SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
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OR
/ / 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 333-8807
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GST TELECOMMUNICATIONS, INC.
(Exact name of Registrant as Specified in its Charter)
CANADA NOT APPLICABLE
- ---------------------------- ----------------------------
(State or Other Jurisdiction (IRS Employer Identification
of Incorporation or Organization) Number)
4317 NE THURSTON WAY, VANCOUVER, WA 98662
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (360) 254-4700
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N/A
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
<PAGE>
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 / /
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date: At May 14,
1997, there were outstanding 25,798,642 Common Shares, without par value, of the
Registrant.
<PAGE>
GST TELECOMMUNICATIONS, INC.
INDEX
Page(s)
-------
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Condensed Balance Sheet - March 31, 3
1997 (unaudited) and September 30, 1996
Consolidated Condensed Statements of Operations - 4
Three Months Ended March 31, 1997 and 1996, Six
Months ended March 31, 1997 and 1996 and 1995
(unaudited)
Consolidated Condensed Statements of Cash Flows - 5
Six Months Ended March 31, 1997 and 1996
(unaudited)
Notes to Consolidated Condensed Financial 6
Statements (unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 11-15
CONDITION AND RESULTS OF OPERATIONS
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 2. CHANGES IN SECURITIES 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17-18
SIGNATURES 19
2
<PAGE>
Part 1. Financial Information
GST Telecommunications, Inc.
CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 31, 1997 (unaudited) and September 30, 1996
(in thousands)
<TABLE>
<CAPTION>
March 31, 1997 September 30, 1996 (1)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 37,073 $ 61,343
Restricted cash 11,261 16,000
Accounts receivable, net 15,407 9,472
Investments 2,000 5,176
Inventories 2,808 2,406
Prepaid expenses and other current assets 7,531 6,151
--------- ---------
Total current assets 76,080 100,548
--------- ---------
Property, plant and equipment 258,325 134,714
less accumulated depreciation (12,407) (7,139)
--------- ---------
245,918 127,575
Other assets 86,508 79,424
less accumulated amortization (10,560) (5,846)
--------- ---------
75,948 73,578
$ 397,946 $ 301,701
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 10,166 $ 12,443
Accrued liabilities 19,395 26,743
Current portion of capital lease obligations 723 722
Current portion of long term debt 1,650 4,832
Other current liabilities 355 726
--------- ---------
Total current liabilities 32,289 45,466
--------- ---------
Deferred compensation 158 158
Capital lease obligation, less current portion 1,628 1,453
Long term debt, less current portion 287,495 232,674
Minority interest in subsidiaries 11,661 182
Preference shares 50,000 --
Shareholders' equity
Common shares 103,642 72,647
Warrants 20,815 --
Commitment to issue shares 5,009 25,454
Deficit (114,751) (76,333)
--------- ---------
Total shareholders' equity 14,715 21,768
--------- ---------
$ 397,946 $ 301,701
========= =========
</TABLE>
(1) The information in this column was derived from the Company's audited
financial statements as of September 30, 1996.
3
<PAGE>
GST TELECOMMUNICATIONS, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
MARCH 31, 1997 AND 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Six Months
Ended March 31, Ended March 31,
------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Telecommunication services $ 19,619 $ 7,000 $ 38,056 $ 11,534
Telecommunication products 5,073 1,343 9,853 3,328
------------ ------------ ------------ ------------
24,692 8,343 47,909 14,862
------------ ------------ ------------ ------------
Operating costs and expenses:
Network expenses 16,929 5,653 32,657 9,879
Facilities administration and maintenance 3,120 1,833 6,445 3,174
Cost of product revenues 1,863 865 3,684 1,670
Selling, general and administrative 15,391 6,298 30,623 10,780
Research and development 616 317 1,026 600
Depreciation and amortization 4,481 1,958 9,170 3,278
------------ ------------ ------------ ------------
42,400 16,924 83,605 29,381
------------ ------------ ------------ ------------
Loss from operations (17,708) (8,581) (35,696) (14,519)
------------ ------------ ------------ ------------
Other expenses (income)
Interest income (538) (2,128) (1,377) (2,397)
Interest expense 5,384 6,241 10,818 7,968
Loss from joint venture -- 375 -- 603
Other (6,928) 63 (6,820) 36
------------ ------------ ------------ ------------
(2,082) 4,551 2,621 6,210
------------ ------------ ------------ ------------
Loss before income taxes
and minority interest (15,626) (13,132) (38,317) (20,729)
------------ ------------ ------------ ------------
Income Taxes (118) (1) (114) (18)
Minority interest in loss of subsidiaries (40) 64 13 239
------------ ------------ ------------ ------------
(158) 63 (101) 221
Net loss $ (15,784) $ (13,069) $ (38,418) (20,508)
============ ============ ============ ============
Net loss per common and common
equivalent share $ (0.70) $ (0.72) $ (1.72) $ (1.13)
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding 22,425,014 18,263,335 22,329,978 18,161,068
============ ============ ============ ============
</TABLE>
4
<PAGE>
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
MARCH 31, 1997 AND MARCH 31, 1996 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months
Ended March 31,
------------------------------
1997 1996
------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (38,418) $ (20,508)
Adjustment to reconcile net income to net cash used in operating activities
Minority interest in loss of subsidiaries (13) (239)
Loss on investments in affiliates 585 603
Accretion of interest 8,824 6,509
Amortization and depreciation 9,909 3,278
Stock compensation 351 --
Issuance of stock for financing commitments -- 230
Gain on sale of subsidiary shares (7,424) --
Changes in non-cash operating working capital:
Receivables (2,976) 979
Inventory (402) (560)
Prepaid expenses and other (1,272) (1,658)
Accounts payable and accrued liabilities (3,900) (1,851)
Deferred revenue (121) (236)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (34,857) (13,453)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of subsidairy shares, net 27,365 --
Proceeds from sale of marketable securities 5,176 --
Purchase of marketable securities (2,000) (4,654)
Acquisition of subsidiaries, net of cash acquired (672) (178)
Acquisition of property and equipment (117,289) (21,386)
Purchase of other assets (10,143) (2,663)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (97,563) (28,881)
CASH FLOWS FROM FINANCING ACTIVITIES
Collection of warrants receivable 20,815 --
Issuance of common shares 1,650 1,572
Issuance of preference shares 50,000 --
Deferred financing costs (1,728) (7,989)
Principal payments on capital leases (350) (157)
Principal payments on long term debt (4,865) (390)
Proceeds from long term debt 42,628 179,625
--------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 108,150 172,661
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (24,270) 130,327
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 61,343 6,024
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 37,073 $ 136,351
========= =========
</TABLE>
5
<PAGE>
GST TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles. However, certain
information or footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed, or omitted, pursuant to the rules and regulations of the Securities
and Exchange Commission. In the opinion of management, the statements include
all the adjustments necessary (which are of normal and recurring nature) for the
fair presentation of the results of the interim period presented. These
financial statements should be read in conjunction with the Company's audited
consolidated financial statements for the year ended September 30, 1996, as
included in the Company's Annual Report on Form 10-K.
2. NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE
Net loss per common and common equivalent share is computed
using the weighted average number of common and dilutive common equivalent
shares assumed to be outstanding during the period. Common equivalent shares
consist of options and warrants to purchase common shares.
3. INVENTORIES
Inventories, net of reserves, stated at the lower of cost or
market consist of:
March 31, 1997 September 30, 1996
---------------- -------------------
Raw Material $ 1,187 $ 378
Work in Progress 307 346
Finished Goods 374 317
Refurbished inventory held for sale 940 1,365
---------------- -------------------
Total Inventories 2,808 2,406
================ ===================
4. SHAREHOLDERS' EQUITY
Shares authorized and outstanding are as follows:
March 31, 1997 September 30, 1996
---------------- ---------------------
Common Shares, no par value 23,612,091 21,257,697
Unlimited number of
common shares authorized
6
<PAGE>
5. SUPPLEMENTAL CASH FLOW INFORMATION
As a result of an acquisition, the Company recorded $3,837
in assets and $379 in liabilities during the six months ended March 31, 1997.
The Company purchased $524 in assets via capital leases during the six months
ended March 31, 1996. Accounts payable and accrued liabilities include $15,303
in fixed asset purchases at March 31, 1997. During the six months ended March
31, 1997, the Company made $1,605 in interest payments
6. ACCOUNTING CHANGE
Effective January 1, 1997, the Company increased the
estimated depreciable life of its telecommunications networks from 10 to 20
years and decreased the estimated depreciable life of certain equipment from 10
to five years. These estimates were changed to better reflect the estimated
period during which these assets will remain in service and result in useful
lives which are more consistent with industry practice. The changes in estimates
of depreciable lives were made on a prospective basis, beginning January 1,
1997. The effect of this change was to decrease depreciation expense and net
loss for the three months ended March 31, 1997 by $311.
