acts such as are
referred to in the Loan Documents or in any Lease, including, without
limitation, this Article 9, in the name and on behalf of Borrower, from time to
time in Lender's reasonable discretion after the occurrence and during the
continuance of an Event of Default, in accordance with the Loan Documents or
Lease and any statute or rule of law. This power of attorney is a power coupled
with an interest and cannot be revoked. Borrower hereby ratifies all that said
attorney-in-fact shall lawfully do or cause to be done by virtue and in
accordance with the terms hereof.
Without limiting the generality of the foregoing, Lender may after the
occurrence and during the continuance of an Event of Default do the following
without notice to or assent by Borrower to accomplish the purposes of this
Agreement:
(a) upon failure of Borrower to timely pay or discharge taxes or Liens
levied or placed on or threatened against the Collateral, effect any
repairs or any insurance called for by the terms of this Loan Agreement or
any other Loan Document, and pay all or any part of the premiums therefor
and the costs thereof;
(b) (i) direct any party liable for any payment on any Collateral to
make payment of any and all monies due and to become due thereunder
directly to Lender or as Lender shall direct; (ii) in the name of Borrower
or its own name or otherwise, take possession of and endorse and collect
any checks, drafts, notes, acceptances, or other instruments for the
payment of monies due under, or otherwise receive payment of and receipt
for any and all monies, claims and other amounts due and to become due at
any time in respect of or arising out of any
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Collateral; (iii) sign and endorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with the Collateral;
(iv) commence and prosecute any suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect all or any of the
Collateral and to enforce any other right in respect of any Collateral; (v)
defend any suit, action or proceeding brought against Borrower with respect
to any Collateral; (vi) settle, compromise or adjust any suit, action or
proceeding described above upon commercially reasonable terms under the
circumstances and, in connection therewith, give such discharges or
releases as Lender may reasonably deem appropriate; and (vii) generally
sell, use, operate, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as though
Lender were the absolute owner thereof for all purposes, subject only to
the terms of the Indenture that would cause such action to be a default
thereunder; and
(c) at Lender's option and Borrower's expense, at any time or from
time to time after the occurrence and during the continuance of an Event of
Default, do all other acts and things that Lender reasonably deems
necessary to protect, preserve or realize upon the Collateral and Lender's
security interest therein, in order to effect the intent of this Agreement
and the other Loan Documents all as fully and effectively as Borrower might
do.
9.10 Regulatory Matters. Notwithstanding any provision to the contrary
contained herein, Lender will not exercise any right or remedy under this
Agreement that requires prior FCC or PUC approval without first obtaining such
approval. If counsel to Lender reasonably determines that the consent of the FCC
or PUC is required in connection with any of the actions that may be taken by
Lender in the exercise of its rights hereunder or under any of the other Loan
Documents, then Borrower, at its sole cost and expense, agrees to use its best
efforts to secure such consent and to cooperate with Lender in any action
commenced by Lender to secure such consent. Upon the occurrence and during the
continuation of an Event of Default Borrower shall promptly execute and/or cause
the execution of all applications, certificates, instruments and other documents
and papers that may be required in order to obtain any necessary governmental
consent, approval or authorization, and if Borrower fails or refuses to execute
such documents, the clerk of the court with jurisdiction may execute such
documents on behalf of Borrower.
ARTICLE 10: GENERAL CONDITIONS/MISCELLANEOUS
The following conditions shall be applicable throughout the term of this
Agreement:
10.1 Modifications and Waivers. This Agreement, the other Loan Documents,
or any provision thereof may not be changed, waived or terminated orally, but
only by an instrument in writing signed by the party against whom enforcement of
the change, waiver or termination is sought. No action or course of dealing on
the part of Lender, its officers, employees, consultants, or agents, nor any
failure or delay by Lender with respect to exercising any right, power, or
privilege of Lender under the Note, this Agreement, or any other Loan Document
shall operate as a waiver thereof, except as otherwise provided in this
Agreement. Any waiver shall be effective only to the extent and for the instance
specifically identified in such writing, and shall not be deemed to imply any
future waivers or other waivers. No amendment to the Loan Documents shall be
effective without written agreement signed by both Borrower and Lender.
