GST TELECOMMUNICATIONS INC, S-3/A, 1997-11-10

GST TELECOMMUNICATIONS INC
S-3/A, 1997-11-10
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1997

REGISTRATION NO. 333-38091
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2

TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
GST TELECOMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CANADA
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)

NOT APPLICABLE
(I.R.S. EMPLOYER IDENTIFICATION NO.)

GST TELECOMMUNICATIONS, INC.
4317 N.E. THURSTON WAY
VANCOUVER, WASHINGTON 98662
(360) 254-4700 (TELEPHONE)
(360) 260-2075 (TELECOPIER)
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

------------------------

DANIEL L. TRAMPUSH
GST TELECOMMUNICATIONS, INC.
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
4317 N.E. THURSTON WAY
VANCOUVER, WASHINGTON 98662
(360) 254-4700 (TELEPHONE)
(360) 260-2075 (TELECOPIER)
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE FOR REGISTRANT)

------------------------

COPIES OF COMMUNICATIONS TO:

<TABLE>
<S> <C>
STEPHEN IRWIN, ESQ. JERRY V. ELLIOTT, ESQ.
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP SHEARMAN & STERLING
505 PARK AVENUE 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
(212) 753-7200 (TELEPHONE) (212) 848-4000 (TELEPHONE)
(212) 755-1467 (TELECOPIER) (212) 848-7179 (TELECOPIER)
</TABLE>

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being 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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT 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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.

================================================================================
<PAGE> 2

EXPLANATORY NOTE

This registration statement contains two forms of prospectus: one to be
used in connection with an offering of the registrant's Common Shares in the
United States and Canada (the "U.S. Prospectus") and one to be used in a
concurrent offering of the registrant's Common Shares outside the United States
and Canada (the "International Prospectus" and together with the U.S.
Prospectus, the "Prospectuses"). The Prospectuses are identical except for the
front cover page. The U.S. Prospectus is included herein and is followed by the
alternative front cover page to be used in the International Prospectus. The
alternate page for the International Prospectus included herein is labeled
"Alternate Page for International Prospectus." Final forms of each Prospectus
will be filed with the Securities and Exchange Commission under Rule 424(b) of
the General Rules and Regulations under the Securities Act of 1933.
<PAGE> 3

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 sell or
the solicitation of 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)

Issued November 10, 1997

[GST TELECOMMUNICATIONS LOGO]

7,000,000 Shares
GST Telecommunications, Inc.
COMMON SHARES
------------------------

ALL OF THE 7,000,000 COMMON SHARES BEING OFFERED HEREBY ARE BEING SOLD BY THE
COMPANY. OF THE 7,000,000 COMMON SHARES BEING OFFERED HEREBY, 5,600,000 COMMON
SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 1,400,000 COMMON SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS."
THE COMMON SHARES OF THE COMPANY ARE LISTED ON THE AMERICAN STOCK EXCHANGE UNDER
THE SYMBOL "GST" AND ON THE TORONTO STOCK EXCHANGE UNDER THE SYMBOL "GTE.U." ON
NOVEMBER 6, 1997, THE REPORTED LAST SALE PRICE OF THE COMMON SHARES ON THE
AMERICAN STOCK EXCHANGE WAS $14 1/2 PER SHARE.

CONCURRENT WITH THE STOCK OFFERING, THE COMPANY WILL MAKE A PUBLIC OFFERING OF
$200.0 MILLION PRINCIPAL AMOUNT OF ITS SENIOR SUBORDINATED ACCRUAL NOTES DUE
2007. THE CLOSING OF THE DEBT OFFERING IS CONDITIONED UPON THE CLOSING OF THE
STOCK OFFERING, BUT THE CLOSING OF THE STOCK OFFERING IS NOT CONDITIONED UPON
THE CLOSING OF THE DEBT OFFERING.
------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR 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.
------------------------

PRICE $ A SHARE
------------------------

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Per Share............. $ $ $
Total(3).............. $ $ $
</TABLE>

- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriters."
(2) Before deducting expenses payable by the Company estimated at $650,000.
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
1,050,000 additional Common Shares at the price to public less
underwriting discounts and commissions, for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option
in full, the total price to public, underwriting discounts and
commissions and proceeds to Company will be $ , $ and
$ , respectively. See "Underwriters."
------------------------

The Common Shares are offered, subject to prior sale, when, as and if
accepted by the Underwriters named herein and subject to approval of certain
legal matters by Shearman & Sterling, counsel for the Underwriters. It is
expected that delivery of the Common Shares will be made on or about
, 1997 at the office of Morgan Stanley & Co. Incorporated, New
York, N.Y., against payment therefor in immediately available funds.
------------------------

MORGAN STANLEY DEAN WITTER
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON

, 1997
<PAGE> 4

[Map of Western United States]
<PAGE> 5

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE COMMON SHARES OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
COMMON SHARES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.

NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION BY THE COMPANY OR
ANY UNDERWRITER THAT WOULD PERMIT A PUBLIC OFFERING OF THE COMMON SHARES OR
POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN ANY JURISDICTION WHERE ACTION
FOR THAT PURPOSE IS REQUIRED, OTHER THAN IN THE UNITED STATES. PERSONS INTO
WHOSE POSSESSION THIS PROSPECTUS COMES ARE REQUIRED BY THE COMPANY AND THE
UNDERWRITERS TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO
THE OFFERING OF THE COMMON SHARES AND THE DISTRIBUTION OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Enforceability of Civil Liabilities Against Foreign Persons........................... 4
Available Information................................................................. 4
Incorporation of Certain Documents by Reference....................................... 4
Prospectus Summary.................................................................... 5
Risk Factors.......................................................................... 11
Use of Proceeds....................................................................... 23
Price Range of Common Shares.......................................................... 24
Dividend Policy....................................................................... 25
Dilution.............................................................................. 25
Capitalization........................................................................ 26
Selected Consolidated Financial Data.................................................. 27
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 29
Business.............................................................................. 38
Management............................................................................ 55
Certain Transactions.................................................................. 64
Principal Shareholders................................................................ 66
Description of Certain Indebtedness................................................... 67
Description of Capital Stock.......................................................... 72
Shares Eligible for Future Sale....................................................... 75
Certain United States Federal Income Tax Considerations............................... 75
Certain Canadian Tax Considerations................................................... 77
Underwriters.......................................................................... 79
Legal Matters......................................................................... 81
Experts............................................................................... 82
Index to Financial Statements......................................................... F-1
</TABLE>

------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING,
AND MAY BID FOR, AND PURCHASE, COMMON SHARES IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."

3
<PAGE> 6

ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS

The Company is incorporated under the laws of Canada. Certain of its
directors and officers, and certain experts named herein, are residents of
Canada and all or a portion of the assets of such persons are located outside of
the United States. As a result, it may be difficult or impossible for United
States shareholders to effect service within the United States upon those
directors, officers or experts who are not residents of the United States, or to
realize in the United States upon judgments of courts of the United States
predicated upon the civil liability of such persons under the Securities Act of
1933, as amended (the "Securities Act"), or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), to the extent such judgments exceed such
person's United States assets. It is uncertain whether Canadian courts would (i)
enforce judgments of United States courts obtained against the Company or such
directors, officers or experts predicated solely upon the civil liability
provisions of United States laws or (ii) impose liability in original actions
against the Company or its directors, officers or experts predicated solely upon
United States securities laws.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (herein, together with all
amendments, exhibits and schedules thereto, referred to as the "Registration
Statement") under the Securities Act with respect to the Common Shares offered
hereby. 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 the
Company and the Common Shares, reference is made to such Registration Statement.
The Registration Statement 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. In addition, registration statements
and other filings made with the Commission through its Electronic Data
Gathering, Analysis and Retrieval ("EDGAR") system are publicly available
through the Commission's site on the Internet's World Wide Web, located at
http://www.sec.gov.

The Company is subject to the informational requirements of 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 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. The Common Shares are listed on the
American Stock Exchange (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.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996, as amended, and Quarterly Reports on Form 10-Q for the
quarters ended December 31, 1996, March 31, 1997, as amended, and June 30, 1997
and Current Reports on Form 8-K dated September 30, 1997, September 9, 1997, May
31, 1997, February 28, 1997 and October 17, 1996 are incorporated by reference
in this Prospectus and shall be deemed to be a part hereof. All documents
subsequently filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15 of
the Exchange Act, prior to the termination of the Stock Offering, are deemed to
be incorporated by reference in this Prospectus and shall be deemed to be a part
hereof from the date of filing of such documents. The Company's Application for
Registration of its Common Shares under Section 12(b) of the Exchange Act filed
on March 3, 1994 is incorporated by reference in this Prospectus and shall be
deemed to be a part hereof.

The Company 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 4317 N.E. Thurston Way,
Vancouver, Washington 98662, Attention: Chief Financial Officer. Oral requests
should be directed to such individual (telephone number (360) 254-4700).

4
<PAGE> 7

PROSPECTUS SUMMARY

The following prospectus summary is qualified in its entirety by the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless the context otherwise requires,
(i) the term "Company" means the consolidated business operations of GST
Telecommunications, Inc. ("GST") and its subsidiaries; (ii) the terms "fiscal"
and "fiscal year" refer to the Company's fiscal years, including the fiscal year
ended August 31, 1992 ("Fiscal 1992"), the fiscal year ended August 31, 1993
("Fiscal 1993"), the 13 months ended September 30, 1994 ("Fiscal 1994"), the
fiscal year ended September 30, 1995 ("Fiscal 1995"), the fiscal year ended
September 30, 1996 ("Fiscal 1996"), the fiscal year ended September 30, 1997
("Fiscal 1997") and the fiscal year ending December 31, 1998 ("Fiscal 1998");
(iii) the term "1997 Transition Period" refers to the three-month period ending
December 31, 1997; (iv) the term "year" refers to calendar year; and (v) the
information presented assumes that the U.S. Underwriters' over-allotment option
is not exercised. 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.
Certain information contained in this summary and elsewhere in this Prospectus,
including information under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and information with regard to the
Company's plans and strategy for its business and related financing, include
forward-looking statements. See "Risk Factors" for a discussion of important
factors that could cause actual results to differ materially from the
forward-looking statements.

THE COMPANY

The Company provides a broad range of integrated telecommunications
products and services, primarily to business customers located in the western
continental United States and Hawaii. As a facilities-based competitive local
exchange carrier ("CLEC"), the Company operates state-of-the-art, digital
telecommunications networks that represent an alternative to incumbent local
exchange carriers ("ILECs"). The Company's full line of products, which offer a
"one-stop" solution to customers' telecommunications services requirements,
include long distance, Internet, data transmission and private line services,
and local dial tone services, which were recently introduced. The Company's
revenues were $41.3 million for Fiscal 1996 and $74.9 million for the nine
months ended June 30, 1997.

The Company's digital networks currently serve 30 markets in Arizona,
California, Hawaii, Idaho, New Mexico, Texas and Washington. In addition, the
Company has networks under construction which, when completed, will serve 12
additional markets and expand its regional footprint to Oregon. The Company also
constructs, markets and manages longhaul fiber optic facilities, principally in
Arizona, California and Hawaii. The Company's longhaul fiber optic facilities
currently extend approximately 500 route miles and an additional 1,000 route
miles are expected to become operational over the next 12 months.

Management believes that the Company has an opportunity to leverage its
existing network infrastructure and service capabilities to provide customers
with an integrated telecommunications package. The Telecommunications Act of
1996 (the "Telecommunications Act") and state regulatory initiatives have
substantially changed the telecommunications regulatory environment in the
United States. As a result of these regulatory changes, the Company is permitted
in certain states to provide local dial tone in addition to its existing
telecommunications service offerings. In order to capitalize on these
opportunities, the Company has accelerated the development of additional
networks and longhaul fiber optic facilities within its region while
significantly expanding its product and service offerings, primarily with
respect to the provision of local services. To facilitate its entry into local
services, the Company has in service five high capacity digital switches, has
installed and is currently testing four additional high capacity digital
switches and is planning to deploy an additional five such switches through
early 1998.

TELECOMMUNICATIONS SERVICES STRATEGY

5
<PAGE> 8

Company, through its established sales channels, offers: (i) bundled local and
long distance services; (ii) flexible pricing and customized products and
services; and (iii) an enhanced level of customer service. To meet its
customers' needs, the Company offers a number of telecommunications services,
including:

Local Services. Where regulatory conditions permit, the Company offers
both switched and dedicated local service. Fixed or special access services
involve a fixed communications link, usually between an end-user and a long
distance carrier's point-of-presence ("POP"). With a switch, it is possible for
the Company to direct traffic to any end-user or long distance carrier provided
that the Company has an interconnection agreement with the connecting carriers.
As demand warrants, the Company plans to continue to install switching equipment
in its operational networks, in markets where it is constructing networks and in
certain other cities where the Company will rely on ILEC facilities for
transmission. Once a switch is operational, where regulatory conditions permit,
the Company intends to offer local dial tone, in addition to enhanced services
such as ISDN, Centrex, voice mail and other custom calling features.

Long Distance Services. The Company offers basic and enhanced long
distance services, such as toll free, calling card, prepaid calling card and
international call back services, targeting primarily business customers
purchasing between $200 and $15,000 of services per month, as well as resellers
and other carriers. The Company purchases long distance capacity under
agreements with certain major long distance carriers that provide the Company
capacity at rates that vary with the monthly traffic generated by the Company.
The Company recently expanded its long distance products and services through
the acquisition of Action Telcom Co. ("Action Telcom"), a facilities-based
provider of long distance and local services. The Company intends to continue to
pursue acquisitions of long distance carriers.

Internet Services. The Company presently offers Internet-related services
in most of its markets such as dedicated Internet services, World Wide Web
("Web") site development and hosting, provides access and upstream transport for
local Internet Service Providers ("ISPs"), electronic data interchange ("EDI")
and electronic commerce services and is in the process of developing various
Internet software applications. The Company also offers dial-up Internet
services to customers in Portland, Vancouver (Washington), the State of Hawaii
and select markets in California and intends to begin offering such services in
the Los Angeles, San Francisco and Houston metropolitan areas in the fourth
quarter of 1997. Management believes that these services will become an
important component of the Company's overall product offerings and intends to
continue to expand its Internet access and service business to other markets.

Data Services. The Company offers national and international frame relay
services on its own frame relay network and through interconnection agreements
with other data providers. Under these agreements, the Company and such data
providers have agreed to link their data networks and terminate one another's
traffic. The Company has deployed Cascade Communications frame relay switches in
21 markets in the western United States. Such switches can provide both frame
relay and Internet services. The Company plans to offer data networking services
such as asynchronous transfer mode ("ATM"), high speed LAN connectivity, video
conferencing, multimedia networking, frame relay and high capacity access to the
Internet. The Company has one ATM switch commercially operational in each of
Portland and Seattle.

The Company is expanding its telecommunications services business through
internal development and will continue to explore opportunities for further
expansion by acquisitions and joint ventures.

TELECOMMUNICATIONS NETWORK STRATEGY

The Company's network strategy is to continue to develop and expand its
network infrastructure to ultimately assemble, through a combination of owned
and leased facilities and joint ventures, an integrated regional network for the
on-net provision of CLEC services including local, long distance, Internet
access and data services. The Company will continue to focus on the western
United States in order to take advantage of its strategically advantageous
position in California and Hawaii and the substantial telecommunications traffic
that exists among the western United States, Mexico, the Pacific Rim and western
Canada. Key elements in this strategy include:

6
<PAGE> 9

Company's facilities, selected long distance carriers' POPs, the ILEC's central
offices and the market's primary business centers. In addition, the Company may
deploy network facilities in markets where it achieves a critical mass of
customers using resold or leased facilities.

Expansion. Subsequent to initial network deployment, the Company seeks to
expand its network in a geographic area to efficiently address a large number of
significant users of telecommunications services. To facilitate this expansion,
the Company has entered into strategic agreements with a number of gas and
electric utilities. These arrangements have enabled the Company to obtain access
to and use of rights-of-way, conduit and transmission and distribution
facilities in a timely and cost-effective manner.

Interconnection. Management believes that the formation of an integrated
regional network through the interconnection of the Company's individual
networks will provide significant advantages. In addition to providing the
Company with a larger addressable market, the interconnection of its networks is
expected to allow the Company to carry its intra-regional telecommunications
traffic on-net, thereby improving operating margins by reducing payments to
other carriers for use of their facilities, as well as to lease longhaul
transport capacity to others.

MANUFACTURING

The Company, through its equipment subsidiary, NACT Telecommunications,
Inc. ("NACT"), produces advanced telecommunications switching platforms with
integrated applications software and network telemanagement capabilities. NACT's
customers include long distance carriers, prepaid debit (calling) card and
prepaid cellular network operators, international callback/reorigination
providers and other specialty telecommunications service providers. NACT's
products and services include the STX application switching platform (the
"STX"), the NTS telemanagement and billing system (the "NTS") and facilities
management services. The Company acquired the stock of NACT over a 19-month
period commencing in September 1993 for aggregate consideration of approximately
$8.9 million, consisting of cash and Common Shares. In March 1997, NACT
completed an initial public offering of its common stock (the "NACT Offering"),
pursuant to which the Company and NACT sold one million and two million shares,
respectively, of NACT's common stock, resulting in gross proceeds to the Company
and NACT of $10 million and $20 million, respectively. As a result of the NACT
Offering, the Company's interest in NACT has been reduced to approximately 63%.
On September 30, 1997, the Company announced that it had retained Hambrecht &
Quist LLC to explore alternatives for monetizing its 63% interest in NACT,
including a potential sale of some or all of its shares of NACT's capital stock
to one or more strategic investors.

