As filed with the Securities and Exchange Commission on May 10, 1996
Registration No. 333-2266
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 2
TO
FORM F-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
GST USA, INC.
GST TELECOMMUNICATIONS, INC.
(Exact name of Registrants as specified in their charters)
Not Applicable
(Translation of Registrants' Name into English)
DELAWARE 83-0310464
CANADA NOT APPLICABLE
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
GST USA, INC. GST TELECOMMUNICATIONS, INC.
4317 N.E. THURSTON WAY 1030-999 WEST HASTINGS STREET
VANCOUVER, WASHINGTON 98662 VANCOUVER, BRITISH COLUMBIA V6C 2W2
(360) 254-4700 (604) 688-0553
(Address and telephone number of registrants' principal executive offices)
------------------------------------
ROBERT H. HANSON
GST USA, INC.
GST TELECOMMUNICATIONS, INC.
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
1285 SHERIDAN AVENUE
SUITE 245
CODY, WYOMING 82414
(307) 527-6048
(Name, address and telephone number of agent for service for registrants)
------------------------------------
Copy to:
STEPHEN IRWIN
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
505 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 753-7200
------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED EXCHANGE OFFER: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
<PAGE>
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
GST USA, INC.
GST TELECOMMUNICATIONS, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING THE
LOCATION OF INFORMATION REQUIRED BY PART I OF
FORM F-2
<TABLE>
<CAPTION>
Item No. Caption Location or Caption in Prospectus
- -------- ------- ---------------------------------
<S> <C> <C>
Item 1 Forepart of Registration Statement and Outside Front Cover Page
Outside Front Cover Page of Prospectus
Item 2 Inside Front and Outside Back Cover Pages Inside Front Cover Page; Back Cover Page;
of Prospectus Available Information; Incorporation by
Reference, Risk Factors
Item 3 Summary Information, Risk Factors and Prospectus Summary; Risk Factors; Deficiency
Ratio of Earnings to Fixed Charges in Earnings to Cover Fixed Charges
Item 4 Use of Proceeds Use of Proceeds
Item 5 Determination of Offering Price Not Applicable
Item 6 Dilution Not Applicable
Item 7 Selling Securityholders Not Applicable
Item 8 Plan of Distribution Plan of Distribution
Item 9 Description of Securities to be Registered The Exchange Offer; Description of the New
Notes; Certain United States Federal Income
Tax Considerations
Item 10 Interests of Named Experts and Counsel Legal Matters; Experts
Item 11 Material Changes Material Changes
Item 12 Information with Respect to the Registrants Prospectus Summary; Risk Factors; Material
Changes; Description of the New Notes;
Financial Statements
Item 13 Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO BUY NOR SHALL THERE
BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION
OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
OFFER TO EXCHANGE
13 7/8% SENIOR DISCOUNT EXCHANGE NOTES DUE 2005
FOR
ALL OUTSTANDING
13 7/8% SENIOR DISCOUNT NOTES DUE 2005
($163,616,520 ACCRETED VALUE OUTSTANDING)
OF
GST USA, INC.
UNCONDITIONALLY GUARANTEED ON A SENIOR BASIS BY
GST TELECOMMUNICATIONS, INC.
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON __________ __, 1996, UNLESS EXTENDED
--------------
SEE "RISK FACTORS" IMMEDIATELY FOLLOWING THE PROSPECTUS SUMMARY FOR A
DISCUSSION OF CERTAIN INFORMATION THAT SHOULD BE CONSIDERED IN CONNECTION WITH
THE EXCHANGE OFFER AND AN INVESTMENT IN THE NEW NOTES.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------
THE DATE OF THIS PROSPECTUS IS _________, 1996
(Continued on next page)
<PAGE>
(Cover page continued)
GST USA, Inc., a Delaware corporation ("GST USA"), hereby offers, upon
the terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (the "Exchange Offer"), to exchange $1,000
principal amount at maturity of its 13 7/8% Senior Discount Exchange Notes Due
2005 (the "New Notes") for each $1,000 principal amount at maturity of its
outstanding 13 7/8% Senior Discount Notes Due 2005 (the "Old Notes"). The offer
and sale of the New Notes have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to the Registration Statement (as
defined herein) of which this Prospectus constitutes a part. As of March 31,
1996, $166,327,787 aggregate Accreted Value of the Old Notes was outstanding.
See "Description of the New Notes -- Certain Definitions" for the definition of
Accreted Value. The Exchange Offer is being made pursuant to the terms of the
registration rights agreement (the "Registration Rights Agreement") dated
December 19, 1995 by and among GST USA, GST Telecommunications, Inc. ("GST"),
the Specified Subsidiaries named therein and Morgan Stanley & Co. Incorporated
("MS&Co."), as Placement Agent pursuant to the terms of the Placement Agreement
dated December 14, 1995, among GST, GST USA, the Specified Subsidiaries named
therein and MS&Co. The New Notes and the Old Notes are collectively referred to
herein as the "Notes." As used herein, the term "Holder" means a holder of the
Notes.
The Notes are fully and unconditionally guaranteed by GST (the "Notes
Guarantee"). The Notes and the Notes Guarantee are senior, unsecured obligations
of GST USA and GST, respectively, rank pari passu in right of payment with all
unsubordinated, unsecured obligations of GST USA and GST, respectively, and are
senior in right of payment to all subordinated indebtedness of GST USA and GST,
respectively. At February 15, 1996, GST USA and GST had no outstanding
borrowings other than the Notes. GST USA and GST are each holding companies. The
Notes and the Notes Guarantee will be effectively subordinated to all
liabilities of GST USA's subsidiaries, including trade payables. At March 31,
1996, GST USA's subsidiaries had approximately $31.7 million of liabilities
(excluding intercompany payables), including $19.9 million of indebtedness, all
of which was secured.
GST USA will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on the
date the Exchange Offer expires, which will be __________ __, 1996 [20 BUSINESS
DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER], unless the Exchange Offer is
extended (the "Expiration Date"). Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount at maturity
of Old Notes being tendered for exchange. However, the Exchange Offer is subject
to certain conditions, which may be waived by GST USA, and to the terms and
provisions of the Registration Rights Agreement. Old Notes may be tendered only
in denominations of $1,000 principal amount at maturity and integral multiples
thereof. GST USA has agreed to pay the expenses of the Exchange Offer. See "The
Exchange Offer."
Any waiver, extension or termination of the Exchange Offer will be
publicly announced by GST USA through a release to the Dow Jones News Service
and as otherwise required by applicable law or regulations.
The New Notes will be obligations of GST USA entitled to the benefits
of the Indenture (as defined herein). The form and terms of the New Notes are
identical in all material respects to the form and terms of the Old Notes,
except that the offer and sale of the New Notes have been registered under the
Securities Act. Any Old Notes not tendered and accepted in the Exchange Offer
will remain outstanding and will be entitled to all the rights and preferences
and will be subject to the limitations applicable thereto under the Indenture.
Following consummation of the Exchange Offer, the Holders of Old Notes will
continue to be subject to the existing restrictions upon transfer thereof and
GST USA will have no further obligation to such Holders to provide for the
registration under the Securities Act of the offer and sale of the Old Notes
held by them. Following the completion of the Exchange Offer, none of the Notes
will be entitled to the contingent increase in interest rate provided pursuant
to the Registration Rights Agreement. See "The Exchange Offer."
The Notes will mature on December 15, 2005. The New Notes are being
sold at a substantial discount from their principal amount and there will not be
any accrual of interest thereon prior to December 15, 2000. Each
<PAGE>
Note will have a principal amount at maturity of $1,000 and had an Accreted
Value of $523.66 at February 15, 1996. Interest on the Notes will be paid in
cash at a rate of 13 7/8% per annum on each June 15 and December 15, commencing
June 15, 2001.
The Notes will be redeemable in whole or in part, at any time, on or
after December 15, 2000, at the redemption prices set forth herein, plus accrued
and unpaid interest, if any, to the date of redemption.
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, GST USA believes that
New Notes issued pursuant to this Exchange Offer in exchange for Old Notes may
be offered for resale, resold and otherwise transferred by a Holder thereof
other than (i) a broker-dealer who purchased such Old Notes directly from GST
USA to resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is an "affiliate" (within the meaning of
Rule 405 of the Securities Act) of GST USA or GST, without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the Holder is acquiring the New Notes in the ordinary course of its
business and is not participating, and has no arrangement or understanding with
any person to participate, in the distribution of the New Notes. Holders of Old
Notes who tender in the Exchange Offer with the intention to participate in a
distribution of the New Notes may not rely upon the position of the staff of the
Commission enunciated in the above-referenced no-action letters, and, in the
absence of an exemption, must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. Holders of Old Notes wishing to participate in the Exchange
Offer must represent to GST USA in the Letter of Transmittal that such
conditions have been met.
Each broker-dealer (other than an "affiliate" of GST USA or GST) that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. GST USA has agreed
that, for a period of 180 days after the consummation of the Exchange Offer, it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution." Any broker-dealer who is an
affiliate of GST USA may not rely on such no-action letters and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
The New Notes constitute a new issue of securities with no established
trading market. GST USA does not intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. GST USA has been advised by MS&Co. that, following completion of the
Exchange Offer, it currently intends to make a market in the New Notes; however,
MS&Co. is not obligated to do so and any market-making activities with respect
to the New Notes may be discontinued at any time. MS&Co. may act as principal or
agent in such transactions. There can be no assurance that an active trading
market for the New Notes will develop. To the extent that Old Notes are tendered
and accepted in the Exchange Offer, a Holder's ability to sell untendered Old
Notes could be adversely affected. It is not expected that an active trading
market for the Old Notes will develop while they are subject to restrictions on
transfer.
This Prospectus, together with the Letter of Transmittal, is being sent
to all registered Holders of Old Notes as of _____________ __, 1996.
Neither GST USA nor GST will receive any proceeds from this Exchange
Offer. No dealer-manager is being used in connection with this Exchange Offer.
See "Use of Proceeds" and "Plan of Distribution."
<PAGE>
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus and the Letter of Transmittal and, if given or made, such
information or representation must not be relied upon as having been authorized
by GST USA, GST or the Exchange Agent (as defined herein). This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy the New
Notes in any jurisdiction to any person to whom it is unlawful to make such
offer or solicitation in such jurisdiction. The delivery of this Prospectus
shall not, under any circumstances, create any implication that the information
herein is correct at any time subsequent to its date.
---------------------------
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION....................................................2
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE.........................................................3
PROSPECTUS SUMMARY.......................................................4
RISK FACTORS............................................................13
THE EXCHANGE OFFER......................................................23
USE OF PROCEEDS.........................................................29
MATERIAL CHANGES........................................................29
DEFICIENCY IN EARNINGS TO COVER
FIXED CHARGES.......................................................30
DESCRIPTION OF THE NEW NOTES............................................31
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS...........................................56
PLAN OF DISTRIBUTION....................................................60
LEGAL MATTERS...........................................................61
EXPERTS.................................................................61
INDEX TO FINANCIAL STATEMENTS..........................................F-1
---------------------------
AVAILABLE INFORMATION
GST USA and GST have filed with the Commission a Registration Statement
on Form F-2 under the Securities Act with respect to the New Notes offered in
the Exchange Offer. For the purposes hereof, the term "Registration Statement"
means the original Registration Statement and any and all amendments thereto. In
accordance with the rules and regulations of the Commission, this Prospectus
does not contain all of the information set forth in the Registration Statement
and the schedules and exhibits thereto. Each statement made in this Prospectus
concerning a document filed as an exhibit to the Registration Statement is
qualified in its entirety by reference to such exhibit for a complete statement
of its provisions. For further information pertaining to GST USA, GST and the
New Notes offered in the Exchange Offer, reference is made to such Registration
Statement, including the exhibits and schedules thereto and the financial
statements, notes and schedules filed as a part thereof. The Registration
Statement (and the exhibits and schedules thereto) may be inspected and copied
at the public reference facilities maintained by the Commission at its principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, or at its regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and at Seven World Trade Center, Suite 1300, New York,
New York 10048. Any interested party may obtain copies of all or any portion of
the Registration Statement and the exhibits thereto at prescribed rates from the
Public Reference Section of the Commission at its principal office at Judiciary
Plaza, 450 Fifth Street, Room 1024, Washington, D.C. 20549.
GST is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. Such reports
and other information can be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549; 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and Seven World Trade Center, Suite 1300, New York, New York
10048. Copies
-2-
<PAGE>
of such material can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. GST's Common Shares are listed on the American Stock
Exchange, Inc. (the "AMEX") and such reports and other information may also be
inspected at the offices of the AMEX, 86 Trinity Place, New York, New York
10006.
The Indenture requires GST and, in certain circumstances, GST USA to
file with the Commission the annual, quarterly and other reports required by
Sections 13(a), 13(c) and 15(d) of the Exchange Act, regardless of whether such
Sections are applicable to GST USA or GST. GST or GST USA, as the case may be,
will supply without cost to each Holder of Notes, and file with the trustee
under the Indenture, within fifteen days after GST is required to file the same
with the Commission, copies of the audited financial statements, quarterly
reports and other reports which GST USA and GST are required to file with the
Commission pursuant to Sections 13(a), 13(c) and 15(d) of the Exchange Act;
provided, however, that in the event GST is no longer the guarantor on the
Notes, GST shall no longer be required to file such reports and GST USA will be
required to file such reports, in each case as of the date and time that GST is
no longer the guarantor on the Notes.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
GST's Annual Report on Form 20-F, as amended, for the fiscal year ended
September 30, 1995 (the "Form 20-F") and Report of Foreign Issuer on Form 6-K,
as amended, for the quarter ended December 31, 1995 (the "Form 6-K") are
incorporated by reference in this Prospectus and shall be deemed to be a part
hereof.
GST hereby undertakes to provide without charge to each person to whom
a copy of this Prospectus has been delivered, on the written or oral request of
any such person, a copy of any or all of the documents referred to above which
have been or may be incorporated in this Prospectus by reference, other than
exhibits to such documents. Written requests for such copies should be directed
to GST Telecommunications, Inc. at 1030-999 West Hastings Street, Vancouver,
British Columbia, Canada V6C 2W2, Attention: Robert M. Blankstein. Oral requests
should be directed to such individual (telephone number (604) 688-0553).
------------------
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made hereby, and, if given or made, such
information or representations must not be relied upon as having been authorized
by GST USA or GST. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, the securities offered hereby to any person in
any state or other jurisdiction in which such offer or solicitation is unlawful.
The delivery of this Prospectus at any time does not imply that information
contained herein is correct as of any time subsequent to its date.
-3-
<PAGE>
PROSPECTUS SUMMARY
The following prospectus summary is qualified in its entirety by the
more detailed information and consolidated financial statements, including the
notes thereto, appearing elsewhere in this Prospectus and in the Form 20-F and
the Form 6-K. Unless the context otherwise requires, in this Prospectus and in
the reports and financial statements incorporated herein, the term "Company"
means the combined business operations of GST and its subsidiaries, including
GST USA; the terms "fiscal" and "fiscal year" refer to GST's fiscal years,
including the year ended September 30, 1995, 13 months ended September 30, 1994
and the year ended August 31, 1993; and all dollar amounts are in U.S. dollars.
Industry figures were obtained from reports published by the Federal
Communications Commission (the "FCC"), the U.S. Department of Commerce and other
industry sources, which the Company has not independently verified. Investors
should carefully consider the information set forth under the caption "Risk
Factors," including the risks relating to historical and anticipated operating
losses and negative EBITDA.
THE COMPANY
The Company provides a broad range of competitive access and other
telecommunications products and services, primarily to customers located in Tier
II and Tier III cities (populations between 250,000 and 2,000,000) in the
western continental United States and Hawaii. As a competitive access provider
("CAP"), the Company operates fully digital telecommunications networks that
provide an alternative to the local exchange telephone company ("LEC") for a
number of products and services. The Company recently began commercial operation
of five fiber optic competitive access networks, holds a 50% interest in another
and operates a digital microwave competitive access network in Hawaii. The
Company is constructing an additional fiber optic competitive access network,
which is expected to commence commercial operation in the second quarter of
1996. The Company deems a network to be commercially operational when the fiber
optic cables and related electronics permit the Company to provide special
access and private line services. The addition of a switch to a network will
enhance the services such network can provide; however, a switch is not
necessary for the operation of a network. As a complement to its networks, the
Company recently acquired an international and domestic long distance carrier.
In addition, the Company manufactures telecommunications switching equipment and
provides network management and billing systems through its wholly-owned
subsidiary, National Applied Computer Technologies, Inc. ("NACT").
As regulatory and competitive conditions permit, the Company intends to
offer integrated local and long distance services through the deployment of high
capacity, digital switches in cities in which the Company operates a competitive
access network, as well as cities in which the Company will rely upon the
facilities of the LEC. This would expand the Company's addressable market and
enhance the operating leverage of its networks, thereby improving its
opportunity to participate, on a regional basis, in both the local exchange and
long distance markets in the United States. The ability to provide interstate
switched access and other enhanced services would enable the Company to offer a
more comprehensive solution to its customers' telecommunications needs.
In October 1994, the Company and Tomen America, Inc. ("Tomen America"),
a subsidiary of Tomen Corporation ("Tomen"), an international general trading
company, entered into agreements (the "Tomen Facility") under which Tomen
America agreed to make available up to a total of $100.0 million of financing
for competitive access network construction and development to be allocated on a
project by project basis. Tomen America has a right of first refusal up to the
limit of such facility to evaluate and, in its discretion, finance each network
project. Under the terms of the Tomen Facility, Tomen America and Tomen have
purchased Common Shares and warrants to purchase Common Shares and another Tomen
Subsidiary has purchased 10% of the equity in two of the Company's competitive
access networks. In addition, Tomen America's designee has been elected to GST's
Board of Directors.
-4-
<PAGE>
TELECOMMUNICATIONS SERVICES
The locations and dates of commencement of commercial operation of the
Company's networks are as follows:
<TABLE>
<CAPTION>
Network Service Area Date Commercially Operational
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
San Bernardino, California San Bernardino, Riverside, Rialto April 1995
and Bloomington
Hawaii Oahu, Maui, Molokai and Hawaii September 1988
Ontario, California Ontario, City of Industry and August 1995
Monterey Park
Tucson, Arizona Tucson metropolitan area September 1995
Fresno, California Fresno January 1996
Albuquerque, New Mexico Albuquerque metropolitan area January 1996
Phoenix, Arizona* Phoenix metropolitan area February 1994
</TABLE>
- --------------------
* The Company has a 50% interest in this network.
The Company is also constructing a competitive access network in Contra
Costa/Alameda Counties, California, which is expected to commence commercial
operation during the second quarter of 1996.
The Company acquired its Hawaiian microwave network in 1994, has
recently begun to upgrade and expand it and, where appropriate, will deploy
fiber optic cable. The Company is currently one of two authorized statewide
private line competitors to GTE Hawaiian Telephone Company Incorporated, the
dominant service provider in the Hawaiian Islands.
Effective May 1, 1995, the Company acquired International
Telemanagement Group, Inc. ("ITG"), an international and domestic long distance
carrier which, together with the Company's wholly-owned subsidiary, Wasatch
International Network Services, Inc. ("WINS"), offers enhanced long distance
services, such as toll-free "800," private line, calling card, prepaid calling
card and international call back services to end-users, agents and other
carriers. The acquisition of ITG enables the Company to more fully integrate
long distance and other related services into the package of telecommunications
services it offers to its network customers.
TELECOMMUNICATIONS SERVICES STRATEGY
The Company's goal is to become a leading provider of a broad range of
integrated local and long distance telecommunications products and services in
its targeted markets. In furtherance of this goal, the Company's strategy is to
develop and expand its networks and customer base, broaden the range of
telecommunications services and products it offers and capitalize on its
advantageous position in California and Hawaii. The Company ultimately intends
to assemble an integrated, regional network through a combination of owned
facilities, joint ventures with other CAPs and fiber optic lines leased from
long distance providers, cable companies and utilities. Key elements of the
Company's strategy are as follows:
COMPETITIVE ACCESS NETWORKS. The Company seeks to selectively expand
its competitive access business by implementing the following business
strategies:
-5-
<PAGE>
FOCUS ON END-USERS. The Company focuses on business, government and
academic end-users that have significant telecommunications requirements. The
Company intends to increase its customers' reliance on and loyalty to the
Company and, over time, secure a growing portion of their telecommunications
business through the provision of additional integrated services. This strategy
is also designed to build a broad base of recurring revenues, thereby avoiding
dependency on a large customer in a market. However, revenues from long distance
carriers and resellers will continue to be an important component of the
Company's access services revenues, particularly in the early stages of
commercial operation.
EARLY TO MARKET ADVANTAGE. The Company strives to be the first CAP in a
geographic area to actively market and provide competitive access services, and,
ideally, the first CAP to obtain necessary permits, rights-of-way and licenses
and to construct and operate a network. The Company believes that the first such
CAP has a significant competitive advantage in securing customers that desire an
alternative to the incumbent LECs and that later entrants may have difficulty
obtaining rights-of-way, permits and licenses necessary to construct and operate
a network in a timely and cost effective manner. However, the Company has
entered and may in the future enter certain markets as the second or third CAP
in special circumstances, such as an agreement with a long distance carrier for
a guaranteed volume of telecommunications traffic or a strategic alliance with
electric or natural gas utilities.
EMPHASIS ON TIER II AND TIER III MARKETS. The Company believes that
emphasizing the development of networks in Tier II and Tier III markets will
reduce the likelihood of competition from other CAPs, particularly the large
CAPs that have principally developed networks in the major metropolitan areas.
The Company believes that certain of these smaller markets offer an attractive
combination of lower construction and operating costs and significant and
concentrated telecommunications traffic.
REGIONAL FOCUS. The Company is focusing on the western United States in
order to take advantage of a favorable regulatory environment and the
substantial telecommunications traffic patterns that exist among the western
United States, the Pacific Rim, Mexico and western Canada. Further, by
concentrating on one region, the Company believes it will be able to efficiently
develop, operate and control its networks. In California, for example, the
Company holds a statewide license to provide services and has a statewide pole
attachment agreement, which enables the Company to develop additional networks
and to expand its existing networks without the delays typically experienced in
obtaining individual licenses and rights-of-way.
DEPLOYMENT OF SWITCHED AND ENHANCED SERVICES. The Company intends to
deploy switches for interstate switched access and, as regulatory conditions
permit, intrastate switched access, enhanced services and full local dial tone.
The Company believes that switched services will complement long distance,
special access and other services as part of its strategy to provide total
telecommunications solutions to its customers. Initially, the Company plans to
install switching equipment in its operational networks and in markets where it
is actively constructing networks. The Company may also install switches in
cities where the Company expects to construct a competitive access network and
in certain other cities where the Company will rely on LEC facilities for
transmission. The Company will seek regulatory approval for the provision of the
full array of local services in those jurisdictions in which it will deploy its
switches.
The Company intends to deploy frame relay and ATM (Asynchronous
Transfer Mode) switches and to provide data services to its customers through
its competitive access networks and through the facilities of LECs. These
services will include frame relay, private data line, LAN (Local Area Network)
based and Internet access services and may include additional enhanced services.
The Company is exploring opportunities to expand its telecommunications
services business by internal development and through acquisitions and joint
ventures.
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MANUFACTURING OPERATIONS
The Company manufactures, markets, installs and supports advanced
telecommunications switching equipment and provides network management and
billing systems for specialty telecommunications network operators. The customer
base for these products and services includes small local and long distance
carriers, prepaid calling card network operators, international call back
providers, hotel complexes, correctional facilities, pay telephone operators and
other customers that require an integrated switching platform and network
management and billing system. The Company's systems consist of both the
hardware and the software necessary to (i) provide enhanced network services,
(ii) automatically route traffic through various local and long distance
carriers and (iii) bill the services to the customer. The Company has developed
and integrated into its products extensive fraud prevention and traffic
engineering technologies. Revenues and earnings have grown significantly since
the Company acquired NACT in late 1993.
For a more complete description of the business of the Company, see the
Form 20-F.
RECENT DEVELOPMENTS
In December 1995, GST sold $20,000,187 13 7/8% of Convertible Senior
Subordinated Discount Notes due 2005 (the "Convertible Notes") pursuant to an
indenture and GST USA sold $160,001,496 of the Old Notes pursuant to an
indenture (the "Indenture") in a private placement (the "December Offering").
See "Description of the New Notes." Of the net proceeds of the December
Offering, $2.0 million was applied to the repayment of short-term indebtedness,
and the balance will be used for capital expenditures and to fund future
operating deficits and for working capital purposes.
In March 1996, the Company, through its subsidiary, GST Internet, Inc.,
a Delaware corporation ("GST Internet"), entered the Internet services business
with GST Internet's purchase of the assets of Reservations, Inc. d/b/a Hawaii On
Line, a Hawaii corporation ("Hawaii On Line"). Hawaii On Line, at the time of
its purchase, was the largest Internet service provider in Hawaii with more than
6,000 customers and also operated a World Wide Web site design business.
The Company's principal executive offices are located at 4317 N.E.
Thurston Way, Vancouver, Washington 98662 and its phone number is (360)
254-4700.
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SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
The Exchange Offer....... Pursuant to the Exchange Offer, New Notes will be
issued in exchange for outstanding Old Notes
validly tendered and not withdrawn. The Accreted
Value of the New Notes will be equal to that of
the Old Notes and will be issued in denominations
of $1,000 in principal amount at maturity and any
integral multiple of $1,000 in excess thereof. GST
USA will issue New Notes to tendering Holders of
Old Notes as promptly as practicable after the
Expiration Date.
Resale................... Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, GST USA believes that the New
Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any Holder
thereof (other than broker-dealers, as set forth
below, and any such Holder that is an "affiliate"
(within the meaning of Rule 405 under the
Securities Act) of GST USA or GST) without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that such New Notes are acquired in the
ordinary course of such Holder's business and that
such Holder has no arrangement or understanding
with any person to participate in the distribution
of such New Notes. Each broker-dealer (other than
an affiliate of GST USA or GST) that receives New
Notes for its own account in exchange for Old
Notes that were acquired as a result of
market-making or other trading activity must
acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The
Letter of Transmittal states that by so
acknowledging and delivering a prospectus, such
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by such broker- dealer in connection with
resales of New Notes received in exchange for Old
Notes where such New Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities. GST USA
has agreed that, for a period of 180 days after
the Expiration Date, it will make this Prospectus
available to any such broker-dealer for use in
connection with any such resale. See "Plan of
Distribution." Any Holder who tenders in the
Exchange Offer with the intention to participate,
or for the purpose of participating, in a
distribution of the New Notes or who is an
affiliate of GST USA or GST may not rely on the
position of the staff of the Commission enunciated
in EXXON CAPITAL HOLDINGS CORPORATION (available
May 13, 1988) or similar no-action letters and, in
the absence of an exemption therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act in connection
with a secondary resale transaction. Failure to
comply with such requirements in such instance may
result in such Holder incurring liabilities under
the Securities Act for which the Holder is not
indemnified by GST USA or GST.
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<PAGE>
The Exchange Offer is not being made to, nor will
GST USA accept surrenders for exchanges from,
Holders of Old Notes in any jurisdiction in which
this Exchange Offer or the acceptance thereof
would not be in compliance with the securities or
blue sky laws of such jurisdiction.
Expiration Date.......... 5:00 p.m., New York City time, on _______ __, 1996
[20 BUSINESS DAYS AFTER COMMENCEMENT OF THE
EXCHANGE OFFER], unless the Exchange Offer is
extended, in which case the term "Expiration Date"
means the latest date and time to which the
Exchange Offer is extended. Any extension, if
made, will be publicly announced through a release
to the Dow Jones News Service and as otherwise
required by applicable law or regulations.