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<PAGE>
10.2 Advances Not Implied Waivers. No waiver of the requirements contained
in any Loan Document shall be effective unless in writing duly signed by Lender.
No Advance hereunder shall constitute a waiver of any of the conditions of
Lender's obligation to make further Advances nor, in the event Borrower is
unable to satisfy any such condition, shall any waiver of such condition have
the effect of precluding Lender from thereafter declaring such inability to be
an Event of Default as herein provided. Any Advance made by Lender and any sums
expended by Lender pursuant to the Loan Documents shall be deemed to have been
made pursuant to this Agreement, notwithstanding the existence of an uncured
Default or Event of Default. No Advance at a time when an Event of Default
exists shall constitute a waiver of any right or remedy of Lender existing by
reason of such Event of Default, including, without limitation, the right to
accelerate the maturity of the Indebtedness evidenced by the Note or to
foreclose the Lien on the Collateral or to refuse to make further advances
hereunder.
10.3 Deviation from Covenants. The procedure to be followed by Borrower to
obtain the consent of Lender to any deviation from the covenants contained in
this Agreement or any other Loan Document shall be as follows:
(a) Borrower shall send a written notice to Lender setting forth (i)
the covenant(s) relevant to the matter, (ii) the requested deviation from
the covenant(s) involved, and (iii) the reason for the requested deviation
from the covenant(s); and
(b) Lender, within a reasonable time, will send a written notice to
Borrower, permitting or refusing the request, but in no event will any
deviation from the covenants of this Agreement or any other Loan Document
be effective without the express prior written consent of Lender. Lender's
failure to provide such written notice shall be deemed a refusal of such
request.
10.4 Holidays. Except as otherwise provided herein, whenever any payment or
action to be made or taken hereunder or under the Note shall be stated to be due
on a day which is not a Business Day, such payment or action shall be made or
taken on the next following Business Day and such extension of time shall be
included in computing interest or fees, if any, in connection with such payment
or action.
10.5 Records. From time to time Lender may send Borrower statements of the
unpaid principal amount of the Note, the unpaid interest accrued thereon, the
Interest Rate or rates applicable to such unpaid principal amount, the duration
of such applicability, and the amount remaining available on any Loan, and each
statement shall be deemed correct and conclusively binding on Borrower (absent
manifest error).
10.6 Notices. All notices, requests, demands, directions and other
communications (collectively, "notices") required under the provisions of this
Agreement or any other Loan Document shall be in writing (including
communication by facsimile transmission) unless otherwise expressly permitted
hereunder and shall be sent by hand, by registered or certified mail return
receipt requested, by overnight courier service maintaining records of receipt,
or by facsimile transmission with confirmation in writing mailed first-class, in
all cases with charges prepaid, and any such properly given notice shall be
effective upon the earlier of receipt or (i) when delivered by hand, or (ii) the
third Business Day after being mailed, or (iii) the following Business Day if
sent by overnight courier
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<PAGE>
service, or (iv) when sent by facsimile, answer back received. All notices shall
be addressed as follows:
If to Borrower, to the Notice Address set forth on Schedule 1, with copies,
if any, as set forth on Schedule 1.
If to Lender: NTFC Capital Corporation
220 Athens Way
Nashville, Tennessee 37228
Attention: Legal Department
Telecopy: (615) 734-5283
With a copy to: NTFC Capital Corporation
220 Athens Way
Nashville, Tennessee 37228
Attention: Manager, Credit
Telecopy: (615) 734-5283
All notices shall be sent to the applicable party at the address stated
above or in accordance with the last unrevoked written direction from such party
to the other party hereto, given in accordance with the terms hereof.
10.7 FCC and PUC Approval. The exercise of any rights or remedies hereunder
or under any other Loan Document by Lender that may require FCC or PUC approval
shall be subject to obtaining such approval. Pending the receipt of any PUC or
FCC approval, Borrower shall not do anything to delay, hinder, interfere with or
obstruct the exercise of Lender's rights or remedies hereunder or the obtaining
of such approvals.