7. RECENT DEVELOPMENTS
In February 1997 NACT Telecommunications, Inc. ("NACT") (a
subsidiary of the Company) completed an initial public offering of its common
stock pursuant to which the Company and NACT sold one million and two million
shares, respectively, of NACT's common stock, resulting in gross proceeds to the
Company and NACT of $10 million and $20 million, respectively. The Company
recognized a $7.4 million gain on the sale of NACT common stock. As a result of
this transaction, the Company's interest in NACT decreased from 100% to 63%.
Also in February 1997, the Company completed a private
placement of $50 million in redeemable preferred shares (the "Preferred
Shares"). The Preferred Shares, which are convertible at any time after February
28, 2000 at an imputed price of $11.375 per share, will not pay dividends in
cash, except to the extent cash dividends are paid on Common Shares. In
addition, the liquidation and redemption prices of the Preferred Shares will
accrete at a semi-annual rate of 11.875%. Under certain circumstances, the
Preferred Shares will also be subject to mandatory conversion or redemption.
In May 1997, the Company issued $265 million in senior
secured notes due May 1, 2007. The notes bear interest at a rate of 13.25% with
semi-annual interest payments due beginning November 1, 1997. Approximately
$93.8 million of the proceeds have been set aside to fund the first six
scheduled interest payments. The remainder of the net proceeds will be used to
purchase and install telecommunications equipment.
7
<PAGE>
8.
GST USA, INC. (A)
CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 31, 1997 (UNAUDITED) AND SEPTEMBER 30, 1996
(IN THOUSANDS)
(STATED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
March 31, 1997 September 30, 1996
<S> <C> <C>
ASSETS
Current assets $ 56,811 $ 77,506
Non-current assets 290,317 168,882
--------- ---------
TOTAL ASSETS $ 347,128 $ 246,388
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 94,240 $ 34,286
Non-current liabilities 264,128 210,243
Minority interest 11,661 182
--------- ---------
Total liabilities 370,029 244,711
--------- ---------
--------- ---------
Total shareholders' equity (22,901) 1,677
--------- ---------
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 347,128 $ 246,388
========= =========
</TABLE>
(A) GST USA, Inc. ("GUS") is a wholly-owned subsidiary of the Company. The
summarized financial information of GUS is as of and for the three months ended
March 31, 1997 and the comparable 1996 period. The total outstanding
indebtedness of GUS includes its senior discount notes with an accreted value of
$ 190.1 million as of March 31, 1997, which the Company fully and
unconditionally guaranteed. Separate financial statements and other disclosures
concerning GUS are not presented because management has determined that such
information is not materially different than the information already provided.
8
<PAGE>
GST USA, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
(IN THOUSANDS)
(STATED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Three Months Six Months
Ended March 31, Ended March 31,
----------------------------------- ------------------------------------------
1997 1996 1997 1996
--------------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Revenue $ 16,088 $ 8,343 $ 31,249 $ 14,862
Operating costs and expenses $ 33,935 $ 16,409 $ 65,897 $ 28,498
--------------- ------------- ----------------- ---------------
Loss from operations $ (17,847) $ (8,066) $ (34,648) $ (13,636)
Other expenses $ 4,485 $ 3,963 $ 1,521 $ 5,123
--------------- ------------- ----------------- ---------------
Net Loss $ (13,362) $ (12,029) $ (33,127) $ (18,759)
=============== ============= ================= ===============
</TABLE>
9
<PAGE>
GST USA, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
(IN THOUSANDS)
(STATED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Six Months
Ended March 31,
----------------------------------
1997 1996e
--------------- --------------
<S> <C> <C>
Cash used in operations $ (33,496) $ (12,713)
Cash used in investing (94,166) (27,027)
Cash provided by financing 107,791 151,706
--------------- --------------
Increase in cash and cash equivalents (19,871) 111,966
Cash and cash equivalents, beginning of period 41,420 3,894
--------------- --------------
Cash and cash equivalents, end of period $ 21,549 $ 115,860
=============== ==============
</TABLE>
10
<PAGE>
ITEM 2: 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
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. As a competitive
local exchange carrier, the Company operates state-of-the-art, digital
telecommunications networks that provide an alternative to incumbent local
exchange carriers. The Company provides, through its established sales channels,
telecommunications services that include long distance, Internet access and data
transmission services and recently introduced local dial tone services. The
Company also produces advanced telecommunications switching platforms with
integrated applications software and network telemanagement capabilities through
its equipment subsidiary, NACT.
The Company's digital networks currently serve 19 cities in Arizona,
California, Hawaii, New Mexico and Washington. In addition, the Company has
networks under construction which, when completed, will serve 18 additional
cities and expand its regional footprint to Idaho, Oregon, Utah and five
Hawaiian Islands.
The Telecommunications Act of 1996 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 existing
telecommunications service offerings. In order to capitalize on these
opportunities, the Company has accelerated the development of additional
networks within its region while significantly expanding its product and service
offerings, primarily with respect to the provision of local services. To
facilitate its entry into local services, the Company has in service two high
capacity digital switches, has installed and is testing five additional high
capacity digital switches and is planning to deploy an additional eight such
switches in 1997.
RESULTS OF OPERATIONS
REVENUES. Total revenues for the three and six month periods ended
March 31, 1997 increased $16.3 million, or 196.0%, and $33.0 million, or 222.4%,
respectively, over the comparable three and six month periods ended March 31,
1996. Telecommunications services revenues for the three and six month periods
ended March 31, 1997 increased $12.6 million, or 180.3%, and $26.5 million, or
230.0%, respectively, over the comparable periods in the previous year. The
increase in telecommunications services revenues resulted from the inclusion of
revenues from strategic acquisitions, including GST Call America, Inc. and
TotalNet Communications, Inc., as well as increased CLEC service revenues
generated by the Company's networks. To a lesser extent, the increase in
telecommunications services revenues resulted from increased Internet, shared
tenant and data services. Telecommunications products revenues for the three and
six month periods ended March 31, 1997 increased $3.7 million, or 277.7%, and
$6.5 million, or 196.1%, respectively, over the three and six months ended March
31, 1996. The increase in
11
<PAGE>
telecommunication products revenues resulted from the introduction in April 1996
of NACT's STX switch and subsequent increased unit sales.
OPERATING EXPENSES. Total operating expenses for the three and six
month periods ended March 31, 1997 increased $25.5 million, or 150.5%, and $54.2
million, or 184.6%, respectively, over the three and six month periods ended
March 31, 1996. Network expenses, which include direct local and long distance
circuit costs, were 86.3% and 85.8%, respectively, of telecommunications
services revenues for the three and six month periods ended March 31, 1997,
compared to 80.8% and 85.7% for the comparable periods in the previous year.
Facilities administration and maintenance expenses for the three and six month
periods ended March 31, 1997 were 15.9% and 16.9%, respectively, of
telecommunications services revenues compared to 26.2% and 27.5% for the
comparable periods ended March 31, 1996. The primary reason for the decrease in
these expenses as a percent of telecommunications services revenues is the
inclusion of revenue from 1996 strategic acquisitions, substantially all of
which are not generated on the Company's networks.
Cost of product revenues at NACT for the three and six month periods
ended March 31, 1997 were 36.7% and 37.4%, respectively, of telecommunications
products revenues, compared to 64.4% and 50.1% for the comparable periods ended
March 31, 1996. The decrease results from economies of scale related to
increased unit sales of NACT's STX switch. Additionally, cost of
telecommunications products revenues as a percentage of telecommunications
products revenues increased in the three month period ended March 31, 1996 due
to decreased demand for the LCX, the predecessor to the STX, during the
transition from the LCX to the STX. Research and development costs at NACT for
the three and six months ended March 31, 1997 increased $.3 million and $.4
million, respectively, over the comparable periods in the previous year. The
increase is primarily due to the addition of personnel to enhance the current
switch product line and to facilitate the development of new switching products
and applications.
Selling, general and administrative expenses for the three and six
month periods ended March 31, 1997 increased $9.1 million, or 144.4%, and $19.8
million, or 184.1%, respectively, over the three and six months ended March 31,
1996. The increase is primarily due to the expansion of the Company's CLEC and
enhanced services operations and the acquisition of three long distance
companies and a provider of shared tenant services in the last half of fiscal
1996. The implementation of the Company's integrated services strategy has
resulted in additional marketing, management information and sales staff.