FINANCING PLAN

In order to continue to fund the expansion of its infrastructure, including
the development and construction of additional networks and longhaul fiber optic
facilities, the expansion of its product and service offerings, and to provide
funding for working capital and general corporate purposes, including funding
operating deficits, the Company will offer (the "Stock Offering") 7,000,000
Common Shares hereby and the Company will offer (the "Debt Offering" and
together with the Stock Offering, the "Offerings") $200.0 million principal
amount of its Senior Subordinated Accrual Notes due 2007 (the "Notes") in a
concurrent offering. The closing of the Debt Offering is conditioned upon the
closing of the Stock Offering. The closing of the Stock Offering is not
conditioned upon the closing of the Debt Offering, and there can be no assurance
that the Debt Offering will be consummated. See "Description of Certain
Indebtedness" and "Description of Capital Stock."

RISK FACTORS

See "Risk Factors" beginning on page 11 for a discussion of certain factors
relating to the Company, its business and an investment in the Common Shares.

7
<PAGE> 10

THE STOCK OFFERING

<TABLE>
<S> <C>
Common Shares offered by the Company......... 7,000,000 shares
Common Shares offered in:
U.S. Offering.............................. 5,600,000 shares
International Offering..................... 1,400,000 shares
----------
Total.............................. 7,000,000 shares
==========

Common Shares outstanding after the Stock
Offering................................... 34,627,442 shares(1)

Debt Offering................................ Concurrently with the Stock Offering, the
Company will offer $200.0 million principal
amount of its Senior Subordinated Accrual
Notes due 2007. The closing of the Debt
Offering is conditioned upon the closing of
the Stock Offering, but the closing of the
Stock Offering is not conditioned upon the
closing of the Debt Offering and there can be
no assurance that the Debt Offering will be
consummated. See "Description of Certain
Indebtedness" and "Description of Capital
Stock."

Use of Proceeds.............................. The Company intends to use the net proceeds
from the Offerings to fund capital
expenditures for the expansion of its
infrastructure, including the development and
construction of additional networks and
longhaul fiber optic facilities, to broaden
the scope of the Company's service offerings
and for working capital and other general
corporate purposes, including funding
operating deficits. See "Use of Proceeds."

AMEX Symbol.................................. GST

Toronto Stock Exchange ("TSE") and Vancouver
Stock Exchange ("VSE") Symbol.............. GTE.U
</TABLE>

- ------------

(1) Based on 27,627,442 Common Shares outstanding as of September 30, 1997 and
assumes the U.S. Underwriters' over-allotment option is not exercised. Does
not include (i) 4,003,600 Common Shares reserved for issuance upon exercise
of then outstanding options, with exercise prices ranging from $3.55 to
$10.00 per share, (ii) 1,596,155 Common Shares reserved for issuance upon
exercise of then outstanding warrants, with exercise prices ranging from
$6.75 to $13.00 per share, (iii) 3,359,782 Common Shares reserved for
issuance upon conversion of the Convertible Notes (as hereinafter defined)
(based on the aggregate accreted value of the Convertible Notes on September
30, 1997), (iv) 4,656,587 Common Shares reserved for issuance upon
conversion of the Redeemable Preferred Shares (as hereinafter defined)
(based on the aggregate accreted value of the Redeemable Preferred Shares on
September 30, 1997), (v) 221,838 Common Shares issuable to the former
shareholders of TotalNet Communications Inc. ("TotalNet") in October 1997
and (vi) a number of Common Shares with a market value of $.9 million
issuable to the former shareholders of Tri-Star Residential Communications
Corp. ("Tri-Star"). See "Capitalization," "Management," "Description of
Certain Indebtedness -- Senior Notes and Convertible Notes," "Description of
Capital Stock" and Note 6 to the Company's consolidated financial statements
included elsewhere in this Prospectus. In addition, does not include a
warrant to purchase up to 4% of the then outstanding Common Shares that may
be issued in connection with financing for Magnacom Wireless, LLC
("Magnacom"), a company controlled by John Warta, the Company's Chairman of
the Board and Chief Executive Officer. The Company has been granted an
option, subject to conditions that have not yet been met, to acquire up to
99% of the current ownership interests in Magnacom. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Certain Transactions."

8
<PAGE> 11

SUMMARY CONSOLIDATED FINANCIAL DATA

The following summary consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements and notes
thereto included elsewhere in this Prospectus. The summary consolidated
financial data for Fiscal 1994, Fiscal 1995 and Fiscal 1996 presented below were
derived from the audited consolidated financial statements of the Company. The
summary consolidated financial data for the nine months ended June 30, 1996 and
1997 presented below were derived from unaudited financial statements of the
Company, which in the opinion of the management of the Company, reflects all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of results for interim periods. Operating results for interim
periods are not necessarily indicative of results to be expected for the full
fiscal year.
<TABLE>
<CAPTION>
THIRTEEN MONTHS YEAR ENDED NINE MONTHS ENDED
ENDED SEPTEMBER 30, JUNE 30,
SEPTEMBER 30, --------------------- -----------------------------------
1994(1) 1995 1996 1996 1997
--------------- -------- --------- ----------------- --------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Telecommunication
services.............. $ 112 $ 11,118 $ 31,726 $ 19,452 $ 58,738
Telecommunication
products.............. 5,889 7,563 9,573 5,772 16,186
------- -------- --------- --------- ---------
Total revenues........ 6,001 18,681 41,299 25,224 74,924
Operating loss............. (1,337) (11,631) (42,597) (25,278) (54,683)
Other expenses (income):
Interest income.......... (254) (303) (5,549) (4,209) (3,377)
Interest expense(2)...... 27 838 21,224 14,801 21,321
Other, net............... 1,877 1,347 2,360 1,534 (6,549)
Income tax expense......... 502(3) 166(3) 157 31 843
------- -------- --------- --------- ---------
Net loss(4)................ $(3,491) $(11,315) $ (60,378) $ (37,100) $ (67,312)
======= ======== ========= ========= =========
Net loss per Common Share.. $ (.35) $ (.82) $ (3.18) $ (2.00) $ (2.87)
======= ======== ========= ========= =========
Weighted average number of
Common Shares
outstanding.............. 9,879 13,781 18,988 18,513 23,460
Ratio of earnings to fixed
charges(5)............... -- -- -- -- --

OTHER DATA:
Capital expenditures....... $ 1,486 $ 33,922 $ 97,561 $ 44,018 $ 168,441
EBITDA(6).................. (779) (8,807) (33,936) (19,620) (39,452)
Pro forma interest
expense(7)............... 71,737 55,035

AS OF JUNE 30, 1997
AS ADJUSTED
AS ADJUSTED FOR THE STOCK
FOR THE AND DEBT
ACTUAL STOCK OFFERING(8) OFFERINGS(9)
--------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments.................. $ 40,665 $ 142,259 $ 334,709
Restricted cash and investments......................... 209,174 209,174 209,174
Property and equipment.................................. 314,986 314,986 314,986
Accumulated depreciation................................ 14,630 14,630 14,630
Total assets............................................ 682,026 783,620 983,620
Current portion of long-term debt and capital lease
obligations........................................... 8,340 8,340 8,340
Long-term debt and capital lease obligations (excluding
current portion)...................................... 578,832 578,832 778,832
Redeemable Preferred Shares............................. 52,968 52,968 52,968
Common Shares and commitment to issue shares(10)........ 137,107 238,701 238,701
Accumulated deficit..................................... (143,645) (143,645) (143,645)
Shareholders' equity (deficit).......................... (6,538) 95,056 95,056
</TABLE>

(footnotes appear on following page)

9
<PAGE> 12

- ------------
(1) The Company changed its fiscal year end to September 30, effective in 1994.
As a result, amounts reported for Fiscal 1994 are for the 13 months ended
September 30, 1994. Results for Fiscal 1994 include the acquisition of 60%
of GST Telecom Inc. ("GST Telecom"), the Company's subsidiary that owned and
operated each of the Company's networks and, at various times during Fiscal
1994, an aggregate of 80% of NACT.

(2) Excludes capitalized interest of (i) $.3 million for Fiscal 1995, (ii) $2.3
million for Fiscal 1996, (iii) $1.7 million for the nine months ended June
30, 1996 and (iv) $10.4 million for the nine months ended June 30, 1997.
During the construction of the Company's networks, the interest costs
related to construction expenditures are considered to be assets qualifying
for interest capitalization under Financial Accounting Standards Board
("FASB") Statement No. 34 "Capitalization of Interest Costs."

(3) During Fiscal 1994 and the first eight months of Fiscal 1995, the Company
owned less than 80% of GST Telecom and was therefore unable to deduct for
tax purposes the losses incurred by GST Telecom.

(4) Includes minority interest in (income) loss of subsidiaries of (i) $(2,000)
for Fiscal 1994, (ii) $2.4 million for Fiscal 1995, (iii) $.4 million for
Fiscal 1996, (iv) $.3 million for the nine months ended June 30, 1996 and
(vi) $(.4) million for the nine months ended June 30, 1997.

(5) The ratio of earnings to fixed charges is computed by dividing pretax income
from continuing operations before fixed charges (other than capitalized
interest) by 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. For Fiscal
1995, Fiscal 1996 and the nine months ended June 30, 1996 and 1997, earnings
were insufficient to cover fixed charges by $13.8 million, $62.9 million,
$39.1 million and $76.5 million, respectively. On a pro forma basis giving
effect to the issuance of (i) $265.0 million principal amount of 13 1/4%
Senior Secured Notes due 2007 (the "1997 Notes") by GST Equipment Funding,
Inc. ("GST Funding"), a wholly owned subsidiary of the Company (the "1997
Notes Offering") and (ii) the Notes offered in the Debt Offering (assuming
an effective annual interest rate of 11%), the Company's earnings would have
been insufficient to cover fixed charges by $122.4 million and $116.1
million for Fiscal 1996 and the nine months ended June 30, 1997,
respectively.

(6) EBITDA consists of loss before interest, income taxes, depreciation and
amortization and other income and expense. EBITDA is provided because it is
a measure commonly used in the telecommunications industry. It is presented
to enhance an understanding of the Company's operating results and is not
intended to represent cash flow or results of operations in accordance with
generally accepted accounting principles for the periods indicated. See the
Company's consolidated financial statements and notes thereto included
elsewhere in this Prospectus.

(7) Pro forma interest expense gives effect to the issuance of the 1997 Notes
and the Notes offered in the Debt Offering (assuming an effective annual
interest rate of 11%), as if such transactions had occurred at the beginning
of the periods presented assuming 15% of the interest on the 1997 Notes and
the Notes would have been capitalized under FASB Statement No. 34
"Capitalization of Interest Costs." For each .25% change in the interest
rate on the Notes, pro forma interest expense would change by $.5 million
and $.4 million for Fiscal 1996 and the nine months ended June 30, 1997,
respectively.

(8) Adjusted to give effect to the receipt by the Company of the net proceeds
from the issuance and sale of 7,000,000 Common Shares in the Stock Offering
(at an assumed public offering price of $15 3/8 per share). See "Use of
Proceeds" and "Capitalization."

(9) Adjusted to give effect to the receipt by the Company of the net proceeds
from the issuance and sale of (i) 7,000,000 Common Shares in the Stock
Offering (at an assumed public offering price of $15 3/8 per share) and (ii)
$200.0 million principal amount of the Notes in the Debt Offering. See "Use
of Proceeds" and "Capitalization."

(10) At June 30, 1997, the Company was committed to issue: (i) 221,838 Common
Shares to the former shareholders of TotalNet in October 1997 and (ii) a
number of Common Shares with a market value of $1.2 million based on the
then market value of the Common Shares and payable at various times in
Fiscal 1997 (29,160 Common Shares were issued on September 19, 1997) and
Fiscal 1998, to the former shareholders of Tri-Star.

10
<PAGE> 13

RISK FACTORS

An investment in the Common Shares offered hereby involves a high degree of
risk. The following risk factors, together with the other information set forth
in this Prospectus, should be considered when evaluating such an investment.

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 continues to expand its business
and build 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 any of its services. The Company had a net loss of
approximately $60.4 million, an operating loss of approximately $42.6 million
and negative EBITDA of $33.9 million for Fiscal 1996 and a net loss of
approximately $67.3 million, an operating loss of approximately $54.7 million
and negative EBITDA of $39.5 million for the nine months ended June 30, 1997.
There can be no assurance that the Company will achieve or sustain profitability
or generate positive EBITDA. In addition, the Company has announced its
intention to explore alternatives for monetizing its 63% interest in NACT.
Without NACT, the Company would have had a net loss of $60.6 million and
negative EBITDA of $35.0 million for Fiscal 1996 and a net loss of $70.4 million
and negative EBITDA of $44.5 million for the nine months ended June 30, 1997.
EBITDA consists of loss before interest, income taxes, depreciation and
amortization and other income and expenses. EBITDA is provided because it is a
measure commonly used in the telecommunications industry. It is presented to
enhance an understanding of the Company's operating results and is not intended
to represent cash flow or results operations in accordance with generally
accepted accounting principles for the periods indicated. See "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

At September 30, 1996, the Company had a U.S. net operating loss
carryforward of approximately $45.0 million and a Canadian net operating loss
carryforward of approximately Cdn. $6.8 million. While such loss carryforwards
are available to offset future taxable income of the Company, the Company does
not expect to generate sufficient taxable income so as to utilize all or a
substantial portion of such loss carryforwards prior to their expiration.
Further, the utilization of net operating loss carryforwards against future
taxable income is subject to limitation if the Company experiences an "ownership
change" as defined in Section 382 of the Internal Revenue Code of 1986, as
amended (the "Code"), and the analogous provision of the Income Tax Act (Canada)
(the "Canada Act").

DEVELOPMENT AND EXPANSION RISK AND POSSIBLE INABILITY TO MANAGE GROWTH

The Company is in the early stages of its operations. Certain of its
networks have only recently become commercially operational and the Company has
only recently begun to deploy switches in its networks. The success of the
Company 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,
building access and governmental permits, implement expanded interconnection and
collocation with facilities owned by ILECs and achieve a sufficient customer
base, and upon subsequent developments 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
has involved and is expected to continue to involve acquisitions, which could
divert the resources and management time of the Company and require integration
with the Company's existing operations. There can be no assurance that any
acquired business will be successfully integrated into the Company's operations
or that any such business will meet the Company's expectations. 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, to expand, train and manage its
employee base and to effectively manage the integration of acquired businesses.
These factors and others could adversely affect the expansion of the Company's
customer base and service offerings. The Company's inability either to expand in
accordance with

11
<PAGE> 14

its plans or to manage its growth could have a material adverse effect on its
business, financial condition and results of operations. See "Business."

SIGNIFICANT CAPITAL REQUIREMENTS

The Company estimates that its capital expenditures will be approximately
$286.0 million from October 1, 1997 through December 31, 1998. The Company
believes that the net proceeds of the Offerings, together with cash on hand,
including the remaining proceeds from the 1997 Notes Offering (which, other than
the amount pledged to fund the first six interest payments on the 1997 Notes,
will be used to purchase equipment) and borrowings expected to be available
under a credit facility (the "Tomen Facility") with Tomen America, Inc. and its
affiliates ("Tomen") and equipment financing agreements with Siemens Telecom
Networks ("Siemens") and NTFC Capital Corp. ("NTFC"), will provide sufficient
funds for the Company to expand its business as presently planned and to fund
its operating expenses through December 2000 (June 1999, if the Debt Offering is
not consummated). Thereafter, the Company expects to require additional
financing. In the event that the Company's plans or assumptions change or prove
to be inaccurate, or the foregoing sources of funds prove to be insufficient to
fund the Company's growth and operations, or if the Company consummates
acquisitions, the Company may be required to seek additional capital (or seek
additional capital sooner than currently anticipated). Sources of financing may
include public or private debt or equity financing by the Company or its
subsidiaries, sales of assets or other financing arrangements. There can be no
assurance that such additional financing would be available to the Company or,
if available, that it could be obtained on acceptable terms or within the
limitations contained in the Company's financing arrangements. Failure to obtain
such financing could result in the delay or abandonment of some or all of the
Company's development and expansion plans and expenditures and could have a
material adverse effect on the Company. Such failure could also limit the
ability of the Company to make principal and interest payments on its
outstanding indebtedness. The Company has no material 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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

SUBSTANTIAL INDEBTEDNESS

At September 30, 1997, after giving effect to the Offerings, the Company
would have had outstanding on a pro forma basis approximately $832.2 million of
indebtedness. In addition, the accretion of original issue discount will cause a
$122.8 million increase in liabilities by December 15, 2000 relating to the
13 7/8% Senior Discount Notes due 2005 of GST USA (the "Senior Notes") and the
13 7/8% Convertible Senior Subordinated Discount Notes due 2005 of GST (the
"Convertible Notes" and together with the Senior Notes, the "1995 Notes") sold
in December 1995 and a $141.6 million increase in liabilities relating to the
Notes by , 2002. The indentures relating to the 1995 Notes (the "1995
Indentures"), the indenture relating to the 1997 Notes (the "1997 Indenture")
and the indenture relating to the Notes (the "Indenture" and together with the
1995 Indentures and the 1997 Indenture, the "Indentures") limit, but do not
prohibit, the incurrence of additional indebtedness by the Company. At September
30, 1997, the Company had $25.0 million of availability under the Tomen Facility
to finance the development and construction of additional networks, if and to
the extent that proposals for funding projects are approved by Tomen. The
Company expects to incur substantial additional indebtedness in the future. The
Company has entered into an agreement with Siemens (the "Siemens Loan
Agreement") that provides for up to an aggregate of $226.0 million in equipment
financing, of which $116.0 million is presently available to the Company (and of
which $5.8 million had been provided at September 30, 1997). The Company may
seek to increase the amount available up to $226.0 million on an as-needed
basis, subject to the negotiation and execution of mutually satisfactory
documentation. The Company also entered into an agreement with NTFC (the "NTFC
Loan Agreement") for up to $50.0 million of additional equipment financing (of
which $44.6 million had been provided at September 30, 1997). There can be no
assurance that any additional financing will be available to the Company on
acceptable terms or at all. See "Description of Certain Indebtedness."