10.8 Lender Sole Beneficiary. All conditions of the obligation of Lender to
make any Advances hereunder are imposed solely and exclusively for the benefit
of Lender and its assigns and no other Person shall have standing to require
satisfaction of such conditions in accordance with their terms or be entitled to
assume that Lender will refuse to make any Advances in the absence of strict
compliance with any or all such conditions, and no Person shall under any
circumstances be deemed to be a beneficiary of such conditions, any or all of
which may be freely waived in whole or in part by Lender at any time if in its
sole discretion it deems it advisable to do so. Inspections and approvals of the
System, and the workmanship and materials used therein impose no responsibility
or liability of any nature whatsoever on Lender, and no Person shall, under any
circumstances, be entitled to rely upon such inspections and approvals by Lender
for any reason. Lender's sole obligation hereunder is to make the Advances if
and to the extent required by this Agreement or the Notes.
10.9 Lender's Review of Information. Borrower acknowledges and agrees that
any review or analysis by Lender of financial information, operating
information, marketing data or other information provided to Lender by or on
behalf of Borrower at any time is and shall be conducted solely for Lender's
benefit and internal use and that Lender is under no duty or obligation to make
the results of such review or analysis available to Borrower. Borrower is not
relying, and will not rely, on Lender for financial or business advice.
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<PAGE>
10.10 No Joint Venture. Nothing in any of the Loan Documents or in this
Agreement shall be deemed to constitute any kind of partnership, joint venture
or fiduciary relationship between the Lender and the Borrower or between the
Lender and any Owners.
10.11 Severability. The provisions of this Agreement are intended to be
severable. If any provision of this Agreement or the other Loan Documents shall
be held invalid or unenforceable in whole or in part in any jurisdiction such
provision shall, as to such jurisdiction, be ineffective to the extent of such
invalidity or unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof or thereof in any jurisdiction.
10.12 Rights Cumulative. All rights, powers and remedies herein given to
Lender are cumulative and not alternative, and are in addition to all statutes
or rules of law.
10.13 Duration; Survival. All representations and warranties of Borrower
contained herein or made in connection herewith shall survive the making of and
shall not be waived by the execution and delivery of this Agreement and the
other Loan Documents, any investigation by Lender, or the making of any Advances
hereunder. All covenants and agreements of Borrower contained herein shall
continue in full force and effect from and after the date hereof so long as it
may borrow hereunder and until payment in full of the Notes, interest thereon,
all fees and all other Obligations of Borrower. Without limitation, it is
understood that all obligations of Borrower to make payments to or indemnify
Lender shall survive the payment in full of the Notes and of all other
Obligations.
10.14 Governing Law. This Agreement and the Notes and each of the other
Loan Documents shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, except to the extent that the
laws of jurisdictions where the Collateral is located may be required to apply
to the Collateral.
10.15 Counterparts. This Agreement may be executed in any number of
counterparts (by facsimile transmission or otherwise) and by the different
parties hereto on separate counterparts, each of which, when so executed, shall
be deemed an original, but all such counterparts shall constitute but one and
the same instrument.
10.16 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of Lender and Borrower and their respective successors and
assigns; provided, however, that Borrower may not assign or transfer any of its
rights or obligations hereunder or under the other Loan Documents (in whole or
in part) without the prior written consent of Lender. Notwithstanding the
foregoing, Lender may not assign its rights or obligations hereunder to any
Person, or to any Affiliate of any Person, that is a provider of
telecommunications services or equipment in competition with Borrower or its
Affiliates (other than NTI). Lender may assign, transfer or pledge any of its
respective rights or obligations hereunder or under the other Loan Documents
without the prior written consent of Borrower. Upon receipt of written notice
from Lender of such assignment by Lender permitted under this Section, Borrower
shall promptly acknowledge receipt thereof in writing. If Borrower is given
written notice of any assignment by Lender permitted under this Section, it
shall perform its obligations with respect to this Agreement for the ratable
benefit of the applicable assignee(s), and, if so directed, shall pay all
amounts due or to become due hereunder directly to the applicable assignee(s) or
to any other party designated by such assignee(s). Borrower shall not assert
against any such assignee any set-off, defense or counterclaim that Borrower may
have against Lender
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<PAGE>
or any person other than such assignee. Borrower shall also execute and deliver
to Lender such documentation as any such assignee may reasonably require to
evidence such assignment, including but not limited to amended promissory notes
and acknowledgment of or consent to the assignment which may require Borrower to
make certain representations or reaffirmations as to some of the basic terms and
covenants contained herein. Lender shall not be relieved of its obligations
hereunder as a result of any such sale, assignment, transfer, grant or pledge,
unless such assignee specifically assumes all or part of Lender's future
obligations hereunder in a writing, a copy of which shall be delivered to
Borrower, in which event after the date of such assignment, Borrower's
obligations to any such assignee shall be proportionately as set forth in the
assignment with respect to Lender, and Borrower shall not look to Lender to
perform any of such assignee's obligations hereunder which arise after the date
thereof. Any permitted assignee of Lender shall be entitled to rely on
Borrower's agreements as stated herein, as applicable, and shall be considered a
third party beneficiary thereof. Except to the extent otherwise required by the
context of this Agreement, the word "Lender" where used in this Agreement shall
mean and include any permitted assignee of any Note originally issued to Lender
hereunder, and any such permitted assignee of any Note shall be bound by and
have the benefits of this Agreement the same as if such holder had been a
signatory hereto.