Depreciation and amortization for the three and six month periods
ended March 31, 1997 increased $2.5 million and $5.9 million, respectively, over
the comparable periods in the previous year. The increase is attributable to
newly-constructed networks becoming operational and to the amortization of
intangible assets related to the Company's fiscal 1996 acquisitions. The Company
expects that depreciation will continue to increase as it expands its networks
and increases switched services. Effective January 1, 1997, the Company changed
the estimated depreciable lives of certain fixed assets. The effect of the
change was to decrease depreciation expense by $.3 million for the quarter
ended March 31, 1997. The Company does not expect the impact of such changes to
be material in the future.
OTHER EXPENSES/INCOME. For the three and six months ended March 31,
1997, the Company recorded net other income of $2.0 million and net other
expense of $2.7 million, respectively, compared to net other expense of $4.6
million and $6.2 million for the comparable periods ended March 31, 1996. The
primary reason for the improvement in other expense/income as compared to the
previous year was a $7.4 million gain recognized on the sale of one million of
the Company's shares of NACT in February 1997. If such gain had been excluded,
other expenses
12
<PAGE>
for the three and six month periods ended March 31, 1997 would have increased
$.8 million and $3.8 million, respectively, over the three and six month periods
ended March 31, 1996. For the three month period, the increase is primarily due
to a decrease in interest income resulting from a decrease in cash and
investments as compared to the prior year. The increases were partially offset
by a decrease in interest expense which resulted from increased capitalization
of interest expense due to an increase in asset construction activity. For the
six month period, the increase primarily resulted from increased interest
expense due to the issuance of $180 million in debt securities in December 1995
and from a decrease in interest income, as noted herein.
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 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
$108.2 million and $172.7 million for the six month periods ended March 31, 1997
and 1996, respectively. The Company's net cash used in operating and investment
activities was $132.4 million and $42.3 million for the six month periods ended
March 31, 1997 and 1996, respectively.
Capital expenditures for the six months ended March 31, 1997 and
1996 were $120.6 million and $22.0 million, respectively. The Company estimates
capital expenditures of approximately $260 million and $150 million for the
fiscal years 1997 and 1998, respectively. The majority of these expenditures is
expected to be made for network construction and the purchase of switches and
related equipment to facilitate the offering of the Company's services.
Continued significant capital expenditures are expected to be made thereafter.
In addition, the Company expects to continue to incur 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 economic conditions, competition, regulatory developments and
the availability of capital.
In October 1994, the Company and Tomen entered into agreements (the
"Tomen Facility") pursuant to which Tomen agreed to make available up to a total
of $100 million of financing on a project by project basis, for the construction
and development of network projects. Tomen has a right of first refusal to
finance each network project up to the limit of the facility. To date, Tomen has
provided, or agreed to provide, $34.5 million in debt financing under the Tomen
Facility for the Company's network projects in Southern California, Tucson and
Albuquerque. Furthermore, Tomen has purchased 1,449,074 common shares without
par value (the "Common Shares"), and holds warrants to purchase 171,155
additional Common Shares. In November 1996 Tomen agreed in principle to provide
the Company with $41 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 and
warrants to purchase 75,000 additional Common Shares.
In December 1995, the Company completed a $180 million debt
offering, consisting of $160 million in senior discount
13
<PAGE>
notes and $20 million in convertible senior subordinated discount notes
(collectively, the "1995 Notes"). The net proceeds from the issuance of the 1995
Notes, $171.3 million, were used to fund network development, capital
expenditures and working capital requirements.
In October 1996, the Company completed a private placement to
non-U.S. investors of two million special warrants (the "Special Warrants").
Each Special Warrant is exercisable for one common share and one-half of an
underlying warrant. Each full underlying warrant entitles the holder to purchase
one additional Common Share at $13.00 for one year from the date of issuance.
The Company received $9.7 million in net proceeds in October 1996 and the
remaining $11.1 million in net proceeds in January 1997.
In September 1996, the Company entered into a loan agreement with
Siemens Stromberg-Carlson (Siemens) that provides for loans by Siemens of up to
an aggregate of $226 million to finance the purchase of Siemens equipment and
certain equipment from other suppliers. $116 million of such loan proceeds is
presently available to the Company. The Company may seek to obtain the balance
of such proceeds on an as needed basis, subject to the negotiation and execution
of mutually satisfactory documentation. In December 1996, the Company entered
into an agreement with Northern Telecom Finance Company (NTFC), which provides
for $50 million of equipment financing to finance the purchase of equipment and
products from Northern Telecom, Inc. As of March 31, 1997, the Company has
borrowed $41.9 million pursuant to the NTFC agreement.
In February 1997, the Company consummated a private placement of $50
million of the Preferred Shares. The Preferred Shares, which are convertible at
any time after February 28, 2000 at an imputed price of $11.375 per share, will
not pay dividends in cash, except to the extent cash dividends are paid on
Common Shares. In addition, the liquidation and redemption prices of the
Preferred Shares will accrete at a semi-annual rate of 11.875%. On February 28,
2004, and under certain circumstances, the Preferred Shares will also be subject
to mandatory conversion or redemption, provided that to the extent the Company
is prohibited from paying the redemption price in cash, holders of the Preferred
Shares may elect to convert such shares into Common Shares and if such election
is not made, the Company may extend the mandatory redemption date to August 28,
2007.
In February 1997, NACT completed an initial public offering of its
common stock pursuant to which the Company and NACT sold one million and two
million shares, respectively, of NACT's common stock, resulting in net proceeds
to the Company and NACT of approximately $9.1 million and $18.2 million,
respectively.
In May 1997, the Company completed the offering of $265 million in
senior secured notes (the "1997 Notes"). The net proceeds from the issuance of
the 1997 Notes, $255.6 million, will be used to purchase and install
telecommunications equipment such as fiber optic cable, switches and other
related equipment, to pay the first six scheduled interest payments on the 1997
Notes and to refinance approximately $40 million of previously purchased capital
equipment. The indentures, and the indentures associated with the 1995 Notes,
include restrictive covenants which, among other items, limit or restrict
additional indebtedness incurred by the Company, investment in certain
subsidiaries, the sale of assets and the payment of dividends.
The Company proposes to incur significant additional indebtedness to
purchase telecommunications equipment such as switches and fiber optic cable and
to finance related design,
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development, construction, installation and integration costs. The Company may
make public and private offerings of its debt and equity securities and may
negotiate additional credit facilities.
At March 31, 1997, the Company had cash, cash equivalents,
restricted cash and investments of $50.3 million, compared to $82.5 million at
September 30, 1996. Management believes that the cash on hand, including the
proceeds from the sale of the 1997 Notes in May 1997, and borrowings expected to
be available under the Tomen Facility, the NTFC agreement and the Siemens
agreement will provide sufficient funds for the Company to expand its business
as presently planned and to fund its operating expenses through June 1998.
Thereafter, the Company expects to require additional financing. In the event
that the Company's plans or assumptions change or prove to be inaccurate, or its
cash resources, together with borrowings under the current financing
arrangements 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 sources of capital sooner than currently
anticipated. There can be no assurance that the Tomen Facility or other
financing will be available to the Company or, if available, that it can be
concluded on terms acceptable to the Company or within the limitations contained
within 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 or expansion plans and could have material adverse effect on the
Company's business. 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.
The Company's liquidity substantially improved as a result of the
1995 Notes offering and the 1997 Notes offering because the 1995 Notes do not
require the payment of cash interest prior to June 2001 and the 1995 Notes and
1997 Notes do not require the payment of principal until maturity in 2005 and
2007, respectively. However, a portion of the indebtedness under the Tomen
Facility and a portion of the equipment financing will 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 and 1997 Notes in full at
maturity and that such notes may need to be refinanced. The ability of the
Company to 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. 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, the 1997 Notes or its equipment
financing.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Baord issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share". The Statement establishes a different method of computing net income per
share than is currently required under the provisions of Accounting Principles
Board Opinion No. 15. Under SFAS No. 128, the Company will be required to
present both basic net income per share and diluted net income per share. Basic
net income per share is expected to be comparable or slightly higher than the
currently presented net income per share as the effect of dilutive stock options
will not be considered in computing basic net income per share. Diluted net
income per share is expected to be comparable or slightly lower than the
currently presented net income per share.
The Company plans to adopt SFAS No. 128 in the first quarter of
fiscal 1998 and does not expect the new pronouncement to have a significant
impact on per share data.