12
<PAGE> 15

The level of the Company's indebtedness could have important consequences
to its future prospects, including the following: (i) limiting the ability of
the Company to obtain any necessary financing in the future for working capital,
capital expenditures, debt service requirements or other purposes; (ii)
requiring that a substantial portion of the Company's cash flow from operations,
if any, be dedicated to the payment of principal of and interest on its
indebtedness and other obligations; (iii) limiting its flexibility in planning
for, or reacting to changes in, its business; (iv) the Company will be more
highly leveraged than some of its competitors, which may place it at a
competitive disadvantage; and (v) increasing its vulnerability in the event of a
downturn in its business. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

POSSIBLE INABILITY TO SERVICE DEBT

In connection with the buildout of its networks and expansion of CLEC
services, the Company has been experiencing increasing negative EBITDA. The
Company's earnings before fixed charges were insufficient to cover fixed charges
for the nine months ended June 30, 1997, Fiscal 1996 and Fiscal 1995 by $76.5
million, $62.9 million and $13.8 million, respectively, and the Company's EBITDA
minus capital expenditures and interest expense for the nine months ended June
30, 1997 and Fiscal 1996 was negative $229.2 million and negative $152.7
million, respectively. On a pro forma basis after giving effect to the 1997
Notes Offering and the Offerings, the Company's earnings before fixed charges
would have been insufficient to cover fixed charges for the nine months ended
June 30, 1997 and Fiscal 1996 by $116.1 million and $122.4 million,
respectively, and EBITDA minus capital expenditures and interest expense would
have been $262.9 million and $203.2 million, respectively for such periods. In
addition, in the event the Company had monetized its investment in NACT the
Company's earnings before fixed charges would have been insufficient to cover
fixed charges for the nine months ended June 30, 1997 and Fiscal 1996 by $120.6
million and $122.7 million, respectively and its EBITDA minus capital
expenditures and interest expense would have been $263.5 million and $204.0
million, respectively, for such periods. There can be no assurance that the
Company will be able to improve its earnings before fixed charges or EBITDA or
that it 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. In addition, the Company anticipates that cash flow from operations
will be insufficient to repay the 1995 Notes, the 1997 Notes and the Notes at
maturity and that such indebtedness will need to be refinanced. There can be no
assurance that the Company will be able to effect such refinancings. The ability
of the Company to meet its obligations and to 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 which would permit the holders of substantially all of the
Company's indebtedness to accelerate the maturity thereof. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Description of Certain Indebtedness."

FINANCIAL AND OPERATING RESTRICTIONS IMPOSED BY EXISTING INDEBTEDNESS

The Company's financing arrangements 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 to create liens on its assets, 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 such indebtedness. See "Description of Certain
Indebtedness."

DIFFICULTIES IN IMPLEMENTING LOCAL AND ENHANCED SERVICES

The Company has begun, and plans to continue, to deploy high capacity
digital switches in the cities in which it operates or plans to operate
networks, as well as in certain cities where the Company will rely on ILEC
facilities for transmission. This will enable the Company to offer a variety of
switched access services, enhanced services and local dial tone. The Company
expects negative EBITDA from its switched services during the 24 to 36 month
period after a switch is deployed. For switches operating in conjunction with
the

13
<PAGE> 16

Company's networks, the Company expects operating margins to improve as the
network is expanded and larger volumes of traffic are carried on the Company's
network. For switches operating in cities where the Company will rely on ILEC
facilities for transmission, the Company will experience lower or negative
operating margins under current ILEC pricing tariffs. Although under the
Telecommunications Act, the ILECs will be required to unbundle local tariffs and
to permit the Company to purchase only the origination and termination services
it needs, thereby decreasing operating expenses, there can be no assurance that
such unbundling will be effected in a timely manner and result in prices
favorable to the Company. In addition, the Company's ability to successfully
implement its switched and enhanced services will require the negotiation of
resale agreements with ILECs and other CLECs and the negotiation of
interconnection agreements with ILECs, which can take considerable time, effort
and expense.

In August 1996, the FCC released a decision implementing the
interconnection portions of the Telecommunications Act (the "Interconnection
Decision"). The Interconnection Decision establishes rules for negotiating
interconnection agreements and guidelines for review of such agreements by state
public utilities commissions. On July 18, 1997, the United States Court of
Appeals for the Eighth Circuit (the "Eighth Circuit") vacated certain portions
of the Interconnection Decision, including provisions establishing a pricing
methodology for unbundled elements and a procedure permitting new entrants to
"pick and choose" among various provisions of existing interconnection
agreements between ILECs and their competitors. On October 14, 1997, the Eighth
Circuit issued a decision vacating additional FCC rules that will likely have
the effect of increasing the cost of obtaining the use of combinations of an
ILEC's unbundled network elements. The Eighth Circuit decision creates
uncertainty about the rules governing pricing, terms and conditions of
interconnection agreements, and could make negotiating and enforcing such
agreements more difficult and protracted and may require renegotiation of
existing agreements. The Company had negotiated a number of interconnection
agreements with ILECs prior to the Eighth Circuit decision. There can be no
assurance that the Company will be able to obtain additional interconnection
agreements on terms acceptable to the Company. The FCC has announced that it
will seek a writ of certiorari from the Supreme Court to review the Eighth
Circuit decision. See "-- Competition." Many new carriers, including the
Company, have experienced certain difficulties with respect to provisioning,
interconnection and the operational support systems used by new carriers to
order and receive network elements and wholesale services from the ILECs. These
systems are necessary for new carriers such as the Company to provide local
service to customers on a timely and competitive basis. The FCC has recently
created a task force to examine problems that have slowed the development of
local telephone competition. In addition, the Telecommunications Act creates
incentives for RBOCs to permit access to their facilities by denying such
carriers the ability to provide long distance services until there is adequate
competition at the local level. Certain of the ILECs in the Company's markets
are not yet permitted to offer long distance services and there can be no
assurance that these ILECs will be accommodating to the Company once they are
permitted to offer long distance service. Should the Company be unable to obtain
the cooperation of an ILEC in a region, whether or not such ILEC has been
authorized to offer long distance service, the Company's ability to offer local
services in such region on a timely and cost-effective basis would be adversely
affected.

The Company is a recent entrant into the newly created competitive local
telecommunications services industry. The local dial tone services market in
most states was only recently opened to competition due to the passage of the
Telecommunications Act and related regulatory rulings. There are numerous
operating complexities associated with providing these services. The Company
will be required to develop new products, services and systems and will need to
develop new marketing initiatives to sell these services.

The Company's switched services may not be profitable due to, among other
factors, lack of customer demand, inability to secure access to ILEC facilities
at acceptable rates, competition from other CLECs and pricing pressure from the
ILECs. The Company has very limited experience providing switched access and
local dial tone services and there can be no assurance that the Company will be
able to successfully implement its switched and enhanced services strategy. See
"Business -- Telecommunications Services Strategy."

Implementation of the Company's switched and enhanced services is also
subject to the Company's ability to obtain equipment financing for switches and
upon equipment manufacturers' ability to meet the Company's switch deployment
schedule. There can be no assurance that switches will be deployed on the
schedule contemplated by the Company or that, if deployed, such switches will be
utilized to the degree contemplated by the Company.

14
<PAGE> 17

RECENT COMMENCEMENT OF INTEGRATED MARKETING EFFORT

The Company has only recently begun an integrated marketing effort of its
telecommunication service offerings. Historically, the Company has marketed its
access services primarily to long distance carriers and significant end-users of
telecommunications services, and its long distance services to small businesses
and consumers. Although the Company expects to market a variety of
telecommunications services to all of its customers, there can be no assurance
that the Company will be able to attract and retain new customers or retain and
sell additional services to existing customers.

DEPENDENCE ON KEY CUSTOMERS

The Company's five largest telecommunications services customers accounted
for approximately 22.0%, 46.9% and 26.8% of the Company's consolidated
telecommunications services revenues for the nine months ended June 30, 1997,
Fiscal 1996 and Fiscal 1995, respectively. It is anticipated that during the
early stages of development of individual networks, before obtaining a
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 local
revenues. While long distance carriers have high volume requirements and have
utilized CLECs, they generally are more price sensitive than end-users. The five
largest customers of the Company's manufacturing operations accounted for 28.4%,
13.4% and 16.1% of the Company's consolidated product revenues for the nine
months ended June 30, 1997, Fiscal 1996 and Fiscal 1995 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

RISKS RELATING TO LONG DISTANCE BUSINESS

For Fiscal 1996 and the nine months ended June 30, 1997, long distance
represented 56.0% and 60.0% of the Company's consolidated telecommunications
services revenues, respectively. The long distance business is extremely
competitive and prices have declined substantially in recent years and are
expected to continue to decline. In addition, the long distance industry has
historically had 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. See "-- Competition." The Company relies on other
carriers to provide transmission and termination services for a majority of its
long distance traffic. The Company has resale agreements with long distance
carriers to provide it with transmission services. Such agreements typically
provide for the resale of long distance services on a per minute basis with
minimum volume commitments. Negotiation of these agreements involves estimates
of future supply and demand for transmission capacity as well as estimates of
the calling pattern and traffic levels of the Company's future customers. In the
event the Company fails to meet its minimum volume commitments, it may be
obligated to pay underutilization charges and in the event it underestimates its
need for transmission capacity, the Company may be required to obtain capacity
through more expensive means. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."

DEPENDENCE ON BILLING, CUSTOMER SERVICES AND INFORMATION SYSTEMS

Sophisticated information and processing systems are vital to the Company's
growth and its ability to monitor costs, bill customers, provision customer
orders and achieve operating efficiencies. Billing and information systems for
the Company's historical lines of business have been produced largely in-house
with partial reliance on third-party vendors. These systems have generally met
the Company's needs due in part to the low volume of customer billing. As the
Company transitions to the provisioning of local services and as its long
distance and Internet operations continue to expand, the need for sophisticated
billing and information systems will increase significantly. The Company's plans
for the development and implementation of its billing systems rely, for the most
part, on the delivery of products and services by third party vendors.
Similarly, the Company is developing customer call centers to provision service
orders. Information systems are vital to the success of the call centers, and
the information systems for these call centers are largely being developed by
third party vendors. Failure of these vendors to deliver proposed products and
services in a timely and effective manner and at acceptable costs, failure of
the Company to adequately identify all of its information and

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<PAGE> 18

processing needs, failure of the Company's related processing or information
systems, or the failure of the Company to upgrade systems as necessary could
have a material adverse effect on the ability of the Company to reach its
objectives, its financial condition and its results of operations.

COMPETITION

The telecommunications industry is highly competitive. In most markets, the
Company's principal competitor for local exchange services is the Regional Bell
Operating Company ("RBOC") or GTE Corporation and its affiliated companies
(collectively, the "GTE Companies"). Other competitors may include other CLECs,
microwave and satellite carriers, wireless telecommunications providers and
private networks built by large end-users. Potential competitors (using similar
or different technologies) include cable television companies, utilities and
RBOCs 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 begun to offer integrated local and long distance
telecommunications services. AT&T also has announced its intention to offer
local services using a new wireless technology. 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. In addition, a
continuing trend toward business combinations and strategic alliances in the
telecommunications industry may further enhance competition. For example,
WorldCom Inc. ("WorldCom") acquired MFS Communications Company, Inc. ("MFS") and
recently announced that it entered into an agreement to acquire Brooks Fiber
Properties Inc. ("Brooks"), each of which compete with the Company in several of
the markets in which the Company operates. The Company cannot determine what
effect such acquisitions will have on the Company's business, financial
condition and results of operations.

As a recent entrant in the integrated telecommunications services industry,
the Company has not achieved and does not expect to achieve a significant market
share for any of its services. In particular, the RBOCs, the GTE Companies and
other local telephone companies have long-standing relationships with their
customers, have financial, technical and marketing resources substantially
greater than those of the Company, have the potential to subsidize competitive
services with revenues from a variety of businesses and currently benefit from
certain existing regulations that favor the ILECs over the Company in certain
respects. While recent regulatory initiatives, which allow CLECs such as the
Company to interconnect with ILEC 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 ILECs.

To the extent the Company interconnects with and uses ILEC networks to
service its customers, the Company will be dependent upon the technology and
capabilities of the ILECs to meet certain telecommunications needs of the
Company's customers and to maintain its service standards. The Company will
become increasingly dependent on interconnection with ILECs as switched services
become a greater percentage of the Company's business. The Telecommunications
Act imposes interconnection obligations on ILECs, but there can be no assurance
that the Company will be able to obtain the interconnection it requires at
rates, and on terms and conditions, that permit the Company to offer switched
services at rates that are simultaneously competitive and profitable. See
"-- Difficulties in Implementing Local and Enhanced Services." In the event that
the Company experiences difficulties in obtaining high quality, reliable and
reasonably priced service from the ILECs, the attractiveness of the Company's
services to its customers could be impaired.

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<PAGE> 19

Communications Corporation ("SBC") has challenged the constitutionality of the
provisions conditioning RBOC entry into in-region long distance service. See
"Business -- Regulation." As a result of the Company's acquisition of Action
Telcom, Call America Business Communications Corp. and certain of its affiliated
companies (collectively, "GST Call America"), TotalNet and the business of
Texas-Ohio Communications, Inc. and affiliated companies (collectively,
"Texas-Ohio"), the Company's long distance operations will account for a
significant portion of the Company's revenues. See "-- Risks Relating to Long
Distance Business." 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. To maintain its competitive
posture, the Company believes that it must be in a position to reduce its prices
in order to meet reductions in rates, if any, by others. Any such reductions
could adversely affect the Company.

The Internet services market is highly competitive. There are no
substantial barriers to entry, and the Company expects that competition will
continue to intensify. The Company's competitors in this market include Internet
service providers, other telecommunications companies, online services providers
and Internet software providers. Many of these competitors have greater
financial, technological and marketing resources than those available to the
Company.

The market for telecommunications products is highly competitive and
subject to rapid technological change. NACT expects competition to increase in
the future from existing competitors in the distributed switching systems market
and from other companies that may enter NACT's existing or future markets,
including major central office switch vendors. NACT currently competes with a
number of lower capacity switch manufacturers such as Communications Product
Development, Inc. ("CPDI"), Integrated Telephony Products, Inc. ("ITP") and PCS
Telecom, Inc. ("PCS Telecom"). NACT also competes with providers of open
architecture (programmable) hardware switching platforms that are enhanced by
applications providers and value added resellers. Such competitors include
Excel, Inc. ("Excel"), which has agreements with software application providers.
As NACT's business develops and it seeks to market its switches to a broader
customer base, NACT's competitors may include larger switch and
telecommunications equipment manufacturers such as Lucent Technologies Inc.,
Harris Corporation, Siemens AG, Alcatel Alsthom, Telefonaktiebolaget, L.M.
Ericsson and Northern Telecom, Ltd. Many of NACT's current and potential
competitors have substantially greater financial, technical and marketing
resources than NACT. Increased competition could materially and adversely affect
NACT's business, financial condition and results of operations through price
reductions and loss of market share. There can be no assurance that NACT will be
able to continue to compete successfully with its existing competitors or that
it will be able to compete successfully with new competitors.

The recent World Trade Organization ("WTO") agreement on basic
telecommunications services could increase the Company's competition for
telecommunication services both domestically and internationally. Under this
agreement, the United States and other members of the WTO committed themselves
to opening their telecommunications markets to competition and foreign ownership
and to adopting regulatory measures to protect competitors against
anticompetitive behavior by dominant telephone companies, effective in some
cases as early as January 1, 1998. See "Business -- Competition" and
"-- Regulation."

GOVERNMENT REGULATION

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. 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. The FCC exercises jurisdiction over the Company with
respect to interstate and international services. Additionally, the Company
files tariffs with the FCC. On October 29, 1996, the FCC approved an order that
eliminates the tariff filing requirements for interstate domestic long distance
service provided by non-dominant carriers such as the Company. On February 13,
1997, the United States Court of Appeals for the District of Columbia Circuit
stayed the FCC order. In addition, the Company must obtain prior FCC
authorization for installation and operation of international facilities and
international long distance services. State regulatory commissions exercise
jurisdiction over the Company to the extent it provides intrastate

17
<PAGE> 20

services. As such a provider, the Company is required to obtain regulatory
authorization and/or file tariffs at state agencies in most of the states in
which it operates. Local authorities regulate the Company's access to municipal
rights-of-way. 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. See "Business -- Regulation." There can be no assurance
that the FCC or state commissions will grant required authority or refrain from
taking action against the Company if it is 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.

The Telecommunications Act provides for a significant deregulation of the
domestic telecommunications industry, including the local exchange, long
distance and cable television industries. The Telecommunications Act remains
subject to judicial review and additional FCC rulemaking, and thus it is
difficult to predict what effect the legislation will have on the Company and
its operations. There are currently many regulatory actions underway and being
contemplated by federal and state authorities regarding interconnection pricing
and other issues that could result in significant changes to the business
conditions in the telecommunications industry. There can be no assurance that
these changes will not have a material adverse effect upon the Company.