10.17 Participation. Lender shall have the right to enter into one or more
participation agreements, syndication agreements or similar agreements with one
or more participating lenders or other parties approved by Lender on such terms
and conditions as Lender shall deem advisable. Borrower shall furnish a
sufficient number of copies of reports and certificates to Lender so that Lender
and each participating lender shall receive a copy of each such document. Lender
shall provide Borrower with notice of any such agreement. Notwithstanding the
foregoing, Lender may not enter into any such agreement with any Person, or to
any Affiliate of any Person, that is a provider of telecommunications services
or equipment.
10.18 Time of Essence. Time is of the essence of this Agreement and the
Note and the other Loan Documents.
10.19 Disclosures and Confidentiality.
(a) Borrower agrees that it will obtain Lender's written consent
before using or generating any press release, advertisement, publicity
materials or other publication in which the name or logo of Lender or any
of its Affiliates is used or may be reasonably inferred, and will not
distribute any such materials in the absence of such prior written
approval.
(b) Each of Borrower and Lender agrees that it will not, directly or
indirectly, disclose to any third party the terms of this Agreement or the
other Loan Documents or prior or future correspondence relating thereto, or
the transactions contemplated hereby. The term "third party" shall exclude
only Borrower, Lender, their respective Affiliates and their respective
attorney(s), financial advisors subject to confidentiality restrictions,
and certified public accountant(s). Section 10.19 shall not restrict the
disclosure of information to the extent that Borrower or Lender, as the
case may be, deems such disclosure to be required by applicable law, by
order of any court or by the order, rule or regulation of any
administrative agency, including without limitation any requirements of the
FCC, any PUC, or any state or federal securities commissions (the
"Commissions"); provided, however, that, except for disclosures that
Borrower or Lender deems to be required by the FCC, PUC or Commissions,
each party shall provide the other with advance notice of any such required
disclosure of
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<PAGE>
information so that the informed party may seek an appropriate protective
order and/or waive compliance with this Section. A party shall not oppose
any action taken by the other to obtain an appropriate protective order or
other reliable assurance that the information will be accorded confidential
treatment. The obligations set forth in this Section 10.19(b) shall survive
the termination of this Agreement.
(c) The disclosure of information by either Lender or Borrower will
not be restricted under this Agreement if such information (i) has been or
becomes published or is now, or in the future, in the public domain through
(A) no fault of the parties, (B) disclosure other than unauthorized
disclosure by the party to whom the information is disclosed, or (C)
disclosure to third parties by the disclosing party without similar
restriction; (ii) is property (other than proposal letters, commitment
letters or other correspondence between Lender and Borrower) within the
legitimate possession of the receiving party prior to disclosure hereunder;
(iii) subsequent to disclosure hereunder, is lawfully received from a third
party having rights therein without restriction of the third party's or
receiving party's rights to disseminate the information and without notice
of any restriction against its further disclosure; (iv) is disclosed with
the written approval of the other party; (v) is or becomes publicly
available free of any obligation to keep it confidential.
(d) Every reference in this Agreement to disclosures of Borrower to
Lender (except the financial statements), to the extent that such
references refer or are intended to refer to disclosures at or prior to the
execution of this Agreement, shall be deemed strictly to refer only to
written disclosures delivered to Lender in connection with the execution of
this Agreement.