15
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about February 25, 1997, US WEST filed a declaratory judgment
action against members of the Arizona Corporation Commission (the "ACC"),
American Communications Services Inc., Brooks Fiber Properties Inc. and the
Registrant in the United States District Court in Arizona. The Registrant
understands that one or more substantially similar lawsuits have been filed
against other competitive local exchange carriers, including MFS Communications
Company, Inc. ("MFS"). US WEST alleges that the ACC has entered into an
interconnection order that unlawfully requires US WEST to resell services below
cost, imposes resale restrictions and denies US WEST recovery for construction
and implementation costs, unlawfully treats the cost recovery of access revenues
for interim number portability, requires US WEST to obtain additional rights of
way or build additional facilities solely to provide access to the Registrant,
and amounts to a taking of US WEST's property without just compensation. US WEST
seeks a declaratory judgment stating that the ACC has violated the
Telecommunications Act of 1996 and that the ACC has taken US WEST's property
without providing just compensation. US WEST also seeks an injunction
prohibiting all defendants, including the Registrant, from taking any action to
enforce any of the order's allegedly unlawful provisions. The Registrant's time
to answer or move against the complaint has been extended indefinitely by US
WEST, pending a decision with respect to a motion to dismiss the complaint
against MFS in the action filed by US WEST against it. Should US WEST prevail in
its suit, it would have an adverse impact on the Registrant's operations in
Arizona; however, the magnitude thereof is uncertain at this time.
ITEM 2. CHANGES IN SECURITIES
1. On January 5, 1997, the Registrant issued an aggregate of 168,249
Common Shares to 23 individuals as an installment payment in consideration for
the Registrant's acquisition of a minority interest in NACT Telecommunications,
Inc.
2. On February 11, 1997, the Registrant issued 10,000 Common Shares to
one individual pursuant to a stock bonus agreement entered into in March 1996.
3. On February 28, 1997, the Registrant issued $50 million of Series A
Convertible Preference Shares (the "Preference Shares"). See the Registrant's
Report on Form 8-K filed on March 14, 1997 for a description of issuance of the
Preference Shares, including the terms of conversion, which is incorporated
herein by reference.
4. On March 4, 1997, the Registrant issued an aggregate of 15,000
Common Shares to four individuals pursuant to employment and consulting
agreements entered into in connection with the Registrant's acquisition of
Hawaii On Line in February 1996.
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5. On March 19, 1997, the Registrant issued an aggregate of 31,848
Common Shares to four individuals as an installment payment in consideration for
the Registrant's acquisition in September 1996 of Tri-Star Residential
Communications Corp.
There were no underwriters involved in any of the foregoing
issuances of equity securities and such issuances were exempt from registration
under Section 4(2) of the Securities Act of 1933, as amended, as transactions
not involving a public offering.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant held its Annual Meeting of Shareholders on
March 17, 1997. The following matters were voted upon at such meeting:
1. The election of John Warta, W. Gordon Blankstein,
Stephen Irwin, Robert H. Hanson, Thomas E. Sawyer, Ian Watson, Peter E. Legault,
Jack G. Armstrong and Takashi Yoshida as directors of the Registrant to serve
until the next annual meeting or until their successors are duly elected and
appointed.
2. The approval of an amendment to the Registrant's 1996
Stock Option Plan to increase the number of Common Shares that may be subject to
options under such plan from 400,000 to 700,000.
3. The approval of the Registrant's Senior Executive
Officer Stock Option Plan.
4. The approval of the Registrant's Senior Operating
Officer Stock Option Plan.
5. The appointment of KPMG Peat Marwick LLP as the
Registrant's auditors until the next annual meeting.
All of such matters were approved by a majority of the
Registrant's shareholders based upon a showing of hands at the annual meeting
pursuant to the requirements of Canadian corporate law.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1 Employment Agreement dated March 11,
1997, by and between GST USA, Inc.
and Joseph Basile, Jr.
Exhibit 10.2 Employment Agreement dated February
10, 1997, by and between GST USA,
Inc. and GST Telecom Inc. and Daniel
L. Trampush
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
On March 14, 1997, the Registrant filed a Report on Form 8-K
reporting, in "Item 5. Other Events," the consummation of a
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private placement of $50 million of Series A Convertible Preference Shares with
Ocean Horizon S.R.L., an affiliate of Princes Gate Investors II, L.P.
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S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
Date: MAY 14, 1997 GST TELECOMMUNICATIONS, INC.
------------ (Registrant)
/S/ CLIFFORD V. SANDER
-------------------------------------
Clifford V. Sander
(Senior Vice President and Treasurer)
/S/ DANIEL L. TRAMPUSH
-------------------------------------
Daniel L. Trampush,
(Senior Vice President and Chief
Financial Officer)
19
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made this 11th day of March, 1997
("Effective Date"), by and between GST USA, INC., a Delaware corporation (the
"Corporation") with its principal office at 4317 N.E. Thurston Way, Vancouver,
Washington 98662, and JOSEPH BASILE, residing at 14201 Secluded Lane, North
Potomac, Maryland 20878 (the "Executive").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Corporation desires to employ Executive, and
Executive desires to undertake such employment, upon the terms and subject to
the conditions of this Agreement;
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 Corporation hereby
employs Executive as its Chief Operating Officer to perform the duties and
responsibilities incident to such position, subject at all times to the control
and direction of the Board of Directors of the Corporation (the "Board") and the
Chief Executive Officer of the Corporation (the "CEO"). Executive shall be
elected the President and Chief Operating Officer of GST Telecommunications,
Inc. ("GST") contemporaneously with the execution and delivery of this Agreement
and shall continue to be elected and employed as such throughout the Term (as
hereinafter defined), subject at all times to the control and direction of the
Board of Directors of GST (the "GST Board") and the Chief Executive Officer of
GST ("GST CEO").
<PAGE>
2. ACCEPTANCE OF EMPLOYMENT; TIME AND ATTENTION.
Executive accepts such employment and throughout the period of his employment
hereunder shall devote his full time, attention, knowledge and skills,
faithfully, diligently and to the best of his ability, in furtherance of the
business of the Corporation, its parent corporation, GST, and GST's 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 Board and the CEO. As the Chief
Operating Officer of the Corporation and President and Chief Operating Officer
of GST, 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 and GST consistent with such positions as may be assigned to
Executive from time to time by the Board and the CEO with respect to his
position(s) with the Corporation and as may be assigned to him by the GST Board
and the GST CEO with respect to his positions with GST. 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, provided that they are not inconsistent with the terms of this
Agreement. 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. Executive shall be elected to such offices of the GST Companies as
may from time to time be determined by the GST Board. During the period of
Executive's employment hereunder, he shall not be entitled to
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additional compensation for serving in any offices of the GST Companies to which
he is elected or appointed. While it is anticipated that Executive's duties will
primarily be performed in Vancouver, Washington, Executive will be required to
travel on a regular basis to perform such duties, including without limitation,
to other offices of the GST Companies.
3. TERM. Except as otherwise provided herein, the term
of Executive's employment hereunder shall commence on the date hereof and shall
continue to and include the day preceding the fifth anniversary date thereof
("Term").
4. COMPENSATION. As compensation for his services
hereunder, the Corporation shall pay to Executive (i) a base salary at the rate
of $250,000 per annum, or such greater amount as may be determined from time to
time by the GST Board based upon annual reviews of the performance of
Executive's duties hereunder, payable in equal installments no less frequently
than semi-monthly; and (ii) incentive compensation, in such amount (not to
exceed 60% of Executive's then current base salary) as is determined by the GST
Board (or the Compensation Committee thereof) in its sole discretion, based upon
the achievement by the GST Companies of the Performance Objectives (as
hereinafter defined). For the purposes of this Agreement, Performance Objectives
shall mean those objectives relating to the operations of the GST Companies for
each six-month period during the term hereof (each a "Measuring Period")
mutually determined by the GST CEO and Executive. The GST CEO and Executive
shall use their best efforts and negotiate in good faith to determine the
Performance Objectives for each Measuring Period, which Performance Objectives
for any Measuring Period shall be no
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less stringent than those for the immediately preceding Measuring Period. All
compensation paid to Executive shall be subject to withholding and other
employment taxes imposed by applicable law.