In addition to requirements placed on ILECs, the Telecommunications Act
subjects the Company to certain federal regulatory requirements upon the
Company's provision of local exchange service in a market. All ILECs and CLECs
must interconnect with other carriers, provide nondiscriminatory access to
rights-of-way, offer reciprocal compensation for termination of traffic and
provide dialing parity and telephone number portability. The Telecommunications
Act also requires all telecommunications carriers to ensure that their services
are accessible to and usable by persons with disabilities.

On May 8, 1997, the FCC released an order establishing a significantly
expanded federal telecommunications subsidy regime. For example, the FCC
established new subsidies for services provided to qualifying schools and
libraries with an annual cap of $2.25 billion and for services provided to rural
health care providers with an annual cap of $400 million. The FCC also expanded
the federal subsidies to low-income consumers. Providers of interstate
telecommunications service, such as the Company, as well as certain other
entities, must pay for these programs. The Company's share of these federal
subsidy funds will be based on its share of certain defined telecommunications
end-user revenues. Although the FCC order describes a method for determining the
amount the Company must contribute to support these subsidies, the Company is
currently unable to quantify the amount of these payments that it will be
required to make and the effect that these required payments will have on its
financial condition. In the May 8th order, the FCC also announced that it will
soon revise its rules for subsidizing service provided to consumers in high cost
areas. Several parties have appealed the May 8th order. Such appeals have been
consolidated and transferred to the United States Court of Appeals for the Fifth
Circuit where they are currently pending. In addition, on July 3, 1997, several
ILECs filed a petition for stay of the May 8th order with the FCC. That petition
is pending.

In a combined Report and Order and Notice of Proposed Rulemaking released
on December 24, 1996, the FCC made changes and proposed further changes in the
interstate access charge structure. In the Report and Order, the FCC removed
restrictions on ILECs' ability to lower access prices and relaxed the regulation
of new switched access services in those markets where there are other providers
of access services. If this increased pricing flexibility is not effectively
monitored by federal regulators, it could have a material adverse effect on the
Company's ability to compete in providing interstate access services. On May 16,
1997, the FCC released an order revising its access charge rate structure. The
new rules substantially increase the costs that ILECs subject to the FCC's price
cap rules ("price cap LECs") recover through monthly, non-traffic sensitive
access charges and substantially decrease the costs that price cap LECs recover
through traffic sensitive access charges. In the May 16th order, the FCC also
announced its plan to bring interstate access rate levels more in line with
cost. The plan will include rules that are expected to be established sometime
in 1997 that grant price cap LECs increased pricing flexibility upon
demonstrations of increased competition (or potential competition) in relevant
markets. The manner in which the FCC implements this approach to lowering access
charge levels could have a material effect on the Company's ability to compete
in providing

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<PAGE> 21

interstate access services. Several parties have appealed the May 16th order.
Those appeals have been consolidated and transferred to the United States Court
of Appeals for the Eight Circuit where they are currently pending.

In addition, federal regulations impose restrictions on foreign ownership
of communications service providers utilizing radio frequencies, including
microwave radio facilities, and cellular and personal communication service
("PCS") facilities. The operations of GST Telecom Hawaii, Inc. ("GST Hawaii"), a
wholly-owned subsidiary of GST that conducts the Company's business in Hawaii,
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 Chairman of the Board and Chief
Executive Officer. The FCC also has the authority, which it is not presently
exercising, to impose restrictions on foreign ownership of communications
service providers not utilizing radio frequencies. In the event the FCC
exercises such authority, it could have a material adverse effect on the
Company's CLEC and other businesses. See "Business -- Regulation."

NEED TO ADAPT 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 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, evolving industry standards within the
telecommunications industry and changing customer requirements in a
cost-effective manner. There can be no assurance that NACT's products will not
be rendered obsolete by other telecommunications products incorporating
technological advances designed by competitors that NACT is unable to
incorporate into its products in a timely manner.

LITIGATION RISKS

The Company is involved in various legal proceedings. An action was
commenced against NACT alleging that its telephone systems incorporating prepaid
debit card features infringe upon a patent issued in 1987. GST and GST USA were
added as defendants to such action in August 1997. An unfavorable decision in
such action could have a material adverse effect on the Company. Other legal
proceedings that the Company is a party to may have an adverse effect on the
Company. See "Business -- Legal Proceedings."

POSSIBLE INABILITY TO RECOVER PAYMENTS MADE TO MAGNACOM

Magnacom, a company 99% owned by PNI, which is in turn controlled by John
Warta, the Company's Chairman of the Board and Chief Executive Officer, was
awarded various PCS licenses. Magnacom holds 30 MHz (C Block) PCS licenses for
11 markets in Arizona, Arkansas, New Mexico, Oregon and Utah. Magnacom won 10
MHz licenses in the FCC's F Block in 13 markets in Hawaii, Idaho, Oregon and
Washington in an FCC auction. Such licenses have not yet been issued because
Magnacom submitted the down payment late and is waiting for the FCC to rule on
Magnacom's request for a waiver of the down payment deadline.

Magnacom and the Company have entered into a 12-year reseller agreement
(the "Magnacom Reseller Agreement") pursuant to which (i) the Company has been
designated a non-exclusive reseller of PCS telephone services in the markets in
which Magnacom has obtained licenses, and (ii) Magnacom has agreed to use the
Company on an exclusive basis to provide switched local and long distance
services and other enhanced telecommunications services, to all of Magnacom's
resellers in markets where the Company has operational networks. Magnacom agreed
to sell PCS minutes to the Company at $.05 per minute, subject to downward
adjustment to equal the most favorable rates offered to Magnacom's other
resellers (but in no event less than Magnacom's cost). In connection with the
Magnacom Reseller Agreement, as of September 30, 1997, the Company had paid
Magnacom approximately $14.0 million as prepayments for future PCS services.

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<PAGE> 22

In addition, the Company has been granted a conditional option to acquire
up to PNI's entire interest in Magnacom (currently 99%), conditioned upon
Magnacom and the Company entering into an agreement for the construction and/or
operation of Magnacom's facilities. If and when the condition precedent is met,
the exercise of the option will be subject to compliance with all applicable FCC
regulations relating to prior approval of any transfer of control of PCS
licenses, including those relating to foreign ownership or control. Accordingly,
until such time as FCC regulations or administrative action permit the ownership
by foreign nationals of more than 25% of a company that controls another company
holding a radio license, the option by its terms is limited to a 24% interest in
Magnacom.

In February 1997, an affiliate of Magnacom, Guam Net, Inc. ("Guam Net"),
acquired from Poka Lambro Telephone Cooperative, Inc. a 30 MHz (A Block) PCS
license from the FCC in the market consisting of Guam and the Northern Marianas
Islands. Concurrently, the Company entered into a reseller agreement on terms
substantially similar to the Magnacom Reseller Agreement and paid Guam Net $.4
million as a prepayment for future PCS services.

In addition, the Company may issue a warrant to purchase up to 4% of the
then outstanding Common Shares in connection with financing for Magnacom. If
such warrant is issued, the Company will record a one-time noncash charge in an
amount equal to the value of the warrant. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Certain
Transactions."

The provision of wireless telecommunications service by Magnacom and Guam
Net will be dependent upon their ability to obtain the financing necessary to
make payments to the FCC under the terms of their licenses, to obtain working
capital and to build the required facilities, including the purchase of
telecommunications equipment. There can be no assurance that Magnacom or Guam
Net will obtain such financing or be able to provide PCS services. In such
event, the Company would likely be unable to recover its payments to Magnacom
and Guam Net. See "Certain Transactions."

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.

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. See
"Business -- Legal Proceedings" and "-- Regulation."

DILUTION

Investors in the Common Shares offered hereby will experience an immediate
and substantial dilution in the net tangible book value of the Common Shares.
See "Dilution."

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.

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<PAGE> 23

RISK OF JOINT INVESTMENTS

The Company has invested in one joint venture and may enter into additional
joint ventures in the future. There are risks in participating in joint
ventures, including the risk that the other joint venture partners 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 joint venture and that the Company may be required to fulfill some or all of
those obligations. In addition, to the extent that the Company participates in
international joint ventures, the operations of such ventures will be subject to
various additional risks not present in domestic joint ventures, such as
fluctuations in currency exchange rates, nationalization or expropriation of
assets, import/export controls, political instability, limitations on foreign
investment, restrictions on the ability to convert currencies and the additional
expenses and risks inherent in conducting operations in geographically distant
locations with customers speaking different languages and having different
cultural approaches to the conduct of business.

At September 30, 1997, the Company had invested approximately $3.7 million
in a publicly-traded Canadian corporation (subsequently renamed GST Global
Telecommunications Inc., "Global") and held approximately 3.6 million shares and
warrants to purchase 750,000 additional shares. On September 30, 1997, Global
had approximately 14.1 million shares outstanding. Global is to issue to the
Company additional common shares of Global, subject to approval of the VSE, in
consideration for the transfer by the Company to Global of its rights in and to
a telecommunications project in Mexico (the "Bestel Project"). Global has also
acquired from Cable and Wireless, Inc. ("Cable and Wireless") an 80% interest in
Vitacom Corporation ("Vitacom"). Vitacom provides voice, high speed data
information and other services and manufactures and sells VSATs (very small
aperture satellite terminals) and other equipment used to access the Internet.
See "Business -- GST Global Telecommunications Inc."

RISKS OF INVESTMENT IN A CANADIAN CORPORATION

The Company is a Canadian corporation. Certain directors and officers and
certain of the Company's professionals are residents of Canada. As a result, it
may be difficult to effect service of process within the United States upon such
directors, officers and professionals or to collect judgments of U.S. courts
predicated upon civil liability under U.S. federal securities and other laws. It
is uncertain whether Canadian courts would (i) enforce judgments of U.S. courts
obtained against the Company or such directors, officers and professionals
predicated upon the civil liabilities provisions of U.S. laws or (ii) impose
liabilities in original actions against the Company or its directors, officers
and professionals predicated solely upon U.S. laws. In addition, the Company's
status as a Canadian company limits the ability of the Company to hold or
control radio frequency licenses in the United States.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Stock Offering, the Company will have outstanding
34,627,442 Common Shares (based upon the number of shares outstanding at
September 30, 1997 and assuming no exercise of the U.S. Underwriters'
over-allotment option). Of these shares, the 7,000,000 Common Shares sold in the
Stock Offering and an additional 22,083,030 Common Shares will be freely
tradeable, except for any Common Shares held by "affiliates" of the Company
within the meaning of Rule 144 under the Securities Act, which shares will be
subject to the resale limitations of Rule 144. The remaining 5,544,412 Common
Shares will be "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. In addition, at September 30, 1997, (i) 4,003,600 Common Shares were
reserved for issuance upon exercise of outstanding stock options at prices
ranging from $3.55 to $10.00 per share, (ii) 1,596,155 Common Shares were
reserved for issuance upon exercise of outstanding warrants at exercise prices
ranging from $6.75 to $13.00 per share, (iii) 3,359,782 Common Shares were
reserved for issuance upon conversion of the Convertible Notes (based on the
aggregate accreted value of Convertible Notes on September 30, 1997) and (iv)
4,656,587 Common Shares were reserved for issuance upon conversion of the
Redeemable Preferred Shares (based on the aggregate accreted value of the
Redeemable Preferred Shares on September 30, 1997). The Company has registered
the resale of the Common Shares issuable upon exercise

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<PAGE> 24

of the options and warrants and the Common Shares issuable upon conversion of
the Convertible Notes. Each of the Company and its directors and executive
officers has agreed that, subject to certain exceptions, without the prior
written consent of Morgan Stanley & Co. Incorporated ("Morgan Stanley"), it will
not, during the period ending 120 days after the date of this Prospectus, offer,
pledge, sell, contract to sell or otherwise transfer, lend or dispose of,
directly or indirectly, any Common Shares or any securities convertible into or
exercisable or exchangeable for Common Shares. The future sale or the
expectation of future sales of Common Shares in the public market could
adversely affect the prevailing market prices for the Common Shares and could
impair the Company's ability to raise capital through the sale of Common Shares.
See "Shares Eligible for Future Sale" and "Underwriters."

POTENTIAL ANTI-TAKEOVER PROVISIONS

The Company's Board of Directors has the authority, without any further
vote or action by the Company's shareholders, to issue up to 9,999,500
Preference Shares, without par value (the "Preference Shares"), in one or more
series and to determine the designations, powers, preferences and relative,
participating, optional or other rights thereof, including without limitation,
the dividend rate (and whether dividends are cumulative), conversion rights,
voting rights, rights and terms of redemption, redemption price and liquidation
preference. Although the Company has no current plans to issue any Preference
Shares, the rights of the holders of Common Shares would be subject to, and may
be adversely affected by, the rights of the holders of any Preference Shares
that may be issued in the future. Issuance of Preference Shares could have the
effect of delaying, deterring or preventing a change in control of the Company,
including the imposition of various procedural and other requirements that could
make it more difficult for holders of Common Shares to effect certain corporate
actions, including the ability to replace incumbent directors and to accomplish
transactions opposed by the incumbent Board of Directors. See "Description of
Capital Stock -- Preference Shares."

FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

This Prospectus contains forward-looking statements, including statements
regarding the Company's expected financial position, business and financing
plans. These forward-looking statements reflect the Company's views with respect
to future events and financial performance. The words, "believe," "expect,"
"plans" and "anticipate" and similar expressions identify forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from such expectations (the
"Cautionary Statements") are disclosed in this Prospectus, including, without
limitation, in conjunction with the forward-looking statements included in this
Prospectus and under "Risk Factors." All subsequent written and oral
forward-looking statements attributable to the Company, its subsidiaries or
persons acting on the Company's behalf are expressly qualified in their entirety
by the Cautionary Statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of their dates. The
Company undertakes no obligations to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

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<PAGE> 25

USE OF PROCEEDS

The net proceeds to be received by the Company from the Stock Offering are
estimated to be approximately $101.6 million (approximately $116.9 million if
the U.S. Underwriters' over-allotment option is exercised in full), assuming a
public offering price of $15 3/8 per share, after deducting estimated
underwriting discounts and commissions and other expenses payable by the
Company. The net proceeds to be received by the Company from the Debt Offering
are estimated to be approximately $192.5 million, after deducting estimated
underwriting discounts and commissions and other expenses payable by the
Company.

The Company intends to use the net proceeds from the Offerings, together
with cash on hand, including the remaining proceeds from the 1997 Notes Offering
(which, other than the amount pledged to fund the first six interest payments on
the 1997 Notes, will be used to purchase equipment), and borrowings expected to
be available under the Tomen Facility and the equipment financing agreements
with Siemens and NTFC to fund capital expenditures for the continued expansion
of its infrastructure, including the development and construction of additional
networks and longhaul fiber optic facilities, to broaden the scope of the
Company's service offerings and for working capital and other general corporate
purposes, including funding operating deficits. The Company plans to allocate
substantial proceeds to each of the foregoing uses. The precise allocation of
funds among these uses, however, will depend on future technological, regulatory
and other developments affecting the Company's business, the competitive climate
in which the Company operates and the emergence of future opportunities. The
Company plans to make capital expenditures of approximately $286.0 million from
October 1, 1997 through December 31, 1998.

The Company intends to continue to evaluate potential acquisitions. The
Company has no definitive agreement with respect to any acquisition, although
from time to time it has discussions with other companies and assesses
opportunities on an ongoing basis. A portion of the proceeds from the Offerings
may also be used to finance acquisitions.

The Company believes that the net proceeds from the Offerings, together
with cash on hand, including the remaining proceeds from the 1997 Notes Offering
available to purchase equipment, and borrowings expected to be available under
the Tomen Facility and the equipment financing agreements with Siemens and NTFC,
will provide sufficient funds for the Company to expand its business as
presently planned and to fund its operating expenses through December 2000 (June
1999, if the Debt Offering is not consummated). Thereafter, the Company expects
to require additional financing. The extent of additional financing will depend
upon, among other things, the rate of the Company's expansion and the success of
the Company's businesses. See "Risk Factors -- Historical and Anticipated,
Future Operating Losses and Negative EBITDA," "-- Significant Capital
Requirements," "-- Substantial Indebtedness" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

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PRICE RANGE OF COMMON SHARES

The Common Shares have been listed on the AMEX since March 11, 1994 and
trade under the symbol "GST," and have been listed on the TSE since August 26,
1997 and on the VSE since February 28, 1991 and trade under the symbol "GTE.U."

The following table sets forth, for the periods indicated, the high and low
closing prices of the Common Shares as reported on the AMEX and the TSE.

<TABLE>
<CAPTION>
AMEX TSE(1)
--------------- --------------
HIGH LOW HIGH LOW
----- ----- ------ ---
<S> <C> <C> <C> <C>
CALENDAR YEAR 1995
First Quarter............................................. $5 $3 1/2 -- --
Second Quarter............................................ 5 15/1 4 -- --
Third Quarter............................................. 7 3/4 5 5/8 -- --
Fourth Quarter............................................ 7 3/1 5 9/1 -- --
CALENDAR YEAR 1996
First Quarter............................................. 8 11/1 5 15/1 -- --
Second Quarter............................................ 15 1/4 8 1/8 -- --
Third Quarter............................................. 13 1/2 9 1/4 -- --
Fourth Quarter............................................ 11 1/4 7 3/4 -- --
CALENDAR YEAR 1997
First Quarter............................................. 10 3/8 7 3/8 -- --
Second Quarter............................................ 10 7/16 6 1/2 -- --
Third Quarter............................................. 13 11/16 9 11/1 $13.95 $10
Fourth Quarter (through November 6, 1997)................. 17 13 7/8 17 133/4
</TABLE>

- ---------------

(1) The Common Shares have been listed on the TSE since August 26, 1997.