10.20 Jurisdiction and Venue. BORROWER HEREBY IRREVOCABLY CONSENTS TO THE
JURISDICTION OF THE FEDERAL COURTS SITTING IN THE MIDDLE DISTRICT OF TENNESSEE,
AND IF NO FEDERAL JURISDICTION EXISTS, TO THE JURISDICTION AND VENUE OF THE
STATE COURTS OF TENNESSEE FOR ANY SUIT BROUGHT OR ACTION COMMENCED IN CONNECTION
WITH THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE OBLIGATIONS, AND AGREES
NOT TO CONTEST VENUE OR JURISDICTION IN ANY SUCH COURTS. In any such litigation,
Borrower waives personal service of any summons, complaint or other process, and
agrees that the service thereof may be made by certified or registered mail
direct to Borrower at its address set forth in Section 10.6 hereof. In the
alternative, in its sole discretion, Lender may effect service upon Borrower in
any other form or manner permitted by law. The choice of forum set forth herein
shall not be deemed to preclude the enforcement of any judgment obtained in such
forum or the taking of any action under this Agreement to enforce the same in
any appropriate jurisdiction.
10.21 Jury Waiver. BORROWER AND LENDER HEREBY KNOWINGLY AND WILLINGLY WAIVE
THEIR RIGHTS TO DEMAND A JURY TRIAL IN ANY ACTION OR PROCEEDING INVOLVING THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT, THE OBLIGATIONS, OR ANY RELATIONSHIP BETWEEN
THE LENDER AND BORROWER. THE BORROWER WARRANTS AND REPRESENTS THAT IT HAS
REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND
VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
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<PAGE>
10.22 Limitation on Liability. LENDER SHALL HAVE NO LIABILITY UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS FOR SPECIAL,
EXEMPLARY, PUNITIVE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY SORT
IN ANY SUIT BROUGHT OR ACTION COMMENCED IN CONNECTION WITH THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS, OR THE OBLIGATIONS, AND, EXCEPT TO THE EXTENT PROHIBITED
BY LAW, EACH PARTY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
ACTION ANY SPECIAL, EXEMPLARY, PUNITIVE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL
DAMAGES OF ANY SORT OTHER THAN ACTUAL DAMAGES.
10.23 Borrower Waivers. To the fullest extent permitted by applicable law,
the Borrower hereby waives (i) presentment, demand and protest and notice of
presentment, protest, default, non payment, maturity, release, compromise,
settlement, extension or renewal of any or all commercial paper, accounts,
contract rights, documents, instruments, chattel paper and guaranties at any
time held by Lender on which the Borrower may in any way be liable and hereby
ratifies and confirms whatever Lender may do in this regard; (ii) notice prior
to taking possession or control of the Collateral or any bond or security which
might be required by any court prior to allowing Lender to exercise any of
Lender's remedies, including the issuance of an immediate writ of possession,
except as expressly required in any of the Loan Documents; (iii) any marshalling
of assets, or any right to compel Lender to resort first to any Collateral or
other Persons before pursuing the Borrower for payment of the Obligations and
any defenses based on suretyship or impairment of Collateral; (iv) the benefit
of all valuation, appraisement and exemption laws; (v) any right to require
Lender to terminate its security interest in the Collateral or in any other
property of the Borrower until termination of this Agreement and the execution
by the Borrower and by any person whose loans to the Borrower are used in whole
or in part to satisfy the Obligations, of an agreement indemnifying Lender from
any loss or damage Lender may incur as the result of dishonored or unsatisfied
items of any account debtor applied to the Obligations; and (vi) notice of
acceptance hereof. The Borrower acknowledges that the foregoing waivers are a
material inducement to Lender's entering into this Agreement and that Lender is
relying upon the foregoing waivers in its future dealings with the Borrower.
10.24 Schedules. The Schedules and Exhibits attached to this Agreement are
an integral part hereof, and are hereby made a part of this Agreement.
10.25 Agreement to Govern. In case of any conflict between the terms of
this Agreement and any of the other Loan Documents, the terms of this Agreement
shall govern.
