Item 5.02. Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On September 15, 2020, Daniel M. Fraser and GTT Communications, Inc. (the
"Company") mutually agreed to terminate Mr. Fraser's employment as Senior Vice
President and Corporate Controller of the Company, effective September 22, 2020.
Mr. Fraser was also the Company's principal accounting officer.
In connection with Mr. Fraser's departure, the Company entered into a Separation
of Employment and Release Agreement (the "Separation Agreement") with Mr. Fraser
confirming the final terms of his departure from the Company. Pursuant to the
terms of the Separation Agreement: (i) the Company agreed to a cash severance
payment to Mr. Fraser equal to four months of his current base salary to be paid
in twice monthly installments; and (ii) the Company agreed to reimburse the
payment of Mr. Fraser's COBRA premiums either (a) for a maximum of twelve months
or (b) until he is eligible to participate in the health insurance plan of
another employer, whichever is sooner. The Separation Agreement confirms that
certain provisions contained in Mr. Fraser's employment agreement, including
certain restrictions relating to the non-solicitation of customers, disclosure
of proprietary information, and ownership of Company work product and
information, shall remain in full force and effect after the termination of Mr.
Fraser's employment. The Separation Agreement also contains customary terms
applicable to the departure of an executive of the Company. These include
confidentiality, non-disparagement and return of Company documents provisions,
as well as a general release of claims against the Company.
The foregoing description of the Separation Agreement does not purport to be
complete and is qualified in its entirety by reference to the full text of the
Separation Agreement, which is filed as Exhibit 10.1 to this Current Report on
Form 8-K (this "Form 8-K") and is incorporated herein by reference.
Effective immediately, Steven Berns, the Company's Chief Financial Officer, has
assumed Mr. Fraser's duties and will serve as the Company's principal accounting
officer on an interim basis until a new individual has been named to this role.
Mr. Berns will take on these responsibilities and serve in this additional role
while continuing to serve as the Company's Chief Financial Officer. Additional
information regarding Mr. Berns is contained in the Company's Current Report on
Form 8-K filed on April 6, 2020 and is incorporated herein by reference. No
material plan, contract or arrangement has been entered into or amended, and no
grant or award or modification thereto has occurred, in connection with Mr.
Berns assuming Mr. Fraser's duties.
Item 7.01. Regulation FD Disclosure.
Infrastructure Division Update
In November 2019, the Company announced it had selected Credit Suisse and
Goldman Sachs to serve as financial advisors to the Company in connection with
the potential sale of certain assets the Company refers to as its infrastructure
division, which assets include the Company's highly differentiated terrestrial
pan-European fiber network, subsea transatlantic fiber and data center
infrastructure that were part of the Interoute and Hibernia acquisitions (the
"Infrastructure Division").
The Company is currently in advanced negotiations with a consortium of
infrastructure investors comprised of 3i Infrastructure plc, AustralianSuper and
Macquarie Capital (the "Consortium"), who submitted a non-binding offer relating
to the potential sale of the Infrastructure Division that would value the
Infrastructure Division at an enterprise value of approximately $2.15 billion.
There is currently no binding agreement between the Company and the Consortium
for the sale of the Infrastructure Division, and reaching a binding agreement
would be subject to the Consortium's on-going due diligence and the negotiation
of the terms and conditions of a definitive agreement and certain ancillary
agreements. There can be no assurance that the Company will enter into a
definitive agreement with respect to the sale of the Infrastructure Division,
that the conditions to closing set forth in any such agreement would ultimately
be satisfied and the proposed sale consummated, that any such transaction will
not include financial or other terms and conditions that are less favorable to
the Company than expected by the Company or that the proceeds from any such
transaction will be at the level expected by the Company.
Accounting Review Update
As previously reported by the Company in its Notification of Late Filing on Form
12b-25 filed with the Securities and Exchange Commission ("SEC") on August 10,
2020 (the "Form 12b-25"), in the course of closing the Company's books for the
quarter ended June 30, 2020, the Company identified certain issues related to
the recording and reporting of Cost of Telecommunications Services and related
internal controls. The Company's management and the Audit Committee (the "Audit
Committee") of the Company's Board of Directors (the "Board"), with assistance
from outside counsel and consultants, commenced a review (the "Review") with
respect to these issues and assessing the effect, if any, on the Company's
financial statements for the quarter ended June 30, 2020 and previously issued
financial statements, as well as whether there are any material weaknesses in
the Company's internal controls.