On November 6, 1997, the reported last sale price of the Common Shares as
reported on the AMEX was $14 1/2. On September 30, 1997, there were 289 holders
of record of Common Shares.

24
<PAGE> 27

DIVIDEND POLICY

The Company has never declared or paid any dividends on the Common Shares
and does not presently intend to pay dividends on the Common Shares in the
foreseeable future. The Company's Board of Directors intends to retain future
earnings, if any, to finance the development and expansion of its business.
Future declaration and payment of dividends, if any, will be determined in light
of the then current conditions, including the Company's earnings, operations,
capital requirements, financial condition, restrictions in financing
arrangements and other factors deemed relevant by the Board of Directors. The
Company's ability to declare or pay cash dividends, if any, will be dependent
upon the ability of the Company's subsidiaries to declare and pay dividends or
otherwise transfer funds to the Company, because the Company conducts its
operations entirely through subsidiaries. Pursuant to credit agreements under
the Tomen Facility, the Company's subsidiaries that own and operate the Southern
California, Tucson, Albuquerque and Hawaiian networks may not pay any dividends
or make any distributions on their capital stock to their shareholder, GST
Telecom. Subsequent network financings under the Tomen Facility are expected to
include similar prohibitions. In addition, the Indentures limit, and, for the
foreseeable future, effectively prohibit, the ability of the Company to declare
or pay cash dividends. See "Description of Certain Indebtedness."

DILUTION

The net tangible book value (deficit) of the Common Shares at June 30, 1997
was $(82.5) million or $(3.05) per share. The net tangible book value (deficit)
per share represents the amount of total tangible assets of the Company reduced
by the amount of total liabilities and divided by the number of Common Shares
outstanding. After giving effect to the sale of the Common Shares offered hereby
(at an assumed public offering price of $15 3/8 per Common Share), the pro forma
net tangible book value of the Company as of June 30, 1997 would have been
approximately $19.1 million or $.56 per share (representing an immediate
increase in net tangible book value to existing shareholders of $101.6 million
or $3.61 per share on a pro forma basis). This would result in an immediate
dilution in the net tangible book value of $14.82 per share to investors
purchasing Common Shares in the Stock Offering. The following table illustrates
this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $15.38
Net tangible book value (deficit) per share at June 30, 1997..... $(3.05)
Increase in net tangible book value per share attributable to new
investors..................................................... $ 3.61
------
Pro forma net tangible book value per share after the Stock
Offering......................................................... $ .56
------
Dilution in net tangible book value per share to new investors..... $14.82
======
</TABLE>

If the U.S. Underwriters' over-allotment option is exercised in full, the
increase in net tangible book value per share attributable to new investors
would be $4.03, the pro forma net tangible book value per share after giving
effect to the sale of the Common Shares offered hereby would be $.98 and the
dilution in net tangible book value per share to new investors would be $14.40.

25
<PAGE> 28

CAPITALIZATION

The following table sets forth the historical cash and capitalization of
the Company as of June 30, 1997, as adjusted to give effect to the sale of the
Common Shares in the Stock Offering (based on an assumed public offering price
of $15 3/8 per share) and as further adjusted to give effect to the sale of the
Notes in the Debt Offering. The Closing of the Debt Offering is conditioned upon
the closing of the Stock Offering, but the Closing of the Stock Offering is not
conditioned upon the closing of the Debt Offering. This table should be read in
conjunction with "Use of Proceeds," "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
---------------------------------------------
AS ADJUSTED
AS ADJUSTED FOR THE
FOR THE STOCK AND
ACTUAL STOCK OFFERING DEBT OFFERINGS
--------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash, cash equivalents and investments................. $ 40,665 $ 142,259 $ 334,709
========= ========= =========
Restricted cash and investments........................ 209,174 209,174 209,174
========= ========= =========
Current portion of long-term debt and capital lease
obligations.......................................... $ 8,340 $ 8,340 $ 8,340
Long-term debt and capital lease obligations, less
current portion:
Senior Notes, at accreted value................... 196,503 196,503 196,503
Convertible Notes, at accreted value.............. 24,563 24,563 24,563
1997 Notes........................................ 265,000 265,000 265,000
Tomen Facility.................................... 30,781 30,781 30,781
NTFC Facility..................................... 44,634 44,634 44,634
Notes offered in the Debt Offering................ -- -- 200,000
Other long-term debt.............................. 17,351 17,351 17,351
--------- --------- ---------
Total long-term debt and capital lease
obligations, less current portion(1)......... 578,832 578,832 778,832
--------- --------- ---------
Redeemable Preferred Shares............................ 52,968 52,968 52,968
--------- --------- ---------
Shareholders' equity (deficit):
Common Shares, no par value; unlimited number of
shares authorized, 27,076,169 shares issued and
outstanding, 34,076,169 shares issued and
outstanding as adjusted(2)...................... 132,400 233,994 233,994
Commitment to issue shares........................ 4,707 4,707 4,707
Accumulated deficit............................... (143,645) (143,645) (143,645)
--------- --------- ---------
Total shareholders' equity (deficit).............. (6,538) 95,056 95,056
--------- --------- ---------
Total capitalization......................... $ 633,602 $ 735,196 $ 935,196
========= ========= =========
</TABLE>

- ------------
(1) At June 30, 1997, the Company had $67.7 million of borrowing capacity
available under the Tomen Facility, of which, in September 1997, Tomen
agreed to provide an additional $40.5 million of financing. In addition,
as of June 30, 1997, the Company had $111.5 million available under the
Siemens Loan Agreement. See "Description of Certain Indebtedness."

(2) Based on Common Shares outstanding as of June 30, 1997 and assumes the
U.S. Underwriters' over-allotment option is not exercised. Does not
include (i) 3,385,349 Common Shares reserved for issuance upon exercise of
outstanding options, with exercise prices ranging from $3.55 to $10.00 per
share, (ii) an aggregate of 1,521,155 Common Shares reserved for issuance
upon the exercise of outstanding warrants, with exercise prices ranging
from $6.75 to $13.00 per share, (iii) 3,247,773 Common Shares reserved for
issuance upon conversion of the Convertible Notes (based on the aggregate
accreted value of the Convertible Notes on June 30, 1997), (iv) 4,656,587
Common Shares reserved for issuance upon conversion of the Redeemable
Preferred Shares (based on the aggregate accreted value of the Redeemable
Preferred Shares at June 30, 1997), (v) 221,838 Common Shares issuable to
the former shareholders of TotalNet in October 1997 and (vi) a number of
Common Shares with a market value of $1.2 million issuable to former
shareholders of Tri-Star (29,160 Common Shares were issued on September
19, 1997). See "Description of Certain Indebtedness" and Notes 5 and 6 to
the Company's consolidated financial statements included elsewhere in this
Prospectus. In addition, does not include a warrant to purchase up to 4%
of the then outstanding Common Shares that may be issued in connection
with financing for Magnacom, a company controlled by John Warta, the
Company's Chairman of the Board and Chief Executive Officer. See "Certain
Transactions."

26
<PAGE> 29

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical consolidated financial statements
and the notes thereto included elsewhere in this Prospectus. The selected
consolidated financial data for Fiscal 1992, Fiscal 1993 and Fiscal 1994
presented below were derived from the consolidated financial statements of the
Company, which have been audited by KPMG Peat Marwick Thorne. The selected
consolidated financial data for Fiscal 1995 and Fiscal 1996 presented below were
derived from the consolidated financial statements of the Company, which have
been audited by KPMG Peat Marwick LLP. The selected consolidated financial data
for the nine months ended June 30, 1996 and 1997 is unaudited, but in the
opinion of the management of the Company, reflects all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of
results for interim periods. Operating results for interim periods are not
necessarily indicative of results to be expected for the full fiscal year.

<TABLE>
<CAPTION>
THIRTEEN NINE MONTHS ENDED
YEAR ENDED AUGUST MONTHS YEAR ENDED
31, ENDED SEPTEMBER 30, JUNE 30,
------------------- SEPTEMBER 30, --------------------- --------------------
1992(1) 1993 1994(2) 1995 1996 1996 1997
------- ------- ------------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Telecommunication services.......... $ -- $ -- $ 112 $ 11,118 $ 31,726 $ 19,452 $ 58,738
Telecommunication products.......... -- -- 5,889 7,563 9,573 5,772 16,186
----- ------- ------- -------- -------- -------- --------
Total revenues............... -- -- 6,001 18,681 41,299 25,224 74,924
Operating loss........................ (57) (418) (1,337) (11,631) (42,597) (25,278) (54,683)
Other expenses (income):
Interest income..................... (5) (35) (254) (303) (5,549) (4,209) (3,377)
Interest expense(3)................. -- -- 27 838 21,224 14,801 21,321
Other, net.......................... -- 439 1,877 1,347 2,360 1,534 (6,549)
Income tax expense.................... -- -- 502(4) 166(4) 157 31 843
----- ------- ------- -------- -------- -------- --------
Net loss(5)........................... $(254)(6) $ (822) $(3,491) $(11,315) $(60,378) $(37,100) $ (67,312)
===== ======= ======= ======== ======== ======== ========
Net loss per Common Share............. $(.11) $ (.22) $ (.35) $ (.82) $ (3.18) $ (2.00) $ (2.87)
===== ======= ======= ======== ======== ======== ========
Weighted average number of Common
Shares outstanding.................. 2,250 3,821 9,879 13,781 18,988 18,513 23,460
Ratio of earnings to fixed
charges(7).......................... -- -- -- -- -- -- --
OTHER DATA:
Capital expenditures.................. $ -- $ 4 $ 1,486 $ 33,922 $ 97,561 $ 44,018 $ 168,441
EBITDA(8)............................. (57) (418) (779) (8,807) (33,936) (19,620) (39,452)
Pro forma interest expense(9)......... 71,737 55,035
BALANCE SHEET DATA (AT END OF PERIOD):
Cash, cash equivalents and
investments......................... $ 63 $ 4,746 $ 5,062 $ 6,895 $ 66,519 $ 40,665
Restricted cash and investments....... -- -- -- -- 16,000 209,174
Property and equipment................ -- 4 4,805 39,583 134,360 314,986
Accumulated depreciation.............. -- -- 221 1,550 6,785 14,630
Investment in joint ventures(10)...... -- 4,616 3,552 2,859 1,364 --
Total assets.......................... 72 9,398 26,769 73,125 301,701 682,026
Current portion of long-term debt and
capital lease obligations........... -- -- -- 959 5,554 8,340
Long term debt and capital lease
obligations (excluding current
portion)............................ -- -- -- 19,746 234,127 578,832
Redeemable Preferred Shares........... -- -- -- -- -- 52,968
Common Shares and commitment to issue
shares(11).......................... 394 10,511 25,075 51,660 98,101 137,107
Accumulated deficit................... (327) (1,149) (4,640) (15,955) (76,333) (143,645)
Shareholders' equity (deficit)........ 67 9,362 20,435 35,705 21,768 (6,538)
</TABLE>

(footnotes appear on following page)

27
<PAGE> 30

- ---------------
(1) The consolidated financial statements of the Company as at and for the
year ended August 31, 1992 have been prepared by the Company's management
in accordance with generally accepted accounting principles in Canada.
Such consolidated financial statements also conform, in all material
respects, with generally accepted accounting principles in the United
States ("U.S. GAAP").

(2) The Company changed its fiscal year end to September 30, effective in
1994. As a result, amounts reported for Fiscal 1994 are for the 13 months
ended September 30, 1994. Results for Fiscal 1994 include the acquisition
of 60% of GST Telecom, the Company's subsidiary that owned and operated
each of the Company's networks, and, at various times during Fiscal 1994,
an aggregate of 80% of NACT.

(3) Excludes capitalized interest of $.3 million for Fiscal 1995, $2.3 million
for Fiscal 1996 and $1.7 million for the nine months ended June 30, 1996
and $10.4 million for the nine months ended June 30, 1997. During the
construction of the Company's networks, the interest costs related to
construction expenditures are considered to be assets qualifying for
interest capitalization under FASB Statement No. 34 "Capitalization of
Interest Cost."

(4) During Fiscal 1994 and the first eight months of Fiscal 1995, the Company
owned less than 80% of GST Telecom and was therefore unable to deduct for
tax purposes the losses incurred by GST Telecom.

(5) Includes minority interest in (income) loss of subsidiaries of (i)
$(2,000) for Fiscal 1994, (ii) $2.4 million for Fiscal 1995, (iii) $.4
million for Fiscal 1996, (iv) $.3 million for the nine months ended June
30, 1996 and (v) $(.4) million for the nine months ended June 30, 1997.

(6) Includes $.2 million loss from discontinued operations.

(7) The ratio of earnings to fixed charges is computed by dividing pretax
income from continuing operations before fixed charges (other than
capitalized interest) by 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. For
Fiscal 1993, Fiscal 1994, Fiscal 1995, Fiscal 1996 and the nine months
ended June 30, 1996 and 1997, earnings were insufficient to cover fixed
charges by $.8 million, $3.0 million, $13.8 million, $62.9 million, $39.1
million and $76.5 million, respectively. On a pro forma basis giving
effect to the issuance of (i) the 1997 Notes and (ii) the Notes (assuming
an effective annual interest rate of 11%), the Company's earnings would
have been insufficient to cover fixed charges by $122.4 million and $116.1
million for Fiscal 1996 and the nine months ended June 30, 1997,
respectively.

(8) EBITDA consists of loss before interest, income taxes, depreciation and
amortization and other income and expense. EBITDA is provided because it
is a measure commonly used in the industry. It is presented to enhance an
understanding of the Company's operating results and is not intended to
represent cash flow or results of operations in accordance with generally
accepted accounting principles for the periods indicated. See the
Company's consolidated financial statements and notes thereto included
elsewhere in this Prospectus.

(9) Pro forma interest expense gives effect to the issuance of the 1997 Notes
and the Notes offered in the Debt Offering (assuming an effective annual
interest rate of 11%), as if such transactions had occurred at the
beginning of the periods presented assuming 15% of the interest on the
1997 Notes and the Notes would have been capitalized under FASB Statement
No. 34 "Capitalization of Interest Costs." For each .25% change in the
interest rate on the Notes, pro forma interest expense would change by $.5
million and $.4 million for Fiscal 1996 and the nine months ended June 30,
1997, respectively.

(10) Represents principally the Company's then 50% ownership interest in
Phoenix Fiber Access, Inc. ("Phoenix Fiber"), the owner and operator of
the Phoenix network. The Company acquired the remaining 50% interest in
Phoenix Fiber effective as of October 1, 1996.

(11) At June 30, 1997, the Company was committed to issue the following: (i)
221,838 Common Shares to the former shareholders of TotalNet in October
1997 and (ii) a number of Common Shares with a market value of $1.2
million, based on the then market value of the Common Shares and payable
at various times in Fiscal 1997 (29,160 Common Shares were issued on
September 19, 1997) and Fiscal 1998, to the former shareholders of
Tri-Star.

28
<PAGE> 31

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company provides a broad range of integrated telecommunications
products and services, primarily to business customers located in the western
continental United States and Hawaii. The Company's digital networks currently
serve 30 markets in Arizona, California, Hawaii, Idaho, New Mexico, Texas and
Washington. In addition, the Company has networks under construction which, when
completed, will serve 12 additional markets and expand its regional footprint to
Oregon. The Company also constructs, markets and manages longhaul fiber optic
facilities, principally in Arizona, California and Hawaii. The Company's
longhaul fiber optic facilities currently extend approximately 500 route miles
and an additional 1,000 route miles are expected to become operational over the
next 12 months. The Company's full line of products, which offer a "one-stop"
solution to customers' telecommunications services requirements, include long
distance, Internet, data transmission, and private line services, and local dial
tone services, which were recently introduced.

The Company has invested significant capital and effort in developing its
telecommunications business. This capital has been invested in the development
of the Company's networks and longhaul fiber optic facilities, for the hiring
and development of an experienced management team, the development and
installation of operating systems, the introduction of services, marketing and
sales efforts and for acquisitions. The Company expects to make increasing
capital expenditures to expand its networks and longhaul fiber optic facilities
and broaden its service offerings and may consummate additional acquisitions.
Proper management of the Company's growth will require the Company to maintain
quality control over its services and to expand the Company's internal
management, technical and accounting systems, all of which will require
substantial investment. See "Risk Factors -- Development and Expansion Risk and
Possible Inability to Manage Growth," "-- Significant Capital Requirements,"
"-- Dependence on Billing, Customer Services and Information Systems" and
"-- Liquidity and Capital Resources."

Effective in 1994, the Company changed its fiscal year end to September
30th, in order to conform more closely to the reporting periods of its
subsidiaries. The Company has made application to the Internal Revenue Service
(the "Service") to change its fiscal year to December 31st, in order to align
financial reporting with regulatory reporting and to the reporting of others in
the Company's industry sector. If the application is approved, the Company will
provide to investors audited financial information for the 1997 Transition
Period and for the subsequent 12-month periods ending December 31st. As a result
of the limited revenues and significant expenses associated with the expansion
and development of its networks and services, the Company's operating results
could vary significantly from period to period. See "Risk Factors -- Variability
of Quarterly Operating Results."