Conditions to the
Exchange Offer......... The Exchange Offer is subject to certain
conditions, which may be waived by GST USA. See
"The Exchange -- Conditions to the Exchange
Offer." The Exchange Offer is not conditioned upon
any minimum principal amount at maturity of Old
Notes being tendered.
Procedures for Tendering
Old Notes................ Each Holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
Letter of Transmittal, or a facsimile thereof,
together with the Old Notes to be exchanged and
any other required documentation to United States
Trust Company of New York, as Exchange Agent, at
the address set forth herein and therein. By
executing a Letter of Transmittal, each Holder
will represent to GST USA and GST that, among
other things, the New Notes acquired pursuant to
the Exchange Offer are being obtained in the
ordinary course of business of the person
receiving such New Notes, whether or not such
person is the Holder, that neither the Holder nor
any such other person has any arrangement or
understanding with any person to participate in
the distribution of such New Notes and that
neither the Holder nor any such other person is an
"affiliate," as defined in Rule 405 under the
Securities Act, of GST USA or GST.
Special Procedures for
Beneficial Owners...... Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender in the Exchange Offer
should contact such registered Holder promptly and
instruct such registered Holder to tender on such
beneficial owner's behalf. If such beneficial
owner wishes to tender on his own behalf, such
beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering
his Old Notes, either make appropriate
arrangements to register ownership of the Old
Notes in such owner's name or obtain a properly
completed bond power from the registered Holder.
The transfer of registered
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<PAGE>
ownership may take considerable time and may not
be able to be completed prior to the Expiration
Date.
Guaranteed Delivery
Procedures............... Holders of Old Notes who wish to tender such Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes
and a properly completed Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date may tender their Old Notes
according to the guaranteed delivery procedures
set forth in "The Exchange Offer -- Procedures for
Tendering."
Acceptance of Old Notes
and Delivery of New
Notes................... Subject to certain conditions (as described more
fully in "The Exchange Offer -- Conditions to the
Exchange Offer"), GST USA will accept for exchange
any and all Old Notes that are properly tendered
in the Exchange Offer and not withdrawn, prior to
5:00 p.m., New York City time, on the Expiration
Date. The New Notes issued pursuant to the
Exchange Offer will be delivered as promptly as
practicable following the Expiration Date.
Withdrawal Rights........ Subject to the conditions set forth herein,
tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange Offer --
Withdrawal of Tenders."
Certain United States
Federal Income Tax
Considerations......... The exchange pursuant to the Exchange Offer should
not constitute a taxable exchange for United
States federal income tax purposes. Each such New
Note should be treated as having been originally
issued at the time the Old Note exchanged therefor
was originally issued. See "Certain United States
Federal Income Tax Considerations."
Exchange Agent........... United States Trust Company of New York, the
Trustee under the Indenture, is serving as
exchange agent (the "Exchange Agent") in
connection with the Exchange Offer. For
information with respect to the Exchange Offer,
the telephone number for the Exchange Agent is
(800) 548-6565 and the facsimile number for the
Exchange Agent is (212) 420-6152.
SEE "THE EXCHANGE OFFER" FOR MORE DETAILED INFORMATION CONCERNING THE TERMS OF
THE EXCHANGE OFFER.
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<PAGE>
SUMMARY DESCRIPTION OF THE NEW NOTES
The Exchange Offer applies to $166,327,787 aggregate Accreted Value of
Old Notes. The form and terms of the New Notes will be the same in all material
respects as the form and terms of the Old Notes, except that the offer and sale
of the New Notes will be registered under the Securities Act and, therefore, the
New Notes will not bear legends restricting the transfer thereof. Upon
consummation of the Exchange Offer, none of the Notes will be entitled to
registration rights under the Registration Rights Agreement. The New Notes will
evidence the same debt as the Old Notes, will be entitled to the benefits of the
Indenture and will be treated as a single class thereunder with any Old Notes
that remain outstanding. See "Description of the New Notes."
Issuer................... GST USA, Inc.
Maturity Date............ December 15, 2005
Securities Offered....... $166,327,787 aggregate Accreted Value of 13 7/8%
Senior Discount Exchange Notes Due 2005.
Yield and Interest....... The Notes are being sold at a substantial discount
from their principal amount and there will not be
any accrual of cash interest on the Notes prior to
December 15, 2000 or payment of cash interest on
the Notes prior to June 15, 2001. For a discussion
of the United States federal income tax treatment
of the Notes and the original issue discount
rules, see "Certain United States Federal Income
Tax Considerations." From and after December 15,
2000, the Notes will bear interest at a rate of 13
7/8% per annum, payable in cash on each June 15,
and December 15, commencing June 15, 2001.
Ranking.................. The Notes and the Notes Guarantee will be senior,
unsecured obligations of GST USA and GST,
respectively, will rank PARI PASSU in right of
payment with all unsubordinated, unsecured
obligations of GST USA and GST, respectively, and
will be senior in right of payment to all
subordinated indebtedness of GST USA and GST,
respectively. At February 15, 1996, GST USA and
GST had no outstanding borrowings other than the
Notes. GST USA and GST are each holding companies.
The Notes and the Notes Guarantee will be
effectively subordinated to all liabilities of GST
USA's subsidiaries, including trade payables. At
March 31, 1996, GST USA's subsidiaries had
approximately $31.7 million of liabilities
(excluding intercompany payables), including $19.9
million of indebtedness, all of which was secured.
The Company expects to incur substantial amounts
of additional indebtedness in the future, subject
to compliance with the limitations contained in
the Indenture. See "Risk Factors -- Significant
Capital Requirements" and "-- Substantial
Indebtedness; Ability to Service Debt."
Notes Guarantee.......... The Notes will be guaranteed on a senior,
unsecured basis by GST.
Optional Redemption...... On and after December 15, 2000, the Notes will be
redeemable at the option of GST USA, in whole at
any time or in part from time to time, at the
redemption prices set forth herein, plus accrued
and unpaid interest, if any, to the date of
redemption. See "Description of the New Notes --
Optional Redemption."
Additional Amounts....... Any payments in respect of the Notes made by GST
pursuant to the Notes Guarantee will be made
without withholding or deduction for Canadian
taxes unless required by law or the interpretation
or administration thereof, in which case GST will
pay such additional
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<PAGE>
amounts as may be necessary so that the net amount
received by the Holders after such withholding or
deduction will not be less than the amount that
would have been received in the absence of such
withholding or deduction. See "Description of the
New Notes -- Additional Amounts."
Redemption for Changes
in Canadian
Withholding Taxes...... In the event GST becomes obligated to make
payments pursuant to the Notes Guarantee and, as a
result of certain changes affecting Canadian
withholding taxes GST becomes obligated to pay
additional amounts in accordance with the
Indenture, the Notes will be redeemable, as a
whole but not in part, at the option of GST at any
time at 100% of their Accreted Value plus accrued
interest. See "Description of the New Notes --
Optional Redemption."
Change of Control........ Upon a Change of Control, GST USA will be required
to make an offer to purchase the Notes at a
purchase price equal to 101% of their Accreted
Value on the date of purchase plus accrued
interest, if any. See "Description of the New
Notes -- Repurchase of Notes upon a Change of
Control."
Certain Covenants........ The Indenture contains certain covenants which,
among other things, restrict the ability of GST
and its Restricted Subsidiaries (as defined
below), including GST USA, to: incur additional
indebtedness; create liens; engage in
sale-leaseback transactions; pay dividends or make
distributions in respect of their capital stock;
make investments or make certain other restricted
payments; sell assets; create restrictions on the
ability of Restricted Subsidiaries to make certain
payments; issue or sell stock of Restricted
Subsidiaries; enter into transactions with
stockholders or affiliates; and consolidate, merge
or sell all or substantially all of their assets.
However, these limitations will be subject to a
number of important qualifications and exceptions.
See "Description of the New Notes -- Covenants."
Settlement at DTC........ Transfers of Notes between participants in The
Depository Trust Company ("DTC") will be effected
in the ordinary way in accordance with DTC rules
and will be settled in next-day funds.
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RISK FACTORS
DEVELOPMENT AND EXPANSION RISK AND POSSIBLE INABILITY TO MANAGE GROWTH
The Company is in the early stages of its operations. Its San
Bernardino, Ontario, Tucson, Albuquerque and Fresno networks have only recently
become commercially operational and the Company has not deployed any switches in
its competitive access networks. The continued expansion and development of the
Company's competitive access networks and the success of the Company's switched
and enhanced services strategy will depend, among other things, upon the
Company's ability to assess potential markets, design fiber backbone routes that
provide ready access to a substantial customer base, secure financing, obtain
required rights-of-way over privately- and publicly-owned land, building access
and governmental permits, implement expanded interconnection and collocation
with facilities owned by LECs and achieve a sufficient customer base, and upon
subsequent changes in state and federal regulations. There can be no assurance
that any networks to be developed or further developed will be completed on
schedule, at a commercially reasonable cost or within the Company's
specifications. In addition, the expansion of the Company's business may involve
acquisitions, which, if made, could divert the resources and management time of
the Company and could require integration with the Company's existing networks
and services. The Company's future performance will depend, in part, upon its
ability to manage its growth effectively, which will require it to continue to
implement and improve its operating, financial and accounting systems and to
expand, train and manage its employee base. These factors and others could
adversely affect the expansion of the customer base of the Company's existing
networks, as well as commencement of new services and operations of new
networks. The Company's inability either to expand in accordance with its plans
or to manage its growth could have a material adverse effect on its business,
growth, financial condition and results of operations.
HISTORICAL AND ANTICIPATED FUTURE OPERATING LOSSES AND NEGATIVE EBITDA
The Company has incurred and expects to continue to incur increasing
operating losses and negative EBITDA while it expands its business and builds
its customer base. The Company has incurred significant increases in expenses
associated with these activities and there can be no assurance that an adequate
customer base with respect to any or all of its services will be achieved or
sustained. The Company does not expect to achieve a significant market share for
its competitive access and long distance services. The Company had a net loss of
approximately $7.4 million and negative EBITDA of $4.5 million for the quarter
ended December 31, 1995. The Company had a net loss of approximately $11.3
million and negative EBITDA of $8.8 million for the year ended September 30,
1995 and a net loss of approximately $3.5 million and negative EBITDA of $0.8
million for the 13 months ended September 30, 1994. There can be no assurance
that the Company will achieve or sustain profitability or generate positive
EBITDA.
SIGNIFICANT CAPITAL REQUIREMENTS
The Company believes that the net proceeds from the December Offering,
together with borrowings expected to be approved under the Tomen Facility and
vendor financing and capital lease arrangements, will provide sufficient funds
for the Company to expand its business as planned and to fund its operating
expenses for the next 18 to 24 months. The Company thereafter will require
substantial capital from outside sources for the foreseeable future to fund cash
flow deficits from operating activities and for the expansion of existing
networks, the development of additional networks (which could occur through
acquisitions and joint ventures) and the purchase of switching equipment.
Additional sources of capital may include public and private equity and debt
financings by the Company or its subsidiaries, sales of non-strategic assets and
other financing arrangements. There can be no assurance that additional
borrowings under the Tomen Facility will be approved, or that vendor financing
or capital lease arrangements will be available to the Company or that, if
available, such vendor financing or capital lease arrangements can be obtained
on terms acceptable to the Company. Failure to obtain such financing would
result in the delay or abandonment of some or all of the Company's development
and expansion plans and expenditures
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<PAGE>
and would have a 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 the Notes.
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.
SUBSTANTIAL INDEBTEDNESS
At March 31, 1996, the Company had outstanding on a consolidated basis
approximately $219.2 million of indebtedness. The accretion of original issue
discount on the Notes will cause an increase in indebtedness of $164.9 million
by December 15, 2000. The Indenture limits, but does not prohibit, the
incurrence of additional indebtedness by the Company. The Company anticipates
that it will incur substantial additional indebtedness in the future. The
Company has submitted proposals for approximately $65.3 million of debt
financing under the Tomen Facility for network projects, of which proposals for
$27.0 million of financing have been approved, and is currently negotiating
vendor financing arrangements. Under the terms of the Tomen Facility, up to an
additional $16.2 million of indebtedness could be incurred to fund the
development and construction of additional networks, including Fresno and Contra
Costa/Alameda Counties, if and to the extent that proposals for the funding of
such networks are approved by Tomen America. There can be no assurance that
Tomen America will provide funding for the remaining submitted projects or any
additional projects, in which case the Company will be required to seek other
sources of equity or debt financing. The Company's total indebtedness was
increased by $180.0 million as a result of the December Offering and total
interest expense was increased concomitantly.
The level of the Company's indebtedness could have important
consequences to its future prospects, including the following: (i) the debt
service requirements of any additional indebtedness could make it more difficult
for GST USA to make payments on the Notes; (ii) the ability of the Company to
obtain any necessary financing in the future for working capital, capital
expenditures, debt service requirements or other purposes may be limited; (iii)
a substantial portion of the Company's cash flow from operations, if any, must
be dedicated to the payment of principal of and interest on its indebtedness and
other obligations and will not be available for other purposes; (iv) the
Company's level of indebtedness could limit its flexibility in planning for, or
reacting to changes in, its business; (v) the Company will be more highly
leveraged than some of its competitors, which may place it at a competitive
disadvantage; and (vi) the Company's high degree of indebtedness will make it
more vulnerable in the event of a downturn in its business.
POSSIBLE INABILITY TO SERVICE DEBT
The Company has been experiencing increasing negative EBITDA and the
Company's earnings before fixed charges were insufficient to cover fixed charges
for the year ended September 30, 1995 and the 13 months ended September 30, 1994
by $13.8 million and $3.0 million, respectively. There can be no assurance that
the Company will be able to improve its earnings before fixed charges or EBITDA
or that the Company will be able to meet its debt service obligations. As the
Company does not currently have a revolving credit facility, if a shortfall
occurs, alternative financing would be necessary in order for the Company to
meet its liquidity requirements and there can be no assurance that such
financing would be available. In such event, the Company could face substantial
liquidity problems. The $17.5 million of indebtedness outstanding at March 31,
1996 under the Tomen Facility, the $27.0 million of financing subsequently
approved and the additional $38.3 million of debt financing proposals currently
submitted to Tomen America, if approved, will mature prior to 2005 and future
borrowings, including potential borrowings of up to $16.2 million under the
Tomen Facility (to the extent projects are approved), may mature prior to 2005.
Accordingly, the Company may have to refinance a substantial amount of
indebtedness prior to the maturity of the Notes. In addition, the Company
anticipates that cash flow from operations may be insufficient to repay the
Notes in full at maturity and the Notes may need to be refinanced. There can be
no assurance that the Company will be able to refinance such indebtedness. The
ability of the Company to meet its obligations and to
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<PAGE>
effect such refinancings will be dependent upon, among other things, 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. Failure by the Company to meet its
obligations could result in a default on its indebtedness, including the Notes,
which would permit the holders of such indebtedness to accelerate the maturity
thereof. Such events would make payments on the Notes less likely.
ACCELERATION OF DEBT IN THE EVENT OF A CHANGE OF CONTROL
The Indenture provides that in the event of a Change of Control (as
hereinafter defined), including a "person" or "group" becoming the ultimate
"beneficial owner" of voting stock representing more than 30% of the voting
stock of GST, GST USA must make an offer to repurchase the Notes at 101% of the
Accreted Value thereof, plus accrued interest. It is highly unlikely that cash
flow from operations would be sufficient or that adequate funds would otherwise
be available to repay the Notes in full, and therefore, GST USA would be
required to refinance the Notes. There can be no assurance that GST USA could
effect such refinancing on terms acceptable to it.
EFFECTIVE SUBORDINATION OF NOTES AS A RESULT OF HOLDING COMPANY STRUCTURE
GST and GST USA are each holding companies. The principal asset of GST
consists of the common stock of GST USA and the principal asset of GST USA
consists of the common stock of its subsidiaries. GST and GST USA intend to loan
or contribute a substantial portion of the net proceeds of the December Offering
to certain of GST USA's subsidiaries. GST and GST USA must rely upon dividends
and other payments from GST USA's subsidiaries to generate the funds necessary
to meet their obligations, including the payment of principal of and interest on
the Notes. The subsidiaries, however, are legally distinct from GST and GST USA
and have no obligation, contingent or otherwise, to pay amounts due pursuant to
the Notes or to make funds available for such payment. GST USA's subsidiaries
have not guaranteed the Notes. The ability of GST USA's subsidiaries to make
such payments to GST USA and GST will be subject to, among other things, the
availability of funds, the terms of such subsidiaries' indebtedness and
applicable state laws. Pursuant to a credit agreement under the Tomen Facility,
GST USA's subsidiary that owns and operates the San Bernardino and Ontario
networks may not pay any dividends or make any distributions on its capital
stock. Subsequent network financings under the Tomen Facility are expected to
include similar prohibitions. Claims of creditors of GST USA's subsidiaries,
including trade creditors, will generally have priority as to the assets of such
subsidiaries over the claims of GST USA, GST and the holders of GST USA's and
GST's indebtedness, including the Notes and the Notes Guarantee. Accordingly,
the Notes and the Guarantee will be effectively subordinated to the liabilities
(including trade payables) of the subsidiaries of GST USA. At March 31, 1996,
the subsidiaries of GST USA had approximately $31.7 million of liabilities
(excluding intercompany payables), including $19.9 million of indebtedness, all
of which was secured.
ABILITY TO INCUR ADDITIONAL SECURED INDEBTEDNESS
The Notes are senior unsecured indebtedness of GST USA and are
guaranteed on a senior unsecured basis by GST. At March 31, 1996, the Company
had an aggregate of approximately $19.9 million of secured indebtedness,
including $17.5 million of indebtedness under the Tomen Facility. The subsidiary
that owns and operates the San Bernardino and Ontario Networks has granted to
Tomen America a first priority lien on all of its assets, and its stock has been
pledged to Tomen America. Under the terms of the Tomen Facility, in addition to
the $65.3 million of debt financing currently submitted to Tomen America, an
additional $16.2 million of indebtedness could be incurred to fund the
development and construction of additional networks, including those planned for
Fresno and Contra Costa/Alameda Counties, if and to the extent that proposals
for the funding of such networks are approved by Tomen America. Any such
subsequent financings under the Tomen Facility are expected to be secured in a
similar manner. In addition, pursuant to the terms of the Tomen Facility, the
cash flow from each network Tomen America finances will secure each other Tomen
America network financing. The Indenture also permits the Company to incur
additional secured indebtedness. See "Description of the New Notes --
Covenants."
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SUBORDINATION OF NOTES TO SECURED INDEBTEDNESS
In the event that a default were to occur with respect to any secured
indebtedness incurred by the Company and the holders thereof were to foreclose
on the collateral, the holders of such indebtedness would be entitled to payment
out of the proceeds of their collateral prior to any holders of general
unsecured indebtedness, including the Notes, notwithstanding the existence of an
event of default with respect to the Notes. In the event of any bankruptcy,
liquidation or reorganization of the Company, holders of secured indebtedness
would have a claim, prior to the claim of the Holders of the Notes, on the
assets of the Company securing such indebtedness. In addition, to the extent
that the value of such collateral is insufficient to satisfy such secured
indebtedness, holders of amounts remaining outstanding on such secured
indebtedness (as well as other unsubordinated creditors of the Company) would be
entitled to share PARI PASSU with Holders of the Notes with respect to any other
assets of the Company. Assets remaining after satisfaction of the claims of
holders of secured indebtedness may not be sufficient to pay amounts due on any
or all of the Notes then outstanding.
DIFFICULTIES IN IMPLEMENTING SWITCHED AND ENHANCED SERVICES STRATEGY
The Company plans to deploy high capacity, digital switches in the
cities in which it operates or plans to operate competitive access networks, as
well as in certain cities where the Company will rely on LEC facilities for
transmission. This will enable the Company to offer interstate switched access
services and, as regulatory conditions permit, intrastate switched access,
enhanced services and full local dial tone. The Company's switched access
services strategy may not be profitable due to, among other factors, lack of
customer demand, competition from other CAPs and pricing pressure from the LECs.
Implementation of the Company's switched and enhanced services strategy will
depend, in large part, on the Company's ability to obtain vendor or other
financing for switches. There can be no assurance that the Company will secure
adequate financing for its planned deployment of switches, that all or any of
such switches will be deployed or that, if deployed, such switches will be
utilized to the degree contemplated by the Company. The Company has limited
experience providing switched services and there can be no assurance that the
Company will be able to successfully implement its switched and enhanced
services strategy.
FINANCIAL AND OPERATING RESTRICTIONS IMPOSED BY EXISTING INDEBTEDNESS
The Indenture and the Tomen Facility impose significant operating and
financial restrictions on the Company. Such restrictions affect, and in certain
cases significantly limit or prohibit, among other things, the ability of the
Company to incur additional indebtedness or create liens on its assets, pay
dividends, sell assets, engage in mergers or acquisitions or make investments.
Failure to comply with any such covenant could result in a default thereunder,
which could result in an acceleration of the Notes, in which case the Holders of
the Notes may not be paid.
RECENT COMMENCEMENT OF MARKETING
The Company has only recently begun marketing the services of certain
of its competitive access networks and as a result, the Company has relatively
few customers and has generated limited revenue. Although the Company actively
markets its products and services, there can be no assurance that the Company
will be able to attract new customers or retain existing customers.
DEPENDENCE ON KEY CUSTOMERS
The Company's five largest telecommunications services customers
accounted for approximately 16.6% and 0.7% of the Company's consolidated
revenues for the year ended September 30, 1995 and the 13 months ended September
30, 1994, respectively. During the year ended September 30, 1995, one of ITG's
former customers, which is presently the subject of a bankruptcy proceeding,
accounted for 5.3% of the Company's consolidated revenues. It is anticipated
that during the early stages of development of individual networks, before
obtaining a
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sufficient amount of end-user revenues, the Company will be dependent on a
limited number of long distance carriers for a significant portion of its
revenues. While long distance carriers have high volume requirements and have
utilized CAPs as alternative access providers, they generally are more price
sensitive than end-users. The five largest customers of the Company's
manufacturing operations accounted for 22.8% and 22.2% of the Company's
consolidated revenues for the year ended September 30, 1995 and the 13 months
ended September 30, 1994, respectively. The loss of, or decrease of business
from, one or more significant customers could have a material adverse effect on
the business, financial condition and results of operations of the Company.
COMPETITION
The telecommunications industry is highly competitive. In most markets,
the Company's networks' principal competitor is the regional Bell operating
company ("RBOC") or the GTE Operating Company ("GTOC"). Other competitors may
include other CAPs, microwave and satellite carriers, wireless
telecommunications providers and private networks built by large end-users.
Potential competitors (using similar or different technologies) include cable
television companies, utilities and local telephone companies outside their
current local service areas. In addition, the Company anticipates future
competition from large long distance carriers, such as AT&T Corp. ("AT&T"), MCI
Communications Corporation ("MCI") and Sprint Corporation ("Sprint"), which have
announced plans to offer integrated local and long distance telecommunications
services as regulations allow. Consolidation of telecommunications companies and
the formation of strategic alliances within the telecommunications industry, as
well as the development of new technologies, could give rise to significant new
competitors to the Company.
As a recent entrant in the integrated telecommunications services
industry, the Company has not achieved and does not expect to achieve a
significant market share for its competitive access and long distance services.
In particular, the RBOCs, the GTOCs and other local telephone companies have
long-standing relationships with their customers, have financial, technical and
marketing resources substantially greater than those of the Company, have the
potential to subsidize competitive services with revenues from a variety of
businesses and currently benefit from certain existing regulations that favor
the LECs over the Company in certain respects. While recent regulatory
initiatives, which allow CAPs such as the Company to interconnect with local
telephone company facilities, provide increased business opportunities for the
Company, such interconnection opportunities have been accompanied by increased
pricing flexibility for and relaxation of regulatory oversight of the local
telephone companies. If regulators allow local telephone companies to lower
their rates, engage in increased discount pricing practices or seek to charge
CAPs increased fees in conjunction with interconnection to their networks, the
financial condition of the Company could be adversely affected. In September
1995, the FCC announced proposals that, if adopted, would significantly lessen
the regulation of LECs that are subject to competition in their service areas
and would provide such LECs with greater pricing flexibility. If the LECs lower
their rates, CAPs such as the Company and other telecommunications providers may
be forced by market conditions to charge less for their services in order to
compete. There can be no assurance that the Company will be able to achieve or
maintain significant revenue or compete effectively in any of its markets.
The long distance telecommunications industry has relatively
insignificant barriers to entry, numerous entities competing for the same
customers and a high average churn rate, as customers frequently change long
distance providers in response to the offering of lower rates or promotional
incentives by competitors. The Company competes with major carriers such as
AT&T, MCI and Sprint, as well as other national and regional long distance
carriers and resellers, many of whom are able to provide services at costs that
are lower than the Company's current costs. As procompetitive regulatory
initiatives are implemented, the Company believes that RBOCs also will become
competitors in the long distance telecommunications industry. The Company
believes that the principal competitive factors affecting its long distance
operations are pricing, customer service, accurate billing, clear pricing
policies and, to a lesser extent, variety of services. The ability of the
Company to compete effectively will depend upon its continued ability to
maintain high quality, market driven services at prices generally equal to or
below those charged by its competitors. The FCC has, on several occasions since
1984, approved or required price reductions by AT&T. The FCC recently announced
a decision pursuant to which AT&T will no longer be regulated as a dominant long
distance carrier. This decision removes AT&T from price-cap regulations with
respect to its long distance services
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as well as other regulatory and reporting requirements that previously only
applied to AT&T as the sole carrier designated by the FCC as dominant in the
long distance market. This decision, which is subject to certain other
commitments and undertakings agreed to by AT&T, is expected to increase AT&T's
flexibility in competing in the long distance services market and, in
particular, will eliminate the longer tariff notice requirements previously
applicable only to AT&T. To maintain its competitive posture, the Company
believes that it must be in a position to reduce its prices in order to meet
reductions in rates, if any, by others. Any such reductions could adversely
affect the Company.
NACT competes with other lower to medium capacity switch manufacturers
and software providers. As its business develops and new switches are
introduced, NACT's competitors may include larger switch and telecommunications
equipment manufacturers such as AT&T, Harris Corp., Siemens AG, Alcatel Alsthom
Compagnie Generale D'Electricite, Telefonaktiebolaget L.M. Ericsson and Northern
Telecom, Ltd. Most of NACT's potential competitors have substantially greater
financial, technical and marketing resources than NACT and may threaten the
viability of NACT if such other companies commence efforts to compete in the
segment of the switch manufacturing market in which NACT operates.
GOVERNMENT REGULATION
FOREIGN OWNERSHIP RESTRICTIONS. The Company's networks and the
provision of switched and private line services are subject to significant
regulation at the federal, state and local levels. As such, delays in receiving
required regulatory approvals or the enactment of new adverse regulation or
regulatory requirements may have a material adverse effect upon the Company.
While the Company is not subject to extensive rate regulation by the FCC, it
must file tariffs for its interstate and international services and the rates
for these services must be reasonable. In addition, the FCC imposes restrictions
on foreign ownership of communications service providers utilizing radio
frequencies and regulates international service providers affiliated with
dominant foreign carriers. The operations of the Company's Hawaiian network use,
among other transmission facilities, microwave radio facilities operating
pursuant to FCC licenses granted to Pacwest Network, Inc. ("PNI"), an entity
that is controlled by John Warta, the Company's President and Chief Executive
Officer.
The FCC may also have the authority, which it is not presently
exercising, to impose restrictions on foreign ownership of communications
service providers not utilizing radio frequencies, which could have a material
adverse effect on the Company's competitive access business and other domestic
services businesses.