5. STOCK OPTIONS. The Corporation is causing GST to
grant to Executive on the date hereof pursuant to the stock option plans of GST
the following options: (i) a five-year option (the "Firm Option") to purchase
150,000 Common Shares, without par value (the "Common Shares") of GST at an
exercise price of $10.00 per Common Share, which shall be exercisable as to
50,000 Common Shares from and after the first anniversary of the date of grant,
as to an additional 50,000 Common Shares from and after the second anniversary
of the date of grant, and as to the remaining 50,000 Common Shares from and
after the third anniversary of the date of grant; (ii) a five-year option (the
"Trading Price Option") to purchase 150,000 Common Shares at an exercise price
of $10.00 per Common Share, which shall be exercisable (a) as to 50,000 Common
Shares, subsequent to the time that the Fair Market Value (as such term is
hereinafter defined) of the Common Shares exceeds $13.75 for 20 consecutive
trading days, but in no event earlier than March 11, 1998; (b) as to 50,000
Common Shares, subsequent to the time that the Fair Market Value of the Common
Shares exceeds $16.50 for 20 consecutive trading days, but in no event earlier
than March 11, 1999; and (c) as to the remaining 50,000 Common Shares,
subsequent to the time that the Fair Market Value of the Common Shares exceeds
$20.00 for 20 consecutive trading days, but in no event earlier than March 11,
2000; and (iii) a five-year option to purchase 150,000 Common Shares at an
exercise price of $10.00 per Common Share ("Performance Option"), which shall be
exercisable in the
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same installments as the Firm Option, but whose exercise shall also be subject
to the achievement of the Performance Objectives. To the extent permissible
under applicable provisions of the Internal Revenue Code of 1986, as amended
("Code"), each of the above options shall be granted so as to qualify as
incentive stock options (within the meaning of the Code).
6. CHANGE OF CONTROL. In the event of a Change of
Control (as such term is hereinafter defined), (i) the Firm Option and the
Performance Option shall become exercisable in full (without regard to the terms
under which they were originally granted) and (ii) the Trading Price Option
shall become exercisable as to those portions thereof the exercise of which is
predicated upon the attainment by the Common Shares of a Fair Market Value not
greater than the valuation accorded the Common Shares in the transaction
resulting in such Change of Control. By way of illustration, if in a merger
resulting in a Change of Control, the Common Shares were valued at $18.00, the
Trading Price Option would become exercisable (to the extent not theretofore
exercisable) as to 100,000 Common Shares. In the case of a Change of Control in
which the Common Shares are not valued, e.g., a transaction of the type
identified in clause (3) below, the Trading Price Option shall become
exercisable in full. For the purposes of this Agreement, (a) a Change of Control
means (1) the direct or indirect sale, lease, exchange or other transfer of all
or substantially all (50% or more) of the assets of GST or of the Corporation 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,
(2) the merger, consolidation or other business
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<PAGE>
combination of either or both of GST and the Corporation with or into another
corporation with the effect that the shareholders of GST or the Corporation, 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 of such surviving entity, (3) the replacement of a majority of the
GST Board, of any committee of the GST Board, of the Board or any committee of
the Board in any given year as compared to the directors who constituted the GST
Board, such committee of the GST Board, the Board or such committee of the Board
at the beginning of such year, and such replacement shall not have been approved
by the GST Board or the Board, as the case may be, as constituted at the
beginning of such year, or (4) 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 of the Corporation 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; and (b) Fair Market Value means the closing price
of the Common Shares on the U.S. national securities exchange on which the
Common Shares are listed (if the shares are so listed) or on the
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<PAGE>
NASDAQ National Market or Small Cap Market (if the Common Shares are regularly
quoted on the NASDAQ National Market or Small Cap Market), or, if not so listed
or regularly quoted or if there is no such closing price, the mean between the
closing bid and asked prices of the Common Shares in the over-the-counter market
or on such exchange or on NASDAQ, or, if such bid and asked prices shall not be
available, as reported by any nationally recognized quotation service selected
by the Corporation. On the date hereof, the Common Shares are listed and traded
on the American Stock Exchange and the Vancouver Stock Exchange.
7. 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 from and after the date hereof, 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 and insurance, stock option, bonus or other employee benefit
plan available to the executive officers of the GST Companies that may be in
effect from time to time during the period of Executive's employment hereunder.
The GST Companies shall be under no obligation to institute or continue the
existence of any such employee benefit plan.
8. LOAN TO EXECUTIVE. Executive is the owner of his
primary residence located at the address set forth in the introductory paragraph
of this Agreement (the "Primary Residence"). Executive shall use his best
efforts to sell the Primary Residence as promptly as practicable after June 30,
1997. During the period commencing on the date hereof and ending when the
Primary Residence
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<PAGE>
is sold, the Corporation shall make available to Executive a loan in an amount
not to exceed $100,000 (the "Relocation Loan"), the proceeds of which shall be
utilized by Executive to purchase a new primary residence in the Vancouver,
Washington area (the "New Primary Residence"), to pay the downpayment thereon
and to pay the costs of ownership of the New Primary Residence, e.g., mortgage,
insurance and maintenance costs and taxes based upon ownership of the New
Primary Residence (the "New Residence Costs"). The Relocation Loan shall be
disbursed from time to time as requested in writing by Executive. The Relocation
Loan shall be due and payable on the third anniversary of the date hereof,
provided that it shall be prepaid to the extent of the proceeds of sale of the
Primary Residence and of the proceeds of sale of Common Shares acquired upon
exercise of any of the options referred to in Paragraph 5 hereof. The Relocation
Loan shall bear interest at the rate of 6% per annum and shall be evidenced by a
promissory note substantially in the form of Exhibit A hereto made by Executive
to the Corporation.
9. RELOCATION EXPENSES. The Corporation shall pay
directly or reimburse Executive for the following expenses relating to
Executive's relocation to the Vancouver, Washington area: (i) reasonable moving
and storage costs, e.g., normal shipping services, including up to 30 days of
temporary storage, packing, delivery, shipment of up to two vehicles, unpacking
and furniture set-up, but not shipment of boats, crating of antiques, paintings
or collections, storage in excess of 30 days; and (ii) costs not to exceed
$2,500 per month for (a) a suitable temporary residence in the Vancouver,
Washington area for Executive and his family, until
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<PAGE>
such time as Executive and his family occupy the New Primary Residence, and (b)
New Residence Costs, for a period commencing on July 1, 1997 and ending on the
earlier to occur of (1) the sale of the Primary Residence, or (2) June 30, 1998.
10. REIMBURSEMENT OF EXPENSES. The Corporation 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 Corporation of appropriate receipts or vouchers and approval
thereof by the Chief Accounting Officer of the Corporation, which approval shall
not be unreasonably withheld or delayed. Executive shall also 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.
11. VACATION. Executive shall be entitled to four 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 CEO. Vacation time shall not be cumulative from one 12-month
period to the next, but Executive shall receive vacation pay at his then current
salary rate for any vacation time not taken by him.
12. D & O INSURANCE COVERAGE. The Corporation shall use
its best efforts to cause GST to obtain and maintain, at GST's cost
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<PAGE>
and expense, directors' and officers' liability insurance coverage for the
directors and officers of GST and the Corporation, 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.
Executive shall not be required to serve in any office of the GST Companies if
such coverage is not applicable to his service in such office.
13. 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 one year after such termination, 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 (each, a "Competing Business"),
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 at the time of such termination 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
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Competing Business is in competition with a business of the GST Companies that
has commenced operations, the revenues from such business of the GST Companies
must have represented at least 10% of the combined revenues of the GST Companies
during the 12-month period preceding such termination of this Agreement. For the
purposes of this Agreement, the GST Companies will be deemed to be "actively
planning and/or pursuing a business opportunity," if any such opportunity is at
a given point in time under active consideration by management of one or more of
the GST Companies and the GST Companies have expended not less than $100,000 in
connection with such opportunity; (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; or (c) induce, influence or seek to induce or influence
any person engaged as an employee, representative, agent or independent
contractor 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
13 are reasonable and necessary for the protection of the
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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 13, 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.
14. 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 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 (i) that is or becomes generally available to the public
through no wrongful act on Executive's part; (ii) that was known to Executive
prior to the date hereof; (iii) that Executive can demonstrate, to the
reasonable satisfaction of the GST Companies, was independently
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developed by him or (iv) to the extent required by applicable court order or
laws, rules and regulations.
15. 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 Paragraphs 13 or 14 hereof, the Corporation
will not have an adequate remedy at law. Accordingly, in the event of any such
breach or threatened breach by Executive, the Corporation 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
Corporation 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.
16. TRANSITION PERIOD. During the period commencing on
the date hereof and ending on June 30, 1997, Executive's duties shall permit him
to visit his family at the Primary Residence for at least two days in every
14-day period, the reasonable round trip costs of such visit to be borne by the
Corporation.
17. DEATH. In the event of termination of Executive's
employment hereunder by reason of his death, the Corporation 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
Corporation, each subsequent designation to revoke all prior designations, or if
no such designation is made, to Executive's estate (the "Payment
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Beneficiary"). The Benefit Payment shall be in an amount equal to one and
one-half times Executive's then current annual 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 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.