Local Services. To facilitate its entry into local services, the Company
has in service five high capacity digital switches, has installed and is
currently testing four additional high capacity digital switches and is planning
to deploy an additional five such switches through early 1998. As demand
warrants, the Company plans to continue to install switching equipment in its
operational networks, in markets where it is constructing networks and in
certain other cities where the Company will rely on ILEC facilities for
transmission. Once a switch is operational, where regulatory conditions permit,
the Company intends to offer local dial tone, in addition to enhanced services
such as ISDN, Centrex, voice mail and other custom calling features.

The Company expects negative EBITDA from its switched services during the
24 to 36 month period after a switch is deployed. For switches operating in
conjunction with the Company's networks, the Company expects operating margins
to improve as the network is expanded and larger volumes of traffic are carried
on the Company's network. For switches operating in cities where the Company
will rely on ILEC facilities for transmission, the Company will experience lower
or negative operating margins under current ILEC pricing tariffs. Although under
the Telecommunications Act the ILECs will be required to unbundle local tariffs,
permitting the Company to purchase only the origination and termination services
it needs, thereby decreasing operating expenses, there can be no assurance that
such unbundling will be effected in a timely manner and

29
<PAGE> 32

result in prices favorable to the Company. See "Risk Factors -- Difficulties in
Implementing Local and Enhanced Services."

Long Distance Services. The Company offers basic and enhanced long
distance services, such as toll free, calling card, prepaid calling card and
international call back services, targeting primarily business customers
purchasing between $200 and $15,000 of services per month as well as resellers
and other carriers. As part of its strategy, the Company has acquired a number
of long distance carriers and intends to continue to pursue acquisitions of long
distance carriers in the future. The Company purchases long distance capacity
under agreements with certain major long distance carriers that provide the
Company capacity at rates that vary with the monthly traffic generated by the
Company. The Company is obligated to satisfy certain minimum monthly usage
requirements of an aggregate of $1.6 million per month as of October 1, 1997,
increasing to a maximum of $6.1 million per month over the next three years. If
such requirements are not satisfied, the Company will be required to pay an
underutilization fee in addition to its monthly bill. See "Risk Factors -- Risks
Relating to Long Distance Business."

Internet Services. The Company presently offers Internet-related services
in most of its markets such as dedicated Internet services, Web site development
and hosting, provides access and upstream transport for local ISPs, EDI and
electronic commerce services and is in the process of developing various
Internet software applications. The Company also offers dial-up Internet
services to customers in Portland, Vancouver (Washington), the State of Hawaii
and select markets in California and intends to begin offering such services in
the Los Angeles, San Francisco and Houston metropolitan areas in the fourth
quarter of 1997. Management believes that these services will become an
important component of the Company's overall product offerings and intends to
continue to expand its Internet access and service business to other markets.

The Company is leveraging its infrastructure and network experience to
offer data networking services such as ATM, high speed LAN connectivity, video
conferencing, multimedia networking, frame relay and high capacity access to the
Internet. The Company has one ATM switch commercially operational in each of
Portland and Seattle.

Network Operations. The development, construction and expansion of the
Company's networks requires significant capital, a large portion of which is
invested before any revenue is generated. See "Risk Factors -- Significant
Capital Requirements." The Company has experienced, and expects to continue to
experience, increasing negative EBITDA and losses while it expands its network
operations and builds its customer base. See "Risk Factors -- Historical and
Anticipated Future Operating Losses and Negative EBITDA." None of the Company's
existing networks is generating EBITDA. Based on its experience to date and that
of its competitors, the Company estimates that a new network will generate
EBITDA within 30 to 36 months after commencement of commercial operations.
Construction periods and operating results will vary from network to network.
There can be no assurance that the Company will be able to establish a
sufficient revenue-generating customer base or achieve EBITDA in any particular
market or on a consolidated basis.

Management estimates that the total costs associated with the purchase and
installation of fiber optic cable and high-speed electronic transmission
equipment, including capitalized engineering costs, will range from $10.0
million to $25.0 million per network, depending upon the size of the market
served and the scope and complexity of the network. Actual costs may vary
significantly from this range. The amounts and timing of these expenditures are
subject to a variety of factors that may vary significantly by the geographic
and demographic characteristics of each market. In addition to capital
expenditure requirements, upon commencement of the construction phase of a
network, the Company begins to incur direct operating costs for such items as
salaries and rent. As network construction progresses, the Company incurs
rights-of-way costs and increased sales and marketing expenses. Certain direct
preoperating costs for new networks are capitalized until the network becomes
operational and are thereafter expensed as incurred.

30
<PAGE> 33

The initial development of a network may take as long as six months,
depending upon the size and complexity of the network and a variety of factors,
including the time required to obtain rights-of-way and other governmental
approvals, such as franchise agreements. Once actual construction commences, it
may take from two to six months to complete the initial backbone segment of a
network. The time required during the construction phase is significantly
influenced by the number of route miles involved, the mix of aerial versus
underground fiber deployment, possible delays in receiving fiber optic cable,
electronic equipment and required permits and other factors.

Manufacturing. In September 1993, the Company purchased a 52% interest in
NACT, which produces advanced telecommunications switching platforms with
integrated applications software and network telemanagement capabilities. During
Fiscal 1994, the Company acquired in a series of transactions an additional 28%
interest in NACT. The aggregate consideration paid for the Company's 80%
interest in NACT was $5.8 million, consisting of $3.2 million in cash and
451,536 Common Shares. On January 5, 1995, the Company purchased the remaining
20% interest in NACT for consideration consisting of $.9 million in cash and
notes payable and 504,747 Common Shares (valued at $2.2 million). In the third
quarter of Fiscal 1996, NACT introduced the STX, the first of a new generation
of switches. In the NACT Offering, the Company and NACT sold one million and two
million shares, respectively, of NACT's common stock, resulting in gross
proceeds to the Company and NACT of $10.0 million and $20.0 million,
respectively. As a result of the NACT Offering, the Company's interest in NACT
has been reduced to approximately 63%. On September 30, 1997, the Company
announced that it had retained Hambrecht & Quist LLC to explore alternatives for
monetizing its 63% interest in NACT, including a potential sale of some or all
of its shares of NACT's capital stock to one or more strategic investors.

In May 1997, the Company acquired Action Telcom, a facilities-based
telecommunications company located in Abilene, Texas that operates its own
network and switching equipment, originating and terminating its own traffic
principally in Texas. Action Telcom manufactures the Network Analysis Management
System ("NAMS"), a UNIX based software and hardware platform that provides
automated real-time billing record collection, fraud protection and network
design.

The Company has entered into a 12-year reseller agreement with Magnacom, a
company 99% owned by PNI, which is in turn controlled by John Warta, the
Company's Chairman of the Board and Chief Executive Officer, pursuant to which
the Company has paid Magnacom approximately $14.0 million as prepayments for
future PCS services. The Company has been granted a conditional option to
acquire up to PNI's entire interest in Magnacom, subject to compliance with FCC
regulations.

Magnacom is currently negotiating with a telecommunications equipment
vendor to provide equipment and other financing and to invest in Magnacom. The
terms of any such transaction may include the issuance by the Company to such
vendor of a warrant to purchase up to 4% of the then outstanding Common Shares.
See "Certain Transactions." If such warrant is issued, the Company will record a
one-time noncash charge in an amount equal to the value of the warrant. Although
there can be no assurance, the Company believes that the value of such a warrant
could be between $4.0 million and $5.0 million, depending on the terms of the
warrant.

RESULTS OF OPERATIONS

NINE MONTHS ENDED JUNE 30, 1997 COMPARED TO NINE MONTHS ENDED JUNE 30, 1996

Revenues. Total revenues for the nine months ended June 30, 1997 increased
$49.7 million, or 197.0%, to $74.9 million from $25.2 million for the nine
months ended June 30, 1996. Telecommunications services revenues for the nine
months ended June 30, 1997 increased $39.3 million, or 202.0%, to $58.7 million
from $19.4 million over the comparable period in the previous year. The increase
in telecommunications services revenues resulted from the inclusion of revenues
from strategic acquisitions, including GST Call America and TotalNet, as well as
increased CLEC service revenues generated by the Company's networks. To a lesser
extent, the increase in telecommunications services revenues resulted from
increased Internet, shared tenant and data services. Telecommunications products
revenues for the nine months ended June 30, 1997 increased $10.4 million, or
180.4%, to $16.2 million from $5.8 million over the nine months ended June 30,
1996. The increase in telecommunication products revenues resulted primarily
from the introduction in April 1996 of

31
<PAGE> 34

NACT's STX switch and subsequent increased unit sales. To a lesser extent the
increase in product revenues was due to the inclusion of recently acquired
Action Telcom's sales of network management and fraud protection systems from
May 31, 1997.

Operating Expenses. Total operating expenses for the nine months ended
June 30, 1997 increased $79.1 million, or 156.6%, to $129.6 million from $50.5
million for the nine months ended June 30, 1996. Network expenses, which include
direct local and long distance circuit costs, increased $33.4 million, or
223.3%, to $48.3 million, or 82.1% of telecommunications services revenues for
the nine months ended June 30, 1997, compared to $14.9 million, or 76.7%, for
the comparable period in the previous year. Facilities administration and
maintenance expenses (consisting primarily of costs related to personnel
providing maintenance, monitoring and technical assistance for the Company's
networks) for the nine months ended June 30, 1997 increased $4.0 million, or
69.0%, to $9.8 million, or 16.7% of telecommunications services revenues
compared to $5.8 million, or 29.8% for the comparable period ended June 30,
1996. The primary reason for the increase in network expenses as a percent of
telecommunications services revenues and the decrease in facilities
administration and maintenance expenses as a percent of telecommunications
services revenues was the inclusion of revenue from 1996 strategic acquisitions,
a significant portion of which was generated off-net.

Cost of product revenues, which includes the costs associated with product
revenues of NACT and Action Telcom, increased $2.8 million, or 98.3%, to $5.6
million for the nine months ended June 30, 1997 from $2.8 million for the
comparable period ended June 30, 1996. Cost of product revenues was 34.3% of
telecommunications products revenues for the nine months ended June 30, 1997,
compared to 48.6% for the comparable period ended June 30, 1996. The decrease in
cost of product revenues as a percentage of telecommunications product revenues
resulted primarily from economies of scale related to increased unit sales of
NACT's STX switch. Research and development costs for the nine months ended June
30, 1997 increased $.8 million over the comparable period in the previous year.
The increase was due to the addition of personnel to enhance the current switch
product line and to facilitate the development of new switching products and
applications.

Selling, general and administrative expenses for the nine months ended June
30, 1997 increased $28.7 million, or 138.8%, to $49.4 million from $20.7 million
for the nine months ended June 30, 1996. The increase was due to the expansion
of the Company's CLEC and enhanced services operations, the acquisition of four
companies from September 1996 to May 1997 and the hiring of a significant number
of marketing, management information and sales personnel to implement the
Company's integrated services strategy. Selling, general and administrative
expenses were 65.9% of total revenues for the nine months ended June 30, 1997,
compared to 82.0% for the nine months ended June 30, 1996.

Depreciation and amortization for the nine months ended June 30, 1997
increased $9.4 million, or 175.5% to $14.8 million from $5.4 million for the
comparable period in the previous year. The increase was attributable to
newly-constructed networks becoming operational and to the amortization of
intangible assets related to the Company's acquisitions. The Company expects
that depreciation will continue to increase as it expands its networks and
longhaul fiber optic facilities and installs additional switches. Depreciation
and amortization was 19.8% of total revenues for the nine months ended June 30,
1997, compared to 21.3% for the nine months ended June 30, 1996.

Other Expenses. For the nine months ended June 30, 1997, net other
expenses decreased $.7 million, or 5.8%, to $11.4 million, or 15.2% of total
revenues, from $12.1 million, or 48.1% of total revenues, for the comparable
period ended June 30, 1996. For the nine months ended June 30, 1997, net other
expenses included a $7.4 million gain recognized on the sale of one million of
the Company's shares of NACT in February 1997. If the gain had been excluded,
net other expense for the nine months ended June 30, 1997 would have increased
$6.7 million over the nine months ended June 30, 1996. Such increase primarily
resulted from increased interest expense due to the issuance of $180.0 million
initial accreted value of 1995 Notes in December 1995 and the issuance of $265.0
million principal amount of 1997 Notes in May 1997.

FISCAL 1996 COMPARED TO FISCAL 1995

Revenues. Total revenues for Fiscal 1996 increased $22.6 million, or
121.0%, to $41.3 million from $18.7 million for Fiscal 1995. Telecommunications
services revenues for Fiscal 1996 increased $20.6 million,

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or 185%, to $31.7 million from $11.1 million for Fiscal 1995. The increase in
telecommunications services revenues resulted from the continuing growth of long
distance (including revenues associated with Fiscal 1995 and 1996 acquisitions),
local, Internet and data services. Acquisitions (primarily the acquisition of
ITG but also the acquisitions of GST Call America and the businesses of Hawaii
On Line and Texas-Ohio) accounted for $15.1 million of the increase in such
revenues. See "Business -- Telecommunications Services Strategy -- Long Distance
Services." Telecommunications products revenues for Fiscal 1996 increased $2.0
million, or 26.6%, over Fiscal 1995. The increase in telecommunications products
revenues resulted from the introduction by NACT of the STX product line in the
third quarter of Fiscal 1996.

Operating Expenses. Total operating expenses for Fiscal 1996 increased
$53.6 million, or 176.8%, to $83.9 million from $30.3 million for Fiscal 1995.
Network expenses, which include direct local and long distance circuit costs,
increased $16.5 million to $26.6 million from $10.1 million for Fiscal 1995, due
to an expanded customer base and increased usage. As a percentage of
telecommunications services revenues, network expenses decreased from 90.9% for
Fiscal 1995 to 83.8% for Fiscal 1996. Facilities administration and maintenance
expenses for Fiscal 1996 increased $8.2 million to $10.3 million from $2.1
million for Fiscal 1995. As a percentage of telecommunications services
revenues, facilities administration and maintenance expenses increased from
18.9% for Fiscal 1995 to 32.5% for Fiscal 1996. The increase related to
additional personnel and facility costs required by continuing network
expansion, a substantial portion of which are incurred before the realization of
revenues.

Cost of product revenues at NACT for Fiscal 1996 increased $.9 million to
$4.0 million from $3.1 million for Fiscal 1995. As a percentage of
telecommunications products revenues for Fiscal 1996, cost of product revenues
increased nominally as compared to Fiscal 1995 due to initial lower margins
resulting from the discontinuance of NACT's former switch product line as it
began to offer the new STX to existing customers. Research and development costs
increased nominally for Fiscal 1996 relative to Fiscal 1995 as the Company moved
to more rapidly develop an improved billing system product and to maintain
ongoing research and development of the Company's existing hardware and software
product lines.

Selling, general and administrative expenses increased $22.0 million, or
193.5%, to $33.4 million from $11.4 million for Fiscal 1995. The increase was
due to the expansion of the Company's CLEC and enhanced services operations, and
to a lesser extent, the acquisitions during Fiscal 1996 of GST Call America and
Tri-Star and the businesses of Hawaii On Line and Texas-Ohio. The implementation
of the Company's integrated services strategy has resulted in additional
marketing, management information and sales staff.

Depreciation and amortization for Fiscal 1996 increased $5.9 million to
$8.3 million from $2.4 million for Fiscal 1995 due to increased depreciation
resulting from newly constructed networks becoming operational. To a lesser
extent, the increase in depreciation and amortization was also due to increased
amortization of intangible assets resulting from acquisitions.

Other Expenses. Other expenses for Fiscal 1996 increased $16.1 million to
$18.0 million from $1.9 million for Fiscal 1995. The increase was principally
the result of additional interest expense associated with the 1995 Notes, offset
by interest income resulting from the investment of the proceeds of the 1995
Notes Offering.

FISCAL 1995 COMPARED TO FISCAL 1994

Revenues. Revenues for Fiscal 1995 increased $12.7 million, or 211.3%, to
$18.7 million from $6.0 million for Fiscal 1994. The increase resulted from a
$11.0 million increase in telecommunications services revenues and a $1.7
million, or 28.4%, increase in product revenues of NACT. Telecommunications
service revenues increased $10.6 million as a result of wholesale carrier
services revenues generated by WINS and NACT, which began to offer such services
during Fiscal 1995, and long distance and other service revenues of ITG, which
was acquired effective May 1, 1995. In addition, an increase of $.4 million was
the result of revenues generated by the Hawaiian digital microwave and the
Southern California networks. The Southern California networks became
operational in Fiscal 1995. The increase in manufacturing revenues was due to
increased unit sales of telecommunications switching and network management and
billing systems.

Operating Expenses. Total operating expenses for Fiscal 1995 increased
$23.0 million, or 315.0%, to $30.3 million from $7.3 million for Fiscal 1994.
Network expenses for Fiscal 1995 increased $10.0 million to

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<PAGE> 36

$10.1 million from $.1 million for Fiscal 1994 due to expansion of network
operations, the acquisition of ITG and the commencement of wholesale carrier
services at WINS and NACT. Facilities administration and maintenance expenses
totaled $2.1 million for Fiscal 1995, compared to only $26,000 for Fiscal 1994.
The increase was due to significant network expansion in Fiscal 1995, whereas
Fiscal 1994 results included only three months of engineering expenses at the
Company's Hawaiian network.

Cost of product revenues at NACT for Fiscal 1995 increased to $3.1 million,
or 40.9% of product revenues, for Fiscal 1995 from $2.1 million, or 36.3% of
product revenues, for Fiscal 1994. Research and development expenditures of NACT
increased by $.6 million, or 84.4% to $1.3 million for Fiscal 1995 from $.7
million for Fiscal 1994 due to the continuing development of the STX, which was
introduced in Fiscal 1996.