FEDERAL REGULATION. The FCC also exercises jurisdiction over the
Company to the extent its services involve the provision, origination and
termination of interstate or international telecommunications, including resale
of long distance services. Thus, as such a provider, the Company must file
tariffs with the FCC and/or obtain prior FCC authorization for domestic and
international long distance services on an ongoing basis. Legislation recently
enacted by the U.S. Congress provides for a significant deregulation of the
domestic telecommunications industry, including the local exchange, long
distance and cable television industries. There can be no assurance that any
legislation or regulation will broaden the opportunities available to the
Company or will not have a material adverse effect on the Company and its
operations.
STATE AND LOCAL REGULATION. State regulatory commissions exercise
jurisdiction over the Company to the extent it provides intrastate services. As
such a provider, the Company will be required in most states to obtain
regulatory authorization and/or file tariffs at state agencies. There can be no
assurance that state or federal commissions will grant such authority or refrain
from taking action against any of the companies found to have provided services
without obtaining the necessary authorizations. If authority is not obtained or
if tariffs are not filed, or are not updated, or otherwise do not fully comply
with the tariff filing rules of the FCC or state regulatory agencies, third
parties or regulators could challenge these actions. Such challenges could cause
the Company to incur substantial legal and administrative expenses. State
regulatory agencies regulate competitive access services to the extent that they
are used for intrastate communications, and in some states local authorities
control the Company's
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access to municipal rights-of-way. The Company expects that, as its business and
services expand and as more procompetitive regulatory initiatives pertaining to
the local telecommunications services industry are implemented, it will offer
increased intrastate services (including intrastate switched services), which
will be subject to state regulation. There can be no assurance that regulations
that would permit the Company to provide additional access services will be
enacted on a timely basis, if at all. The networks are also subject to numerous
local regulations such as building codes and licensing. Such regulations vary on
a city by city and county by county basis.
IMPEDIMENTS TO ENFORCEMENT OF GUARANTEE BY A CANADIAN CORPORATION
GST is incorporated in Canada. Certain directors and officers, and
certain experts named herein, are residents of Canada. As a result, it may be
difficult for U.S. noteholders to seek enforcement of the Notes Guarantee by
effecting service of process within the United States upon GST or upon such
directors, officers and experts or to collect judgments of U.S. courts
predicated upon civil liability under U.S. federal securities and other laws.
GST believes that there is substantial doubt as to whether Canadian courts would
(i) enforce judgments of U.S. courts obtained against GST or such directors,
officers and experts predicated upon the civil liabilities provisions of U.S.
laws or (ii) impose liabilities in original actions against GST or its
directors, officers and experts predicated solely upon U.S. securities laws.
DIFFICULTY IN ADAPTING TO TECHNOLOGICAL CHANGE
The telecommunications industry is subject to rapid and significant
changes in technology, with the Company relying on third parties for the
development of and access to new technology. The effect of technological
changes, including changes to wireline and wireless transmission technologies,
on the business of the Company cannot be predicted. The Company believes its
future success will depend, in part, on its ability to anticipate or adapt to
such changes and to offer, on a timely basis, services that meet customer
demands.
The future success of NACT will depend in part upon its ability to keep
pace with advancing technology and standards within the industry. There can be
no assurance that NACT's products will not be rendered obsolete by switch
products incorporating technological advances designed by competitors that are
not available to NACT.
POSSIBLE ADVERSE LITIGATION OUTCOME
An action was commenced against NACT alleging that its telephone
systems incorporating prepaid calling features infringe upon a patent issued in
1987. An unfavorable decision in this action could have a material adverse
effect on the Company.
The Company has been involved in litigation with the City of Tucson
relating to the Company's license to operate a network there. The likely result
of such litigation will be to require the Company to obtain a new license with
less favorable provisions to expand the Tucson network.
DEPENDENCE ON KEY PERSONNEL
The efforts of a small number of key management and operating personnel
will largely determine the Company's success and the loss of any of such persons
could adversely affect the Company. The success of the Company also depends in
part upon its ability to hire and retain highly skilled and qualified operating,
marketing, financial and technical personnel. The competition for qualified
personnel in the telecommunications industry is intense and, accordingly, there
can be no assurance that the Company will be able to hire or retain necessary
personnel.
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DEPENDENCE ON RIGHTS-OF-WAY AND OTHER THIRD PARTY AGREEMENTS
The Company must obtain easements, rights-of-way, entry to premises,
franchises and licenses from various private parties, actual and potential
competitors and state and local governments in order to construct and operate
its networks. There can be no assurance that the Company will obtain
rights-of-way and franchise agreements on acceptable terms or that current or
potential competitors will not obtain similar rights-of-way and franchise
agreements that will allow them to compete against the Company. If any of the
existing franchise or license agreements were terminated or not renewed and the
Company were forced to remove its fiber optic cables or abandon its networks in
place, such termination could have a material adverse effect on the Company.
POSSIBLE RECOGNITION OF ADDITIONAL ORIGINAL ISSUE DISCOUNT
No gain or loss will be recognized by an exchanging Holder upon an
exchange of the Old Notes for the New Notes. A Holder's basis in the New Notes
will be the same as the Holder's basis in the Old Notes, and the Holder's
holding period in the New Notes will include the period during which the Old
Notes had been held by the Holder. If the exchange of the Old Notes for the New
Notes were deemed by the Internal Revenue Service (the "Service") to constitute
the exchange of a debt instrument for a modified instrument that differed
materially either in kind or in extent, additional original issue discount could
arise. However, under Proposed Regulations issued by the Service, the New Notes
should not be deemed to constitute a modification of the Old Notes, inasmuch as
the New Notes reflect all of the terms and conditions of the Old Notes in
registered form, which registration results from the original terms of the Old
Notes. Hence, the discussion that follows will be based on the terms and
conditions of issuance of the Old Notes.
ORIGINAL ISSUE DISCOUNT
The Old Notes were issued at a substantial discount from their
principal amount at maturity. Although cash interest will not accrue prior to
December 2000, and there will be no periodic payments of cash interest prior to
June 2001, original issue discount (the difference between the stated redemption
price at maturity and the issue price of the Old Notes) will accrue from the
issue date of the Old Notes. Original issue discount will be includible as
interest income periodically (including for periods ending prior to December
2000) in a U.S. Holder's (as defined herein) gross income for United States
federal income tax purposes in advance of receipt of the cash payments to which
the income is attributable.
In the [unlikely] event that the Notes are treated as equity, (i) there
would be no original issue discount and periodic distributions beginning in June
2001 (or earlier with respect to increases in Accreted Value, would be taxable
as dividends to the Holders (to the extent GST USA has earnings and profits for
United States federal income tax purposes), (ii) Non-U.S. Holders (as defined
herein) of Notes would not be eligible for the portfolio interest exemption from
United States withholding tax and such dividends would be subject to United
States withholding tax at a flat rate of 30% (or lower treaty rate) and (iii)
GST USA would not be able to deduct interest or any original issue discount on
the Notes.
If a bankruptcy case under the U.S. Bankruptcy Code were to be
commenced by or against GST or GST USA after the issuance of the Notes, the
claim of a Holder of Notes with respect to the principal amount thereof may be
limited to an amount equal to the sum of (i) the initial offering price and (ii)
that portion of the original issue discount that is not deemed to constitute
"unmatured interest" for purposes of the U.S. Bankruptcy Code. Any original
issue discount that was not amortized as of the time of any such bankruptcy
filing would constitute "unmatured interest."
POSSIBLE UNFAVORABLE TAX AND OTHER LEGAL CONSEQUENCES FOR HOLDERS OF NOTES AND
THE COMPANY
Based upon their yield, the Notes will be subject to the high yield
discount obligation rules. Under these rules, GST USA will not be able to deduct
original issue discount attributable to the Notes until paid. Moreover,
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because the yield on the Notes will exceed the applicable federal rate plus six
percentage points as of the date of issuance of the Old Notes, a portion of the
original issue discount attributable to the Notes will not be deductible at all.
Therefore, GST USA's after tax cash flow will be less than if such original
issue discount were deductible in full when accrued. In addition, as a result of
the Notes Guarantee, and possibly because of future acquisitions, other U.S. tax
provisions may limit the deductibility of a portion of the interest and original
issue discount on the Notes.
See "Certain United States Federal Income Tax Considerations" for a
more detailed discussion of the United States federal income tax consequences to
the holders of Notes regarding the purchase, ownership and disposition of the
Notes.
PROBABLE INABILITY TO UTILIZE NET OPERATING LOSS
At September 30, 1995, the Company had a U.S. net operating loss
carryforward of approximately $8.5 million and Canadian net operating loss
carryforward of approximately $5.8 million. While such loss carryforwards are
available to offset future taxable income of the Company, it is more likely than
not that the Company will not generate sufficient taxable income so as to
utilize all or a portion of such loss carryforwards prior to their expiration.
VARIABILITY OF QUARTERLY OPERATING RESULTS
As a result of the limited revenues and significant expenses associated
with the expansion and development of its networks and services, the Company
anticipates that its operating results could vary significantly from period to
period. In addition, revenues relating to the Company's network businesses are
and may continue to be dependent upon a small number of customers and contracts,
revenues under which are likely to vary significantly from period to period.
RISK OF JOINT INVESTMENTS
The Company's Phoenix network is operated by Phoenix Fiber Access, Inc.
("Phoenix Fiber"), an entity in which the Company has a 50% ownership interest.
Phoenix Fiber is managed by a governing board that the Company does not control.
The risk is present in this joint venture, and in other joint ventures in which
the Company may subsequently determine to participate, that the other joint
venture partner may at any time have economic, business or legal interests or
goals that are inconsistent with those of the joint venture or the Company. The
risk is also present that a joint venture partner may be unable to meet its
economic or other obligations to the venture and that the Company may be
required to fulfill those obligations.
POTENTIAL RESALES OF A SUBSTANTIAL NUMBER OF SHARES; REGISTRATION RIGHTS
At March 31, 1996, the Company had outstanding 20,824,901 Common
Shares, of which approximately 19,583,729 shares were freely transferable
without restriction or further registration under the Securities Act, except for
(i) 2,468,476 Common Shares held by "affiliates" of the Company within the
meaning of Rule 144 under the Securities Act, which shares are subject to the
resale limitations of Rule 144, (ii) an aggregate of 750,000 Common Shares
subject to escrow under regulations of the Vancouver Stock Exchange and (iii)
1,000,000 Common Shares subject to escrow as described in the following
paragraph. The remaining 1,241,172 Common Shares were "restricted securities,"
as that term is defined in Rule 144 and may only be sold pursuant to a
registration statement under the Securities Act or an applicable exemption from
registration thereunder, including pursuant to Rule 144. At March 31, 1996,
1,982,732 Common Shares were reserved for issuance upon exercise of outstanding
warrants and options, including warrants to purchase 375,000 shares held by
Tomen and Tomen America. The resale of an aggregate of 1,636,500 of such Common
Shares has been registered under the Securities Act.
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The number of Common Shares outstanding at March 31, 1996 includes
1,000,000 Common Shares held in escrow in connection with the acquisition of the
remaining 20% interest in GST Telecom Inc. from Pacwest Network LLC ("Pacwest").
The Company is obligated to register for resale such Common Shares (or portion
thereof) upon their release from escrow to Pacwest. The Company issued 168,249
Common Shares on January 5, 1996 and is committed to issue 168,249 Common Shares
on January 5, 1997 to former shareholders of NACT. The Company is committed to
register for resale one-half of such shares. Under the terms of the Tomen
Facility, Tomen and Tomen America have the right to purchase 250,000 Common
Shares and warrants to purchase 125,000 Common Shares upon the next network
financing. The Company is obligated to register the resale of such shares.
LACK OF A PUBLIC MARKET
The New Notes will constitute a new issue of securities with no
established trading market. GST USA does not intend to list the New Notes on any
national securities exchange or to seek approval for quotation through any
automated quotation system. GST USA has been advised by MS&Co. that following
completion of the Exchange Offer, MS&Co. intends to make a market in the New
Notes. However, MS&Co. is not obligated to do so and any market-making
activities with respect to the New Notes may be discontinued at any time without
notice. Accordingly, no assurance can be given that an active public or other
market will develop for the New Notes or as to the liquidity of or the trading
market for the New Notes. If a trading market does not develop or is not
maintained, Holders of the New Notes may experience difficulty in reselling the
New Notes or may be unable to sell them at all. If a market for the New Notes
develops, any such market may cease to continue at any time. If a public trading
market develops for the New Notes, future trading prices of the New Notes will
depend on many factors, including, among other things, prevailing interest
rates, the Company's results of operations and the market for similar securities
and other factors, including the financial condition of the Company.
CONSEQUENCES OF THE EXCHANGE OFFER TO NON-TENDERING HOLDERS OF THE OLD NOTES
In the event the Exchange Offer is consummated, GST USA will not be
required to register any Old Notes not tendered and accepted in the Exchange
Offer. In such event, Holders of Old Notes seeking liquidity in their investment
would have to rely on exemptions to the registration requirements under the
Securities Act. Following the Exchange Offer, none of the Notes will be entitled
to the contingent increase in interest rate provided for (in the event of a
failure to consummate the Exchange Offer in accordance with the terms of the
Registration Rights Agreement) pursuant to the Registration Rights Agreement.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by GST USA on December 19, 1995 to MS&Co. (the
"Placement Agent"), which placed the Old Notes with certain institutional
investors in reliance on Section 4(2) of, and Rule 144A under, the Securities
Act. In connection with the sale of the Old Notes, GST USA entered into the
Registration Rights Agreement, pursuant to which GST USA and GST agreed to use
their best efforts to consummate an offer to exchange the Old Notes for the New
Notes pursuant to an effective registration statement on or before June 19,
1996. A copy of the Registration Rights Agreement has been filed as an exhibit
to the Form 20-F. Unless the context requires otherwise, the term "Holder" with
respect to the Exchange Offer means any person in whose name Old Notes are
registered on the books of GST USA or any other person who has obtained a
properly completed bond power from the registered Holder, or any person whose
Old Notes are held of record by DTC who desires to deliver such Old Notes by
book-entry transfer at DTC.
GST USA has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for sale, resold or otherwise transferred by any Holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Based on interpretations by the staff of the Commission set
forth in no-action letters issued to third parties, GST USA believes that New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any Holder of such New
Notes (other than any such Holder that is an "affiliate" of GST USA or GST
within the meaning of Rule 405 under the Securities Act and except in the case
of broker-dealers, as set forth below) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holder's business and such
Holder has no arrangement or understanding with any person to participate in the
distribution of such New Notes. Any Holder who tenders in the Exchange Offer for
the purpose of participating in a distribution of the New Notes or who is an
affiliate of GST USA or GST may not rely on such interpretation by the staff of
the Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution."
By tendering in the Exchange Offer, each Holder of Old Notes will
represent to GST USA and GST that, among other things, (i) the New Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such New Notes, whether or not such
person is such Holder, (ii) neither the Holder of Old Notes, nor any such other
person, has an arrangement or understanding with any person to participate in
the distribution of such New Notes, (iii) if the Holder is not a broker-dealer,
or is a broker-dealer but will not receive New Notes for its own account in
exchange for Old Notes, neither the Holder, nor any such other person, is
engaged in or intends to participate in the distribution of such New Notes and
(iv) neither the Holder nor any such other person is an "affiliate" of GST USA
or GST within the meaning of Rule 405 under the Securities Act or, if such
Holder is an "affiliate," that such Holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
Following the consummation of the Exchange Offer, Holders of Old Notes
not tendered will not have any further registration rights and the Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for the Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, GST USA will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time,
on the Expiration Date. Subject to the minimum denomination requirements of the
New Notes, GST USA will issue $1,000 principal amount at maturity of New Notes
in exchange for each $1,000 principal amount at
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maturity of outstanding Old Notes accepted in the Exchange Offer. Holders may
tender some or all of their Old Notes pursuant to the Exchange Offer. However,
Old Notes may be tendered only in integral multiples of $1,000 principal amount
at maturity.
The forms and terms of the New Notes will be identical in all material
respects to the forms and terms of the corresponding Old Notes, except that the
offer and sale of the New Notes will have been registered under the Securities
Act and, therefore, the New Notes will not bear legends restricting the transfer
thereof. The Exchange Offer is not conditioned upon any minimum aggregate
principal amount at maturity of Old Notes being tendered for exchange. As of
March 31, 1996, $166,327,787 Accreted Value of the Old Notes were outstanding.
This Prospectus, together with the Letter of Transmittal, is being sent to all
Holders as of ________, 1996.
Holders of Old Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. GST USA intends to
conduct the Exchange Offer in accordance with the applicable requirements of the
Exchange Act and the applicable rules and regulations of the Commission
thereunder.
GST USA shall be deemed to have accepted validly tendered Old Notes
when, as and if GST USA has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering Holders for the
purpose of receiving the New Notes from GST USA. If any tendered Old Notes are
not accepted for exchange because of an invalid tender, the occurrence of
certain other events set forth herein or otherwise, such unaccepted Old Notes
will be returned, without expense, to the tendering Holder thereof as promptly
as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. GST USA will pay all charges and expenses, other
than certain applicable taxes, in connection with the Exchange Offer. See " --
Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
_____________, 1996, [20 BUSINESS DAYS AFTER THE COMMENCEMENT OF THE EXCHANGE
OFFER] unless GST USA in its sole discretion, extends the Exchange Offer, in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended. Although GST USA has no current intention
to extend the Exchange Offer, GST USA reserves the right to extend the Exchange
Offer at any time and from time to time by giving oral or written notice to the
Exchange Agent and by timely public announcement communicated, unless otherwise
required by applicable law or regulation, by making a release to the Dow Jones
News Service. During any extension of the Exchange Offer, all Old Notes
previously tendered pursuant to the Exchange Offer and not withdrawn will remain
subject to the Exchange Offer. The date of the exchange of the New Notes for Old
Notes will be the first AMEX trading day following the Expiration Date.
GST USA expressly reserves the right to (i) terminate the Exchange
Offer and not accept for exchange any Old Notes if any of the events set forth
below under " -- Conditions to the Exchange Offer" shall have occurred and shall
not have been waived by GST USA and (ii) amend the terms of the Exchange Offer
in any manner that, in its good faith judgment, is advantageous to the Holders
of the Old Notes, whether before or after any tender of the Old Notes.
PROCEDURES FOR TENDERING
The tender to GST USA of Old Notes by a Holder thereof pursuant to one
of the procedures set forth below will constitute an agreement between such
Holder and GST USA in accordance with the terms and subject to the conditions
set forth herein and in the Letter of Transmittal signed by such holder. A
Holder of the Old Notes may tender such Old Notes by (i) properly completing and
signing a Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to a Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with any corresponding certificate or
certificates representing the Old Notes being tendered (if in certificated form)
and any required signature guarantees, to the Exchange Agent at its address set
forth in the
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Letter of Transmittal on or prior to the Expiration Date (or complying with the
procedure for book-entry transfer described below) or (ii) complying with the
guaranteed delivery procedures described below.
If tendered Old Notes are registered in the name of the signer of the
Letter of Transmittal and the New Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in DTC whose name appears on a security listing as the owner of
Old Notes), the signature of such signer need not be guaranteed. In any other
case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to GST USA and duly executed by the
registered Holder and the signature on the endorsement or instrument of transfer
must be guaranteed by a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or correspondent in the United States or an
"eligible guarantor institution" as defined by Rule 17Ad-15 under the Exchange
Act (any of the foregoing hereinafter referred to as an "Eligible Institution").
If the New Notes and/or the Old Notes not exchanged are to be delivered to an
address other than that of the registered Holder appearing on the register for
the Old Notes, the signature in the Letter of Transmittal must be guaranteed by
an Eligible Institution.
THE METHOD OF DELIVERY OF OLD NOTES, LETTER OF TRANSMITTAL AND ALL
OTHER DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS
BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO
GST USA.
GST USA understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish an account with respect
to the Old Notes at DTC for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in DTC's system may make book-entry delivery of Old Notes by causing
DTC to transfer such Old Notes into the Exchange Agent's account with respect to
the Old Notes in accordance with DTC's procedure for such transfer. Although
delivery of the Old Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, an appropriate Letter of Transmittal with any
required signature guarantee and all other revised documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at the address
set forth in the Letter of Transmittal on or prior to the Expiration Date, or,
if the guaranteed delivery procedures described below are complied with, within
the time period provided under such procedures.
If the Holder desires to accept the Exchange Offer and time will not
permit a Letter of Transmittal or Old Notes to reach the Exchange Agent before
the Expiration Date or the procedure for book-entry transfer cannot be completed
on a timely basis, a tender may be effected if the Exchange Agent has received
at its office, on or prior to the Expiration Date, a letter, telegram or
facsimile transmission from an Eligible Institution setting forth the name and
address of the tendering Holder, the name(s) in which the Old Notes are
registered and the certificate number(s) of the Old Notes to be tendered, and
stating that the tender is being made thereby and guaranteeing that, within
three AMEX trading days after the date of execution of such letter, telegram or
facsimile transmission by the Eligible Institution, such Old Notes, in proper
form for transfer (or a confirmation of book-entry transfer of such Old Notes
into the Exchange Agent's account at DTC), will be delivered by such Eligible
Institution together with a properly completed and duly executed Letter of
Transmittal (and any other required documents). Unless Old Notes being tendered
by the above-described method are deposited with the Exchange Agent within the
time period set forth above (accompanied or preceded by a properly completed
Letter of Transmittal and any other required documents), GST USA may, at its
option, reject the tender. Copies of a Notice of Guaranteed Delivery, which may
be used by Eligible Institutions for the purposes described in this paragraph,
are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i)
the tendering Holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at DTC), is received by the Exchange
Agent or (ii) a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided above) from an Eligible Institution
is received by the Exchange Agent. Issuances of New Notes in exchange for Old
Notes
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<PAGE>
tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram or
facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against submission of a duly signed Letter of
Transmittal (and any other required documents) and deposit of the tendered Old
Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by GST USA, whose determination will be final and binding. GST USA
reserves the absolute right to reject any or all tenders not in proper form or
the acceptance for exchange of which may, in the opinion of GST USA's counsel,
be unlawful. GST USA also reserves the absolute right to waive any of the
conditions of the Exchange Offer or any defect or irregularity in the tender of
any Old Notes. None of GST USA, the Exchange Agent or any other person will be
under any duty to give notification of any defects or irregularities in tenders
or will incur any liability for failure to give any such notification. Any Old
Notes received by the Exchange Agent that are not validly tendered and as to
which the defects or irregularities have not been cured or waived, or if Old
Notes are submitted in a principal amount at maturity greater than the principal
amount at maturity of Old Notes being tendered by such tendering Holder, will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In addition, GST USA reserves the right in its sole discretion to (a)
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date and (b) to the extent permitted by applicable law, purchase
Old Notes in the open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers will differ from the terms of the
Exchange Offer.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following
terms and conditions, which are part of the Exchange Offer.
The party tendering Old Notes for exchange (the "Transferor")
exchanges, assigns and transfers the Old Notes to GST USA and irrevocably
constitutes and appoints the Exchange Agent as the Transferor's agent and
attorney-in-fact to cause the Old Notes to be assigned, transferred and
exchanged. The Transferor represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the Old Notes and to acquire
New Notes issuable upon the exchange of such tendered Old Notes, and that, when
the same are accepted for exchange, GST USA will acquire good and unencumbered
title to the tendered Old Notes, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim. The Transferor
also warrants that it will, upon request, execute and deliver any additional
documents deemed by GST USA to be necessary or desirable to complete the
exchange, assignment and transfer of tendered Old Notes or transfer ownership of
such Old Notes on the account books maintained by DTC. All authority conferred
by the Transferor will survive the death, bankruptcy or incapacity of the
Transferor and every obligation of the Transferor will be binding upon the
heirs, legal representatives, successors, assigns, executors and administrators
of such Transferor.
By executing a Letter of Transmittal, each Holder will make to GST USA
and GST the representations set forth above under the heading " -- Purpose and
Effect of the Exchange Offer."
WITHDRAWAL OF TENDERS
Tenders of Old Notes pursuant to the Exchange Offer are irrevocable,
except that Old Notes tendered pursuant to the Exchange Offer may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To be effective, a written, telegraphic or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent at the
address set forth in the Letter of Transmittal prior to 5:00 p.m., New York City
time on the Expiration Date. Any such notice of withdrawal must specify the
holder named in the Letter of Transmittal as having tendered Old Notes to be
withdrawn, the certificate numbers and designation of Old Notes to be withdrawn,
the principal amount of Old Notes delivered for exchange, a statement that such
Holder is withdrawing his election to have such Old Notes exchanged, and the
name of the registered Holder of such Old
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Notes, and must be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal (including any required signature
guarantees) or be accompanied by evidence satisfactory to GST USA that the
person withdrawing the tender has succeeded to the beneficial ownership of the
Old Notes being withdrawn. The Exchange Agent will return the properly withdrawn
Old Notes promptly following receipt of notice of withdrawal. If Old Notes have
been tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawn Old Notes or otherwise comply with DTC procedure. All
questions as to the validity of notices of withdrawal, including time of
receipt, will be determined by GST USA, and such determination will be final and
binding on all parties.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any
extension of the Exchange Offer, GST USA will not be required to issue New Notes
in exchange for any properly tendered Old Notes not theretofore accepted and may
terminate the Exchange Offer, or, at its option, modify or otherwise amend the
Exchange Offer, if either of the following events occur:
(a) any statute, rule or regulation shall have been enacted, or any
action shall have been taken by any court or governmental authority
which, in the sole judgment of GST USA, would prohibit, restrict or
otherwise render illegal consummation of the Exchange Offer, or
(b) there shall occur a change in the current interpretation by the
staff of the Commission which, in GST USA's sole judgment, might
materially impair GST USA's ability to proceed with the Exchange Offer.
GST USA expressly reserves the right to terminate the Exchange Offer
and not accept for exchange any Old Notes upon the occurrence of either of the
foregoing conditions (which represent all of the material conditions to the
acceptance by GST USA of properly tendered Old Notes).
The foregoing conditions are for the sole benefit of GST USA and may be
waived by GST USA, in whole or in part, in its sole discretion. The foregoing
conditions must be either satisfied or waived prior to termination of the
Exchange Offer. Any determination made by GST USA concerning an event,
development or circumstance described or referred to above will be final and
binding on all parties.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
BY MAIL (REGISTERED OR CERTIFIED MAIL RECOMMENDED):
United States Trust Company of New York
P.O. Box 844
Cooper Station
New York, New York 10276-0844
BY OVERNIGHT COURIER:
United States Trust Company of New York
770 Broadway, 13th Floor
Corporate Trust Operations Department
New York, New York 10003
BY HAND DELIVERY:
United States Trust Company of New York
111 Broadway
Lower Level
New York, New York 10006
Attn: Corporate Trust Services
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BY FACSIMILE: (212) 420-6152 Confirm by Telephone: (800) 548-6565
(For Eligible Institutions Only)
FEES AND EXPENSES
The expense of soliciting tenders will be borne by GST USA. The
principal solicitation is being made by mail; however, additional solicitations
may be made by telegraph, telephone or in person by officers and regular
employees of GST USA and its affiliates. No additional compensation will be paid
to any such officers and employees who engage in soliciting tenders.
GST USA has not retained any dealer-manager or other soliciting agent
in connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptances of the Exchange Offer. GST USA,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith. GST USA may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, the Letter of
Transmittal and related documents to the beneficial owners of the Old Notes and
in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees of GST USA, will be paid by GST USA.
GST USA will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, New Notes, or Old
Notes for principal amounts not tendered or accepted for exchange, are to be
delivered to, or are to be issued in the name of, any person other than the
registered Holder of the Old Notes tendered or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
Holder or any other persons) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old
Notes as reflected in GST USA's accounting records on the date of the exchange
because the exchange of the Old Notes for the New Notes is the completion of the
selling process contemplated in the issuance of the Old Notes. Accordingly, no
gain or loss for accounting purposes will be recognized. The expenses of the
Exchange Offer and the unamortized expenses related to the issuance of the Old
Notes will be amortized over the term of the New Notes.