18. DISABILITY. In the event that during the term of his
employment by the Corporation 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 the third anniversary
of the Effective Date, Executive thereafter shall be entitled to receive salary
at an annual rate equal to one-half of his then current annual base salary for a
further period ending on the earlier of (i) one year thereafter, or (ii) the day
preceding the third anniversary of the Effective Date (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
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cease to be Disabled and shall have resumed his duties hereunder and provided
that the Corporation shall not have theretofore terminated this Agreement as
hereinafter provided. The Corporation may terminate this Agreement and
Executive's employment hereunder at any time after Executive is Disabled, upon
at least 10 days' prior written notice; provided, however, that such termination
shall not affect the Corporation's obligations to make payments to Executive
during the First Disability Payment Period or the Second Disability Payment
Period. 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 Corporation
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, Executive shall not be deemed to be
Disabled unless and until three physicians qualified to practice medicine in the
United States of America, one to be selected by the Corporation, one to be
selected by Executive and the third to be selected by the designated physicians,
have determined (by a majority vote) that Executive is Disabled. If Executive
shall receive benefits under any disability policy maintained by the GST
Companies, the Corporation shall be entitled to deduct the amount equal to the
benefits so received from base
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<PAGE>
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 GST Companies.
19. TERMINATION FOR CAUSE. The Corporation 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 by the Corporation; (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
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<PAGE>
any such event, Executive shall be entitled to receive his base salary to and
including the date of termination.
20. PERFORMANCE OBJECTIVES TERMINATION. The Corporation
may also terminate this Agreement if the GST Companies fail to achieve the
Performance Objectives for any two consecutive Measuring Periods during the Term
and the Corporation or GST has given written notice to Executive of such failure
within 90 days after the end of the second of such two Measuring Periods. In any
such event, (i) the Corporation shall pay to Executive, as liquidated damages, a
sum equal to 75% of his then current annual base salary (the "Termination
Payment") in a single payment within 10 days after such termination; and (ii)
the Firm Option thereupon shall become exercisable in full (without regard to
the anniversaries on which such options are exercisable). Upon receipt of the
Termination Payment, Executive shall deliver to the Corporation his resignation
as an officer and director of the Corporation and GST.
21. TERMINATION FOR EMPLOYER BREACH. Executive may upon
written notice to the Corporation terminate this Agreement (a termination for
"Employer Breach") in the event of the breach by the Corporation of any material
provision of this Agreement, including without limitation, a breach by either of
the Corporation or GST of Paragraph 1 hereof or a breach by the Corporation of
Paragraph 4 hereof, and if such breach is susceptible of cure, the failure to
effect such cure within 30 days after written notice of such breach is given to
the Corporation. The termination of this Agreement by Executive by reason of
Employer Breach shall not
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<PAGE>
constitute a waiver by Executive of any of his rights to compensation of any
kind hereunder.
22. 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.
23. SURVIVAL OF PROVISIONS. 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.
24. 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 GST Companies
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 hereto shall be valid or binding unless made in
writing and signed by the party against whom enforcement thereof is sought.
25. 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
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<PAGE>
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 Corporation, at its 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, Esq.
If to Executive, at his address set forth above with
a copy to:
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
Attention: Cary J. Meer, Esq.
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 25. 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 in the mail.
26. NO ASSIGNMENT; BINDING EFFECT. Neither this
Agreement, nor the right to receive any payments hereunder, may be assigned by
Executive or the Corporation without the prior written consent of the other
party hereto. This Agreement shall be binding upon Executive, his heirs,
executors and administrators and upon the Corporation, its successors and
permitted assigns.
27. WAIVERS. No course of dealing nor any delay on the
part of the Corporation or Executive in exercising any rights hereunder shall
operate as a waiver of any such rights. No waiver
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<PAGE>
of any default or breach of this Agreement shall be deemed a continuing waiver
or a waiver of any other breach or default.
28. 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.
29. 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.
30. 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.
31. GOVERNING LAW. This Agreement shall be governed,
interpreted and construed in accordance with the terms of the State
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of Delaware, except that body of law relating to choice of laws.
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/ John Warta
--------------------------------
Name: John Warta
Title: Chief Executive Officer
/s/ Joseph Basile
------------------------------
JOSEPH BASILE
THE FOREGOING AGREEMENT IS
CONSENTED TO AND ACKNOWLEDGED:
GST TELECOMMUNICATIONS, INC.
By: /s/ John Warta
------------------------
Name: John Warta
Title: Chairman and Chief Executive Officer
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<PAGE>
EXHIBIT A
PROMISSORY NOTE (NON-NEGOTIABLE)
$100,000 Vancouver, Washington
__________, 199_
For value received, the undersigned promises to pay to GST
USA, Inc. ("GUSA") on ____________, 200_ [THREE YEARS AFTER DATE] the principal
sum of One Hundred Thousand ($100,000) Dollars, or if less, the aggregate unpaid
principal sum of all advances (the "Advances") made by GUSA or its affiliates to
the maker of this Note in respect of the Relocation Loan pursuant to the terms
and conditions of a certain Employment Agreement dated March 11, 1997 between
GUSA and the maker of this Note (the "Employment Agreement"). Each advance and
interest thereon shall be payable by check, subject to collection, to the order
of GUSA.
Each Advance shall bear interest at the rate of six (6%)
percent per annum from the date that it is made until the date that it is
repaid.
This Note shall be prepaid to the extent of proceeds of sale
of the Primary Residence and of any Common Shares acquired upon exercise of the
options described in Paragraph 5 of the Employment Agreement.
GUSA is hereby authorized to enter on the Schedule attached
hereto the amount of each advance and each payment of principal thereon, without
any further authorization on the part of the maker or any endorser or guarantor
of this Note, but GUSA's failure to make such entry shall not limit or otherwise
affect the obligations of the maker or any endorser or guarantor of this Note.
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<PAGE>
If this Note is not paid in full when due, the undersigned
hereby agrees to pay all costs and expenses of collection, including reasonable
attorneys' fees.
This Note shall become immediately due and payable, without
notice or demand, upon the happening of any of the following events: the making
by the maker or any guarantor of this Note of an assignment for the benefit of
creditors, or a trustee or receiver being appointed for the maker or any such
guarantor or for any property of any of them, or any proceeding being commenced
by or against the maker or any such guarantor under any bankruptcy,
reorganization, arrangement of debt, insolvency, readjustment of debt,
receivership, liquidation or dissolution law or statute.
The undersigned and all endorsers and guarantors hereof,
jointly and severally waive presentment, demand for payment, notice of dishonor,
notice of protest and protest, and all other notices or demands in connection
herewith and assent to any extension or postponement of the time of payment or
other indulgence or release of any party, whether by operation of law or
otherwise.
No delay by GUSA in exercising any power or right hereunder
shall operate as a waiver of any power or right, nor shall any single or partial
exercise of any power or right preclude other or further exercise thereof, or
the exercise of any other power or right hereunder or otherwise; and no waiver
whatever or modification of the terms hereof shall be valid unless set forth in
writing and signed by the maker of this Note and GUSA. No waiver shall be deemed
a continuing waiver or waiver of any subsequent breach or default, whether of a
similar or different nature, unless expressly so stated in writing.
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<PAGE>
This Note is made and delivered in and shall be governed by
and construed in accordance with the laws of the State of Delaware, except that
body of law relating to choice of laws.
All capitalized terms used herein and not otherwise defined
shall have the meanings accorded them in the Employment Agreement.
------------------------------
JOSEPH BASILE
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<PAGE>
SCHEDULE TO NOTE
Maker: Joseph Basile Date of Note: _________, 199_
Unpaid
Amount of Principal
Amount of Principal Balance of Name of Person
Date Advance Repaid Note Making Notation
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-25-
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made this 10th day of February,
1997, 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
DAN TRAMPUSH, residing at 902 Falls Bridge Lane, Great Falls, Virginia 22066
(the "Executive").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Corporations desire to employ Executive, and
Executive desires to undertake such employment, upon the terms and subject to
the conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter set forth, the parties hereto agree as follows:
1.
EMPLOYMENT OF EXECUTIVE. Effective upon the date that
is the earlier of April 10, 1997 or the day after the date on which Executive is
no longer a partner of Ernst & Young ("E&Y") (the "Effective Date"), the
Corporations employ Executive as their Chief Financial Officer to perform the
duties and responsibilities incident to such position, subject at all times to
the control and direction of the Board of Directors of the Corporations (the
"Boards") and the Chief Executive Officer of the Corporations (the "CEO").
Anything in the foregoing to the contrary notwithstanding, if the Effective Date
shall not have occurred on or before April 10, 1997, this Agreement shall be
null and void and of no force and effect AB INITIO.