Selling, general and administrative expenses increased $7.4 million to
$11.4 million for Fiscal 1995 from $4.0 million for Fiscal 1994. The increase
was principally the result of higher salary and benefit costs incurred in Fiscal
1995 as the Company added a significant number of sales, marketing and
management employees in connection with network expansion. Also contributing to
the increase in selling, general and administrative expenses were higher
professional fees and travel costs related to expansion of CLEC operations. In
addition, bad debt expense increased $1.3 million in Fiscal 1995 principally due
to a reserve for doubtful accounts for an ITG customer.

Depreciation and amortization increased $2.0 million to $2.4 million for
Fiscal 1995 from $.4 million for Fiscal 1994 as a result of amortization of
intangible assets related to acquisitions and depreciation of newly-operational
networks.

Other Expenses. Other expenses increased $.2 million to $1.9 million for
Fiscal 1995 from $1.7 million for Fiscal 1994. Contributing to the increase was
an $.8 million increase in interest expense resulting from borrowings under the
Tomen Facility and a $.5 million write-off of investments. Offsetting these
increases was a $.4 million decrease in the loss on joint ventures due to
improved operating results at the Phoenix Fiber network. Additionally, in Fiscal
1994 the Company wrote-off $.7 million in pre-operating costs at GST Telecom. No
such losses were realized in Fiscal 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company has incurred significant operating and net losses as a result
of the development and operation of its networks. The Company expects that such
losses will continue to increase as the Company emphasizes the development,
construction and expansion of its networks and builds its customer base. Cash
provided by operations will not be sufficient to fund the expansion of its
networks, longhaul fiber optic facilities and services.

At September 30, 1997, the Company had cash, cash equivalents, and
investments, including restricted cash and investments, of approximately $224.0
million, compared to $82.5 million at September 30, 1996. The Company's net cash
used in operating and investing activities was $299.9 million, $139.0 million,
$36.2 million and $11.4 million for the nine months ended June 30, 1997, Fiscal
1996, Fiscal 1995 and Fiscal 1994, respectively. Net cash provided by financing
activities from borrowings and equity issuances to fund capital expenditures,
acquisitions and operating losses was $276.9 million, $194.3 million, $38.0
million and $10.9 million for the nine months ended June 30, 1997, Fiscal 1996,
Fiscal 1995 and Fiscal 1994, respectively.

Capital expenditures for the nine months ended June 30, 1997, Fiscal 1996,
Fiscal 1995 and Fiscal 1994 were $168.4 million, $97.6 million, $33.9 million
and $1.4 million, respectively. The Company estimates that it will make capital
expenditures of approximately $286.0 million from October 1, 1997 through
December 31, 1998. The majority of these expenditures is expected to be made for
the construction of network and longhaul fiber optic facilities and the purchase
of switches and related equipment to facilitate the offering of the Company's
services. Continued significant capital expenditures are expected to be made
thereafter. In addition, the Company expects to continue to incur increasing
operating losses while it expands its business and builds its customer base.
Actual capital expenditures and operating losses will depend on numerous
factors, including the extent of future expansion, acquisition opportunities and
other factors beyond the Company's control, such as economic conditions,
competition, regulatory developments and the availability of capital.

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<PAGE> 37

In addition to the Company's capital expenditures in Fiscal 1996, the
Company acquired the business of Texas-Ohio for a purchase price of $.6 million
and the assumption of certain liabilities. All other acquisitions consummated by
the Company in Fiscal 1996 (Hawaii On Line, Tri-Star, Call America and TotalNet)
were in consideration of Common Shares. In the first quarter of Fiscal 1997, the
Company acquired the remaining 50% interest in Phoenix Fiber owned by ICG
Telecom Group, Inc. ("ICG") in consideration of (i) the repayment to ICG at
closing of approximately $2.1 million of intercompany indebtedness and the
repayment, under certain circumstances, of up to an additional $2.0 million of
such intercompany indebtedness and (ii) the indemnification of ICG in respect of
all indebtedness of Phoenix Fiber to the Company and third parties, other than
certain liabilities of Phoenix Fiber that were assumed by ICG. Prior to the
acquisition of the remaining 50% interest, the Company had contributed an
aggregate of $5.0 million to Phoenix Fiber. In May 1997, the Company acquired
Action Telcom for 903,000 Common Shares valued at $8.2 million, and $3.9 million
in cash, payable in three equal installments at closing and on the first and
second anniversaries thereof. Additional Common Shares may be issued to the
former shareholders of Action Telcom on such anniversaries if the then market
price of the Common Shares does not exceed $10.00 per share.

In September 1996, the Company entered into the Siemens Loan Agreement,
which provides for loans by Siemens of up to an aggregate of $226.0 million to
finance the purchase of Siemens equipment and certain equipment from other
suppliers. At September 30, 1997, $116.0 million of such facility was available
to the Company (of which $5.8 million had been provided). The Company may seek
to increase the amount of such facility up to $226.0 million on an as needed
basis, subject to the negotiation and execution of mutually satisfactory
documentation. In December 1996, the Company entered into the NTFC Loan
Agreement, which provides for $50.0 million of equipment financing to finance
the purchase of equipment and products from Nortel (of which $44.6 million had
been provided as of September 30, 1997). See "Description of Certain
Indebtedness -- Equipment Financing."

In October 1996, the Company completed a private placement of 2,000,000
special warrants (the "Special Warrants") at a purchase price of $11 1/8 per
Special Warrant. Each Special Warrant is exercisable for one Common Share and
one-half of one underlying warrant to purchase one additional Common Share for a
purchase price of $13 for one year from the date of issuance. The Company
received $20.8 million in net proceeds in conjunction with the sale of the
Special Warrants.

In February 1997, the Company consummated a private placement (the "Princes
Gate Investment"), of $50.0 million of Series A Preference Shares (the
"Redeemable Preferred Shares") with an affiliate of Princes Gate Investors II,
L.P. ("Princes Gate"). Princes Gate is a limited partnership consisting of an
affiliate of Morgan Stanley and certain private investors. The Redeemable
Preferred Shares, which are convertible at any time after February 28, 2000 at
an imputed price of $11 3/8 per share, will not pay dividends in cash, except to
the extent cash dividends are paid on Common Shares. In addition, the
liquidation and redemption prices of the Redeemable Preferred Shares will
accrete at a semi-annual rate of 11 7/8%. On February 28, 2004, and under
certain circumstances, the Redeemable Preferred Shares will also be subject to
mandatory conversion or redemption, provided that to the extent the Company is
prohibited from paying the redemption price in cash, holders of the Redeemable
Preferred Shares may elect to convert such shares into Common Shares and if such
election is not made, the Company may extend the mandatory redemption date to
August 28, 2007. See "Description of Capital Stock -- Preference Shares."

In February 1997, NACT completed an initial public offering of its common
stock pursuant to which the Company and NACT sold one million and two million
shares, respectively, of NACT's common stock, resulting in net proceeds to the
Company and NACT of approximately $9.1 million and $18.2 million, respectively.

In May 1997, GST Funding completed the 1997 Notes Offering. Of the $255.8
million of net proceeds from the issuance of the 1997 Notes, as of September 30,
1997 approximately $93.8 million had been used to purchase securities pledged to
fund the first six interest payments on the 1997 Notes and approximately $91.3
million had been used to purchase equipment, including approximately $41.5
million that had been used to refinance indebtedness of GST USA incurred to
purchase equipment. The 1997 Indenture and the 1995 Indentures include
restrictive covenants which, among other items, limit or restrict additional
indebtedness

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incurred by the Company, investment in certain subsidiaries, the sale of assets
and the payment of dividends. See "Description of Certain Indebtedness."

As of September 30, 1997, the Company had approximately $632.2 million of
indebtedness outstanding ($832.2 million on a pro forma basis giving effect to
the Debt Offering), including $203.3 million accreted value of Senior Notes,
$25.4 million accreted value of Convertible Notes, $265.0 million principal
amount of 1997 Notes, $69.1 million under the Tomen Facility, $44.6 million
under the NTFC Loan Agreement and $5.8 million under the Siemens Loan Agreement.
In addition, as of September 30, 1997, the Company had $25.0 million of
availability under the Tomen Facility, $110.2 million of availability under the
Siemens Loan Agreement and $5.4 million of availability under the NTFC Loan
Agreement. Although the Company's liquidity was substantially improved as a
result of the 1995 Notes Offering and the 1997 Notes Offering, the Company will
have significant debt service obligations. The Company will be required to make
principal and interest payments of approximately $56.8 million (of which $35.1
million will be made from funds securing the 1997 Notes), $64.4 million (of
which $35.1 million will be made from funds securing the 1997 Notes), $66.4
million (of which $17.6 million will be made from funds securing the 1997
Notes), $113.5 million and $111.5 million in 1998, 1999, 2000, 2001 and 2002,
respectively. However, the Company will need to refinance a substantial amount
of such indebtedness. In addition, the Company anticipates that cash flow from
operations will be insufficient to repay the 1995 Notes, 1997 Notes and the
Notes in full and that such notes will need to be refinanced. The ability of the
Company to effect such refinancings will be dependent upon the future
performance of the Company, which will be subject to prevailing economic
conditions and to financial, business and other factors, including factors
beyond the control of the Company. There can be no assurance that the Company
will be able to improve its earnings before fixed charges or that the Company
will be able to meet its debt service obligations.

At September 30, 1997, the Company had cash, cash equivalents, and
investments, including restricted cash and investments, of approximately $224.0
million. The Company believes that the net proceeds of the Offerings, together
with cash on hand (including the remaining proceeds from the 1997 Notes Offering
available to purchase equipment), and borrowings expected to be available under
the Tomen Facility and the equipment financing agreements with Siemens and NTFC
will provide sufficient funds for the Company to expand its business as
presently planned and to fund its operating expenses through December 2000 (June
1999, if the Debt Offering is not consummated). Thereafter, the Company expects
to require additional financing. In the event that the Company's plans or
assumptions change or prove to be inaccurate, or its cash resources, together
with borrowings under the current financing arrangements prove to be
insufficient to fund the Company's growth and operations, or if the Company
consummates additional acquisitions, the Company may be required to seek
additional sources of capital (or seek additional capital sooner than currently
anticipated). The Company may also seek to raise additional capital to take
advantage of favorable conditions in the capital markets. There can be no
assurance that additional financing will be available to the Company or, if
available, that it can be concluded on terms acceptable to the Company or within
the limitations contained within the Company's financing arrangements. Failure
to obtain such financing could result in the delay or abandonment of some or all
of the Company's development or expansion plans and could have material adverse
effect on the Company's business. Such failure could also limit the ability of
the Company to make principal and interest payments on its outstanding
indebtedness. The Company has no material 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.

INCOME TAXES AND ADOPTION OF NEW ACCOUNTING STANDARDS

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subject to limitation if the Company experiences an "ownership change" as
defined in Section 382 of the Code and the analogous provision of the Canada
Act.

In March 1995, the FASB issued Statement of Financial Accounting Standard
("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets Disposed Of." SFAS No. 121 provides specific guidance
regarding when impairment of long-lived assets such as plant, equipment and
certain intangibles including goodwill should be recognized and how impairment
losses of such assets should be measured. SFAS No. 121 is effective for fiscal
years beginning after December 15, 1995. The Company adopted SFAS No. 121 on
October 1, 1996. The impact on the Company's Fiscal 1997 statements of
operations is not expected to be material.

In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation," which was adopted by the Company on October 1, 1996. As permitted
by FASB SFAS No. 123, the Company has elected not to implement the fair value
based accounting method for employee stock options and will disclose, commencing
in Fiscal 1997, the pro forma net income and earnings per share as if such
method had been used to account for stock-based compensation cost.

In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share" ("SFAS
128"). This statement establishes a different method of computing net income per
share than is currently required under the provisions of Accounting Principles
Board Opinion No. 15. Under SFAS 128, the Company will be required to present
both basic net income per share and diluted net income per share. Because of the
Company's net loss position, both basic and dilutive net loss per share are
expected to be comparable to the currently presented net loss per share. The
Company expects to adopt SFAS 128 in the first quarter of Fiscal 1998 and, at
that time, all historical net income per share data presented will be restated
to conform to the provisions of SFAS 128.

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BUSINESS

OVERVIEW

The Company provides a broad range of integrated telecommunications
products and services, primarily to business customers located in the western
continental United States and Hawaii. As a facilities-based CLEC, the Company
operates state-of-the-art, digital telecommunications networks that represent an
alternative to ILECs. The Company's full line of products, which offer a
"one-stop" solution to customers' telecommunications services requirements,
include long distance, Internet, data transmission and private line services,
and local dial tone services, which were recently introduced.

The Company's digital networks currently serve 30 markets in Arizona,
California, Hawaii, Idaho, New Mexico, Texas and Washington. In addition, the
Company has networks under construction which, when completed will serve 12
additional markets and expand its regional footprint to Oregon. The Company also
constructs, markets and manages longhaul fiber optic facilities, principally in
Arizona, California and Hawaii. The Company's longhaul fiber optic facilities
currently extend approximately 500 route miles and an additional 1,000 route
miles are expected to become operational over the next 12 months.

Management believes that the Company has an opportunity to leverage its
existing network infrastructure and service capabilities to provide customers
with an integrated telecommunications package. The Telecommunications Act and
state regulatory initiatives have substantially changed the telecommunications
regulatory environment in the United States. As a result of these regulatory
changes, the Company is permitted in certain states to provide local dial tone
in addition to its existing telecommunications service offerings. In order to
capitalize on these opportunities, the Company has accelerated the development
of additional networks and longhaul fiber optic facilities within its region
while significantly expanding its product and service offerings, primarily with
respect to the provision of local services. To facilitate its entry into local
services, the Company has in service five high capacity digital switches, has
installed and is currently testing four additional high capacity digital
switches and is planning to deploy an additional five such switches through
early 1998.

TELECOMMUNICATIONS SERVICES MARKET

Based on preliminary statistics released by the FCC, ILECs in the United
States generated approximately $100.7 billion in revenue in 1996 from the
provision of local exchange services. Local exchange services consist of a
number of service components and are defined by specific regulatory
classifications. For 1996, total revenue by service was (i) interstate dedicated
access service (i.e., connecting a customer to a long distance carrier's
facilities) revenues of $3.6 billion; (ii) interstate switched access service
(i.e., originating and terminating calls from a long distance carrier) revenues
of $12.4 billion; (iii) end-user fees (i.e., access charges paid by the consumer
for the use of the ILECs' networks) of $7.3 billion; (iv) basic local service
(including dial tone, local area charges, dedicated point-to-point intraLATA
service and enhanced calling features) revenues of $49.8 billion; (v) intraLATA
toll call revenues of $10.4 billion; (vi) intrastate switched access (i.e.,
local origination and termination for long distance carriers for calls within a
state) revenues of $7.6 billion; and (vii) miscellaneous (including provisions
of directories, billing and collection services and corporate operations)
revenues of $6.8 billion. In addition, the FCC reported that total toll service
revenues in the United States in 1996 were $93.3 billion.

Until recently, the competitive access provider ("CAP")/CLEC industry has
generally been limited to providing special access services and private line
services to corporations and government agencies physically located on the
network of the CAP/CLEC. The Telecommunications Act opens local service markets
to competition by preempting state and local laws, to the extent that they
prevent competitive entry with respect to the provision of any
telecommunications service, and imposes a variety of new duties on ILECs in
order to promote competition in local exchange and access services.

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TELECOMMUNICATIONS SERVICES STRATEGY

In conjunction with its network expansion, the Company has developed a
strategy to leverage its existing facilities and infrastructure, customer base
and experience by providing a broad range of integrated telecommunications
services to meet the voice and data needs of its end-user customers. The Company
focuses on small to medium-sized businesses that have significant
telecommunications requirements. The Company, through its established sales
channels, offers: (i) bundled local and long distance services; (ii) flexible
pricing and customized products and services; and (iii) an enhanced level of
customer service. To meet its customers' needs, the Company offers a number of
telecommunications services, including:

LOCAL SERVICES

Where regulatory conditions permit, the Company offers both switched and
dedicated local service. Fixed or special access services involve a fixed
communications link, usually between an end-user and a long distance carrier's
POP. With a switch, it is possible for the Company to direct traffic to any
end-user or long distance carrier provided that the Company has an
interconnection agreement with the connecting carriers.

Under federal regulations, the Company is permitted to provide a full range
of interstate switched access as well as enhanced services. In addition, a
switch gives the Company the technological capability to provide a full range of
local telephone services, although state authority may be necessary for certain
intrastate service offerings. See "-- Regulation."

To facilitate its entry into local services, the Company has in service
five high capacity digital switches, has installed and is currently testing four
additional high capacity digital switches and is planning to deploy an
additional five such switches through early 1998. As demand warrants, the
Company plans to continue to install switching equipment in its operational
networks, in markets where it is constructing networks and in certain other
cities where the Company will rely on ILEC facilities for transmission. Once a
switch is operational, where regulatory conditions and interconnection
agreements permit, the Company intends to offer local dial tone, in addition to
enhanced services such as ISDN, Centrex, voice mail and other custom calling
features. See "Risk Factors -- Difficulties in Implementing Local and Enhanced
Services."

LONG DISTANCE SERVICES

The Company offers basic and enhanced long distance services, such as toll
free, calling card, prepaid calling card and international call back services,
targeting primarily business customers purchasing between $200 and $15,000 of
services per month as well as resellers and other carriers. The Company
purchases long distance capacity under agreements with certain major long
distance carriers that provide the Company capacity at rates that vary with the
monthly traffic generated by the Company. See "Risk Factors -- Risks Relating to
Long Distance Business."