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The Review is examining the accounting for Cost of Telecommunications Services
and has identified a number of issues in connection with the Company's
previously issued financial statements, including: (i) adjustments made without
adequate support to Cost of Telecommunications Services, during the year ended
December 31, 2019 and the three months ended March 31, 2020, that had the effect
of removing expenses from the Company's income statement at quarter-end and then
recognizing certain of those expenses in subsequent quarters; and (ii) failures
during the years ended December 31, 2017 and 2018 to recognize certain expenses
on the Company's income statement by recording such expenses to goodwill and
thereby attributing such expenses to pre-acquisition accruals, without adequate
support, for companies that had been acquired. In addition, the Audit Committee
and the Company's management are also examining certain intercompany
transactions recorded during the years ended December 31, 2019, 2018, 2017 and
2016, and each of the quarters during the years ended December 31, 2019, 2018,
2017 and 2016. The Review has not identified any issues with the Company's
accounting for its previously reported Revenues or Cash and Cash Equivalents
balances.
The Company is also reassessing its previous conclusions regarding the
effectiveness of its internal control over financial reporting. At the
conclusion of the Review, the Company expects the Review to identify material
weaknesses in the Company's internal control over financial reporting, and the
Company intends to continue to evaluate and implement remedial measures to
address any such material weaknesses.
At this time, the Company has not concluded its Review and there is no assurance
that additional items will not be identified. The Company's management and the
Audit Committee, with assistance from outside counsel and consultants, are
continuing to assess the effect of the matters described above on the Company's
financial statements for the years ended December 31, 2019, 2018 and 2017, each
of the quarters during the years ended December 31, 2019, 2018 and 2017, and the
quarter ended March 31, 2020. As of the date of filing this Form 8-K, the
Company is unable to estimate the total potential impact of the issues described
herein on its previously issued financial statements.
The Company's management and Audit Committee have discussed the matters
disclosed above regarding the Review with CohnReznick LLP, the Company's
independent registered public accounting firm (the "Independent Auditor").
Notes and Credit Agreement Update
On September 2, 2020 (the "Notice Date"), the Company received a notice of
default (the "Notice of Default") from holders representing 25% or more of the
aggregate principal amount of the Company's outstanding 7.875% Senior Notes due
2024 (the "Notes") issued under that certain Indenture, dated as of December 22,
2016 (as amended, supplemented or otherwise modified, the "Indenture"), by and
between the Company, as successor by merger to GTT Escrow Corporation, and
Wilmington Trust, National Association, as Trustee (the "Trustee").
As disclosed in the Form 12b-25, the filing of the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 2020 (the "Late SEC Report") has
been delayed. Under Section 4.15 of the Indenture, the Company was required to
file with the SEC quarterly financial information for the quarter ended June 30,
2020 within 15 days of the time periods specified in the SEC's rules and
regulations (including any grace periods). The Company did not file the Late SEC
Report within 15 days of August 17, 2020, which was the last day of the
extension period provided for the filing under Rule 12b-25(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Company has
therefore failed to comply with such reporting covenant (the "Default").
Under the Indenture, the failure of the Company to comply with the reporting
covenant, if it continues for a period of 60 days after the Notice Date (the
"Cure Period") (which 60 day Cure Period ends on November 1, 2020), would
constitute an Event of Default, as that term is defined in the Indenture.
If an Event of Default relating to the Late SEC Report occurs, then the Trustee
or the holders of not less than 25% in aggregate principal amount of the
outstanding Notes may declare all unpaid principal of, premium, if any, and
accrued interest on, all Notes to be due and payable immediately by providing a
notice of acceleration (a "Notice of Acceleration"). As of the Notice Date,
there was $575 million in aggregate principal amount of the Notes outstanding.
If the Company filed the Late SEC Report with the SEC prior to expiration of the
Cure Period or after the expiration of the Cure Period but prior to the receipt
of a Notice of Acceleration, the Company would cure the Default (and if
applicable, the Event of Default) and the Trustee or holders of the Notes would
not be able to provide a Notice of Acceleration with respect to the Default.