<PAGE>
2. ACCEPTANCE OF EMPLOYMENT; TIME AND ATTENTION.
Executive accepts such employment effective upon the Effective Date and
throughout the period of his employment hereunder shall devote his full 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 GST's 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 CEO. 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 Corporations consistent with his position as a senior
executive officer of the Corporations as may be assigned to Executive from time
to time by the Boards and the CEO. 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; provided that nothing
herein shall be construed to prohibit Executive from rendering services as a
partner of E&Y between the date hereof and the Effective Date or from receiving
compensation from E&Y. 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"). The GST Board has advised the Corporations
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<PAGE>
that its present intention to elect Executive a Senior Vice President of GST on
the Effective Date. 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. While it is anticipated
that Executive's duties will primarily be performed in Vancouver, Washington
subsequent to the Transition Period (as such term is hereinafter defined),
Executive will be required to travel on a regular basis to perform such duties,
including without limitation, to other offices of the GST Companies.
3. TERM. Except as otherwise provided herein, the term
of Executive's employment hereunder shall commence on the Effective Date and
shall continue to and include the day preceding the third anniversary date
thereof.
4. COMPENSATION. As compensation for his services
hereunder, the Corporations shall pay to Executive (i) a base salary at the rate
of $240,000 per annum, or such greater amount as may be determined from time to
time by the GST Board based upon annual reviews of Executive's performance
hereunder, payable in equal installments no less frequently than semi-monthly.
All compensation paid to Executive shall be subject to withholding and other
employment taxes imposed by applicable law.
5. STOCK OPTIONS. The Corporations shall cause GST to
grant to Executive pursuant to the 1996 Stock Option Plan of GST (i) on the
Effective Date, a five-year option (the "Initial Option") to purchase 100,000
Common Shares, without par value (the "Common Shares"), of GST at an exercise
price equal to Fair Market Value (as such term is hereinafter defined) of a
Common Share on
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<PAGE>
the date of such grant, which shall be exercisable as to 33,334 Common Shares
from and after the first anniversary of the date of grant, as to an additional
33,333 Common Shares from and after the second anniversary of the date of grant,
and as to the remaining 33,333 Common Shares from and after the third
anniversary of the date of grant; (ii) annually, commencing one year after the
date hereof, three-year options (the "Performance Options") with respect to
Common Shares in such amounts as shall be determined by the GST Board or the
Compensation Committee thereof based upon the performance by Executive of his
duties hereunder, such Performance Options to be exercisable from and after
their date of grant. The criteria to be utilized in evaluating such performance
shall include without limitation (w) value creation, consisting of capital
funding, lender/investor relations and participation in transactions; (x)
budgetary matters; (y) personnel-hiring and retention; and (z) compliance
matters. The exercise price of each Performance Option shall be equal to that of
the Initial Option. The number of Common Shares purchasable under each
Performance Option shall not exceed the quotient obtained by dividing an amount
equal to one-half of Executive's then current base salary by the exercise price
of the Initial Option. To the extent permissible under applicable provisions of
the Internal Revenue Code of 1986, as amended ("Code"), the Initial Option and
the Performance Options shall be granted so as to qualify as incentive stock
options (within the meaning of the Code).
6. CHANGE OF CONTROL. In the event of a Change of
Control (as such term is hereinafter defined), the following provisions shall be
applicable:
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<PAGE>
(i) The Initial Option thereupon shall
become exercisable in full (without regard to the terms under which it was
originally granted).
(ii) Subject to the provisions of
subparagraphs (iii) and (iv) below, if at the time of effectiveness of a Change
of Control, Executive shall have been granted Performance Options with respect
to less than 35,000 Common Shares, then upon such effectiveness, without further
action on the part of GST, Executive shall be deemed to have been granted an
additional performance option (the "Additional Performance Option") with respect
to that number of Common Shares that is the difference between 35,000 and the
number of Common Shares then subject to Performance Options, such Additional
Performance Option to be exercisable from and after its date of grant.
(iii) If, at the close of business on the
trading day preceding the day upon which a Change of Control becomes effective,
the Fair Market Value of a Common Share is $10.00 or less, then the Corporations
shall pay to Executive, within 30 days after such effectiveness, a lump sum in
an amount equal to Executive's then current annual base salary in lieu and in
full satisfaction of the obligation to grant the Additional Performance Option.
(iv) If, at the close of business on the
trading day preceding the day upon which the Change of Control becomes
effective, the Fair Market Value of a Common Share is more than $10.01 but not
more than $12.00, then the Corporations shall pay to Executive, within 30 days
after such effectiveness, a lump sum in an amount equal to one-half of
Executive's then current
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<PAGE>
annual base salary in lieu and in full satisfaction of the obligation to grant
the Additional Performance Option.
(v) For the purposes of this Agreement,
(a) a Change of Control means (1) the direct or indirect sale, lease, exchange
or other transfer of all or substantially all (50% or more) of the assets of GST
or either of 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, (2) 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 of such surviving entity, (3) 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, or (4) 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
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<PAGE>
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;
and (b) Fair Market Value means the closing price of the Common Shares on the
U.S. national securities exchange on which the Common Shares are listed (if the
shares are so listed) or on the NASDAQ National Market or Small Cap Market (if
the Shares are regularly quoted on the NASDAQ National Market or Small Cap
Market), or, if not so listed or regularly quoted or if there is no such closing
price, the mean between the closing bid and asked prices of the Common Shares in
the over-the-counter market or on such exchange or on NASDAQ, or, if such bid
and asked prices shall not be available, as reported by any nationally
recognized quotation service selected by the Company. On the date hereof, the
Common Shares are listed and traded on the American Stock Exchange and the
Vancouver Stock Exchange.
7. 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.
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<PAGE>
The Corporations shall be under no obligation to institute or continue the
existence of any such employee benefit plan.
8. PRIMARY RESIDENCE COSTS. Executive is the owner of
his primary residence located at the address set forth in the introductory
paragraph of this Agreement (the "Primary Residence"). Executive shall use his
best efforts to sell the Primary Residence as promptly as practicable after the
date hereof. During the one- year period following the Effective Date and until
the Primary Residence is sold, the Corporations shall make available to
Executive an interest-free loan in an amount not to exceed $72,000 (the "Initial
Loan"), the proceeds of which shall be utilized by Executive to pay costs
incurred in the ownership and maintenance of the Primary Residence. The Initial
Loan shall be disbursed if and to the extent requested in writing by Executive
in four equal installments on the 5th day of April, July and October 1997 and
January 1998. If the Primary Residence shall not have been sold during the
one-year period following the Effective Date, during the next succeeding
one-year period and until the Primary Residence is sold, the Corporations shall
make available to Executive a second interest-free loan in an amount not to
exceed $72,000 (the "Second Loan"), the proceeds of which are to be disbursed
and utilized in the same manner as the Initial Loan. The Initial Loan shall be
due and payable on the fifth anniversary of the Effective Date, provided that it
shall be prepaid to the extent of the proceeds of sale of any Common Shares
acquired upon exercise of the Initial Option and the Performance Options. The
Second Loan shall be due and payable on the second anniversary of the Effective
Date, provided that it shall be prepaid to the extent of the proceeds of
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<PAGE>
sale of the Primary Residence. The Initial Loan shall be evidenced by a
promissory note substantially in the form of Exhibit A hereto made by Executive
to the Corporations. The Second Loan shall be evidenced by a similar promissory
note with appropriate modifications based upon the terms and conditions of this
Paragraph 8.
9. RELOCATION EXPENSES. The Corporations shall reimburse
Executive promptly upon demand therefor for the following expenses relating to
Executive's relocation to the Vancouver, Washington area: (i) selling costs
relating to the sale of the Primary Residence, e.g., real estate commissions,
recording fees, grantor taxes payable by Executive, but not any loss on sale or
costs of preparation for sale, (ii) moving and storage costs, e.g., normal
shipping services, including up to 30 days of temporary storage, packing,
delivery, unpacking and furniture set-up, but not shipment of vehicles or boats,
crating of antiques, paintings or collections, storage in excess of 30 days; and
(iii) normal purchase costs of a home in the Vancouver, Washington area. If and
to the extent that reimbursement of any of the foregoing expenses would
constitute income to Executive under applicable tax laws, such reimbursements
shall be "grossed-up" to include additional payments sufficient to reimburse
Executive for all taxes payable in respect of such reimbursement and such
additional payments.
10. 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
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<PAGE>
Corporations of appropriate receipts or vouchers and approval thereof by the
Chief Accounting Officer of the Corporations, which approval shall not be
unreasonably withheld or delayed.
11. VACATION. Executive shall be entitled to four 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 CEO. Vacation time shall not be cumulative from one 12-month
period to the next, but Executive shall receive vacation pay at his then current
salary rate for any vacation time not taken by him.
12. 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. Executive shall not be
required to serve in any office of the GST Companies if such coverage is not
applicable to his service in such office.