OTHER
Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by GST USA or GST. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, shall create any implication that there has been no change in the
affairs of GST USA or GST since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) Holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, GST USA may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to Holders of Old Notes
in such jurisdiction.
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<PAGE>
As a result of the making of the Exchange Offer, GST USA and GST will
have fulfilled a covenant contained in the Registration Rights Agreement.
Holders of the Old Notes who do not tender their Old Notes in the Exchange Offer
will continue to hold such Old Notes and will be entitled to all the rights and
limitations applicable thereto under the Indenture except for any such rights
under the Registration Rights Agreement and except that the Old Notes will not
be entitled to the contingent increase in interest rate provided for in the Old
Notes. All untendered Old Notes will continue to be subject to the restrictions
on transfer set forth in the Indenture and the Old Notes. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market, if
any, for untendered Old Notes could be adversely affected.
USE OF PROCEEDS
GST USA will not receive any cash proceeds from the issuance of the New
Notes offered hereby. In consideration for issuing the New Notes as contemplated
in this Prospectus, GST USA will receive in exchange Old Notes in like principal
amount, the terms of which are identical in all material respects to the New
Notes, except that the offer and sale of such New Notes will be registered under
the Securities Act and, therefore, will not bear legends restricting the
transfer thereof. Old Notes surrendered in exchange for New Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the New
Notes will not result in a change in the indebtedness of the Company.
GST and GST USA received gross proceeds of approximately $180.0 million
from the December Offering. Of the net proceeds of the December Offering, $2.0
million was applied to the repayment of short-term indebtedness incurred on
November 20, 1995 at an interest rate of 12% per annum. GST and GST USA intend
to use approximately 75% of the net proceeds of the December Offering, together
with borrowings under the Tomen Facility (to the extent projects are approved
thereunder), principally to complete the expansion and enhancement of its
existing competitive access networks, as well as to develop additional
competitive access networks. In addition, approximately 10% of the proceeds will
be applied to expand the Company's long distance business and approximately 10%
of the proceeds will be applied to implement its switched and enhanced services
strategy, including the acquisition and deployment of switches, and the general
development and growth of its telecommunications services business.
Approximately 5% of the proceeds of the December Offering also will be applied
to fund future operating deficits and for working capital purposes. The Company
will need to raise significant capital from outside sources in addition to the
proceeds of the December Offering. See "Risk Factors -- Significant Capital
Requirements," "--Substantial Indebtedness" and "-- Possible Inability to
Service Debt," "-- Historical and Anticipated Future Operating Losses and
Negative EBITDA."
MATERIAL CHANGES
In December 1995, GST sold $20,000,187 of the Convertible Notes
pursuant to an indenture and GST USA sold $160,001,496 of the Old Notes pursuant
to the Indenture in the December Offering. The proceeds were used as described
in "Use of Proceeds."
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<PAGE>
DEFICIENCY IN EARNINGS TO COVER FIXED CHARGES
For purposes of this calculation, "earnings" are defined as earnings
before income taxes, extraordinary items and fixed charges. "Fixed charges"
consist of interest charges and amortization of debt expense and discount or
premium related to indebtedness, whether expensed or capitalized and that
portion of rental expense the Company believes to be representative of interest.
<TABLE>
<CAPTION>
Years Ended
August 31,
--------------------------------------------------- 13 Months Ended Year Ended
September 30, September 30,
1991 1992 1993 1994 1995
---- ---- ---- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Deficiency in Earnings
to Cover Fixed
Charges 24,000 52,000 800,000 3,000,000 13,800,000
</TABLE>
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<PAGE>
DESCRIPTION OF THE NEW NOTES
The Old Notes were issued under the Indenture among GST USA, as issuer,
GST, as guarantor, and United States Trust Company of New York, as Trustee (in
such capacity, the "Trustee"). The New Notes will be issued under the Indenture,
which will be qualified under the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), upon the effectiveness of the Registration Statement of
which this Prospectus is a part. The form and terms of the New Notes are the
same in all material respects as the form and terms of the Old Notes, except
that the offer and sale of the New Notes will have been registered under the
Securities Act and, therefore, the New Notes will not bear legends restricting
transfer thereof. Upon the consummation of the Exchange Offer, Holders of Notes
will not be entitled to registration rights under, or the contingent increase in
interest rate provided pursuant to, the Registration Rights Agreement. The New
Notes will evidence the same debt as the Old Notes and will be treated as a
single class under the Indenture with any Old Notes that remain outstanding.
The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act as in effect
on the date of the Indenture. The Notes are subject to all such terms and
reference is made to the Indenture and the Trust Indenture Act for a statement
thereof. A copy of the Indenture has been filed with the Commission as an
exhibit to the Form 20-F. The following summary, which describes certain
provisions of the Indenture and the Notes, does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, the Indenture
and the Notes, including the definitions therein of terms not defined herein and
those terms made a part thereof by the Trust Indenture Act. Whenever particular
defined terms of the Indenture not otherwise defined herein are referred to,
such defined terms are incorporated herein by reference.
GENERAL
The Notes are unsecured, unsubordinated obligations of GST USA, limited
to $312.4 million aggregate principal amount at maturity, and will mature on
December 15, 2005. From and after December 15, 2000, each Note will bear
interest at the rate of 13 7/8% per annum, payable semiannually (to Holders of
record at the close of business on the June 1 or December 1 immediately
preceding the Interest Payment Date) on June 15 and December 15 of each year,
commencing June 15, 2001.
Although for United States income tax purposes a significant amount of
original issue discount, taxable as ordinary income, will be recognized by a
Holder of Notes as such discount is amortized from the date of issuance of the
Notes, Holders of Notes will not receive any payments on the Notes until June
15, 2001. For a description of certain tax matters related to an investment in
the Notes, see "Certain United States Federal Income Tax Considerations."
Principal of, premium, if any, and interest on the Notes will be
payable, and the Notes may be exchanged or transferred, at the office or agency
of GST USA, as the case may be, in the Borough of Manhattan, the City of New
York (which initially will be the corporate trust office of the Trustee at 114
West 47th Street, New York, New York 10036-1532); provided that, at the option
of GST USA, payment of interest may be made by check mailed to the respective
addresses of the Holders as each such address appears in the Security Register.
The Notes are issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount at maturity and integral multiples
thereof. See "-- Book-Entry; Delivery and Form." No service charge will be made
for any registration of transfer or exchange of Notes, but GST USA or GST, as
the case may be, may require payment of a sum sufficient to cover any transfer
tax or other similar governmental charge payable in connection therewith.
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<PAGE>
OPTIONAL REDEMPTION
The Notes are redeemable at the option of GST USA, in whole or in part,
at any time or from time to time, on or after December 15, 2000 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first-class mail to each Holder's last address as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of Holders of record on the relevant Regular Record
Date that is on or prior to the Redemption Date to receive interest due on an
Interest Payment Date), if redeemed during the 12-month period commencing
December 15, of the years set forth below:
Year Redemption Price
2000.............................................. 106.938%
2001.............................................. 103.469%
2002 and thereafter............................... 100.000%
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which such notes are
listed or, if such notes are not listed on a national securities exchange, on a
pro rata basis, by lot or by such other method as such Trustee in its sole
discretion shall deem to be fair and appropriate; provided that no Note of
$1,000 in principal amount at maturity or less shall be redeemed in part. If any
Note is to be redeemed in part only, the notice of redemption relating to such
Note shall state the portion of the principal amount at maturity thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the Holder thereof upon cancellation of the
original Note.
The Notes are also subject to redemption as a whole, but not in part,
at the option of GST USA at any time at 100% of their Accreted Value, together
with accrued interest thereon, if any, to the Redemption Date, in the event GST
USA has become or would become obligated to pay, on the next date on which any
amount would be payable with respect to the Notes, any Additional Amounts as a
result of a change in the laws (including any regulations promulgated
thereunder) of Canada (or any political subdivision or taxing authority thereof
or therein), or any change in any official position regarding the application or
interpretation of such laws or regulations, which change is announced or becomes
effective on or after the date of this Prospectus.
NOTES GUARANTEE
GST USA's obligations under the Notes are fully and unconditionally
guaranteed on a senior basis by GST. Notwithstanding the foregoing, the Notes
Guarantee will not be enforceable against GST in an amount in excess of the net
worth of GST at the time that determination of such net worth is, under
applicable law, relevant to the enforceability of the Notes Guarantee. Such net
worth will include any claim of GST against GST USA, or GST USA against GST, for
reimbursement and any claim against any other guarantor for contribution.
RANKING
The Notes and the Notes Guarantee are unsecured, unsubordinated
indebtedness of GST USA and GST, respectively, rank PARI PASSU in right of
payment with all unsecured, unsubordinated indebtedness and are senior in right
of payment to all subordinated indebtedness, of GST USA and GST, respectively,
including GST USA's guarantee (the "Convertible Notes Guarantee") of the
Convertible Notes and the Convertible Notes, respectively. At February 15, 1996,
GST USA and GST had no outstanding borrowings other than the Notes. GST USA and
GST are each holding companies. The Notes and the Notes Guarantee will be
effectively subordinated to the liabilities of the subsidiaries of GST USA and
GST, respectively, including trade payables, and at such date GST USA's
subsidiaries had approximately $30.2 million of liabilities (excluding
intercompany payables), including $20.5 million of indebtedness, all of which
was secured. The Company is expected to incur substantial amounts of additional
indebtedness in the future. See "Risk Factors -- Significant Capital
Requirements."
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BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Notes will be issued in fully
registered form without interest coupons. Notes sold in offshore transactions in
reliance on Regulation S under the Securities Act are initially represented by
one or more permanent global Notes in definitive, fully registered form without
interest coupons (each a "Regulation S Global Note") and are deposited with the
deposited with the Trustee as custodian for, and registered in the name of, a
nominee of DTC for the accounts of Management Trust Company of New York,
Brussels office, as operator of the Euroclear System ("Euroclear") and Cedel,
S.A. ("Cedel").
Notes sold in reliance on Rule 144A are represented by one or more
permanent global Notes, in definitive, fully registered form without interest
coupons (each a "Registered Global Note;" and together with the Regulation S
Global Note, the "Global Notes") and are deposited with the Trustee as custodian
for, and registered in the name of, a nominee of DTC.
Notes originally purchased by or transferred to Institutional
Accredited Investors who are not qualified institutional buyers (the "Non-Global
Purchasers") are in registered form without coupons (the "Certificated Notes").
Upon the transfer of Certificated Notes initially issued to a Non-Global
Purchaser to a qualified institutional buyer, such Certified Notes will, unless
the relevant Restricted Global Note has previously been exchanged in whole for
Certificated Notes, be exchanged for an interest in such Restricted Global Note.
Ownership of beneficial interests in a Global Note is limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in Global Note
are shown on, and the transfer of that ownership will be effected only through,
records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests or
persons other than participants). Qualified institutional buyers may hold their
interests in a Restricted Global Note directly through DTC if they are
participants in such system, or indirectly through organizations that are
participants in such system.
Investors may hold their interests in a Regulation S Global Note
directly through Cedel or Euroclear, if they are participants in such systems,
or indirectly through organizations that are participants in such system. Upon
the commencement of the Exchange Offer, investors may also hold such interests
through organizations other than Cedel or Euroclear that are participants in the
DTC system. Cedel and Euroclear will hold interests in the Regulation S Global
Notes on behalf of their participants through DTC.
So long as DTC, or its nominee, is the registered owner or Holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and such Notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
Indenture and, if applicable, those to Euroclear and Cedel.
Payments of the principal of, and interest on, a Global Note will be
made to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither GST USA, GST, the Trustee or any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Note or
for maintaining, supervision or reviewing any records relating to such
beneficial ownership interests.
GST USA and GST expect that DTC or its nominee, upon receipt of any
payment of principal or interest in respect of a Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of DTC or its nominee. GST USA and GST also expect that
payments by participants to owners of beneficial interests in such Global Note
held through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
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Transfers between participants in DTC will be effected in the ordinary
way in accordance with DTC rules and will be settled in next-day funds.
Transfers between participants in Euroclear and Cedel will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
GST USA and GST expect that DTC will take any action permitted to be
taken by a Holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in a Global Note is credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Notes, DTC will exchange the applicable Global
Note for Certified Notes, which it will distribute to its participants.
GST USA and GST understand that DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC, Euroclear and Cedel are expected to follow the foregoing
procedures in order to facilitate transfers of interests in a Global Note among
participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. Neither GST USA, GST nor the Trustee will have any
responsibility for the performance by DTC. Euroclear or Cedel or their
respective participants or indirect participants or their respective obligations
under the rules and procedures governing their operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary
for the Global Notes and a successor depositary is not appointed by GST USA or
GST, as the case may be, within 90 days, GST USA or GST, as the case may be,
will issue Certificated Notes in exchange for the Global Notes.
AUTHENTICATION
The Notes must be executed by two officers of GST USA by facsimile or
manual signature in the name and on behalf of GST USA. If an officer whose
signature is on a Note no longer holds that office at the time the Trustee or
authenticating agent authenticates the Note, the Note will be valid
nevertheless. A security will not be valid until the Trustee or authenticating
agent manually signs the certificate of authentication of the Note. The
signature will be conclusive evidence that the Note has been authenticated under
the Indenture.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in
the covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
"Accreted Value" is defined to mean, for any Specified Date, the amount
provided for each $1,000 principal amount at maturity of Notes:
(i) if the Specified Date occurs on one of the following dates
(each a "Semi-Annual Accrual Date"), the Accreted Value will equal the
amount set forth below for such Semi-Annual Accrual Date:
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SEMI-ANNUAL ACCRUAL DATE ACCRETED VALUE
------------------------ --------------
June 15, 1996.......................................... $ 546.80
December 15, 1996..................................... 584.73
June 15, 1997.......................................... 625.30
December 15, 1997...................................... 668.68
June 15, 1998......................................... 715.07
December 15, 1998...................................... 764.68
June 15, 1999.......................................... 817.72
December 15, 1999..................................... 874.45
June 15, 2000.......................................... 935.12
December 15, 2000...................................... $1,000.00
(iii) if the Specified Date occurs between two Semi-Annual
Accrual Dates, the Accreted Value will equal the sum of (a) the
Accreted Value for the Semi-Annual Accrual Date immediately preceding
such Specified Date and (b) an amount equal to the product of (1) the
Accreted Value for the immediately following Semi-Annual Accrual Date
less the Accreted Value for the immediately preceding Semi-Annual
Accrual Date multiplied by (2) a fraction, the numerator of which is
the number of days from the immediately preceding Semi-Annual Accrual
Date to the Specified Date, using a 360-day year of twelve 30-day
months, and the denominator of which is 180; or
(iv) if the Specified Date occurs after the last Semi-Annual
Accrual Date, the Accreted Value will equal $1,000.
"Adjusted Consolidated Net Income" means, for any period, the aggregate
net income (or loss) of GST and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income of any Person (other than net income attributable to a
Restricted Subsidiary) in which any Person (other than GST or any of its
Restricted Subsidiaries) has an interest and the net income of any Unrestricted
Subsidiary, except to the extent of the amount of dividends or other
distributions actually paid to GST or any of its Restricted Subsidiaries by such
other Person, or such Unrestricted Subsidiary, during such period; (ii) solely
for the purposes of calculating the amount of Restricted Payments that may be
made pursuant to clause (C) of the first paragraph of the "Limitation on
Restricted Payments" covenant described below (and in such case, except to the
extent includable pursuant to clause (i) above), the net income (or loss) of any
Person accrued prior to the date it becomes a Restricted Subsidiary or is merged
into or consolidated with GST or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are acquired by GST
or any of its Restricted Subsidiaries; (iii) the net income of any Restricted
Subsidiary to the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such net income is not at the
time permitted by the operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary; (iv) any gains or losses (on an
after-tax basis) attributable to Asset Sales; (v) except for purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of the "Limitation on Restricted Payments"
covenant described below, any amount paid or accrued as dividends on Preferred
Stock of GST or any Restricted Subsidiary owned by Persons other than GST and
any of its Restricted Subsidiaries; and (vi) all extraordinary gains and
extraordinary losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of GST and its Restricted Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), except to the extent resulting from
write-ups of capital assets (excluding write-ups in connection with accounting
for acquisitions in conformity with GAAP), after deducting therefrom (i) all
current liabilities of GST and its Restricted Subsidiaries (excluding
intercompany items) and (ii) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles, all as set
forth on the quarterly or annual consolidated balance sheet of GST and its
Restricted Subsidiaries, prepared in conformity with GAAP and most recently
filed with the Commission pursuant to the "Commission Reports and Reports to
Holders" covenant described below.
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"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"AMEX" means the American Stock Exchange (or any successor thereto) or,
if the Common Shares are not listed or admitted to trading on the AMEX, the
principal national securities exchange on which the Common Shares are listed or,
if the Common Shares are not so listed, the Nasdaq National Market.
"Asset Acquisition" means (i) an investment by GST or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary of GST or shall be merged into or consolidated
with GST or any of its Restricted Subsidiaries; provided that such Person's
primary business is related, ancillary or complementary to the businesses of GST
and its Restricted Subsidiaries on the date of such investment or (ii) an
acquisition by GST or any of its Restricted Subsidiaries of the property and
assets of any Person other than GST or any of its Restricted Subsidiaries that
constitute substantially all of a division or line of business of such Person;
provided that the property and assets acquired are related, ancillary or
complementary to the businesses of GST and its Restricted Subsidiaries on the
date of such acquisition.
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale-leaseback transactions) in one
transaction or a series of related transactions by GST or any of its Restricted
Subsidiaries to any Person other than GST or any of its Restricted Subsidiaries
of (i) all or any of the Capital Stock of any Restricted Subsidiary, (ii) all or
substantially all of the property and assets of an operating unit or business of
GST or any of its Restricted Subsidiaries or (iii) any other property or assets
of GST or any of its Restricted Subsidiaries outside the ordinary course of
business of GST or such Restricted Subsidiary and, in each case, that is not
governed by the provisions of the Indenture applicable to mergers,
consolidations and sales of assets of GST or GST USA; PROVIDED that "Asset Sale"
shall not include (x) sales or other dispositions of inventory, receivables and
other current assets or (y) sales or other dispositions of assets with a fair
market value (as certified in an Officers' Certificate) not in excess of
$200,000.
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether now outstanding or
issued after the date of the Indenture, including, without limitation, all
Common Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; and "Capitalized
Lease Obligations" means the discounted present value of the rental obligations
under such lease.
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes
the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act) of Voting Stock representing more than 30% of the total voting power of the
Voting Stock of GST on a fully diluted basis; (ii) individuals who on the
Closing Date constitute the Board of Directors (together with any new directors
whose election by the Board of Directors or whose nomination for election by
GST's shareholders was approved by a vote of at least two-thirds of the members
of the Board of Directors then in office who either were members of the Board of
Directors on the Closing Date or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
members of the Board of Directors then in office; or (iii) all of the Common
Stock of GST USA is not beneficially owned by GST.
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"Closing Date" means December 19, 1995.
"Consolidated EBITDA" means, for any period, the sum of the amounts for
such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated Interest
Expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (iii) income taxes, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income (other than income
taxes (either positive or negative) attributable to either extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation expense, to
the extent such amount was deducted in calculating Adjusted Consolidated Net
Income, (v) amortization expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, and (vi) all other non-cash items
reducing Adjusted Consolidated Net Income (other than items that will require
cash payments and for which an accrual or reserve is, or is required by GAAP to
be, made), less all non-cash items increasing Adjusted Consolidated Net Income,
all as determined on a consolidated basis for GST and its Restricted
Subsidiaries in conformity with GAAP; provided that, if any Restricted
Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA
shall be reduced (to the extent not otherwise reduced in accordance with GAAP)
by an amount equal to (A) the amount of the Adjusted Consolidated Net Income
attributable to such Restricted Subsidiary multiplied by (B) the quotient of (1)
the number of shares of outstanding Common Stock of such Restricted Subsidiary
not owned on the last day of such period by GST or any of its Restricted
Subsidiaries divided by (2) the total number of shares of outstanding Common
Stock of such Restricted Subsidiary on the last day of such period.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including amortization of
original issue discount on any Indebtedness and the interest portion of any
deferred payment obligation, calculated in accordance with the effective
interest method of accounting; all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by GST or any of its Restricted
Subsidiaries) and all but the principal component of rentals in respect of
Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be
accrued by GST and its Restricted Subsidiaries during such period; EXCLUDING,
HOWEVER, (i) any amount of such interest of any Restricted Subsidiary if the net
income of such Restricted Subsidiary is excluded in the calculation of Adjusted
Consolidated Net Income pursuant to clause (iii) of the definition thereof (but
only in the same proportion as the net income of such Restricted Subsidiary is
excluded from the calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) of the definition thereof) and (ii) any premiums, fees and expenses
(and any amortization thereof) payable in connection with the offering of the
Notes, all as determined on a consolidated basis (without taking into account
Unrestricted Subsidiaries) in conformity with GAAP.
"Consolidated Net Worth" means, at any date of determination,
shareholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of GST and its Restricted Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Redeemable Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of
Capital Stock of GST or any of its Restricted Subsidiaries, each item to be
determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Development Company" means a Restricted Subsidiary whose primary
business is the development, ownership and operation of alternative access
telecommunications networks.
"fair market value" means the price that would be paid in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to buy,
as determined in good faith by the Board of Directors of GST (whose
determination shall be conclusive) and evidenced by a Board Resolution.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Closing Date, including, without
limitation, those set forth in the opinions and pronouncements of the
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Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession. All ratios and computations
contained in the Indentures shall be computed in conformity with GAAP applied on
a consistent basis, except that calculations made for purposes of determining
compliance with the terms of the covenants and with other provisions of the
Indentures shall be made without giving effect to (i) the amortization of any
expenses incurred in connection with the offering of the Notes and (ii) except
as otherwise provided, the amortization of any amounts required or permitted by
Accounting Principles Board Opinion Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); PROVIDED that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to, or
become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an "incurrence" of Indebtedness by reason of the
acquisition of more than 50% of the Common Stock of any Person; PROVIDED that
neither the accrual of interest nor the accretion of original issue discount
shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
which purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services, except Trade Payables, (v) all obligations of such Person as
lessee under Capitalized Leases, (vi) all Indebtedness of other Persons secured
by a Lien on any asset of such Person, whether or not such Indebtedness is
assumed by such Person; PROVIDED that the amount of such Indebtedness shall be
the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness, (vii) all Indebtedness of
other Persons Guaranteed by such Person to the extent such Indebtedness is
Guaranteed by such Person and (viii) to the extent not otherwise included in
this definition, obligations under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation, PROVIDED (A)
that the amount outstanding at any time of any Indebtedness issued with original
issue discount is the face amount of such Indebtedness and (B) that Indebtedness
shall not include any liability for federal, state, local or other taxes.
"Indebtedness to EBITDA Ratio" means, as at any date of determination,
the ratio of (i) the aggregate amount of Indebtedness of GST and its Restricted
Subsidiaries on a consolidated basis as at the date of determination (the
"Transaction Date") to (ii) the Consolidated EBITDA of GST for the then most
recent four full fiscal quarters for which reports have been filed pursuant to
the "Commission Reports and Reports to Holders" covenant described below (such
four full fiscal quarter period being referred to herein as the "Four Quarter
Period"); PROVIDED that (x) pro forma effect shall be given to any Indebtedness
Incurred from the beginning of the Four Quarter Period through the Transaction
Date (including any Indebtedness Incurred on the Transaction Date), to the
extent outstanding on the Transaction Date, (y) if during the period commencing
on the first day of such Four Quarter Period through the Transaction Date (the
"Reference Period"), GST or any of its Restricted Subsidiaries shall have
engaged in any Asset Sale, Consolidated EBITDA for such period shall be reduced
by an amount equal to the EBITDA (if positive), or increased by an amount equal
to the EBITDA (if negative), directly attributable to the assets which are the
subject
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of such Asset Sale as if such Asset Sale had occurred on the first day of such
Reference Period or (z) if during such Reference Period GST or any of the
Restricted Subsidiaries shall have made any Asset Acquisition, Consolidated
EBITDA of GST shall be calculated on a pro forma basis as if such Asset
Acquisition and any Incurrence of Indebtedness to finance such Asset Acquisition
had taken place on the first day of such Reference Period.
"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including, without limitation, by way of Guarantee
or similar arrangement; but excluding advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on the balance sheet of GST or its Restricted Subsidiaries) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by, such Person and shall include
(i) the designation of a Restricted Subsidiary as an Unrestricted Subsidiary and
(ii) the fair market value of the Capital Stock (or any other Investment) held
by GST and its Restricted Subsidiaries of any Person that has ceased to be a
Restricted Subsidiary by reason of any transaction permitted by clause (iii) of
the "Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries" covenant. For purposes of the definition of "Unrestricted
Subsidiary" and the "Limitation on Restricted Payments" covenant described
below, (i) "Investment" shall include the fair market value of the assets (net
of liabilities (other than liabilities to GST or any of its Restricted
Subsidiaries)) of any Restricted Subsidiary of GST at the time that such
Restricted Subsidiary of GST is designated an Unrestricted Subsidiary and shall
exclude the fair market value of the assets (net of liabilities) of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary of GST and (ii) any property transferred to
or from an Unrestricted Subsidiary shall be valued at its fair market value at
the time of such transfer, in each case as determined by the Board of Directors
in good faith.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof, any sale with
recourse against the seller or any Affiliate of the seller, or any agreement to
give any security interest).
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to GST or any Restricted Subsidiary) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of GST and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by GST or
any Restricted Subsidiary as a reserve against any liabilities associated with
such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with GAAP and (b) with respect
to any issuance or sale of Capital Stock, the proceeds of such issuance or sale
in the form of cash or cash equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to GST or any Restricted Subsidiary) and proceeds from the conversion
of other property received when converted to cash or cash equivalents, net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Offer to Purchase" means an offer to purchase Notes by GST USA from
the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that all
Notes validly tendered will be accepted for payment on a pro rata basis; (ii)
the purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the "Payment Date"); (iii) that any Note not tendered will continue to accrue
interest pursuant to
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its terms; (iv) that, unless GST USA defaults in the payment of the purchase
price, any Note accepted for payment pursuant to the Offer to Purchase shall
cease to accrue interest on and after the Payment Date; (v) that Holders
electing to have a Note purchased pursuant to the Offer to Purchase will be
required to surrender the Note together with the form entitled "Option of the
Holder to Elect Purchase" on the reverse side thereof completed, to the Paying
Agent at the address specified in the notice prior to the close of business on
the Business Day immediately preceding the Payment Date; (vi) that Holders will
be entitled to withdraw their election if the Paying Agent receives, not later
than the close of business on the third Business Day immediately preceding the
Payment Date, a telegram, facsimile transmission or letter setting forth the
name of such Holder, the principal amount of Notes delivered for purchase and a
statement that such Holder is withdrawing his election to have such Notes
purchased; and (vii) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion
thereof; PROVIDED that each Note purchased and each new Note issued shall be in
a principal amount at maturity of $1,000 or integral multiples thereof. On the
Payment Date, GST USA shall (i) accept for payment on a pro rata basis Notes or
portions thereof tendered pursuant to an Offer to Purchase; (ii) deposit with
the Paying Agent money sufficient to pay the purchase price of all Notes or
portions thereof so accepted; and (iii) deliver, or cause to be delivered, to
the Trustee all Notes or portions thereof so accepted together with an Officers'
Certificate specifying the Notes or portions thereof accepted for payment by GST
USA. The Paying Agent shall promptly mail to the Holders of Notes so accepted
payment in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; PROVIDED that each Note
purchased and each new Note issued shall be in a principal amount at maturity of
$1,000 or integral multiples thereof. GST USA will publicly announce the results
of an Offer to Purchase as soon as practicable after the Payment Date. The
Trustee shall act as the Paying Agent for an Offer to Purchase. GST USA will
comply with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that GST USA is required to repurchase Notes pursuant to an Offer
to Purchase.