10.26 Entire Agreement. This Agreement, the other Loan Documents and other
documents, agreements and certificates executed by the parties contemporaneously
herewith or subsequent hereto constitute the entire agreement of the parties and
supersede all prior understandings and agreements, written or oral, between the
parties hereto relating to the subject matter hereof. Borrower is not entering
into this Agreement in reliance on statements or representations made by any
Person other than as set forth herein.
[END OF GENERAL TERMS AND CONDITIONS. NEXT PAGE IS SCHEDULE 1.]
[SIGNATURES ARE ON COVER PAGE. ]
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<PAGE>
SCHEDULE 1 TO
LOAN AND SECURITY AGREEMENT
---------------------------
BORROWER INFORMATION AND DEFINED TERMS
--------------------------------------
"Closing Date": December 19, 1996
"Borrower": GST Equipco, Inc., a Washington corporation
Borrower's federal employer/
tax identification number: 91-1740514
Borrower's chief executive offices (including county):
4317 North East Thurston Way
Vancouver, Washington 98662
Borrower's Notice Address:
4317 North East Thurston Way
Vancouver, Washington 98662
ATTN: Clifford V. Sander
Vice President & Treasurer
with copies to:
Olshan Grundman Frome & Rosenzweig, L.L.P.
505 Park Avenue
New York, NY 1002
ATTN: Stephen Irwin, Esq.
and Daniel J. Gallagher, Esq.
"Guarantor": GST USA, Inc., a Delaware corporation, a wholly-owned subsidiary of
GST Telecommunications, Inc., the parent corporation of Borrower
"Regulatory Authorizations": The term "Regulatory Authorizations" shall include,
without limitation, the following:
"System": The term "System" shall mean a digital interconnected
telecommunications network owned and operated by Affiliates of the Borrower
providing a range of enhanced telecommunication services that includes long
distance, internet access, frame relay and a synchronous transfer mode services.
The System is also expected to provide switched access and local dial tone
services. The System currently operates, or is expected to operate, in Arizona,
California, Hawaii, New Mexico, Oregon, Texas and Washington.
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<PAGE>
SCHEDULE 2.1 TO
LOAN AND SECURITY AGREEMENT
---------------------------
MAXIMUM LOAN AMOUNTS
--------------------
Maximum principal amount
of all Loans: Fifty Million Dollars ($50,000,000),
including up to $5,000,000 for interest
during the first twelve (12) months
following the Closing Date.
Maximum amount to be used for
closing costs and legal fees: One Hundred Thousand Dollars ($100,000.00)
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<PAGE>
SCHEDULE 2.2 TO
LOAN AND SECURITY AGREEMENT
---------------------------
PAYMENT TERMS AND GOVERNING LAW
-------------------------------
1. Payment Terms. The following payment terms shall apply to all Loans
under the Agreement.
"Conversion Date": the first day following expiration of the Interest Only
Period.
"Financing Termination Date": December 31, 1998.
"Initial Payment Date": the first Business Day of the first (1st) month to
commence after the First Borrowing Date.
"Interest Only Period": the period commencing on the Closing Date and
ending on December 31, 1998.
"Interest Payment Date": the Initial Payment Date and the first Business
Day of each calendar month thereafter.
"Interest Rate": a floating interest rate equal to the ninety day London
Interbank Offered Rates "LIBOR" as quoted from time to time in The Wall Street
Journal plus 350 basis points. The Interest Rate shall be adjusted automatically
with respect to any loans outstanding on the second business day of each
calendar quarter based upon the most recent rate quoted in The Wall Street
Journal immediately prior to the second business day of each calendar quarter,
and shall be expressed as an annual rate of interest, compounded monthly, and
calculated on the basis of a 360-day year.
"Maturity Date": the earlier of (i) December 31, 2003, and (ii) the first
Business Day of the eighty-fourth (84th) Month after the Closing Date, on which
date all then-outstanding principal, interest, premium, expenses, fees,
penalties and other amounts due under the Note shall be finally due and payable.
"Payment Date": the Initial Payment Date and the first Business Day of each
month.