13. 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 Corporations for Cause (as such term is defined herein), for a further
period ending one year after such termination, 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,
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<PAGE>
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 at the time of such
termination 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 local
exchange carrier (a "CLEC") 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 at the time of such termination 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 CLEC, 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
-11-
<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
13 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 13,
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.
14. 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
-12-
<PAGE>
operations, sales, business and affairs, and he shall not, at any time 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 (i) that is or becomes
generally available to the public through no wrongful act on Executive's part;
(ii) that was known to Executive prior to the date hereof, or (iii) that
Executive can demonstrate, to the reasonable satisfaction of the GST Companies,
was independently developed by him.
15. 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.
-13-
<PAGE>
16. TRANSITION PERIOD. During the 90-day period
commencing on the Effective Date (the "Transition Period"), (i) the duties of
Executive hereunder shall be performed primarily from the Primary Residence; and
(ii) Executive shall travel as reasonably required in the performance of such
duties.
17. DEATH. 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 annual 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 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.
18. 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
-14-
<PAGE>
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 the third anniversary of the Effective Date, Executive thereafter
shall be entitled to receive salary at an annual rate equal to one-half of his
then current annual base salary for a further period ending on the earlier of
(i) one year thereafter, or (ii) the day preceding the third anniversary of the
Effective Date (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
-15-
<PAGE>
be resolved by the determination of three physicians qualified to practice
medicine in the United States of America, 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.
19. 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 10 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
-16-
<PAGE>
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.
20. LIQUIDATED DAMAGES. In the event that the
Corporations terminate this Agreement otherwise than by reason of Cause, (i) the
Corporations shall pay to Executive, as liquidated damages, a sum equal to 75%
of his then current annual base salary (the "Termination Payment") in a single
payment within 10 days after such termination; and (ii) the Initial Option
thereupon shall become exercisable in full (without regard to the anniversaries
on which such options are exercisable). Upon receipt of the Termination Payment,
Executive shall deliver to the Corporation his resignation as an officer and
director of the Corporation. The provisions of this Paragraph 20 constitute
liquidated damages and not a penalty and a reasonable estimate of the damage
anticipated to be suffered by the Executive were the Corporations to terminate
this Agreement otherwise than by reason of Cause, it being difficult or
impossible to determine the damage actually to be suffered by Executive in such
event.
21. 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
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<PAGE>
the Corporations of any material provision of this Agreement, and if such breach
is susceptible of cure, the failure to effect such cure within 30 days after
written notice of such breach is given to the Corporations.
22. 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.
23. SURVIVAL OF PROVISIONS. 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 particular, Paragraphs 5, 8, 9, 11, 12,
13, 14, 15, 17, 18 and 20.
24. 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 hereto shall be valid or binding unless made in
writing and signed by the party against whom enforcement thereof is sought.
-18-
<PAGE>
25. 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, Esq.
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 25. 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.
26. 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
party hereto. This Agreement shall be binding upon Executive, his heirs,
executors and administrators and upon the Corporations, their respective
successors and permitted assigns.
27. WAIVERS. No course of dealing nor any delay on the
part of the Corporations in exercising any rights hereunder shall
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<PAGE>
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.
28. 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, unless such holding or declaration
materially reduces the benefits received by Executive under Paragraph 5 hereof,
in which case Executive shall have the option to be exercised by written notice
to the Corporations given within 10 days after any such holding or declaration,
to terminate this Agreement. Any such termination by Executive shall not
constitute a termination by the Corporations within the provisions of Paragraph
20 hereof.
29. 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.
30. 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
-20-
<PAGE>
court, and if any appeal is taken from the decision of the trial court,
reasonable attorneys' fees as fixed on appeal.
31. 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
Employment Agreement to be duly executed as of the day and year first above
written.
GST USA, INC.
By: /s/ John Warta
--------------------------------
Name: John Warta
Title: Chief Executive Officer
GST TELECOM, INC.
By: /s/ John Warta
--------------------------------
Name: John Warta
Title: Chief Executive Officer
/s/ Dan Trampush
--------------------------------
DAN TRAMPUSH
THE FOREGOING AGREEMENT IS
CONSENTED TO AND ACKNOWLEDGED:
GST TELECOMMUNICATIONS, INC.
By: /s/ John Warta
---------------------------
Name: John Warta
Title: Chairman and Chief Executive Officer
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<PAGE>
Exhibit A
---------
PROMISSORY NOTE (INITIAL LOAN)
------------------------------
$72,000 Vancouver, Washington
__________, 199_
For value received, the undersigned promises to pay, without
interest, to the order of GST Telecom Inc. ("GST") on ____________, 200_ [FIVE
YEARS AFTER DATE] the principal sum of Seventy Two Thousand ($72,000) Dollars,
or if less, the aggregate unpaid principal sum of all advances made by GST to
the maker of this Note in respect of the Initial Loan pursuant to the terms and
conditions of a certain Employment Agreement dated February ___, 1997 among GST,
GST USA, Inc. and the maker of this Note (the "Employment Agreement"). Each
advance and interest thereon shall be payable by wire transfer to the account of
GST, [Account No. 68365-808, Seafirst Bank, 805 Broadway, Vancouver, Washington
98660, ABA No. 125000024,] or at such other place as may be designated in
writing by the holder to the maker of this Note.
This Note shall be prepaid to the extent of proceeds of sale
of any Common Shares acquired upon exercise of the Initial Option and the
Performance Options.
The holder hereof is hereby authorized to enter on the
Schedule attached hereto the amount of each advance and each payment of
principal thereon, without any further authorization on the part of the maker or
any endorser or guarantor of this Note, but the holder's failure to make such
entry shall not limit or otherwise affect the obligations of the maker or any
endorser or guarantor of this Note.
-22-
<PAGE>
If this Note is not paid in full when due, the undersigned
hereby agrees to pay all costs and expenses of collection, including reasonable
attorneys' fees.
This Note shall become immediately due and payable, without
notice or demand, upon the happening of any of the following events: the making
by the maker or any guarantor of this Note of an assignment for the benefit of
creditors, or a trustee or receiver being appointed for the maker or any such
guarantor or for any property of any of them, or any proceeding being commenced
by or against the maker or any such guarantor under any bankruptcy,
reorganization, arrangement of debt, insolvency, readjustment of debt,
receivership, liquidation or dissolution law or statute.
The undersigned and all endorsers and guarantors hereof,
jointly and severally waive presentment, demand for payment, notice of dishonor,
notice of protest and protest, and all other notices or demands in connection
herewith and assent to any extension or postponement of the time of payment or
other indulgence or release of any party, whether by operation of law or
otherwise.
No delay by the holder of this Note in exercising any power or
right hereunder shall operate as a waiver of any power or right, nor shall any
single or partial exercise of any power or right preclude other or further
exercise thereof, or the exercise of any other power or right hereunder or
otherwise; and no waiver whatever or modification of the terms hereof shall be
valid unless set forth in writing and signed by the holder of this Note. No
waiver shall be deemed a continuing waiver or waiver of any subsequent breach or
default, whether of a similar or different nature, unless expressly so stated in
writing.
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<PAGE>
This Note is made and delivered in and shall be governed by
and construed in accordance with the laws of the State of Delaware, except that
body of law relating to choice of laws.
All capitalized terms used herein and not otherwise defined
shall have the meanings accorded them in the Employment Agreement.
------------------------------
DAN TRAMPUSH
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<PAGE>
SCHEDULE TO NOTE
----------------
Maker: Dan Trampush Date of Note: _________, 199_
Unpaid
Amount of Principal
Amount of Principal Balance of Name of Person
Date Advance Repaid Note Making Notation
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-25-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Company's Form 10-Q for the quarter ended March 31, 1997 and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> $48,334,406
<SECURITIES> 2,000,000
<RECEIVABLES> 17,173,542
<ALLOWANCES> (1,767,273)
<INVENTORY> 2,807,972
<CURRENT-ASSETS> 76,079,915
<PP&E> 258,324,684
<DEPRECIATION> (12,407,179)
<TOTAL-ASSETS> 397,946,114
<CURRENT-LIABILITIES> 32,288,720
<BONDS> 213,853,569
124,456,840
50,000,000
<COMMON> 0
<OTHER-SE> 5,008,818
<TOTAL-LIABILITY-AND-EQUITY> 397,946,114
<SALES> 47,908,833
<TOTAL-REVENUES> 47,908,833
<CGS> 36,340,979
<TOTAL-COSTS> 83,605,492
<OTHER-EXPENSES> (8,184,259)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,818,368
<INCOME-PRETAX> (38,311,960)
<INCOME-TAX> 0
<INCOME-CONTINUING> (38,311,960)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (38,417,344)
<EPS-PRIMARY> (1.72)
<EPS-DILUTED> (1.72)
</TABLE>