As previously disclosed, on August 10, 2020, the Company entered into Amendment
No. 3 and Waiver (the "Amendment No. 3 and Waiver") to that certain Credit
Agreement, dated as of May 31, 2018 (as amended, restated, amended and restated,
supplemented or otherwise modified, the "Credit Agreement") by and among the
Company and GTT Communications B.V., as borrowers, KeyBank National Association,
as administrative agent and letter of credit issuer, and the lenders and other
financial
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institutions party thereto from time to time. Among other things, the Amendment
No. 3 and Waiver extended the deadline for the Company to deliver its
consolidated financial statements under the Credit Agreement for the fiscal
quarter ended June 30, 2020 to October 30, 2020. The failure to furnish such
financial statements by the extended deadline would constitute an event of
default under the Credit Agreement. In addition, the Amendment No. 3 and Waiver
waived any actual or potential defaults and/or events of default under certain
provisions of the Credit Agreement to the extent the current review by the
Company requires, after the date of the Amendment No. 3 and Waiver but on or
prior to October 30, 2020, an amendment, supplement, modification and/or
withdrawal of (1) any audit opinion related to historical consolidated financial
statements or (2) historical consolidated financial statements that (x) reflect
only non-cash changes and impacts and relate solely to a "cost of revenue"
review or (y) do not result in a decrease in Consolidated EBITDA (as defined in
the Credit Agreement) on a cumulative basis starting with, and including, the
first fiscal period subject to such amendment, supplement, modification,
restatement and/or withdrawal through and including the fiscal quarter ending
March 31, 2020 by more than 15% compared to Consolidated EBITDA reported by the
Company for such cumulative period. Upon an event of default which is not cured
or waived, the Credit Agreement permits, among other remedies, the
administrative agent (in its own discretion or upon written request by lenders
holding a majority of the outstanding loans and revolving commitments under the
Credit Agreement) to declare all principal, interest and other obligations
thereunder immediately due and payable.
Due to the matters set forth above, there is a substantial possibility that the
Company will not be able to file the Late SEC Report by the October 30, 2020
deadline in the Amendment No. 3 and Waiver relating to the Credit Agreement or
by November 1, 2020, the last day of the Cure Period relating to the Notes.
Accordingly, the Company is likely to seek the consent of (a) lenders holding at
least (1) a majority of the outstanding loans and revolving commitments under
the Credit Agreement and (2) a majority of the revolving commitments under the
Credit Agreement, to amend and/or waive certain provisions of the Credit
Agreement and (b) holders of at least a majority of the outstanding aggregate
principal amount of the Notes, to amend and/or waive certain provisions of the
Indenture.
The foregoing summary of terms and provisions of the Indenture and the Credit
Agreement is qualified in its entirety by reference to the full text of the
Indenture and the Credit Agreement.
This Item 7.01 is being furnished and shall not be deemed "filed" for any
purpose. This Item 7.01 shall not be deemed incorporated by reference in any
filing under the Securities Act of 1933, as amended, or the Exchange Act,
regardless of any general incorporation language in such filing, unless
expressly incorporated by specific reference to this Item 7.01 in such filing.
Disclosures About Forward-Looking Statements
This Form 8-K contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 and such statements are
intended to be covered by the safe harbor provided by the same. These statements
are based on the current beliefs and expectations of the Company's management
and are subject to significant risks and uncertainties. The above statements
regarding the potential sale of the Infrastructure Division, the expected impact
of the Review on the Company's previously issued financial statements, the
identification and remediation of material weaknesses, the anticipated timing of
filing the Late SEC Report or the possibility of debt instruments being declared
immediately due and payable constitute forward-looking statements that are based
on the Company's current expectations. The actual impact of the issues
identified in this Form 8-K will be finalized after the Company's management and
the Audit Committee complete the Review, the Independent Auditor completes its
review process and the Company engages in negotiations with lenders and holders
of the Notes regarding the possibility of amendments and/or waivers, if
applicable.
Because these forward-looking statements involve risks and uncertainties, there
are important factors that could cause future events to differ materially from
those in the forward-looking statements. These factors include, but are not
limited to, the effects on the Company's business and clients of general
economic and financial market conditions, as well as the following: (i) the
Company's internal control over financial reporting may be inadequate or have
. . .
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
The following exhibit is filed as part of this report:
Number Description
10.1 Separation of Employment and Release Agreement, dated as of September 15,
2020, between GTT Communications, Inc. and Daniel M. Fraser.
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