"Permitted Investment" means (i) an Investment in a Restricted
Subsidiary or a Person which will, upon the making of such Investment, become a
Restricted Subsidiary or be merged or consolidated with or into or transfer or
convey all or substantially all its assets to, GST or a Restricted Subsidiary;
PROVIDED that such person's primary business is related, ancillary or
complementary to the businesses of GST and its Restricted Subsidiaries on the
date of such Investment; (ii) a Temporary Cash Investment; (iii) payroll, travel
and similar advances to cover matters that are expected at the time of such
advances ultimately to be treated as expenses in accordance with GAAP; (iv)
loans or advances to employees made in the ordinary course of business that do
not exceed $1 million in the aggregate at any time outstanding; and (v) stock,
obligations or securities received in satisfaction of judgments.
"Permitted Joint Venture Partner" means AT&T, MCI, WorldCom, Inc. or
Sprint or any of their Affiliates or successors.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other similar
Liens arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money); (v) easements, rights-of-way,
municipal and zoning ordinances and similar charges, encumbrances, title defects
or other irregularities that do not materially interfere with the ordinary
course of business of GST or any of its Restricted Subsidiaries; (vi) Liens
(including extensions and renewals thereof) upon real or personal property
acquired after the Closing Date; PROVIDED that (a) such Lien is created solely
for the purpose of securing Indebtedness Incurred, in accordance with the
"Limitation on Indebtedness" covenant described below, (1) to finance the cost
(including the cost of improvement or construction) of the item of property or
assets subject thereto and
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such Lien is created prior to, at the time of or within six months after the
later of the acquisition, the completion of construction or the commencement of
full operation of such property or (2) to refinance any Indebtedness previously
so secured, (b) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of such cost and (c) any such Lien shall not extend to or
cover any property or assets other than such item of property or assets and any
improvements on such item; (vii) leases or subleases granted to others that do
not materially interfere with the ordinary course of business of GST and its
Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering property or
assets under construction arising from progress or partial payments by a
customer of GST or its Restricted Subsidiaries relating to such property or
assets; (ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (x) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (xi) Liens on property
of, or on shares of stock or Indebtedness of, any corporation existing at the
time such corporation becomes, or becomes a part of, any Restricted Subsidiary;
PROVIDED that such Liens do not extend to or cover any property or assets of GST
or any Restricted Subsidiary other than the property or assets acquired; (xii)
Liens in favor of GST or any Restricted Subsidiary; (xiii) Liens arising from
the rendering of a final judgment or order against GST or any Restricted
Subsidiary that does not give rise to an Event of Default; (xiv) Liens securing
reimbursement obligations with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the products
and proceeds thereof; (xv) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in connection
with the importation of goods; (xvi) Liens encumbering customary initial
deposits and margin deposits, and other Liens that are either within the general
parameters customary in the industry and incurred in the ordinary course of
business, in each case, securing Indebtedness under Interest Rate Agreements and
Currency Agreements and forward contracts, options, future contracts, futures
options or similar agreements or arrangements designed to protect GST or any of
its Restricted Subsidiaries from fluctuations in interest rates or the price of
commodities; (xvii) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by GST or
any of its Restricted Subsidiaries in the ordinary course of business in
accordance with the past practices of GST and its Restricted Subsidiaries prior
to the Closing Date; and (xviii) Liens on or sales of receivables.
"Redeemable Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; PROVIDED that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Redeemable Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in "Limitation on Asset Sales" and
"Repurchase of Notes upon a Change of Control" covenants described below and
such Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to GST USA's repurchase
of such Notes, as are required to be repurchased pursuant to the "Limitation on
Asset Sales" and "Repurchase of Notes upon a Change of Control" covenants
described below.
"Restricted Subsidiary" means any Subsidiary of GST other than an
Unrestricted Subsidiary.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of GST, accounted for more than 10% of the consolidated
revenues of GST and its Restricted Subsidiaries or (ii) as of the end of such
fiscal year, was the owner of more than 10% of the consolidated assets of GST
and its Restricted Subsidiaries, all as set forth on the most recently available
consolidated financial statements of GST for such fiscal year.
"Specified Date" means any redemption date, any Payment Date for an
Offer to Purchase, or any date on which the Notes are due and payable after an
Event of Default.
"Stated Maturity" means, (i) with respect to any debt security, the
date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
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respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50 million (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above, (iv)
commercial paper, maturing not more than 90 days after the date of acquisition,
issued by a corporation (other than an Affiliate of GST) organized and in
existence under the laws of the United States of America, any state thereof or
any foreign country recognized by the United States of America with a rating at
the time as of which any investment therein is made of "P-1" (or higher)
according to Moody's Investors Service, Inc. or "A-1" (or higher) according to
Standard & Poor's Ratings Group, and (v) securities with maturities of six
months or less from the date of acquisition issued or fully and unconditionally
guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least "A" by Standard & Poor's Ratings Group or Moody's Investors Service,
Inc.
"Tomen" means Tomen Corporation or its Affiliates.
"Tomen Facility" means, collectively, the Tomen Master Agreement
together with all other agreements (including credit agreements), instruments
and documents executed or delivered pursuant thereto or in connection therewith,
in each case as such agreements, instruments or documents may be amended,
supplemented, extended, renewed, replaced or otherwise modified from time to
time.
"Tomen Master Agreement" means the Master Agreement, dated October 24,
1994, among Tomen America, GST (formerly known as Greenstar Telecommunications
Inc.), GST Telecom Inc., PNI, Pacwest and GST Pacific Lightwave, Inc. (formerly
known as Pacific Lightwave, Inc.)
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by GST or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) any Subsidiary of GST that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary), other than
GST USA or a Subsidiary Guarantor, to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, GST or any Restricted Subsidiary; PROVIDED that either (A) the Subsidiary to
be so designated has total assets of $1,000 or less or (B) if such Subsidiary
has assets greater than $1,000, that such designation would be permitted under
the "Limitation on Restricted Payments" covenant described below. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of GST; PROVIDED that immediately after giving effect to such
designation (x) GST could Incur $1.00 of additional Indebtedness under the first
paragraph of the "Limitation on Indebtedness" covenant described below and (y)
no Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly
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filing with the Trustee a copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person,
such Subsidiary if all of the outstanding Capital Stock in such Subsidiary
(other than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned by such Person or one or more Wholly Owned
Subsidiaries of such Person.
COVENANTS
LIMITATION ON INDEBTEDNESS
(a) Under the terms of the Indenture, GST will not, and will not permit
any of its Restricted Subsidiaries to, Incur any Indebtedness (other than the
Notes, the Convertible Notes and Indebtedness existing on the Closing Date);
PROVIDED that GST and GST USA may Incur Indebtedness if, after giving effect to
the Incurrence of such Indebtedness and the receipt and application of the
proceeds therefrom, the Indebtedness to EBITDA Ratio would be greater than zero
and less than 5:1.
Notwithstanding the foregoing, GST and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following: (i)
Indebtedness outstanding at any time (including, but not limited to,
Indebtedness under the Tomen Facility) in an aggregate principal amount not to
exceed $100 million, less any amount of Indebtedness permanently repaid as
provided under the "Limitation on Asset Sales" covenant described below; (ii)
Indebtedness (A) to GST evidenced by a promissory note or (B) to any of its
Restricted Subsidiaries; PROVIDED that any subsequent event which results in any
such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of such Indebtedness (other than to GST or another
Restricted Subsidiary) shall be deemed, in each case, to constitute an
Incurrence of such Indebtedness not permitted by this clause (ii); (iii)
Indebtedness issued in exchange for, or the net proceeds of which are used to
refinance or refund, then outstanding Indebtedness, other than Indebtedness
Incurred under clause (i), (ii), (iv), (v), (vii) or (viii) of this paragraph,
and any refinancings thereof in an amount not to exceed the amount so refinanced
or refunded (plus premiums, accrued interest, fees and expenses); PROVIDED that
Indebtedness the proceeds of which are used to refinance or refund the Notes and
the Notes Guarantee or the Convertible Notes and Convertible Notes Guarantee, as
the case may be, or Indebtedness that is PARI PASSU with, or subordinated in
right of payment to, the Notes and the Notes Guarantee or Convertible Notes and
the Convertible Notes Guarantee, as the case may be, shall only be permitted
under this clause (iii) if (A) in case the Notes and the Notes Guarantee or
Convertible Notes and the Convertible Notes Guarantee, as the case may be, are
refinanced in part or the Indebtedness to be refinanced is PARI PASSU with the
Notes or Notes Guarantee or the Convertible Notes or Convertible Notes
Guarantee, as the case may be, such new Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such new Indebtedness is
outstanding, is expressly made PARI PASSU with, or subordinate in right of
payment to, the remaining Notes or Notes Guarantee or the Convertible Notes or
Convertible Notes Guarantee, as the case may be, (B) in case the Indebtedness to
be refinanced is subordinated in right of payment to the Notes or Notes
Guarantee or the Convertible Notes or Convertible Notes Guarantee, as the case
may be, such new Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is outstanding, is expressly
made subordinate in right of payment to the Notes or Notes Guarantee or the
Convertible Notes or Convertible Notes Guarantee, as the case may be, at least
to the extent that the Indebtedness to be refinanced is subordinated to the
Notes or the Notes Guarantee or the Convertible Notes or Convertible Notes
Guarantee, as the case may be, and (C) such new Indebtedness, determined as of
the date of Incurrence of such new Indebtedness, does not mature prior to the
Stated Maturity of the Indebtedness to be refinanced or refunded, and the
Average Life of such new Indebtedness is at least equal to the remaining Average
Life of the Indebtedness to be refinanced or refunded; and PROVIDED FURTHER that
in no event may Indebtedness of GST or GST USA be refinanced by means of any
Indebtedness of any Restricted Subsidiary of GST or GST USA, as the case may be,
pursuant to this clause (iii); (iv) Indebtedness (A) in respect of performance,
surety or appeal bonds provided in the ordinary course of business, (B) under
Currency Agreements and Interest
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Rate Agreements; PROVIDED that such agreements do not increase the Indebtedness
of the obligor outstanding at any time other than as a result of fluctuations in
foreign currency exchange rates or interest rates or by reason of fees,
indemnities and compensation payable thereunder; and (C) arising from agreements
providing for indemnification, adjustment of purchase price or similar
obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of GST or any of the Restricted
Subsidiaries pursuant to such agreements, in any case Incurred in connection
with the disposition of any business, assets or Restricted Subsidiary of GST
(other than Guarantees of Indebtedness Incurred by any Person acquiring all or
any portion of such business, assets or Restricted Subsidiary for the purpose of
financing such acquisition), in a principal amount not to exceed the gross
proceeds actually received by GST or any Restricted Subsidiary in connection
with such disposition; (v) Indebtedness of GST not to exceed, at any one time
outstanding, two times the Net Cash Proceeds received by GST after the Closing
Date from the issuance and sale of its Capital Stock (other than Redeemable
Stock or Preferred Stock) to a Person other than a Subsidiary of GST; PROVIDED
that such Indebtedness (x) does not mature prior to the Stated Maturity of the
Notes and has an Average Life longer than the Notes and (y) is subordinated to
the Notes or the Notes Guarantee, as the case may be, at least to the extent
that the Convertible Notes or Convertible Notes Guarantee are subordinated to
Senior Indebtedness; (vi) Indebtedness to the extent such Indebtedness is
secured by Liens permitted under clause (v) of the second paragraph of the
"Limitation on Liens" covenant described below; (vii) Indebtedness of GST or GST
USA under one or more revolving credit or working capital facilities in an
aggregate principal amount outstanding at any time not to exceed the lesser of
(A) $20 million and (B) 50% of the consolidated book value of the accounts
receivable of GST and its Restricted Subsidiaries; and (viii) Indebtedness of
GST or GST USA, to the extent the proceeds thereof are immediately used to
purchase Notes tendered in an Offer to Purchase made as a result of a Change of
Control.
(b) For purposes of determining any particular amount of Indebtedness
under this "Limitation on Indebtedness" covenant, (1) Indebtedness Incurred
under the Tomen Facility on or prior to the Closing Date shall be treated as
Incurred pursuant to clause (i) of the second paragraph of this "Limitation on
Indebtedness" covenant and (2) Guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included. For purposes of
determining compliance with this "Limitation on Indebtedness" covenant, in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described in the above clauses, GST, in its sole
discretion, shall classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such clauses.
LIMITATION ON RESTRICTED PAYMENTS
Under the terms of the Indenture, GST will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, (i) declare or pay any
dividend or make any distribution on its Capital Stock (other than dividends or
distributions payable solely in shares of its or such Restricted Subsidiary's
Capital Stock (other than Redeemable Stock) of the same class held by such
holders or in options, warrants or other rights to acquire such shares of
Capital Stock) held by Persons other than the Company or any of its Restricted
Subsidiaries (and other than pro rata dividends or distributions on Common Stock
of Restricted Subsidiaries), (ii) purchase, redeem, retire or otherwise acquire
for value any shares of Capital Stock of GST (including options, warrants or
other rights to acquire such shares of Capital Stock) held by Persons other than
any Wholly Owned Restricted Subsidiaries of GST, (iii) make any voluntary or
optional principal payment, or voluntary or optional redemption, repurchase,
defeasance, or other acquisition or retirement for value, of Indebtedness of GST
or GST USA that is subordinated in right of payment to the Notes or the Notes
Guarantee, or (iv) make any Investment, other than a Permitted Investment, in
any Person (such payments or any other actions described in clauses (i) through
(iv) being collectively "Restricted Payments") if, at the time of, and after
giving effect to, the proposed Restricted Payment: (A) a Default or Event of
Default shall have occurred and be continuing, (B) GST could not Incur at least
$1.00 of Indebtedness under the first paragraph of the "Limitation on
Indebtedness" covenant or (C) the aggregate amount of all Restricted Payments
(the amount, if other than in cash, to be determined in good faith by the Board
of Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) made after the Closing Date shall exceed the sum of (1) 50% of the
aggregate amount of the Adjusted Consolidated Net Income (or, if the Adjusted
Consolidated Net Income is a loss, minus 100% of such amount) (determined by
excluding income resulting from transfers of assets by GST or a Restricted
Subsidiary to an Unrestricted Subsidiary) accrued on a cumulative basis during
the period (taken as one accounting period) beginning on the first day of the
fiscal quarter immediately following the Closing Date and ending on the last day
of the last fiscal quarter preceding the Transaction Date for which reports have
been filed
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pursuant to the "Commission Reports and Reports to Holders" covenant plus (2)
the aggregate Net Cash Proceeds received by GST after the Closing Date from the
issuance and sale permitted by the Indentures of its Capital Stock (other than
Redeemable Stock) to a Person who is not a Subsidiary of GST, or from the
issuance to a Person who is not a Subsidiary of GST of any options, warrants or
other rights to acquire Capital Stock of GST (in each case, exclusive of any
Redeemable Stock or any options, warrants or other rights that are redeemable at
the option of the holder, or are required to be redeemed, prior to the Stated
Maturity of the Notes) plus (3) an amount equal to the net reduction in
Investments (other than reductions in Permitted Investments) in any Person
resulting from payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to GST or any
Restricted Subsidiary (except to the extent any such payment is included in the
calculation of Adjusted Consolidated Net Income), or from redesignations of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investments"), not to exceed the amount of
Investments previously made by GST and its Restricted Subsidiaries in such
Person.
The foregoing provision will not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration thereof if,
at said date of declaration, such payment would comply with the foregoing
paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness of GST or GST USA that is subordinated in
right of payment to the Notes Guarantee or the Notes including premium, if any,
and accrued and unpaid interest, with the proceeds of, or in exchange for,
Indebtedness Incurred under clause (iii) of the second paragraph of the
"Limitation on Indebtedness" covenant; (iii) the repurchase, redemption or other
acquisition of Capital Stock of GST in exchange for, or out of the proceeds of a
substantially concurrent offering of, shares of Capital Stock (other than
Redeemable Stock) of GST; (iv) the acquisition of Indebtedness of GST or GST USA
that is subordinated in right of payment to the Notes Guarantee or the Notes in
exchange for, or out of the proceeds of, a substantially concurrent offering of,
shares of the Capital Stock of GST (other than Redeemable Stock); (v) payments
or distributions, in the nature of satisfaction of dissenters' rights, pursuant
to or in connection with a consolidation, merger or transfer of assets that
complies with the provisions of the Indentures applicable to mergers,
consolidations and transfers of all or substantially all of the property and
assets of GST USA or GST; (vi) Investments in any Person or Persons, the primary
business of which is related, ancillary or complementary to the business of GST
and its Restricted Subsidiaries on the date of such Investments, in an aggregate
amount not to exceed (A) $10.0 million plus, in any fiscal year, an amount not
to exceed 10% of GST's EBITDA for the immediately preceding fiscal year, less
(B) any amounts used to repurchase Common Shares pursuant to clause (x) below;
(vii) a pro rata dividend or distribution to all holders of GST Common Shares
(on a fully diluted basis) of up to an aggregate of 10% of the outstanding
Common Stock of NACT in conjunction with or following an underwritten public
offering of Common Stock of NACT pursuant to an effective registration statement
under the Securities Act; (viii) an Investment by GST or a Restricted Subsidiary
in a Person, 50% or more of the Capital Stock of which is owned by a Permitted
Joint Venture Partner, formed to own, construct or operate an alternate access
network and provide related telecommunications services; PROVIDED the aggregate
amount of such Investment does not exceed $3.0 million; (ix) Investments by GST
or a Restricted Subsidiary made pursuant to the second paragraph of the
"Limitation on Investments" covenant, in an aggregate amount not to exceed $3.0
million; (x) repurchases of up to 43,093 Common Shares from Quest Capital Corp.,
at their then market value, pursuant to agreements in existence on the date
hereof; and (xi) with respect to the Indenture, (A) cash payments in lieu of the
issuance of fractional Common Shares upon conversion (including mandatory
conversion) of the Convertible Notes provided for in the indenture under which
the Convertible Notes were issued (the "Convertible Notes Indenture") and (B)
repurchases of Convertible Notes pursuant to the "Limitation on Asset Sales" and
"Repurchase of Notes upon a Change of Control" covenants in the Convertible
Notes Indenture; PROVIDED that no such repurchases shall be made prior to GST
USA's repurchase of such Notes as are required to be repurchased pursuant to the
"Limitation on Asset Sales" and "Repurchase of Notes upon a Change of Control"
covenants in the Indenture; PROVIDED that, except in the case of clauses (i) and
(iii), no Default or Event of Default shall have occurred and be continuing or
occur as a consequence of the actions or payments set forth herein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof), and the
Net Cash Proceeds from any issuance of Capital Stock referred to in clauses
(iii) or (iv) shall be included in calculating whether the conditions of clause
(C) of the first paragraph of this "Limitation on Restricted Payments" covenant
have been met with respect to any subsequent Restricted Payments. In the event
the proceeds of an issuance of Capital Stock of GST are used for the redemption,
repurchase or other acquisition of the Notes or Convertible Notes, as the case
may be, or Indebtedness that is PARI PASSU with the Notes
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or Convertible Notes, as the case may be, then the Net Cash Proceeds of such
issuance shall be included in clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant only to the extent such proceeds
are not used for such redemption, repurchase or other acquisition of
Indebtedness.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
Under the terms of the Indenture, GST will not, and will not permit any
Restricted Subsidiary to, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to (i) pay dividends or make any other
distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by GST or any other Restricted Subsidiary, (ii) pay
any Indebtedness owed to GST or any other Restricted Subsidiary, (iii) make
loans or advances to GST or any other Restricted Subsidiary or (iv) transfer any
of its property or assets to GST or any other Restricted Subsidiary.
The foregoing provisions will not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Indentures or any other
agreement in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; PROVIDED that the encumbrances and
restrictions in any such extensions, refinancings, renewals or replacements are
no less favorable in any material respect to the Holders than those encumbrances
or restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced; (ii) existing under or by reason of applicable law; (iii)
existing with respect to any Person or the property or assets of such Person
acquired by GST or any Restricted Subsidiary, existing at the time of such
acquisition and not incurred in contemplation thereof, which encumbrances or
restrictions are not applicable to any Person or the property or assets of any
Person other than such Person or the property or assets of such Person so
acquired; (iv) in the case of clause (iv) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of GST or any Restricted Subsidiary not otherwise
prohibited by the Indenture or (C) arising or agreed to in the ordinary course
of business, not relating to any Indebtedness, and that do not, individually or
in the aggregate, detract from the value of property or assets of GST or any
Restricted Subsidiary in any manner material to GST or any Restricted
Subsidiary; (v) with respect to a Restricted Subsidiary and imposed pursuant to
an agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of, such
Restricted Subsidiary; (vi) with respect to any Development Company, imposed
pursuant to or in connection with any Indebtedness Incurred by such Development
Company to finance at least 50% of the total financing required for the
development and construction of all of such Development Company's alternative
access networks or any Indebtedness Incurred to refinance or replace such
Indebtedness; PROVIDED (a) such Indebtedness (including such refinancing
Indebtedness) is permitted to be Incurred under the "Limitation on Indebtedness"
covenant described above, (b) such encumbrances and restrictions are no more
restrictive in any material respect than those encumbrances and restrictions
existing under the Tomen Facility as in effect on the Closing Date and (c) such
encumbrances and restrictions shall only apply to such Development Company for
so long as such Indebtedness (or such refinancing Indebtedness) remains
outstanding; or (vii) with respect to any Development Company (a "Restricted
Development Company"), imposed pursuant to or in connection with any
Indebtedness Incurred by another Development Company to finance at least 50% of
the total financing required for the development and construction of all of such
other Development Company's alternative access networks or any Indebtedness
Incurred to refinance or replace such Indebtedness; PROVIDED (a) such
encumbrances and restrictions shall not apply to such Restricted Development
Company prior to the occurrence of an event of default under such Indebtedness
(or refinancing Indebtedness), (b) such Indebtedness (including such refinancing
Indebtedness) is permitted to be Incurred under the "Limitation on Indebtedness"
covenant, (c) such encumbrances and restrictions are no more restrictive in any
material respect than those contemplated by the Tomen Facility as in effect on
the Closing Date and (d) at least 50% of the total financing required for the
development and construction of all of such Restricted Development Company's
alternative access networks was provided by the holder of the Indebtedness of
such other Development Company.
Nothing contained in this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant will prevent GST or any
Restricted Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in the "Limitation on Liens" covenant or (2)
restricting the sale or
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other disposition of property or assets of GST or any of its Restricted
Subsidiaries that secure Indebtedness of GST or any of its Restricted
Subsidiaries.
LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
Under the terms of the Indenture, GST will not sell, and will not
permit any Restricted Subsidiary, directly or indirectly, to issue or sell any
shares of Capital Stock of a Restricted Subsidiary (including options, warrants
or other rights to purchase shares of such Capital Stock) except (i) to GST or a
Wholly Owned Restricted Subsidiary; (ii) issuances or sales to foreign nationals
of shares of Capital Stock of foreign Restricted Subsidiaries, to the extent
required by applicable law; (iii) if, immediately after giving effect to such
issuance or sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary; (iv) Common Stock of NACT, provided that (x) the proceeds
of any such sale under this clause (iv) shall be applied in accordance with
clause (A) or (B) of the first paragraph of the "Limitation on Asset Sales"
covenant described below or (y) the issuance of such Common Stock is permitted
by and made in accordance with clause (vii) of the second paragraph of the
"Limitation on Restricted Payments" covenant; (v) sales of up to 10% of the
Common Stock of any Development Company to Tomen, so long as Tomen has agreed in
writing to provide at least 50% of the total financing required for the
development and construction of an alternative access network by such
Development Company, upon terms no more favorable to Tomen than the cost of the
Capital Stock of such Development Company to GST or its Restricted Subsidiaries;
PROVIDED that the Development Company's assets consist solely of (x) assets
relating to the network to be financed by Tomen or (y) assets relating to any
other network financed by Tomen if Tomen purchased the same percentage of the
Common Stock of the Development Company in conjunction with financing such other
networks; PROVIDED, however, that notwithstanding the foregoing, GST will use
its best efforts to cause all of the outstanding Capital Stock of its
Development Companies to be owned by GST or its Wholly Owned Restricted
Subsidiaries or (vi) in the event Phoenix Fiber becomes a Restricted Subsidiary,
a sale of Common Stock of Phoenix Fiber to a Permitted Joint Venture Partner,
and in connection and concurrently with such sale, a sale of Common Stock of GST
Tucson Lightwave, Inc. to the same Permitted Joint Venture Partner.
LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED SUBSIDIARIES
Under the terms of the Indenture, GST will not permit any Restricted
Subsidiary, directly or indirectly, to Guarantee any Indebtedness of GST USA or
any Indebtedness of GST ("Guaranteed Indebtedness"), unless (i) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to the
Indenture providing for a Guarantee (a "Subsidiary Guarantee") of payment of the
Notes (in the case of Guaranteed Indebtedness of GST USA) or the Notes Guarantee
(in the case of Guaranteed Indebtedness of GST) by such Restricted Subsidiary
and (ii) such Restricted Subsidiary waives and will not in any manner whatsoever
claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against GST, GST USA or any other
Restricted Subsidiary as a result of any payment by such Restricted Subsidiary
under its Subsidiary Guarantee; PROVIDED that this paragraph shall not be
applicable to any Guarantee of any Restricted Subsidiary that (x) existed at the
time such Person became a Restricted Subsidiary and (y) was not Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary. If the Guaranteed Indebtedness is (A) PARI PASSU with the Notes or
the Notes Guarantee, then the Guarantee of such Guaranteed Indebtedness shall be
PARI PASSU with, or subordinated to, the Subsidiary Guarantee or (B)
subordinated to the Notes or the Notes Guarantee, then the Guarantee of such
Guaranteed Indebtedness shall be subordinated to the Subsidiary Guarantee at
least to the extent that the Guaranteed Indebtedness is subordinated to the
Notes or the Notes Guarantee.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of GST of all of GST's and each Restricted
Subsidiary's Capital Stock in, or all or substantially all the assets of, such
Restricted Subsidiary (which sale, exchange or transfer is not prohibited by the
Indenture) or (ii) the release or discharge of the Guarantee which resulted in
the creation of such Subsidiary Guarantee, except a discharge or release by or
as a result of payment under such Guarantee.
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LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
Under the terms of the Indenture, GST will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, enter into, renew or extend
any transaction (including, without limitation, the purchase, sale, lease or
exchange of property or assets, or the rendering of any service) with any holder
(or any Affiliate of such holder) of 5% or more of any class of Capital Stock of
GST or any Restricted Subsidiary or with any Affiliate of GST or any Restricted
Subsidiary, except upon fair and reasonable terms no less favorable to GST or
such Restricted Subsidiary than could be obtained, at the time of such
transaction or, if such transaction is pursuant to a written agreement, at the
time of the execution of the agreement providing therefor, in a comparable
arm's-length transaction with a Person that is not such a Holder or an
Affiliate.
The foregoing limitation does not limit, and will not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which GST or a Restricted Subsidiary delivers to
the Trustee a written opinion of a nationally recognized investment banking firm
stating that the transaction is fair to GST or such Restricted Subsidiary from a
financial point of view; (ii) any transaction solely between GST and any of its
Wholly Owned Restricted Subsidiaries or solely between Wholly Owned Restricted
Subsidiaries; (iii) the payment of reasonable and customary regular fees
(including through the issuance of shares of Common Stock of GST or options,
warrants or other rights to acquire such shares) to directors of GST or GST USA
who are not employees of GST, GST USA or any of their Subsidiaries; (iv) any
payments or other transactions pursuant to any tax-sharing agreement between GST
and any other Person with which GST files a consolidated tax return or with
which GST is part of a consolidated group for tax purposes; or (v) any
Restricted Payments not prohibited by the "Limitation on Restricted Payments"
covenant. Notwithstanding the foregoing, any transaction covered by the first
paragraph of this "Limitation on Transactions with Shareholders and Affiliates"
covenant and not covered by clauses (ii) through (iv) of this paragraph, the
aggregate amount of which exceeds $500,000 in value, must be approved or
determined to be fair in the manner provided for in clause (i)(A) or (B) above.