"Payment Schedule": upon expiration of the Interest Only Period the
outstanding principal balance shall be converted to a term loan to be amortized
and repaid quarterly in arrears in twenty (20) consecutive quarterly
installments, calculated as follows. The applicable percentages to be used for
the calculation of such payment amounts are as follows: (i) the first eight (8)
payments shall each be equal to 3.75% of the aggregate amount of all Advances
made hereunder; (ii) the next four (4) payments shall each be equal to 5.00% of
the aggregate amount of all Advances made hereunder; (iii) the next seven (7)
payments shall each be equal to 6.25% of the aggregate amount of all Advances
made hereunder; the final payment shall be in an amount equal to all outstanding
principal hereunder, plus all accrued and unpaid interest and all other unpaid
charges hereunder.
"Prepayment Premium": the prepayment premium referred to in Section 2.2 of
the Agreement shall be the amount required to compensate Lender for any losses,
costs or expenses (excluding loss of profit) which it may incur as the result of
the prepayment (or any failure to make any such
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<PAGE>
prepayment on the date irrevocably scheduled therefor) of any portion of the
Loan on a date other than a Payment Date, including, without limitation, losses,
costs or expenses incurred in connection with unwinding or liquidating any
deposits or funding or financing arrangement with its funding sources, as
determined by Lender (which determination shall be conclusive absent manifest
error). Without limiting the effect of the preceding sentence, such compensation
shall include an amount equal to the excess, if any, of (i) the amount of
interest which otherwise would have accrued on the principal amount so prepaid
to the next succeeding Payment Date (the "Break Period") at Lender's then
current Eurodollar cost of funds over (ii) the interest component of the amount
Lender would have bid in the Eurodollar market for Dollar Deposits of leading
banks in amounts comparable to such principal amount and with maturities
comparable to the Break Period (as reasonably determined by Lender).
2. Choice of Law. Pursuant to Section 10.14 of the Agreement, this
Agreement shall be governed by and construed in accordance with the internal
laws of the State of New York.
-48-
Exhibit 21
GST TELECOMMUNICATIONS,INC.
Significant Subsidiaries As Of 9/30/96
--------------------------------------
GST USA, Inc., a Delaware corporation
GST Telecom Inc., a Delaware corporation
GST Telecom California, Inc., a Delaware corporation
GST Net, Inc., a Delaware corporation
NACT Telecommunications, Inc., a Utah corporation
International Telemanagement Group, Inc., an Ohio corporation
Exhibit 23
----------
Independent Auditors' Consent
-----------------------------
The Board of Directors
GST Telecommunications, Inc.:
We consent to incorporation by reference in the Registration Statements (No.
33-94072, 333-07237) on Forms S-8 (Nos. 33-95324, 33-97096 and 333-1538) on
Forms F-3 and (Nos. 333-15699 and 333-16141) on Forms S-3 of GST
Telecommunications, Inc. of our report dated November 22, 1996 relating to the
consolidated balance sheets of GST Telecommunications, Inc. as of September 30,
1996 and 1995, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the years ended September 30, 1996 and
1995, which report appears in the September 30, 1996 annual report of Form 10K
of GST Telecommunications, Inc.
/s/ KPMG Peat Marwick
------------------------------
KPMG Peat Marwick
Portland, Oregon
December 27, 1996
Exhibit 23
----------
ACCOUNTANTS' CONSENT
To the Board of Directors of
GST Telecommunications, Inc.:
We consent to the incorporation by reference in the registration statements on
Forms F-3, S-3 and S-8 (#33-95324, #33-97096, #333-1538, #33-94072, #333-15699,
#333-16141 and #333-07237) of GST Telecommunications, Inc. of our audit report
dated December 8, 1994 on the consolidated statements of operations,
shareholders' equity, and cash flows for the thirteen months ended September 30,
1994, which report appears in the September 30, 1996 annual report on Form 10-K
of GST Telecommunications, Inc.
Chartered Accountants
Vancouver, Canada
December 30, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S 10-K FOR THE PERIOD ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIREY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> $77,342,947
<SECURITIES> 5,176,576
<RECEIVABLES> 11,696,845
<ALLOWANCES> (1,263,683)
<INVENTORY> 2,406,399
<CURRENT-ASSETS> 100,548,268
<PP&E> 134,714,597
<DEPRECIATION> (7,139,536)
<TOTAL-ASSETS> 301,701,198
<CURRENT-LIABILITIES> 45,465,548
<BONDS> 199,979,706
0
0
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<INCOME-PRETAX> (60,632,411)
<INCOME-TAX> 157,100
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</TABLE>