LIMITATION ON LIENS
Under the terms of the Indenture, GST will not, and will not permit any
Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien on
any of its assets or properties of any character, or any shares of Capital Stock
or Indebtedness of any Restricted Subsidiary (collectively, "Protected
Property"), without making effective provision for all of the Notes (or in the
case of a Lien on Protected Property of GST, the Notes Guarantee) and all other
amounts due under the Indenture to be directly secured equally and ratably with
(or, if the obligation or liability to be secured by such Lien is subordinated
in right of payment to the Notes or the Notes Guarantee, prior to) the
obligation or liability secured by such Lien. The security interest in any
Protected Property granted in favor of the Notes or Notes Guarantee under this
paragraph shall be prior to the security interest granted in favor of the
Convertible Notes or Convertible Notes Guarantee.
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or Capital
Stock of GST or its Restricted Subsidiaries created in favor of the Holders;
(iii) Liens with respect to the assets of a Restricted Subsidiary granted by
such Restricted Subsidiary to GST or a Wholly Owned Restricted Subsidiary to
secure Indebtedness owing to GST or such other Restricted Subsidiary; (iv) Liens
securing Indebtedness that is Incurred to refinance secured Indebtedness that is
permitted to be Incurred under clause (iii) of the second paragraph of the
"Limitation on Indebtedness" covenant; PROVIDED that such Liens do not extend to
or cover any property or assets of GST, GST USA or any Restricted Subsidiary
other than the property or assets securing the Indebtedness being refinanced;
(v) Liens upon or Capital Leases with respect to inventory or equipment acquired
or held by GST or any of its Restricted Subsidiaries to secure all or a part of
the purchase price therefor or GST's or such Restricted Subsidiary's obligations
under such lease; PROVIDED that such Liens do not extend to or cover any
property or assets of GST or any Restricted Subsidiary other than the inventory
or equipment acquired; (vi) Liens on assets or property of, or the Capital Stock
of, a Development Company securing Indebtedness Incurred under clause (i) of the
second paragraph of the "Limitation on Indebtedness" covenant to finance at
least 50% of the total financing for the development and construction of the
alternative access networks owned by such Development Company; PROVIDED such
Liens do not extend to or cover any other property or assets of GST or any of
its Restricted Subsidiaries; or (vii) Permitted Liens.
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LIMITATION ON SALE-LEASEBACK TRANSACTIONS
Under the terms of the Indenture, GST will not, and will not permit any
Restricted Subsidiary to, enter into any sale-leaseback transaction involving
any of its assets or properties whether now owned or hereafter acquired, whereby
GST or a Restricted Subsidiary sells or transfers such assets or properties and
then or thereafter leases such assets or properties or any part thereof or any
other assets or properties which GST or such Restricted Subsidiary, as the case
may be, intends to use for substantially the same purpose or purposes as the
assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback
transaction if (i) the lease is for a period, including renewal rights, of not
in excess of three years; (ii) the lease secures or relates to industrial
revenue or pollution control bonds; (iii) the transaction is solely between GST
and any Wholly Owned Restricted Subsidiary or solely between Wholly Owned
Restricted Subsidiaries; or (iv) GST or such Restricted Subsidiary, within six
months after the sale or transfer of any assets or properties is completed,
applies an amount not less than the net proceeds received from such sale in
accordance with clause (A) or (B) of the first paragraph of the "Limitation on
Asset Sales" covenant described below.
LIMITATION ON INVESTMENTS
Under the terms of the Indenture, GST will not, and will not permit any
Restricted Subsidiary to, (i) make any Investment in any Person (including an
Unrestricted Subsidiary) that during its most recent fiscal year derived or in
its current fiscal year is expected by the Board of Directors of GST to derive
more than $250,000 in revenues from, or in its most recent fiscal year spent or
in its current fiscal year is expected by the Board of Directors of GST to spend
more than $250,000 on, operations or activities located outside the continental
United States (other than in the State of Hawaii) (an "International Business")
or (ii) acquire or own (directly or indirectly), other than through an
Unrestricted Subsidiary, any entity, business or asset that is primarily located
outside the continental United States (other than in the State of Hawaii) or any
right with respect to any of the foregoing (an "International Asset").
Notwithstanding the foregoing, and subject to the "Limitation on
Restricted Payments" covenant, GST and its Restricted Subsidiaries may make an
Investment in an Unrestricted Subsidiary which owns, intends to acquire or has
rights with respect to an International Business or International Asset provided
that the aggregate amount of such Investments do not exceed (i) $13.0 million
plus, in any fiscal year, an amount not to exceed 10% of GST's EBITDA for the
immediately preceding fiscal year, less (ii) the amount of any Investments made
pursuant to the first paragraph, or clause (vi) of the second paragraph, of the
"Limitation on Restricted Payments" covenant; PROVIDED that the International
Business or International Assets are related, ancillary or complementary to the
primary business of GST and its Restricted Subsidiaries on the date of such
Investment.
LIMITATION ON ASSET SALES
Under the terms of the Indenture, GST will not, and will not permit any
Restricted Subsidiary to, consummate any Asset Sale, unless (i) the
consideration received by GST or such Restricted Subsidiary is at least equal to
the fair market value of the assets sold or disposed of and (ii) at least 85% of
the consideration received consists of cash or Temporary Cash Investments;
PROVIDED, HOWEVER, that clause (ii) shall not apply to long-term assignments of
capacity in a network. In the event and to the extent that the Net Cash Proceeds
received by GST or its Restricted Subsidiaries from one or more Asset Sales
occurring on or after the Closing Date in any period of 12 consecutive months
exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as of the
date closest to the commencement of such 12-month period for which a
consolidated balance sheet of GST and its Subsidiaries has been prepared), then
GST shall or shall cause the relevant Restricted Subsidiary to (i) within twelve
months after the date Net Cash Proceeds so received exceed 10% of Adjusted
Consolidated Net Tangible Assets (A) apply an amount equal to such excess Net
Cash Proceeds to permanently repay unsubordinated Indebtedness of GST or GST USA
or Indebtedness of any Restricted Subsidiary (other than GST USA), in each case
owing to a Person other than GST or any of its Restricted Subsidiaries or (B)
invest an equal amount, or the amount not so applied pursuant to clause (A) (or
enter into a definitive agreement committing to so invest within twelve months
after the date of such agreement), in property or assets of a nature or type or
that are used in a business (or in a
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company having property and assets of a nature or type, or engaged in a
business) similar or related to the nature or type of the property and assets
of, or the business of, GST and its Restricted Subsidiaries existing on the date
of such investment (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) and (ii)
apply (no later than the end of the twelve-month period referred to in clause
(i)) such excess Net Cash Proceeds (to the extent not applied pursuant to clause
(i)) as provided in the following paragraph of this "Limitation on Asset Sales"
covenant. The amount of such excess Net Cash Proceeds required to be applied (or
to be committed to be applied) during such twelve-month period as set forth in
clause (i) of the preceding sentence and not applied as so required by the end
of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $5.0 million, GST USA and
GST must commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate principal amount of Notes and Convertible Notes, respectively, equal
to the Excess Proceeds on such date, at a purchase price equal to 101% of the
Accreted Value of the Notes, plus, in each case, accrued interest (if any) to
the date of purchase; PROVIDED, HOWEVER, that no Offer to Purchase will be
required to be commenced with respect to the Convertible Notes until the
Business Day following the Payment Date with respect to the Offer to Purchase
Notes and need not be commenced if the Excess Proceeds remaining after
application to the Notes purchased in such Offer to Purchase applicable thereto
are less than $1.0 million; and PROVIDED FURTHER, HOWEVER, that no Convertible
Notes may be purchased under this "Limitation on Asset Sales" covenant unless
GST USA shall have purchased all Notes tendered pursuant to the Offer to
Purchase applicable thereto.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
GST USA must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Notes then outstanding, at
a purchase price equal to 101% of the Accreted Value thereof, plus accrued
interest (if any) to the Payment Date. Prior to the mailing of the notice to
Holders commencing such Offer to Purchase, but in any event within 30 days
following any Change of Control, GST USA covenants to (i) repay in full all
indebtedness of GST USA and GST that would prohibit the repurchase of the Notes
pursuant to such Offers to Purchase or (ii) obtain any requisite consents under
instruments governing any such indebtedness of GST USA or GST to permit the
repurchase of the Notes. GST USA and GST will first comply with the covenant in
the preceding sentence before it will repurchase Notes pursuant to this
"Repurchase of Notes upon a Change of Control" covenant.
If GST USA is unable to repay all indebtedness that would prohibit
repurchase of the Notes or is unable to obtain the consents of the holders of
indebtedness, if any, of GST USA or GST outstanding at the time of a Change of
Control whose consent would be so required to permit the repurchase of Notes or
otherwise fails to purchase any Notes, then GST USA will have breached such
covenant. This breach will constitute an Event of Default under the Indenture if
it continues for a period of 30 consecutive days after written notice is given
to GST USA by the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes outstanding. In addition, the failure by GST USA to
repurchase Notes at the conclusion of an Offer to Purchase will constitute an
Event of Default without any waiting period or notice requirements.
There can be no assurance that GST USA will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of GST USA which might be outstanding at
the time). The above covenant requiring GST USA to repurchase the Notes will,
unless the consents referred to above are obtained, require GST USA to repay all
indebtedness then outstanding which by its terms would prohibit such Note
repurchase, either prior to or concurrently with such Note repurchase.
COMMISSION REPORTS AND REPORTS TO HOLDERS
Whether or not GST USA or GST is required to file reports with the
Commission, if any Notes are outstanding, GST USA and GST shall file with the
Commission all such reports and other information as they would
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be required to file with the Commission by Sections 13(a) or 15(d) under the
Securities Exchange Act of 1934, as amended. See "Available Information." GST
USA and GST will supply the Trustee and each Holder of Notes or will supply to
the Trustee for forwarding to each Holder, without cost to such Holder, copies
of such reports or other information.
EVENTS OF DEFAULT
The following events are be defined as "Events of Default" in the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note or Convertible Note, as the case may be, when the same becomes due and
payable at maturity, upon acceleration, redemption or otherwise, whether or not,
in the case of the Convertible Notes, such payment is prohibited by the
provisions described above under " -- Ranking"; (b) default in the payment of
interest on any Note or Convertible Note, as the case may be, when the same
becomes due and payable, and such default continues for a period of 30 days,
whether or not, in the case of the Convertible Notes, such payment is prohibited
by the provisions described under " -- Ranking"; (c) GST USA or GST defaults in
the performance of or breaches any other covenant or agreement of GST USA or GST
in the Indenture or Convertible Notes Indenture, as the case may be, or under
the Notes or Convertible Notes, as the case may be, and such default or breach
continues for a period of 30 consecutive days after written notice by the
Trustee or the trustee under the Converted Notes Indenture or the Holders of 25%
or more in aggregate principal amount of Notes or Convertible Notes, as the case
may be; (d) there occurs with respect to any issue or issues of Indebtedness of
GST USA, GST or any Significant Subsidiary having an outstanding principal
amount of $5 million or more in the aggregate for all such issues of all such
Persons, whether such Indebtedness now exists or shall hereafter be created, (I)
an event of default that has caused the holder thereof to declare such
Indebtedness to be due and payable prior to its Stated Maturity and such
Indebtedness has not been discharged in full or such acceleration has not been
rescinded or annulled within 30 days of such acceleration and/or (II) the
failure to make a principal payment at the final (but not any interim) fixed
maturity and such defaulted payment shall not have been made, waived or extended
within 30 days of such payment default; (e) any final judgment or order (not
covered by insurance) for the payment of money in excess of $5 million in the
aggregate for all such final judgments or orders against all such Persons
(treating any deductibles, self-insurance or retention as not so covered) shall
be rendered against GST USA, GST or any Significant Subsidiary and shall not be
paid or discharged, and there shall be any period of 30 consecutive days
following entry of the final judgment or order that causes the aggregate amount
for all such final judgments or orders outstanding and not paid or discharged
against all such Persons to exceed $5 million during which a stay of enforcement
of such final judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect; (f) a court having jurisdiction in the premises enters a
decree or order for (A) relief in respect of GST USA, GST or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
GST USA, GST or any Significant Subsidiary or for all or substantially all of
the property and assets of GST USA, GST or any Significant Subsidiary or (C) the
winding up or liquidation of the affairs of GST USA, GST or any Significant
Subsidiary and, in each case, such decree or order shall remain unstayed and in
effect for a period of 30 consecutive days; or (g) GST USA, GST or any
Significant Subsidiary (A) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case under any
such law, (B) consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
GST USA, GST or any Significant Subsidiary or for all or substantially all of
the property and assets of GST USA, GST or any Significant Subsidiary or (C)
effects any general assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in
clause (f) or (g) above that occurs with respect to GST USA or GST) occurs and
is continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes then outstanding, by written notice to
GST USA (and to the Trustee if such notice is given by the Holders), may, and
the Trustee at the request of such Holders shall, declare the Accreted Value of,
premium, if any, and accrued interest, if any, on the Notes to be immediately
due and payable. Upon a declaration of acceleration, such Accreted Value,
premium, if any, and accrued interest, if any, shall be immediately due and
payable. In the event of a declaration of acceleration because an Event of
Default set forth in clause (d) above has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if the
event of default triggering such Event of Default pursuant to clause (d) shall
be remedied or cured by GST USA, GST or the relevant Significant Subsidiary or
waived by the holders of the relevant
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Indebtedness within 60 days after the declaration of acceleration with respect
thereto. If an Event of Default specified in clause (f) or (g) above occurs with
respect to GST USA or GST, the Accreted Value of, premium, if any, and accrued
interest, if any, on the Notes then outstanding shall IPSO FACTO become and be
immediately due and payable without any declaration or other act on the part of
either Trustee or any Holder. The Holders of at least a majority in principal
amount of the outstanding Notes, by written notice to GST USA and to the
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the principal of, premium, if any, and interest on the
Notes, that have become due solely by such declaration of acceleration, have
been cured or waived and (ii) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction. For information as to
the waiver of defaults, see " -- Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, such Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve such
Trustee in personal liability, or that such Trustee determines in good faith may
be unduly prejudicial to the rights of Holders of Notes not joining in the
giving of such direction and may take any other action it deems proper that is
not inconsistent with any such direction received from Holders of Notes. A
Holder may not pursue any remedy with respect to the Indenture or the Notes
unless: (i) the Holder gives the Trustee written notice of a continuing Event of
Default; (ii) the Holders of at least 25% in aggregate principal amount of
outstanding Notes make a written request to the Trustee to pursue the remedy;
(iii) such Holder or Holders offer the Trustee indemnity satisfactory to such
Trustee against any costs, liability or expense; (iv) such Trustee does not
comply with the request within 60 days after receipt of the request and the
offer of indemnity; and (v) during such 60-day period, the Holders of a majority
in aggregate principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations do
not apply to the right of any Holder of a Note to receive payment of the
principal of, premium, if any, or interest on, such Note or to bring suit for
the enforcement of any such payment, on or after the due date expressed in the
Notes which right shall not be impaired or affected without the consent of the
Holder.
The Indenture requires certain officers of GST USA and GST to certify,
on or before a date not more than 90 days after the end of each fiscal year,
that a review has been conducted of the activities of GST USA or GST, as the
case may be, and its Restricted Subsidiaries' performance under the Indenture
and that GST USA or GST, as the case may be, has fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. GST
USA and GST will also be obligated to notify the Trustee of any default or
defaults in the performance of any covenants or agreements under the Indenture
or Convertible Notes Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Under the terms of the Indenture, neither GST USA nor GST will
consolidate with, merge with or into, or sell, convey, transfer, lease or
otherwise dispose of all or substantially all of its property and assets (as an
entirety or substantially an entirety in one transaction or a series of related
transactions) to, any Person (other than a consolidation or merger with or into
a Wholly Owned Restricted Subsidiary with a positive net worth); PROVIDED that,
in connection with any such merger or consolidation, no consideration (other
than Common Stock in the surviving Person, GST USA or GST) shall be issued or
distributed to the stockholders of GST USA or GST) or permit any Person to merge
with or into GST USA or GST unless: (i) GST USA or GST shall be the continuing
Person, or the Person (if other than GST USA or GST) formed by such
consolidation or into which GST USA or GST is merged or that acquired or leased
such property and assets of GST USA or GST shall be a corporation organized and
validly existing under the laws of the United States of America or any
jurisdiction thereof and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, all of the obligations of GST USA on all
of the Notes and under the Indenture; (ii) immediately after giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction on a pro
forma basis, GST USA, GST or any Person becoming the successor obligor of the
Notes or the Guarantee shall have a Consolidated Net Worth equal to or greater
than the Consolidated Net Worth of GST USA or GST, as the case may be,
immediately prior to such transaction; (iv) immediately after giving effect to
such transaction on a pro forma basis GST USA or GST, as the case may be, or any
Person becoming the successor obligor of the
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Notes or the Notes Guarantee could Incur at least $1.00 of Indebtedness under
the first paragraph of the "Limitation on Indebtedness" covenant; and (v) GST
USA or GST, as the case may be, delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with clauses
(iii) and (iv)) and an Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture complies with
this provision and that all conditions precedent provided for herein relating to
such transaction have been complied with; PROVIDED, however, that clauses (iii)
and (iv) above do not apply if, in the good faith determination of the Board of
Directors of GST, whose determination shall be evidenced by a Board Resolution,
the principal purpose of such transaction is to change the jurisdiction of
incorporation of GST USA or GST to a state of the United States; and provided
further that any such transaction shall not have as one of its purposes the
evasion of the foregoing limitations.
DEFEASANCE
DEFEASANCE AND DISCHARGE. The Indenture provides that GST USA will be
deemed to have paid and GST USA will be discharged from any and all obligations
in respect of the Notes on the 123rd day after the deposit referred to below,
and the provisions of the Indenture will no longer be in effect with respect to
the Notes, (except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes,
to maintain paying agencies and to hold monies for payment in trust if, among
other things, (A) GST USA has deposited with the Trustee, in trust, money and/or
U.S. Government Obligations that through the payment of interest and principal
in respect thereof in accordance with their terms will provide money in an
amount sufficient to pay the principal of, premium, if any, and accrued interest
on the Notes on the Stated Maturity of such payments in accordance with the
terms of the Indenture and the Notes, (B) GST USA has delivered to the Trustee
(i) either (x) an Opinion of Counsel to the effect that Holders will not
recognize income, gain or loss for United States federal income tax purposes as
a result of GST USA's or GST's exercise of its option under this "Defeasance"
provision and will be subject to United States federal income tax on the same
amount and in the same manner and at the same times as would have been the case
if such deposit, defeasance and discharge had not occurred, which Opinion of
Counsel must be based upon (and accompanied by a copy of) a ruling of the
Service to the same effect unless there has been a change in applicable United
States federal income tax law after the Closing Date such that a ruling is no
longer required or (y) a ruling directed to the Trustee received from the
Service to the same effect as the aforementioned Opinion of Counsel; (ii) an
Opinion of Counsel or a ruling from Revenue Canada, Taxation to the effect that
Holders will not recognize income, gain or loss for Canadian federal, provincial
or territorial income tax or other tax purposes as a result of such deposit and
defeasance and will be subject to Canadian federal or provincial income tax and
other tax on the same amounts, in the same manner and at the same times as would
have been the case had such deposit and defeasance not occurred (and for
purposes of such opinion, such Canadian counsel shall assume that Holders of the
Notes include Holders who are not resident in Canada); and (iii) an Opinion of
Counsel to the effect that the creation of the defeasance trust does not violate
the Investment Company Act of 1940 and after the passage of 123 days following
the deposit, the trust fund will not be subject to the effect of Section 547 of
the U.S. Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law,
(C) immediately after giving effect to such deposit on a pro forma basis, no
Event of Default, or event that after the giving of notice or lapse of time or
both would become an Event of Default, shall have occurred and be continuing on
the date of such deposit or during the period ending on the 123rd day after the
date of such deposit, and such deposit shall not result in a breach or violation
of, or constitute a default under, any other agreement or instrument to which
GST or any of its Subsidiaries is a party or by which GST or any of its
Subsidiaries is bound, and (D) if at such time the Notes are listed on a
national securities exchange, GST USA has delivered to the Trustee an Opinion of
Counsel to the effect that the Notes will not be delisted as a result of such
deposit, defeasance and discharge.
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT. The
Indenture further provides that its provisions will no longer be in effect with
respect to clauses (iii) and (iv) under "Consolidation, Merger and Sale of
Assets" and all the covenants described herein under "Covenants," clause (c)
under "Events of Default" with respect to such covenants and clauses (iii) and
(iv) under "Consolidation, Merger and Sale of Assets," and clauses (d) and (e)
under "Events of Default" will be deemed not to be Events of Default upon, among
other things, the deposit with the Trustee, in trust, of money and/or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Notes on the Stated Maturity of such payments
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in accordance with the terms of the Indenture and the Notes the satisfaction of
the provisions described in clauses B(iii), (C) and (D) of the preceding
paragraph and the delivery by GST USA to the Trustee of an Opinion of Counsel to
the effect that, among other things, the Holders will not recognize income, gain
or loss for United States federal income tax purposes or Canadian federal,
provincial or territorial income tax or other tax purposes as a result of such
deposit and defeasance of certain covenants and Events of Default and will be
subject to United States federal income tax and Canadian federal or provincial
income tax on the same amount and in the same manner and at the same times as
would have been the case if such deposit and defeasance had not occurred.
DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT. In the event GST USA or
GST exercises its option to omit compliance with certain covenants and
provisions of the Indenture with respect to the Notes as described in the
immediately preceding paragraph and the Notes are declared due and payable
because of the occurrence of an Event of Default that remains applicable, the
amount of money and/or U.S. Government Obligations on deposit with the Trustee
will be sufficient to pay amounts due on the Notes at the time of their Stated
Maturity but may not be sufficient to pay amounts due on the Notes at the time
of the acceleration resulting from such Event of Default. However, GST will
remain liable for such payments and the Notes Guarantee with respect to such
payments will remain in effect.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by GST USA,
GST and the Trustee with the consent of the Holders of not less than a majority
in aggregate principal amount of the outstanding Notes; PROVIDED, HOWEVER, that
no such modification or amendment may, without the consent of each Holder
affected thereby, (i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, (ii) reduce the Accreted Value of, or
premium, if any, or interest on, any Note, (iii) change the place or currency of
payment of principal of, or premium, if any, or interest on, any Note, (iv)
impair the right to institute suit for the enforcement of any payment on or
after the Stated Maturity (or, in the case of a redemption, on or after the
Redemption Date) of any Note, (v) reduce the above-stated percentage of
outstanding Notes the consent of whose Holders is necessary to modify or amend
the Indenture, (vi) waive a default in the payment of principal of, premium, if
any, or interest on the Notes, or (vii) reduce the percentage or aggregate
principal amount of outstanding Notes the consent of whose Holders is necessary
for waiver of compliance with certain provisions of the Indenture or for waiver
of certain defaults.
ADDITIONAL AMOUNTS
Any payments made by GST under or with respect to the Notes pursuant to
the Notes Guarantee will be made free and clear of and without withholding or
deduction for or on account of any present or future tax, duty, levy, impost,
assessment or other governmental charge (including penalties, interest and other
liabilities related thereto) imposed or levied by or on behalf of the Government
of Canada or of any province or territory thereof or by any authority or agency
therein or thereof having power to tax (hereinafter "Taxes"), unless GST is
required to withhold or deduct Taxes by law or by the interpretation or
administration thereof. If GST is required to withhold or deduct any amount for
or on account of Taxes from any payment made under or with respect to the Notes,
GST will pay such additional amounts ("Additional Amounts") as may be necessary,
so that the net amount received by each Holder of Notes (including Additional
Amounts) after such withholding or deduction will not be less than the amount
such Holder would have received if such Taxes had not been withheld or deducted;
PROVIDED, HOWEVER, that no Additional Amounts will be payable with respect to a
payment made to a Holder (an "Excluded Holder") (i) with which GST does not deal
at arm's length (within the meaning of the Income Tax Act (Canada)) at the time
of making such payment, or (ii) which is subject to such Taxes by reason of its
being connected with Canada or any province or territory thereof otherwise than
solely by reason of the Holder's activity in connection with purchasing the
Notes, by the mere holding of Notes or by reason of the receipt of payments
thereunder. GST will upon written request of any Holder (other than an Excluded
Holder), reimburse such Holder, for the amount of (i) any Taxes so levied or
imposed and paid by such Holder as a result of payments made under or with
respect to the Notes and (ii) any Taxes so levied or imposed with respect to any
reimbursement under the foregoing clause (i), but excluding any such Taxes on
such Holder's net income so that the net amount received by such Holder after
such reimbursement will not be less than the net amount the Holder would have
received if Taxes on such reimbursement had not been imposed.
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At least 30 days prior to each date on which any payment under or with
respect to the Notes is due and payable, if GST will be obligated to pay
Additional Amounts with respect to such payment, GST will deliver to the Trustee
an Officers' Certificate stating the fact that such Additional Amounts will be
payable and the amounts so payable and will set forth such other information
necessary to enable the Trustee to pay such Additional Amounts to Holders on the
payment date. Whenever either in the Indenture or in this Memorandum there is
mentioned, in any context, the payment of principal (or premium, if any),
Redemption Price, interest or any other amount payable under or with respect to
any Note, such mention shall be deemed to include mention of the payment of
Additional Amounts to the extent that, in such context, Additional Amounts are,
were or would be payable in respect thereof.
In the event that GST has become or would become obligated to pay, on
the next date on which any amount would be payable under or with respect to the
Notes any Additional Amounts as a result of certain changes affecting Canadian
withholding tax laws, GST may redeem all, but not less than all, the Notes as
the case may be, at any time at 100% of the Accreted Value, together with
accrued interest thereon, if any, to the redemption date. See " -- Optional
Redemption."
CONSENT TO JURISDICTION AND SERVICE
GST has appointed Olshan Grundman Frome & Rosenzweig LLP, 505 Park
Avenue, New York, New York 10022 as its agent for service of process in any
suit, action or proceeding with respect to the Indenture or the Notes and for
actions brought under federal or state securities laws brought in any federal or
state court located in the City of New York and will agree to submit to the
jurisdiction of such courts.
ENFORCEABILITY OF JUDGMENTS
GST is incorporated in Canada. Certain directors and officers, and
certain experts named herein, are residents of Canada. As a result, it may be
difficult or impossible for U.S. noteholders to seek enforcement of the Notes
Guarantee by effecting service of process within the United States upon GST or
such directors, officers and experts or to collect judgments of United States
courts predicated upon civil liability under the United States federal
securities and other laws. GST believes that there is substantial doubt as to
whether Canadian courts would (i) enforce judgments of United States courts
obtained against GST or such directors, officers and experts predicated upon the
civil liabilities provisions of United States laws or (ii) impose liabilities in
original actions against GST or its directors, officers and experts predicated
solely upon United States securities laws.
NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the
principal of, premium, if any, or interest on any of the Notes or for any claim
based thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of GST USA or GST in such Indenture, or in any
of the Notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator, shareholder, officer, director, employee
or controlling person of GST USA or GST or of any successor Person thereof. Each
Holder, by accepting the Notes, waives and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a
Default, the Trustee will not be liable, except for the performance of such
duties as are specifically set forth in the Indenture. If an Event of Default
has occurred and is continuing, the Trustee will use the same degree of care and
skill in its exercise as a prudent person would exercise under the circumstances
in the conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustees, should they
become creditors of GST USA or GST, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claims,
as security or otherwise. The Trustees are permitted to engage in other
transactions; PROVIDED, HOWEVER, that if either Trustee acquires any conflicting
interest, it must eliminate such conflict or resign.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Olshan Grundman Frome & Rosenzweig LLP, the United
States tax counsel to the Company, subject to the limitations set forth herein,
the following is an accurate summary of the material United States federal
income tax consequences of the purchase, ownership and disposition of the Notes.
This summary is based on current provisions of the United States Internal
Revenue Code (the "Code"), applicable final and temporary Treasury Regulations
("Treasury Regulations"), proposed Treasury Regulations ("Proposed
Regulations"), judicial authority, and current administrative rulings and
pronouncements of the Service and upon the facts concerning the Company as of
the date hereof. There can be no assurance that the Service will not take a
contrary view, and no ruling from the Service has been or will be sought by the
Company. Legislative, judicial, or administrative changes or interpretations may
be forthcoming that could alter or modify the statements and conclusions set
forth herein. Any such changes or interpretations may or may not be retroactive
and could affect the tax consequences to holders.
This summary and the above referenced opinion do not purport to deal
with all aspects of taxation that may be relevant to particular Holders of the
Notes in light of their personal investment or tax circumstances, or to certain
types of investors (including insurance companies, financial institutions,
broker-dealers or tax-exempt organizations) subject to special treatment under
the United States federal income tax laws. This discussion does not deal with
special tax situations, such as the holding of the Notes as part of a straddle
with other investments, or situations in which the functional currency of a
Holder who is a U.S. Holder is not the United States dollar. In addition, this
discussion deals only with Notes held as capital assets within the meaning of
Section 1221 of the Code.
As used in the discussion which follows, the term "U.S. Holder" means
an initial beneficial owner of the Notes that for United States federal income
tax purposes is (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or of any political subdivision thereof, or (iii) an
estate or trust the income of which is subject to United States federal income
taxation regardless of its source; the term "Non-U.S. Holder" means an initial
Holder of Notes that is, for United States federal income tax purposes, not a
U.S. Holder; and the term "Holder" means a U.S. Holder or a "Non-U.S. Holder".
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES INCLUDING
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
TREATMENT OF NOTES AS DEBT; CONSEQUENCES OF EXCHANGE OF OLD NOTES FOR NEW NOTES
Under applicable authorities, the Notes should be treated as
indebtedness of GST USA for United States federal income tax purposes. In the
unlikely event the Notes are treated as equity, distributions received thereon
would first be taxable to the Holder as dividend income to the extent of the GST
USA's current and accumulated earnings and profits, and next would be treated as
a return of capital to the extent of the Holder's tax basis in the Note, with
any remaining amount treated as gain from the sale of a Note. As a result, until
such time as GST USA has earnings and profits as determined for United States
federal income tax purposes, distributions on any Note treated as equity will be
a nontaxable return of capital and will be applied against and reduce the
adjusted tax basis of such Note in the hands of its Holder (but not below zero).
Further, payments on the Notes treated as equity to Non-U.S. Holders would not
be eligible for the portfolio interest exception from United States withholding
tax, and dividends thereon would be subject to United States withholding tax at
a flat rate of 30% (or lower applicable treaty rate) and gain from their sale or
other taxable disposition might also be subject to United States tax. In
addition, in the event of equity treatment, GST USA would never be entitled to
deduct interest or original issue discount on the Notes for United States
federal income tax purposes. The remainder of this discussion assumes that the
Notes will constitute indebtedness of GST USA for such tax purposes.
In general, an exchange of outstanding bonds such as the Old Notes for
newly issued bonds such as the New Notes is treated as tax free to exchanging
creditors and the debtor. In this case, a Holder's basis in the New Notes is
generally the same as his basis in the Old Notes and the Holder's holding period
in the New Notes includes the period for which the Old Notes had been held.
Although no gain or loss would be recognized to an exchanging
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Holder under these circumstances, if the exchange of the Old Notes for the New
Notes were deemed to constitute an exchange of a debt instrument for a modified
debt instrument that differed materially in kind or in extent, and the issue
price of the New Notes (which would be their publicly-traded fair market value
on the date on which a substantial amount of the New Notes is issued) was less
than that of the Old Notes, additional original issue discount could arise to a
Holder.
However, for purposes of the original issue discount provisions of the
Code, the exchange of the New Notes for the Old Notes is likely to be considered
a retention by the Holder of the Old Notes in modified form. Under Proposed
Regulations, a "significant modification" of a debt instrument is deemed to
result in an exchange of the original instrument for a modified instrument, and,
conversely, a modification that is not a "significant modification" is not such
an exchange. The term "modification" is defined as any alteration in any legal
right or obligation of the issuer or holder of a debt instrument, and a
modification is "significant" if it either falls within any one of four
categories set forth in the Proposed Regulations or is determined to be
significant based on the facts and circumstances. Nevertheless, any modification
of a debt instrument that arises as a result of the original terms of a debt
instrument, where the modified instrument continues to represent debt (rather
that equity), is not treated as giving rise to a "modification" of the debt and
hence does not give rise to an exchange. Inasmuch as the original terms of the
Old Notes contemplated their registration, it appears likely, based on the
provisions of the Proposed Regulations, that the exchange by a Holder of the New
Notes for the Old Notes should not be deemed a modification and therefore not
constitute an exchange of the Old Notes. Hence, the discussion that follows will
be based upon the terms and circumstances relating to the issuance (including
the original issue discount treatment) of the Old Notes. However, there can be
no assurance that the Proposed Regulations will be adopted in their proposed
form, nor is there any outstanding judicial authority at present concerning the
above-described original issue discount provisions of the Code.
APPLICABLE HIGH YIELD DISCOUNT AND EARNING STRIPPING RULES
Generally, under Section 163(e)(5) of the Code, original issue discount
is not deductible until paid in cash or property (other than issuer debt or
stock) with respect to any "applicable high yield discount obligations"
("AHYDOs") issued by a corporation. A Note will constitute an AHYDO because it
(i) has a maturity date that is more than five years from the date of issue,
(ii) has a yield to maturity that equals or exceeds five percentage points over
the "applicable federal rate" ("AFR") for the calendar month in which the
obligation is issued and (iii) has "significant original issue discount."
Inasmuch as the Notes are AHYDOs, (i) the product of the total original issue
discount under the Notes times the ratio of (a) the excess of the yield to
maturity over the sum of the AFR plus six percentage points to (b) the yield to
maturity will not be deductible by GST USA and will be treated for some purposes
as dividends to the Holders (to the extent that such amounts would have been
treated as dividends if they had been distributions with respect to GST USA's
stock), and (ii) any original issue discount for which GST USA's deductions are
not disallowed under clause (i) above will not be deductible by GST USA until
paid. Amounts treated as dividends under clause (i) will be non-deductible by
GST USA, and may qualify for the dividends received deduction for corporate
holders, but should be treated as original issue discount and not as dividends
for United States withholding tax purposes.
Further, under Section 163(j) of the Code, no deduction is allowed for
"disqualified interest" paid or accrued by a corporation during a taxable year
if (i) such corporation has "excess interest expense" (as defined by the Code
generally to mean the excess of any of the corporation's net interest expense
over 50% of the "adjusted taxable income" of the corporation) for the taxable
year, and (ii) the ratio of debt to equity of such corporation exceeds 1.5 to 1.
"Disqualified interest" includes any interest paid or accrued by a corporation
with respect to debt that is guaranteed by a foreign person that is related to
such corporation to the extent that no gross basis United States tax is imposed
with respect to such interest. GST USA expects that 163(j) of the Code may apply
to limit the deductibility of interest paid or accrued by GST USA with respect
to the Notes.
TAX CONSEQUENCES TO U.S. HOLDERS OF OWNERSHIP AND DISPOSITION OF THE NOTES
ORIGINAL ISSUE DISCOUNT. The amount of original issue discount on a
debt instrument, within the meaning of Section 1273 of the Code, is the excess
of its "stated redemption price at maturity" over its issue price (as described
above). The "stated redemption price at maturity" of a debt instrument is the
sum of its principal amount
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plus all other payments required thereunder, other than payments of "qualified
stated interest" (defined generally as stated interest that is unconditionally
payable in cash or in property (other than the debt instruments of the issuer),
at least annually at a single fixed rate that appropriately takes into account
the length of intervals between payments). As interest on the Notes is not
payable until June 2001, the stated interest on the Notes will not be treated as
qualified stated interest, but will be added to the stated redemption price at
maturity of the Notes. In addition, the Notes will be issued at a price that is
less than their stated redemption price at maturity. As a result, the Notes will
be treated as having been issued with original issue discount equal to the
excess of their stated redemption price at maturity over their issue price.
Each U.S. Holder of a Note (regardless of whether such U.S. Holder is a
cash or an accrual basis taxpayer) will be required to include original issue
discount in such U.S. Holder's gross income periodically over the term of such
Note even though actual payment of cash or other property with respect to such
income is not received until a later date. In general, under Section 1272 of the
Code, the amount of original issue discount that a holder of a debt instrument
must include in gross income for United States federal income tax purposes will
be the sum of the daily portions of original issue discount with respect to such
debt instrument for each day during the taxable year or portion of a taxable
year in which such holder holds the debt instrument. The daily portion is
determined under a constant yield method by allocating to each day of an accrual
period (generally, a six month period) a PRO RATA portion of an amount equal to
the "adjusted issue price" of the debt instrument at the beginning of the
accrual period multiplied by the yield to maturity of the debt instrument. The
yield to maturity of a debt instrument is the discount rate that, when applied
to all payments due under the debt instrument, produces a present value equal to
the issue price of the debt instrument. The "adjusted issue price" is the issue
price of the debt instrument increased by the accrued original issue discount
for all prior accrual periods (and decreased by the amount of cash payments made
in all prior accrual periods, other than qualified stated interest payments).
ACQUISITION PREMIUM. A Note acquired at a cost in excess of its
"adjusted issue price" (as defined above) but less than its stated redemption
price at maturity will have an acquisition premium to the extent of such excess.
Under the acquisition premium rules of the Code and the Treasury Regulations
promulgated thereunder, the amount of the original issue discount that a U.S.
Holder must include in gross income with respect to such Note for any taxable
year will be reduced by the portion of the acquisition premium properly
allocable to such taxable year.
MARKET DISCOUNT. Section 1276 of the Code generally requires a holder
of a debt instrument with "market discount" to treat as ordinary income any gain
realized on the disposition of the instrument to the extent of the accrued
market discount during the holder's period of ownership. A "market discount"
bond is a debt obligation purchased at a discount, subject to a statutory DE
MINIMIS exception. For this purpose, a purchase of a debt instrument at a market
discount includes (i) a purchase at original issue at a price below its "issue
price," or (ii) in the case of a debt instrument issued with original issue
discount, a purchase at a price below the adjusted issue price. The accrued
market discount generally equals a ratable portion of the bond's market
discount, based on the number of days that the taxpayer has held the bond at the
time of such disposition, as a percentage of the number of days from the date
the taxpayer acquired the bond to its date of maturity.
Absent an election to include market discount in income as it accrues,
a holder of a market discount bond generally is not required to include accrued
market discount in income until (i) such holder receives a partial principal
payment; (ii) such holder sells or otherwise disposes of such market discount
bond; or (iii) such market discount bond is retired or redeemed by the issuer. A
U.S. Holder who purchased a Note at a market discount and who does not elect to
include market discount in income as it accrues may be required to defer the
deduction of all or a portion of the interest expense on any indebtedness
incurred or maintained by such holder to purchase or carry such Note.
AMORTIZABLE BOND PREMIUM. Generally, if the tax basis of an obligation
held as a capital asset exceeds the amount payable at maturity of the
obligation, such excess will constitute amortizable bond premium that a U.S.
Holder may elect, under Section 171 of the Code, to amortize under the constant
yield method over the period from its acquisition date to the obligation's
maturity date. A Holder who elects to amortize bond premium must reduce its tax
basis in the related obligation by the amount of the aggregate amortization
allowable for amortizable bond premium. Amortizable bond premium will be treated
under the Code as an offset to interest income on the related
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debt instrument for United States federal income tax purposes, subject to the
promulgation of Treasury Regulations altering such treatment.
ELECTIONS. A U.S. Holder of Notes, subject to certain limitations, may
elect to include all interest and discount on such Notes in gross income under
the constant yield method. For this purpose, interest includes stated and
unstated interest, acquisition discount, original issue discount, DE MINIMIS
market discount and market discount, as adjusted by any amortizable bond premium
or acquisition premium. Any such election, if made in respect of a market
discount bond, will constitute an election to include market discount in income
currently on all market discount bonds acquired by such U.S. Holder on or after
the first day of the first taxable year to which the election applies. U.S.
Holders should consult with their tax advisors regarding any tax elections they
intend to make with respect to any Notes.
SALE OR OTHER DISPOSITION. In general, a U.S. Holder of Notes will
recognize gain or loss upon the sale, exchange, redemption, or other taxable
disposition of such Notes measured by the difference between (i) the amount of
cash and the fair market value of property received (except to the extent
attributable to accrued interest on such Notes previously taken into account)
and (ii) the U.S. Holder's tax basis in such Notes (as increased by any accrued
original issue discount (net of all amortized acquisition premium) and market
discount previously included in income by the U.S. Holder and decreased by
amortizable bond premium, if any, deducted over the term of such Notes). Subject
to the market discount rules discussed above, any such gain or loss will
generally be long-term capital gain or loss, provided such Notes have been held
for more than one year.
TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OWNERSHIP AND DISPOSITION OF THE NOTES
PORTFOLIO INTEREST EXEMPTION. A Non-U.S. Holder will generally, under
the portfolio interest exemption of the Code, not be subject to United States
federal income taxes and/or United States withholding tax, on original issue
discount on the Notes or interest paid on the Notes, provided that (i) the
Non-U.S. Holder does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of GST USA entitled to vote, (ii)
the Non-U.S. Holder is not (a) a bank receiving original issue discount or
interest pursuant to a loan agreement entered into in the ordinary course of its
trade or business or (b) a controlled foreign corporation that is related to GST
USA (actually or constructively) through stock ownership, (iii) such original
issue discount or interest is not effectively connected with a United States
trade or business and (iv) either (a) the beneficial owner of the Notes
certifies to GST USA or its agent, under penalties of perjury, that it is not a
U.S. Holder and provides a completed IRS Form W-8 ("Certificate of Foreign
Status") or (b) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business (a "financial institution") and holds the Notes, certifies to GST
USA or its agent, under penalties of perjury, that it has received Form W-8 from
the beneficial owner or that it has received from another financial institution
a Form W-8 and furnishes the payor with a copy thereof. If any of the situations
described in proviso (i), (ii) or (iv) of the preceding sentence do not exist,
then an income tax treaty between the United States and the country of which the
Non-U.S. Holder is a tax resident may provide for the elimination or reduction
in the rate of United States withholding tax (which is currently 30%).
In the unlikely event that the Notes were to be treated as equity, the
periodic distributions received by a Non-U.S. Holder on the Notes would not
qualify for the portfolio interest exemption from United States federal income
tax. In such a case, the periodic distributions would be classified as
dividends. Generally, cash dividends that are paid to a Non-U.S. Holder by a
United States corporation that are not effectively connected with a trade or
business carried on by such Non-U.S. Holder in the United States are subject to
a 30% United States withholding tax. Under Treasury Regulations, the withholding
agent will be required to withhold tax from all distributions paid on the stock
regardless of the company's earnings and profits, but Non-U.S. Holders may apply
for refunds if such stock's share of the company's earnings and profits is less
than the amount of the distributions. The rate of withholding may be reduced to
the extent provided by a tax treaty between the United States and the country of
which the non-U.S. Holder is a tax resident.
SALE OF NOTES. A Non-U.S. Holder will generally not be subject to
United States federal income tax on any gain realized in connection with the
sale, exchange or redemption of the Notes unless (i) the gain is effectively
connected with a trade or business carried on by the Non-U.S. Holder within the
United States or, if a treaty
-59-
<PAGE>
applies, the gain is generally attributable to the United States permanent
establishment maintained by the Non-U.S. Holder, or (ii) the Non-U.S. Holder is
an individual who is present in the United States for 183 days or more in the
taxable year of disposition and certain other conditions are satisfied.
BACKUP WITHHOLDING
In general, certain payments to a non-corporate U.S. Holder of
principal and interest (including original issue discount) on the Notes and the
gross proceeds of a disposition of the Notes will be subject to United States
information reporting requirements. In general, subject to certain exceptions,
such payments will be subject to United States "backup withholding" tax at a
rate of 31% if the U.S. Holder does not provide a taxpayer identification number
or otherwise establish an exemption.
In general, any such payments to a Non-U.S. Holder that are made to a
United States office of a custodian or broker or that are otherwise paid or
considered to be paid in the United States will be subject to United States
information reporting requirements and, under certain other circumstances, to
United States backup withholding tax at a rate of 31% unless the Non-U.S. Holder
certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. Information reporting requirements and backup
withholding tax will also apply to a payment of the proceeds of a sale of the
Notes by a paying agent within the United States to a Holder other than a
Non-U.S. Holder providing an appropriate certification and certain other exempt
recipients. Information reporting requirements will apply to a payment of the
proceeds of a sale of the Notes by a foreign office of a broker that (i) is a
U.S. person, (ii) is a U.S. controlled foreign corporation or (iii) is a foreign
person that derives at least 50% of its gross income from the conduct of a trade
or business within the United States, in each case unless the broker has
documentary evidence in its records that the Holder is a Non-U.S. Holder and
certain other conditions are met, or the Non-U.S. Holder otherwise establishes
an exemption.
The amount of any backup withholding from a payment to a Holder will be
allowed as a credit against such Holder's United States federal income tax
liability and may entitle such Holder to a refund, provided that the required
information is furnished to the Service.
PLAN OF DISTRIBUTION
Except as described below, (i) a broker-dealer may not participate in
the Exchange Offer in connection with a distribution of the New Notes, (ii) such
broker-dealer would be deemed an underwriter in connection with such
distribution and (iii) such broker-dealer would be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transactions. A broker-dealer may, however,
receive New Notes for its own account pursuant to the Exchange Offer in exchange
for Old Notes when such Old Notes were acquired as a result of market-making
activities or other trading activities. Each such broker-dealer must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer (other than an "affiliate" of the Company) in
connection with resales of such New Notes. GST USA has agreed that for a period
of 180 days after the Expiration Date, it will make this Prospectus, as amended
or supplemented, available to any such broker-dealer for use in connection with
any such resale.
GST USA will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by
-60-
<PAGE>
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, GST USA will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in a Letter of Transmittal. GST USA has agreed to pay all expenses incident to
the Exchange Offer other than commissions or concessions of any brokers or
dealers and transfer taxes and will indemnify the Holders of the Old Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
MS&Co. has indicated to GST USA that it intends to effect offers and
sales of the New Notes in market-making transactions at negotiated prices
related to prevailing market prices at the time of sale, but is not obligated to
do so and such market-making activities may be discontinued at any time. MS&Co.
may act as principal or agent in such transactions. There can be no assurance
that an active market for the New Notes will develop.
LEGAL MATTERS
Certain legal matters in connection with the Notes and the Notes
Guarantee are being passed upon for the Company by Olshan Grundman Frome &
Rosenzweig LLP, New York, New York, counsel to the Company. Stephen Irwin, Esq.
is of counsel to Olshan Grundman Frome & Rosenzweig LLP. Mr. Irwin, Vice
Chairman of the Board and Secretary of GST, owns 54,545 Common Shares, and
options and warrants to purchase 415,000 Common Shares. Certain regulatory
matters are being passed upon for the Company by Swidler & Berlin, Chartered,
Washington D.C. Certain Canadian legal matters are being passed upon for the
Company by O'Neill & Company, Vancouver, British Columbia.
EXPERTS
The consolidated balance sheet of GST Telecommunications, Inc. and its
subsidiaries as of September 30, 1995 and the consolidated statements of
operations and deficit and cash flows for the year ended September 30, 1995,
have been incorporated by reference herein in reliance upon the report of KPMG
Peat Marwick LLP, independent auditors, and upon the authority of said firm as
experts in accounting and auditing. The consolidated balance sheet of GST
Telecommunications, Inc. and its subsidiaries as of September 30, 1994 and the
consolidated statements of operations and deficit and cash flows for the 13
months ended September 30, 1994 and year ended August 31, 1993 have been
incorporated by reference herein in reliance upon the report of KPMG Peat
Marwick Thorne, independent chartered accountants, upon the authority of said
firm as experts in accounting and auditing. The audited financial statements of
International Telemanagement Group, Inc. as of December 31, 1994 and 1993 and
for the year ended December 31, 1994 and the period January 23, 1993 (date of
inception) through December 31, 1993 have been included herein in reliance upon
the report of KPMG Peat Marwick LLP, independent certified accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing. The financial statements of the IntelCom-Greenstar
Joint Venture for the periods ended September 30, 1994 and 1993 have been
incorporated by reference herein upon reliance upon the report of KPMG Peat
Marwick Thorne, independent chartered accountants, and upon the authority of
said firm as experts in accounting and auditing.
-61-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page(s)
INTERNATIONAL TELEMANAGEMENT GROUP, INC.
Independent Auditors' Report..............................................F-2
Balance Sheets at December 31, 1994 and 1993 .............................F-3
Statements of Operations for the four months
ended April 30, 1995, the year
ended December 31, 1994 and for the period
January 23, 1993 (date of inception)
through December 31, 1993 ................................................F-4
Statements of Stockholders' Deficit for
the four months ended April 30, 1995,
the year ended December 31, 1994 and for
the period January 23, 1993 (date of
inception) through December 31, 1993......................................F-5
Statements of Cash Flows for the four
months ended April 30, 1995, the year ended
December 31, 1994 and for the period
January 23, 1993 (date of inception)
through December 31, 1993.................................................F-6
Notes to Financial Statements.............................................F-7
GST TELECOMMUNICATIONS, INC.
Description of Unaudited Pro Forma Financial Statements
Reflecting the Acquisition of International Management
Group, Inc. (ITG) By GST Telecommunications, Inc. (GTI)................F-11
Pro Forma Statement of Operations for
the twelve months ended September 30, 1995.............................F-12
Notes to Pro Forma Statement
of Operations for the twelve months ended September 30, 1995...........F-13
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
International Telemanagement Group, Inc.:
We have audited the accompanying balance sheets of International Telemanagement
Group, Inc. (the Company), as of December 31, 1994 and 1993, and the related
statements of operations, stockholders' deficit, and cash flows for the year
ended December 31, 1994, and for the period January 23, 1993 (date of inception)
through December 31 1993. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Telemanagement
Group, Inc., as of December 31, 1994 and 1993, and the results of its operations
and its cash flows for the year ended December 31, 1994 and for the period
January 23, 1993 (date of inception) through December 31, 1993 in conformity
with generally accepted accounting principles.
As discussed in note 2, effective May 1, 1995, the Company was acquired by GST
Telecom, Inc.
/S/ KPMG PEAT MARWICK LLP
Detroit, Michigan
July 21, 1995
F-2
<PAGE>
INTERNATIONAL TELEMANAGEMENT GROUP, INC.
Balance Sheets
December 31, 1994 and 1993
<TABLE>
<CAPTION>
Assets 1994 1993
------ ---- ----
<S> <C> <C>
Current assets:
Cash $ 702,392 71,309
Trade accounts receivable, less allowance for doubtful accounts of $164,000
and $52,000, at 1994 and 1993, respectively 1,167,346 370,643
Due from officers and employees - 48,690
Other receivables 9,152 5,000
Prepaid expenses and other current assets 80,713 115,805
------------ ------------
Total current assets 1,959,603 611,447
Property and equipment, net (note 3) 1,318,870 1,175,495
--------- ---------
$ 3,278,473 1,786,942
============ =========
Liabilities and Stockholders' Deficit
-------------------------------------
Current liabilities:
Current installments of notes payable to related parties (note 5) $ 368,380 95,520
Current installments of long-term debt (note 4) 98,185 -
Current installments of capital lease obligations (note 7) 175,668 144,897
Accounts payable and accrued line charges, net 3,735,260 1,107,141
Due to affiliates - 4,417
Other accrued expenses and liabilities 157,789 22,049
Deferred revenues 23,982 22,363
------------ ------------
Total current liabilities 4,559,264 1,396,387
--------- ---------
Notes payable to related parties, less current installments (note 5) 246,040 -
Long-term debt, less current installments (note 4) 131,945 -
Capital lease obligations, less current installments (note 7) 747,227 890,913
------------ ------------
Total liabilities 5,684,476 2,287,300
--------- ---------
Commitments and contingencies (notes 7, 9, and 10)
Stockholders' deficit:
Common stock, no par value, 750 shares authorized, 200 issued and
outstanding 1,000 1,000
Additional paid-in capital 598,630 332,678
Accumulated deficit (2,973,765) (834,036)
--------- ------------
(2,374,135) (500,358)
Less: Treasury stock, at cost of 88 shares (31,868) -
------------ -----------
Net stockholders' deficit (2,406,003) (500,358)
--------- ------------
$ 3,278,473 1,786,942
============ =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
INTERNATIONAL TELEMANAGEMENT GROUP, INC.
Statements of Operations
<TABLE>
<CAPTION>
For the Period
January 23,
1993
(Date of
Four Months Year Ended Inception) through
Ended April 30, 1995 December 31, December 31,
(Unaudited) 1994 1993
-------------------- ------------ -------------------
<S> <C> <C> <C>
Net sales and services $ 5,010,908 12,202,063 1,494,943
Cost of goods and services 4,766,433 11,788,135 1,735,717
--------- ---------- ---------
Gross profit (loss) 244,475 413,928 (240,774)
Selling, general, and administrative expenses 988,203 2,014,635 507,824
------------ -------------- ------------
Loss from operations (743,728) (1,600,707) (748,598)
Other income (expense):
Interest expense (53,373) (140,338) (16,503)
Other expense, net - (398,684) (68,935)
------------ -------------- ------------
Net loss $ (797,101) (2,139,729) (834,036)
============ ========== ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
INTERNATIONAL TELEMANAGEMENT GROUP, INC.
Statements of Stockholders' Deficit
<TABLE>
<CAPTION>
For the Period January 23, 1993 (Date of Inception)
Through December 31, 1993
--------------------------------------------------------------------------------------------
Additional
Common Paid-in Accumulated Treasury Stockholders'
Stock Capital Deficit Stock Deficit
----- ------- ------- ----- -------
<S> <C> <C> <C> <C>
Balances at inception $ - - - - -
Issuance of common stock 1,000 332,678 - - 332,678
Net loss - - (834,036) - (834,036)
------ ---------- ------- - -------
Balances at end of period $ 1,000 332,678 (834,036) - (500,358)
===== ======= ======= = =======
Year Ended December 31, 1994
--------------------------------------------------------------------------------------------
Additional
Common Paid-in Accumulated Treasury Stockholders'
Stock Capital Deficit Stock Deficit
----- ------- ------- ----- -------
Balances at beginning of period $ 1,000 332,678 (834,036) - (500,358)
Capital contributions - 272,000 - - 272,000
Distributions to shareholder - (6,048) - - (6,048)
Repurchase of shares - - - (31,868) (31,868)
Net loss - - (2,139,729) - (2,139,729)
------ ---------- --------- --------- ---------
Balances at end of period $ 1,000 598,630 (2,973,765) (31,868) (2,406,003)
===== ======= ========= ====== =========
Four Months Ended April 30, 1995 (Unaudited)
--------------------------------------------------------------------------------------------
Additional
Common Paid-in Accumulated Treasury Stockholders'
Stock Capital Deficit Stock Deficit
----- ------- ------- ----- -------
Balances at beginning of period $ 1,000 598,630 (2,973,765) (31,868) (2,406,003)
Capital contributions - 10,600 - - 10,600
Repurchase of shares - - - (2,050) (2,050)
Net loss - - (797,101) - (797,101)
------ ---------- ------------ --------- ------------
Balances at end of period $ 1,000 609,230 (3,770,866) (33,918) (3,194,554)
===== ======= ========= ====== =========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
INTERNATIONAL TELEMANAGEMENT GROUP, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Period
January 23,
1993 (Date of
Four Months Inception)
Ended April 30, Year Ended through
1995 December 31, December 31,
(Unaudited) 1994 1993
----------- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (797,101) (2,139,729) (834,036)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 114,773 318,926 57,859
Changes in assets and liabilities:
Trade accounts receivable (165,145) (796,703) (370,643)
Due from officers and employees -- 48,690 (48,690)
Other receivables 6,652 (4,152) (5,000)
Prepaid expenses and other current assets (13,000) 35,092 (115,805)
Accounts payable and accrued line charges 912,626 2,808,920 1,107,141
Due to affiliates -- (4,417) 4,417
Other accrued expenses and liabilities 35,127 135,740 22,049
Deferred revenues 92,129 1,619 22,363
---------- ---------- ----------
Net cash provided by (used in) operating
activities 186,061 403,986 (160,345)
---------- ---------- ----------
Cash flows from investing activities - capital (60,550) (462,301) (1,233,354)
expenditures for property and equipment -- -- --
Net cash used in investing activities (60,550) (462,301) (1,233,354)
---------- ---------- ----------
Cash flows from financing activities:
Repayment of long-term debt (369,121) 49,329
Net borrowings on revolving note payable to related
parties -- 265,000 95,520
Net repayments on notes payable to officers and
employees -- 253,900 --
Repurchase of treasury stock (2,050) (31,868) --
Payments made under capital leases -- (112,915) 1,035,810
Additional paid in capital 10,600 272,000 --
Distributions to shareholder -- (6,048) --
Proceeds from stock issuance -- -- 333,678
---------- ---------- ----------
Net cash provided by financing activities (360,571) 689,398 1,465,008
---------- ---------- ----------
Net increase (decrease) in cash (235,060) 631,083 71,309
Cash at beginning of year 702,392 71,309 --
---------- ---------- ----------
Cash at end of year $ 467,322 702,392 71,309
========== ========== ==========
Supplemental disclosures of cash flow information -
cash paid during the year for interest $ 44,025 132,073 9,513
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
INTERNATIONAL TELEMANAGEMENT GROUP, INC.
Notes to Financial Statements
December 31, 1994 and 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
International Telemanagement Group, Inc. (the Company), is a domestic and
international interexchange carrier offering long distance, 800, private
line, and other services to its customers. ITG was incorporated in January
1993 under the laws of the state of Ohio.
(a) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property
and equipment is provided principally on a straight-line basis over
the estimated useful lives of the related assets. Assets recorded
under capital leases are amortized over the terms of the leases.
(b) INCOME TAXES
The stockholders of the Company have elected to be treated as an S
corporation, whereby taxable income and/or losses are allocated to the
stockholder rather than to the Company. Accordingly, the accompanying
financial statements do not include provisions for federal and state
taxes on income earned by the Company.
(c) REVENUE RECOGNITION
Income from services is recognized when the contracted service is
rendered.
(d) GENERAL CREDIT RISK
The Company grants credit to customers on open account, substantially
all of whom are in the telecommunications industry.
(2) SUBSEQUENT EVENT
On May 1, 1995, the Company entered into a purchase agreement with GST
Telecom, Inc. (GST Net), in which all outstanding stock of the Company
was sold for cash. GST Net has indicated its intention to fully fund the
operations of the Company and maintain the Company operations principally
in the lines of business in which it currently operates.
(3) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment at December 31, 1994 and 1993, consisted of:
1994 1993
---- ----
<S> <C>
Leasehold improvements $ 6,243 6,243
Machinery and equipment 1,689,412 1,227,111
--------- ---------
1,695,655 1,233,354
Less accumulated depreciation and amortization (376,785) (57,859)
------------ ------------
Property and equipment, net $ 1,318,870 1,175,495
=========== =========
</TABLE>
F-7
<PAGE>
INTERNATIONAL TELEMANAGEMENT GROUP, INC.
Notes to Financial Statements, Continued
(4) LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt at December 31, 1994 and 1993, consists of the following:
1994 1993
---- ----
<S> <C> <C>
Note payable to customer, 0% interest, monthly payments of $6,944, $ 215,278 -
Note payable to supplier, 7% interest, monthly payments of $14,939,
including interest, due February 1995 14,852 -
---------- -
Total long-term debt 230,130 -
Less current installments (98,185) -
---------- -
Long-term debt, less current installments $ 131,945 -
======= =
</TABLE>
In addition, the Company has incurred borrowings from related parties (see
note 5).
As of December 31, 1994, the maturities of long-term debt are as follows:
Year Ended
December 31,
------------
1995 $ 98,185
1996 83,333
1997 48,612
------------
$ 230,130
============
(5) RELATED PARTY TRANSACTIONS
The Company has entered into numerous transactions with its principal
stockholder and other related entities controlled by its stockholders.
F-8
<PAGE>
INTERNATIONAL TELEMANAGEMENT GROUP, INC.
Notes to Financial Statements, Continued
(5) RELATED PARTY TRANSACTIONS, CONTINUED
The Company's principal stockholder or entities controlled by the
stockholder have obtained financing from two financial institutions. These
funds were, in turn, loaned to the Company. The unwritten agreement between
the Company and the related parties is that the Company will make all
necessary payments under the stated bank terms. The terms are as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Note payable, bearing interest at 8.25%, payable in monthly
installments of $8,615, due in full September 1997 $ 349,420 95,520
Note payable, bearing interest at 1% over the prime rate, due in
full December 12, 1994. On March 9, 1995, the loan was renewed
by the bank 265,000 -
------- --------
Total notes payable related parties 614,420 95,520
Less current installments 368,380 95,520
------- ------
Notes payable to related parties, less current
installments $ 246,040 -
======= ========
</TABLE>
The Company rents office space and telecommunications equipment from
related parties on a month-to-month basis. Rental expense for the periods
ended December 31, 1994 and 1993, totaled $248,572 and $96,057,
respectively.
(6) COMMON STOCK
During 1994, the Company repurchased common shares from its stockholders at
a cost of $31,868.
(7) LEASES
The Company leases telecommunications and computer equipment under capital
leases. Additionally, certain communications equipment is leased under
operating leases. Lease terms include per-minute charges and minimum fee
levels.
F-9
<PAGE>
INTERNATIONAL TELEMANAGEMENT GROUP, INC.
Notes to Financial Statements, Continued
(7) LEASES, CONTINUED
Future minimum lease payments under capital and operating leases are as
follows:
<TABLE>
<CAPTION>
1994 1993
--------------------------- --------------------------
Capital Operating Capital Operating
Leases Leases Leases Leases
------ ------ ------ ------
<S> <C> <C> <C> <C>
Year ending December 31:
1994 $ - - 196,988 23,924
1995 261,464 143,544 283,555 143,544
1996 283,555 143,544 283,555 143,544
1997 276,751 143,544 283,555 143,544
1998 268,714 119,620 276,650 119,620
1999 44,183 - 44,183 -
------------ --------- ------------- --------
Total lease payments 1,134,667 550,252 1,368,486 574,176
======= =======
Less amount representing interest
(211,772) (332,676)
------------ -------------
Total obligations under
capital leases 922,895 1,035,810
Current installments of capital
lease obligations 175,668 144,897
----------- -------------
Capital lease obligations,
less current installments $ 747,227 890,913
========== =======
</TABLE>
Total rental expense under operating leases for the periods ended December
31, 1994 and 1993, totaled $23,900 and $4,500, respectively.
The Company also leases certain equipment and office space from related
parties (see note 5).
(8) MAJOR CUSTOMERS
Gross revenues of approximately $3,000,000 were derived from two major
customers for the year ended December 31, 1994.
(9) SERVICE CONTRACTS
The Company has entered into service contracts with telecommunication
providers which require a minimum service fee on a monthly basis. The
Company has committed to minimum revenues of $350,000 per month by May
1995, and must pay one-half of any shortfall.
(10) CONTINGENCIES
The Company is a party to a number of lawsuits and claims relating to
service liability. While the ultimate results of lawsuits or other
proceedings against the Company cannot be predicted with certainty,
management does not expect that the settlement of these matters will have a
material adverse effect on the financial position of the Company.
F-10
<PAGE>
DESCRIPTION OF UNAUDITED PRO FORMA FINANCIAL STATEMENTS
REFLECTING THE ACQUISITION OF INTERNATIONAL MANAGEMENT (ITG)
GROUP, INC. BY GST TELECOMMUNICATIONS, INC. (GTI)
The following unaudited pro forma consolidated financial statements have
been prepared giving effect to the acquisition of ITG as if the transaction had
taken place as of October 1, 1994.
On May 1, 1995, GTI acquired 100% of the outstanding stock of ITG for
consideration of $74,761, the assumption of certain liabilities and an earnout
provision. The acquisition has been accounted for using the purchase method. All
of the excess purchase price was allocated to goodwill as the net book value of
the assets acquired approximated fair market value at the time of the
acquistion.
The unaudited pro forma financial information is not necessarily indicative
of the results of operations which would have been attained had the acquisition
been consummated at any of the foregoing assumed dates, or which may be attained
in the future. The pro forma financial information should be read in conjunction
with the historical financial statements of GTI and ITG.
F-11
<PAGE>
GST TELECOMMUNICATIONS, INC.
PRO FORMA STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 30, 1995
(unaudited)
<TABLE>
<CAPTION>
Historical
----------------------------- Pro Forma Pro Forma
GTI ITG Adjustments Total
(A)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Product $ 7,563,087 0 7,563,087
Telecommunication services 11,118,373 11,403,482 22,521,855
- -------------------------------------------------------------------------------------------------------------------
18,681,460 11,403,482 30,084,942
- -------------------------------------------------------------------------------------------------------------------
Cost of goods sold/services:
Product 3,095,679 0 3,095,679
Telecommunication services 12,198,610 11,071,799 23,270,409
- -------------------------------------------------------------------------------------------------------------------
15,294,289 11,071,799 26,366,088
- -------------------------------------------------------------------------------------------------------------------
Gross margin 3,387,171 331,683 3,718,854
Operating expenses
General and administration 8,880,162 2,348,523 11,228,685
Marketing,travel and promotion 2,493,159 30,373 2,523,532
Research and development 1,270,590 0 1,270,590
Depreciation and amortization 2,373,912 344,337 287,472 (B) 3,005,721
--------------------------------------------------------------------------------------------------------
Loss from operations (11,630,652) (2,391,550) (287,472) (14,309,674)
Other income (expenses):
Interest income 302,605 0 302,605
Interest expense (837,850) (123,631) (961,481)
Foreign exchange loss (7,365) 0 (7,365)
Loss from joint ventures (660,653) 0 (660,653)
Other non-op expense (679,205) (258,036) (937,241)
- -------------------------------------------------------------------------------------------------------------------
(1,882,468) (381,667) 0 (2,264,135)
- -------------------------------------------------------------------------------------------------------------------
Loss before income taxes
and non-controlling interest (13,513,120) (2,773,217) (287,472) (16,573,809)
Income tax expense (166,015) 0 (166,015)
- -------------------------------------------------------------------------------------------------------------------
Loss before non-controlling interest
in income of subsidiaries (13,679,135) (2,773,217) (287,472) (16,739,824)
Non-controlling interest in loss of subsidiaries 2,364,431 0 2,364,431
- -------------------------------------------------------------------------------------------------------------------
Loss for the period (11,314,704) (2,773,217) (287,472) (14,375,393)
===============================================================
Loss per share (0.82) (1.04)
===============================================================
Weighted average common and common
equivalent shares outstanding 13,780,796 13,780,796
===============================================================
</TABLE>
F-12
<PAGE>
GST TELECOMMUNICATIONS, INC.
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 30, 1995
(A) The following is a computation of the purchase price:
Cash paid in closing 200
Direct costs of acquisition-Legal fees 74,561
----------
74,761
==========
The purchase price is allocated as follows:
Book value of nets assets acquired 3,160,682
Liabilities assumed (6,918,875)
Excess of cost over value assigned (goodwill) 3,832,954
----------
74,761
==========
(B) To amortize goodwill on a straight-line basis over 10 years 287,472
==========
F-13
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the
securities being registered, all of which will be paid by the Registrants, are
as follows:
SEC Registration Fee..................................... $ 56,419.49
Accounting Fees and Expenses............................. 25,000.00
Legal Fees and Expenses.................................. 40,000.00
Blue Sky Fees and Expenses............................... 2,000.00
Miscellaneous Expenses................................... 6,580.51
-----------
Total.................................................... $130,000.00
===========
- -----------------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
GST USA
The General Corporation Law of the State of Delaware (the "Delaware
Law") permits indemnification of directors, employees and agents of corporations
under certain conditions and subject to certain limitations. Pursuant to the
Delaware Law, GST USA has included in its Certificate of Incorporation and
bylaws a provision to eliminate the personal liability of its directors for
monetary damages for breach or alleged breach of their duty of care to the
fullest extent permitted by the Delaware Law and to provide that GST USA shall
indemnify its directors and officers to the fullest extent permitted by the
Delaware Law.
GST
Except as hereinafter set forth, there is no statute, charter
provision, by-law, contract or other arrangement under which any controlling
person, director or officer of GST is insured or indemnified in any manner
against liability which he may incur in his capacity as such.
GST's authority to indemnify its directors and officers is
governed by the provisions of Section 124 of the Canada Business Corporations
Act, as follows:
(1) Indemnification. Except in respect of an action by or on
behalf of the corporation or body corporate to procure a judgment in its favor,
a corporation may indemnify a director or officer of the corporation, a former
director or officer of the corporation or a person who acts or acted at the
corporation's request as a director or officer of a body corporate of which the
corporation is or was a shareholder or creditor, and his heirs and legal
representatives, against all costs, charges and expenses, including an amount
paid to settle an action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal or administrative action or proceeding to which
he is made a party by reason of being or having been a director or officer of
such corporation or body corporate, if
(a) he acted honestly and in good faith with a view to the best
interests of the corporation; and
(b) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he had
reasonable grounds for believing that his conduct was
lawful.
II-1
<PAGE>
(2) INDEMNIFICATION IN DERIVATIVE ACTIONS. A corporation may with
the approval of a court indemnify a person referred to in subsection (1) in
respect of an action by or on behalf of the corporation or body corporate to
procure a judgment in its favor, to which he is made a party by reason of being
or having been a director or an officer of the corporation or body corporate,
against all costs, charges and expenses reasonably incurred by him in connection
with such action if he fulfills the conditions set out in paragraphs (1)(a) and
(b).
(3) INDEMNITY AS OF RIGHT. Notwithstanding anything in this
section, a person referred to in subsection (1) is entitled to indemnity from
the corporation in respect of all costs, charges and expenses reasonably
incurred by him in connection with the defense of any civil, criminal or
administrative action or proceeding to which he is made a party by reason of
being or having been a director or officer of the corporation or body corporate,
if the person seeking indemnity
(a) was substantially successful on the merits in his defense of
the action or proceeding, and
(b) fulfills the conditions set out in paragraphs (1)(a) and
(b).
(4) DIRECTORS' AND OFFICERS' INSURANCE. A corporation may purchase
and maintain insurance for the benefit of any person referred to subsection (1)
against any liability incurred by him
(a) in his capacity as a director or officer of the corporation,
except where the liability relates to his failure to act
honestly and in good faith with a view to the best interests
of the corporation; or
(b) in his capacity as a director or officer of another body
corporate where he acts or acted in that capacity at the
corporation's request, except where the liability relates to
his failure to act honestly and in good faith with a view to
the best interests of the body corporate.
(5) APPLICATION TO COURT. A corporation or a person referred to
in subsection (1) may apply to a court for an order approving an indemnity under
this section and the court may so order and make any further order it thinks
fit.
(6) NOTICE TO DIRECTOR. An applicant under subsection (5) shall
give the Director notice of the application and the Director is entitled to
appear and be heard in person or by counsel.
(7) OTHER NOTICE. On an application under subsection (5), the
court may order notice to be given to any interested person and such person is
entitled to appear and be heard in person or by counsel.
GST's by-laws provide that every director and officer of GST and
his heirs, executors, administrators and other legal personal representatives
shall be indemnified and held harmless from and against (a) any liability and
all costs, charges and expenses that he sanctions or incurs in respect of any
action, suit or proceeding that is proposed or commenced against him for or in
respect of anything done or permitted by him in respect of the execution of the
duties of his office and (b) all other costs, charges and expenses that he
sustains or incurs in respect of the affairs of GST.
GST maintains a $5,000,000 directors and officers liability
insurance policy.
GST has also agreed to indemnify each director and executive officer
pursuant to an indemnification agreement with each such director and executive
officer from and against any and all expenses, losses, claims, damages and
liability incurred by such director or executive officer for or as a result of
action taken or not taken while such director or executive officer was acting in
his capacity as a director, officer, employee or agent of the Company.
II-2
<PAGE>
ITEM 16. EXHIBITS.
*1 Placement Agreement dated December 14, 1995, by and among GST,
GST USA, the Specified Subsidiaries named therein and Morgan
Stanley & Co. Incorporated (incorporated by reference to
Exhibit 2.2 to GST's Annual Report on Form 20-F for the fiscal
year ended September 30, 1995).
*4 Senior Notes Indenture dated as of December 19, 1995, by and
among GST USA, GST and United States Trust Company of New York
(incorporated by reference to Exhibit 2.3 to GST's Annual
Report on Form 20-F for the fiscal year ended September 30,
1995).
*5 Opinion of Olshan Grundman Frome & Rosenzweig LLP.
*8 Opinion of Olshan Grundman Frome & Rosenzweig LLP (included in
Exhibit 5 to this Registration Statement).
**23.1 Consent of KPMG Peat Marwick LLP.
**23.2 Consent of KPMG Peat Marwick Thorne.
**23.3 Consent of KPMG Peat Marwick LLP.
*23.4 Consent of Olshan Grundman Frome & Rosenzweig LLP (included in
Exhibit 5 to this Registration Statement).
**23.5 Consent of KPMG Peat Marwick Thorne.
*25 Statement of eligibility of trustee.
*99.1 Senior Notes Registration Rights Agreement dated December 19,
1995, by and among GST USA, GST, the Specified Subsidiaries
named therein and Morgan Stanley & Co. Incorporated
(incorporated by reference to Exhibit 25 to GST's Annual
Report on Form 20-F for the fiscal year ended September 30,
1995).
*99.2 Letter of Transmittal for Tender of all outstanding 13-7/8%
Senior Discount Notes Due 2005 in exchange for 13-7/8% Senior
Discount Exchange Notes Due 2005 of GST USA, Inc.
*99.3 Tender for all outstanding 13-7/8% Senior Discount Notes Due
2005 in exchange for 13- 7/8% Senior Discount Exchange Notes
Due 2005 of GST USA, Inc.
*99.4 Instruction to Registered Holder from Beneficial Owner of
13-7/8% Senior Discount Notes due 2005 of GST USA, Inc.
*99.5 Notice of Guaranteed Delivery for outstanding 13-7/8% Senior
Discount Notes Due 2005 in exchange for 13-7/8% Senior
Discount Exchange Notes Due 2005 of GST USA, Inc.
- -----------------
*Previously filed
**Filed herewith
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to which the prospectus is sent or
given: the Registrant's latest filing on Form
II-3
<PAGE>
20-K, Form 40-F or Form 10-K; and any filing on Form 10-Q, form 8-K or Form 6-K
incorporated by reference in this prospectus.
The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Act.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrants pursuant to the provisions described under Item 15
"Indemnification of Directors and Officers", above, or otherwise, the
Registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the paying by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, GST USA,
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form F-2 and has duly caused this Amendment No. 2
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Vancouver, State of Washington, on May
6, 1996.
GST USA, INC.
By: *
----------------------
W. Gordon Blankstein,
Chairman of the Board
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on May 6, 1996.
SIGNATURE TITLE
*
- ------------------------------ Chairman of the Board
W. Gordon Blankstein
*
- ------------------------------ President, Chief Executive Officer and
John Warta Director
(Principal Executive Officer)
/s/ Robert H. Hanson
- ------------------------------ Senior Vice President, Chief Financial
Robert H. Hanson Officer and Director
(Principal Financial Officer)
*
- ------------------------------ Senior Vice President, Treasurer and Chief
Clifford V. Sander Accounting Officer and Director
(Principal Accounting Officer)
*
- ------------------------------ Vice President and Director
Thomas E. Sawyer
*By: /s/ Robert H. Hanson
--------------------
Robert H. Hanson, Attorney-in-Fact
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, GST
Telecommunications, Inc. certifies that it has reasonable grounds to believe
that it meets all the requirements for filing on Form F-2 and has duly caused
this Amendment No. 2 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Vancouver, State of
Washington, on May 6, 1996.
GST TELECOMMUNICATIONS, INC.
By: *
----------------------
W. Gordon Blankstein,
Chairman of the Board
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on May 6, 1996.
SIGNATURE Title
*
- ------------------------------- Chairman of the Board
(W. Gordon Blankstein)
*
- ------------------------------- President, Chief Executive Officer
(John Warta) (Principal Executive Officer) and
Director
/s/ Robert H. Hanson Senior Vice President - Corporate
- ------------------------------- Development, Chief Financial Officer
(Robert H. Hanson) (Principal Financial Officer) and
Director
*
- ------------------------------- Senior Vice President, Treasurer
(Clifford V. Sander) and Chief Accounting Officer
(Principal Accounting Officer)
*
- ------------------------------- Vice Chairman of the Board,
(Stephen Irwin) Secretary and Director
*
- ------------------------------- Director
(Ian Watson)
*
- ------------------------------- Director
(Peter E. Legault)
*
- ------------------------------- Director
(Jack G. Armstrong)
- ------------------------------- Director
(Takashi Yoshida)
*
- ------------------------------- Director
(Thomas E. Sawyer)
*By /s/ Robert H. Hanson
---------------------------
Robert H. Hanson, Attorney-In-Fact
The Company's Authorized Representative
in the United States
/s/ Robert H. Hanson
- -------------------------------
Robert H. Hanson
II-6
<PAGE>
EXHIBIT INDEX
1 Placement Agreement dated December 14, 1995, by and among GST,
GST USA, the Specified Subsidiaries named therein and Morgan
Stanley & Co. Incorporated (incorporated by reference to
Exhibit 2.2 to GST's Annual Report on Form 20-F for the fiscal
year ended September 30, 1995).
4 Senior Notes Indenture dated as of December 19, 1995, by and
among GST USA, GST and United States Trust Company of New York
(incorporated by reference to Exhibit 2.3 to GST's Annual
Report on Form 20-F for the fiscal year ended September 30,
1995).
5 Opinion of Olshan Grundman Frome & Rosenzweig LLP.
8 Opinion of Olshan Grundman Frome & Rosenzweig LLP (included in
Exhibit 5 to this Registration Statement).
**23.1 Consent of KPMG Peat Marwick LLP.
**23.2 Consent of KPMG Peat Marwick Thorne.
**23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of Olshan Grundman Frome & Rosenzweig LLP (included in
Exhibit 5 to this Registration Statement).
**23.5 Consent of KPMG Peat Marwick Thorne.
25 Statement of eligibility of trustee.
99.1 Senior Notes Registration Rights Agreement dated December 19,
1995, by and among GST USA, GST, the Specified Subsidiaries
named therein and Morgan Stanley & Co. Incorporated
(incorporated by reference to Exhibit 25 to GST's Annual
Report on Form 20-F for the fiscal year ended September 30,
1995).
99.2 Letter of Transmittal for Tender of all outstanding 13-7/8%
Senior Discount Notes Due 2005 in exchange for 13-7/8% Senior
Discount Exchange Notes Due 2005 of GST USA, Inc.
99.3 Tender for all outstanding 13-7/8% Senior Discount Notes Due
2005 in exchange for 13- 7/8% Senior Discount Exchange Notes
Due 2005 of GST USA, Inc.
99.4 Instruction to Registered Holder from Beneficial Owner of
13-7/8% Senior Discount Notes due 2005 of GST USA, Inc.
99.5 Notice of Guaranteed Delivery for outstanding 13-7/8% Senior
Discount Notes Due 2005 in exchange for 13-7/8% Senior
Discount Exchange Notes Due 2005 of GST USA, Inc.
**Filed herewith
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
GST Telecommunications, Inc.:
We consent to the use of our report included in Form 20-F, dated November 17,
1995 except for note 12(b) and (c) which are as of December 19, 1995 and
November 20, 1995, respectively, incorporated herein by reference in the
Registration Statement on Form F-2, dated May 6, 1996, of GST
Telecommunications, Inc. and to the references to our firm under the "Experts"
heading in the prospectus.
/S/ KPMG PEAT MARWICK LLP
Portland, Oregon
May 6, 1996
KPMG PEAT MARWICK THORNE Telephone No. (604) 691-3000
CHARTERED ACCOUNTANTS (604) 691-3031
BOX 10426
777 DUNSMUIR STREET
VANCOUVER, BC V7Y 1K3
CANADA
ACCOUNTANTS' CONSENT
To the Directors of
GST Telecommunications, Inc.
(formerly Greenstar Telecommunications Inc.)
We consent to the incorporation by reference in the registration statement filed
May 6, 1996 on Form F-2 of GST Telecommunications, Inc. (formerly Greenstar
Telecommunications Inc.) of our report dated December 8, 1994, relating to the
consolidated balance sheets of GST Telecommunications, Inc. as of September 30,
1994 and August 31, 1993 and the related consolidated statements of operations
and deficit and changes in financial position for the thirteen months ended
September 30, 1994 and for the years ended August 31, 1993 and 1992, which
report appears in the September 30, 1995 annual report on Form 20-F of GST
Telecommunications, Inc., and to the reference to our firm as experts in the
registration statement.
/S/ KPMG PEAT MARWICK THORNE
Chartered Accountants
Vancouver, Canada
May 6, 1996
Member Firm of
Klynveld Peat Marwick Goerdeler
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
GST Telecommunications, Inc.:
We consent to the use of our report over the financial statements of
International Telemanagement Group, Inc. included herein, dated July 21, 1995 in
the Registration Statement on Form F-2, dated May 6, 1996, of GST
Telecommunications, Inc. and to the references to our firm under the "Experts"
heading in the prospectus.
/S/ KPMG PEAT MARWICK LLP
Detroit Michigan
May 6, 1996
KPMG PEAT MARWICK THORNE Telephone No. (604) 691-3000
CHARTERED ACCOUNTANTS (604) 691-3031
BOX 10426
777 DUNSMUIR STREET
VANCOUVER, BC V7Y 1K3
CANADA
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
GST Telecommunications, Inc.
We consent to the use of our reports dated November 11, 1994 and January 12,
1994 except for note 4 which is as of January 21, 1994, relating to the balance
sheets of IntelCom-Greenstar Joint Venture as of September 30, 1994 and 1993,
respectively and the related statements of operations and participants' equity,
and financial position for the years ended September 30, 1994 and 1993
respectively included in Form 20-F, incorporated herein by reference in the
Registration Statement of Form F-2, dated May 6, 1996, of GST
Telecommunications, Inc. and to the references to our firm under the "Experts"
heading in the prospectus.
/S/ KPMG PEAT MARWICK THORNE
Chartered Accountants
Edmonton, Canada
May 6, 1996
Member Firm of
Klynveld Peat Marwick Goerdeler