The Company recently expanded its long distance products and services
through the acquisition of Action Telcom for an aggregate of 903,000 Common
Shares valued at approximately $8.2 million, and $3.9 million in cash, payable
in three equal installments at closing and on the first and second anniversary
dates thereof. Additional Common Shares may be issued to the former shareholders
of Action Telcom on each of the first and second anniversaries of the closing
date of the merger if the average closing sale price of a Common Share on the
AMEX (or the Company's then principal trading market) does not exceed $10.00 for
the 10 consecutive trading days ending three trading days prior to each such
anniversary. Action Telcom is a facilities-based telecommunications company
located in Abilene, Texas that operates its own network and switching equipment,
originating and terminating its own traffic principally in Texas. The Company
intends to continue to pursue acquisitions of long distance carriers.

INTERNET SERVICES

The Company presently offers Internet-related services in most of its
markets such as dedicated Internet services, Web site development and hosting,
provides access and upstream transport for local ISPs, EDI and electronic
commerce services and is in the process of developing various Internet software
applications. The

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Company also offers dial-up Internet services to customers in Portland,
Vancouver (Washington), the State of Hawaii and select markets in California and
intends to begin offering such services in the Los Angeles, San Francisco and
Houston metropolitan areas in the fourth quarter of 1997. Management believes
that these services will become an important component of the Company's overall
product offerings and intends to continue to expand its Internet access and
service business to other markets.

DATA SERVICES

The Company offers national and international frame relay services on its
own frame relay network and through interconnection agreements with data
providers. Under these agreements, the Company and such data providers have
agreed to link their data networks and terminate one another's traffic. The
Company has deployed Cascade Communications frame relay switches in 21 markets
in the western United States. Such switches can provide both frame relay and
Internet services. The Company plans to offer data networking services such as
ATM, high speed LAN connectivity service, video conferencing, multi-media
networking, frame relay and high capacity access to the Internet. The Company
has one ATM switch commercially operational in each of Portland and Seattle.

The Company offers its customers monthly network management reports that
allow users to track the performance of their virtual private network. Customer
network management support will permit customers to monitor and tailor their
virtual private network as desired with a communication link into the Company's
network management systems.

SHARED TENANT SERVICES

The Company offers shared tenant services to large apartment and
residential communities in Idaho, New Mexico, Oregon, Utah and Washington.
Shared tenant services bundle local, long distance, Internet access, cable
television and home alarm service.

The Company provides local dial tone service to its shared tenant customers
through on-site PBX telephone systems located within each apartment complex that
are connected to the ILEC. As the Company expands its network and central office
switching facilities, PBXs will be replaced with central office access nodes
originating from the Company's own dial tone facilities, which the Company
expects to provide significant cost savings and customer feature capability. In
addition, the Company is in the process of connecting apartment communities to
its own fiber network, thereby permitting the Company to realize additional cost
savings for transport.

TELECOMMUNICATIONS NETWORK STRATEGY

Initial Deployment. The Company has identified attractive markets in its
region and has sought to be one of the first CLECs to obtain the necessary
permits, rights-of-way and licenses to construct and operate networks in its
targeted markets. Initial network deployment is designed to provide connectivity
among the Company's facilities, selected long distance carriers' POPs, the
ILEC's central offices and the market's primary business centers. In addition,
the Company may deploy network facilities in markets where it achieves a
critical mass of customers using resold or leased facilities.

40
<PAGE> 43

utilities. These arrangements have enabled the Company to obtain access to and
use of rights-of-way, conduit and transmission and distribution facilities in a
timely and cost-effective manner.

The Company's network strategy is best evidenced in the States of
California and Hawaii. In California, the Company holds two Certificates of
Public Convenience and Necessity ("CPCNs") from the California Public Utilities
Commission ("CPUC"), which allows the Company to install its fiber optic cable
along existing public utility corridors, and has a statewide pole attachment
agreement, which enables the Company to expand its infrastructure without the
delays typically experienced in obtaining individual licenses and rights-of-way.

In Hawaii, the Company operates a digital microwave network and is
supplementing its microwave network with terrestrial fiber optic facilities. The
Company has also constructed an inter-island fiber network to extend its
services throughout the State. The Hawaii Public Utilities Commission (the
"HPUC") has approved GST Hawaii's network interconnection agreement and pole
attachment and conduit occupancy agreements with GTE Hawaiian Telephone Company
("GTE"). The Company is in the process of completing its connections to GTE's
Hawaiian network and installing necessary facilities and equipment. GST Hawaii
has also received the HPUC's approval of a master license/lease agreement with
Hawaiian Electric Company and its subsidiaries to place fiber optic cable on
poles and in certain facilities on all islands other than Kauai.

The Company recently began to construct, market and manage longhaul fiber
optic facilities and plans to ultimately assemble an integrated regional network
for the on-net provision of services and to lease longhaul capacity to others.

TELECOMMUNICATIONS NETWORKS AND FACILITIES

The Company's networks comprise fiber optic cables, microwave or other
wireless facilities, integrated switching facilities, advanced electronics, data
switching equipment, transmission equipment and associated wiring and equipment.
The Company typically designs its networks with a ring architecture with
connectivity to the ILEC's central offices, POPs of long distance carriers and
large concentrations of telecommunication intensive end-users.

41
<PAGE> 44

The following table presents information as of September 30, 1997
concerning the Company's networks that are operational and under construction:

<TABLE>
<CAPTION>
CURRENT
OPERATIONAL
DATE COMMERCIALLY ROUTE ESTIMATED APPROXIMATE
LOCATION SERVICE AREA OPERATIONAL(1) MILES(2) ROUTE MILES(3) POPULATION(4)
- --------------------- ------------------------ -------------------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Arizona.............. Phoenix February 1994(5) 12 984,403
Tucson September 1995 27 405,390
California
Northern
California....... Concord, Oakland, San September 1997 15 22 1,324,859
Francisco, Walnut Creek,
Livermore
Hayward, San Ramon September 1997 11 146,801
Mare Island January 1997 12 3 1,000
Pleasanton August 1996 8 50,553
Southern
California....... Loma Linda, Rialto, April 1995 106 541,195
Riverside, San
Bernardino, Monterey
Park
City of Industry, August 1995 46 133,779
Ontario
Los Angeles December 1996 --(6) 3,485,398
Palm Springs 2nd Quarter 1998(7) 10 40,181
Pasadena 1st Quarter 1998 11 131,591
San Joaquin
Valley........... Fresno, Bakersfield November 1996 44 6 529,022
Central Coast...... San Luis Obispo 4th Quarter 1997 5 41,958
Santa Barbara, Goleta 2nd Quarter 1998 17 171,571
Hawaii............... Honolulu (Oahu) February 1997 20 365,272
Idaho................ Boise May 1997 4 1 125,738
New Mexico........... Albuquerque January 1996 67 5 384,736
Oregon............... Portland 1st Quarter 1998 54 437,319
Texas................ Abilene June 1997 1 106,654
Washington........... Spokane September 1996 3 177,196
Vancouver November 1996 6 8 46,380
</TABLE>

- ---------------
(1) Refers to the month during which the Company's network became commercially
operational or the quarter during which the Company expects a network under
construction to become operational. The Company deems a network to be
commercially operational when its fiber optic cable and related electronics
permit the Company to provide service.

(2) Includes owned and leased miles utilized by the networks that have become
commercially operational.

(3) Represents the planned, owned and leased miles that will comprise the
network under construction at the time the network is expected to become
commercially operational or miles under construction for networks that have
become commercially operational.

(4) Based on U.S. Census Bureau data.

(5) The Company acquired 100% ownership of Phoenix Fiber, the owner and operator
of the Phoenix Network, in October 1996. Prior thereto, the Company held a
50% interest in and did not manage this network.

(6) The network in Los Angeles interconnects longhaul traffic with the POPs of
other carriers.

(7) The fiber lease and fiber are in place, however the system is not
operational and no lease payments are being made on account of a dispute
between Southern California Edison Company ("SCE") and various property
owners regarding SCE's power line right-of-way.

The Company's decision to construct a network in a particular locale is
preceded by a review of the area's demographic, economic and competitive
characteristics and telecommunications requirements. The characteristics
examined include location and concentration of potential business, governmental
and academic end-users, the locale's economic prospects, information regarding
demand for the various services offered by the Company and actual and potential
ILEC, CLEC and other competitors. Market demand is estimated using market
research conducted by the Company and from information such as demand sets
provided by interexchange carriers ("IXCs").

The Company's networks are monitored by its network control center located
at the Company's corporate headquarters in Vancouver, Washington. The control
center is staffed by 28 employees and provides network monitoring 24 hours a
day, seven days a week. Advanced monitoring systems allow personnel to diagnose
and resolve problems, generally before customers detect a meaningful
deterioration in service quality.

42
<PAGE> 45

The Company plans to continue to develop and expand its network
infrastructure to ultimately assemble, through a combination of owned and leased
facilities and joint ventures, an integrated regional network for the on-net
provision of CLEC services.

The following table presents information as of September 30, 1997
concerning the Company's longhaul fiber optic facilities that are operational
and under construction:

<TABLE>
<CAPTION>
CURRENT
OPERATIONAL
DATE COMMERCIALLY ROUTE ESTIMATED
LOCATION OPERATIONAL(1) MILES(2) ROUTE MILES(3)
- ------------------------------------------------------- -------------------- ----------- --------------
<S> <C> <C> <C>
Rialto to Oakland...................................... 1st Quarter 1998 556
Los Angeles to San Luis Obispo......................... 3rd Quarter 1998 367
Ontario to Anaheim to Los Angeles...................... March 1997 83
Rialto to Palm Springs................................. 2nd Quarter 1998(4) 54
Taft to Bakersfield.................................... May 1997 39
Coalinga to Fresno..................................... November 1996 44
Taft to Coalinga....................................... 1st Quarter 1998 102
Phoenix to Tucson...................................... 4th Quarter 1997 217
Hawaii Fiber connecting Kauai, Hawaii, Oahu,
Molokai, Maui & Lanai................................ June 1997 344
</TABLE>

- ---------------
(1) Refers to the month the facilities became commercially operational or the
quarter during which the Company expects the facilities under construction
to become operational. The Company deems the facilities to be commercially
operational when its fiber optic cable and related electronics permit the
Company to provide service.

(2) Includes owned and leased miles of facilities that have become commercially
operational.

(3) Represents the planned owned and leased miles that will comprise the
facilities under construction at the time the facilities are expected to
become commercially operational.

(4) The fiber lease and fiber are in place, however, the system is not
operational and no lease payments are being made on account of a dispute
between SCE and various property owners regarding SCE's power line
right-of-way.

The following table presents information as of September 30, 1997
concerning the Company's switches that are operational or are planned to be
installed:

<TABLE>
<CAPTION>
DATE COMMERCIALLY
LOCATION OPERATIONAL(1)
- ----------- -----------------
<S> <C> <C>
Arizona Phoenix........................................................... August 1997
Tucson............................................................ September 1997
California Fresno............................................................ 1st Quarter 1998
Los Angeles....................................................... 1st Quarter 1998
Riverside......................................................... July 1997
San Francisco..................................................... 1st Quarter 1998
San Luis Obispo................................................... 4th Quarter 1997
Walnut Creek...................................................... 4th Quarter 1997
Hawaii Honolulu.......................................................... February 1997
Idaho Boise............................................................. 4th Quarter 1997
New Mexico Albuquerque....................................................... September 1997
Oregon Portland (Vancouver, Washington).................................. 1st Quarter 1998
Texas Houston........................................................... 1st Quarter 1998
Washington Spokane........................................................... 4th Quarter 1997
</TABLE>

- ---------------
(1) Refers to the month during which the switch became operational or the
quarter during which the Company expects the switch to become operational.

MANUFACTURING

The Company, through its equipment subsidiary, NACT, produces advanced
telecommunications switching platforms with integrated applications software and
network telemanagement capabilities. As a single source provider, NACT believes
that it is the only company in its market that designs, develops and
manufactures all hardware and software elements necessary for a fully integrated
turnkey telecommunications switching solution. Because NACT provides an
integrated solution, its customers do not require the multiple suppliers of
hardware and value added resellers of software that would otherwise be necessary
to provide a wide range of end-user services and applications. NACT's customers
include long distance carriers, prepaid

43
<PAGE> 46

debit (calling) card and prepaid cellular network operators, international call
back/reorigination providers and other specialty telecommunications service
providers.

NACT's products and services include the STX application switching
platform, the NTS and facilities management services. In May 1996, NACT
introduced the STX, an integrated digital tandem switching system that currently
supports up to 1,024 ports per switch and can be combined with three additional
STXs to provide a total capacity of 4,096 ports per system. The STX includes
proprietary systems software that enables standard applications such as 1+ and
optional advanced applications such as international call/back reorigination,
prepaid debit card and prepaid cellular. NACT has targeted the STX, with its
enhanced features and scaleable capacity, to an expanded group of customers,
including independent telephone companies, CAPs, CLECs, shared tenant service
providers, Fortune 1000 corporations and local telephone companies outside the
United States. NACT believes that the STX offers value added features and
capacity at price points typically lower than those offered by its competitors.
The NTS performs call rating, accounting, switch management, invoicing and
traffic engineering for multiple switches that may be NACT switches or other
industry switches. In conjunction with the sale of a system, NACT offers a
facilities management service whereby NACT will operate and maintain a
customer's switch for a fee. In providing this service, NACT enables its
customers to direct their attention toward marketing their products rather than
focusing on the technical aspects of operating a switch.

The Company and NACT sold one million and two million shares, respectively,
of NACT's common stock in the NACT Offering, resulting in gross proceeds to the
Company and NACT of $10.0 million and $20.0 million, respectively. As a result
of the NACT Offering, the Company's interest in NACT has been reduced to
approximately 63%. On September 30, 1997, the Company announced that it had
retained Hambrecht & Quist LLC to explore alternatives for monetizing its 63%
interest in NACT, including a potential sale of some or all of its shares of
NACT's capital stock to one or more strategic investors.

In May 1997, the Company acquired Action Telcom, which manufactures NAMS, a
UNIX based software and hardware platform providing automated real-time billing
record collection, fraud protection and network design.

CORPORATE ORGANIZATION

[GST CORPORATE ORGANIZATION CHART]
- ---------------
(1) Unless otherwise indicated, the Company owns 100% of the stock of each
company. GST Telecommunications, Inc. is the issuer of the Convertible
Notes. See "Description of Certain Indebtedness -- Senior Notes and
Convertible Notes."

(2) GST USA owns, directly or indirectly, the stock of all but three of the
Company's operating subsidiaries. GST USA is the issuer of the Senior Notes.
See "Description of Certain Indebtedness -- Senior Notes and Convertible
Notes."

(3) GST Net and its subsidiaries, together with GST Action Telecom, TotalNet and
GST Call America, conduct the Company's long distance operations.

(4) GST SwitchCo is the owner of certain telecommunications equipment. It has
incurred the indebtedness outstanding under the Siemens Loan Agreement. See
"Description of Certain Indebtedness -- Equipment Financing."

(5) GST EquipCo is the owner of certain telecommunications equipment. It has
incurred the indebtedness outstanding under the NTFC Loan Agreement. See
"Description of Certain Indebtedness -- Equipment Financing."

(6) GST Funding is the issuer of the 1997 Notes. See "Description of Certain
Indebtedness -- 1997 Notes."

(7) GST Telecom and its subsidiaries conduct most of the Company's CLEC
operations. Certain of GST Telecom's subsidiaries have incurred indebtedness
under the Tomen Facility. See "Description of Certain Indebtedness -- Tomen
Facility."

(8) The Company owns 63% of the capital stock of NACT. A public offering of
shares of NACT's capital stock representing 37% of the outstanding capital
stock of NACT was completed in the first quarter of 1997. NACT is the
Company's manufacturing subsidiary.

44
<PAGE> 47

SALES CHANNELS AND CUSTOMER SUPPORT

The Company markets its services through five sales channels including a
direct sales force, an inside sales (telemarketing) group, alternate channels
including referral partners, independent agents and resellers, a government
systems group and a wholesale carrier group. As of September 30, 1997, the
Company had 303 sales and marketing employees in 18 cities and utilized 176
agents and independent contractors.

The Company's direct sales personnel offer the Company's full line of
products including long distance, private line, Internet, local and data
transmission services. Sales compensation is incentive-based and designed to
facilitate both the acquisition and retention of customers.

Teams of sales engineers and local service experts are available to support
the sales force in complex or more technical applications. The inside sales and
telemarketing group and referral partner programs generate leads for the direct
sales force. These groups also focus on smaller customers that may use the full
array of products but do not require extensive technical or on-site support.

Local customer service representatives are assigned to particular customers
and are supplemented by local technical sales support personnel and a
centralized group of customer service representatives located in call centers
who respond to after-hours customer inquiries and perform account maintenance.

As of June 30, 1997, the Company had approximately 39,000 customers,
including approximately 20,000 long distance, 4,700 local dial tone customers
and 14,300 Internet customers (substantially all of whom are dial-up customers).
Approximately 8,000 of such customers purchase more than one of the Company's
services.

COMPETITION

The telecommunications industry is highly competitive. In most markets, the
Company's principal competitor is the RBOC or the GTE Companies. Additional
competitors include other CAPs and CLECs, such as Brooks, Teleport
Communications Group, Inc., MFS, American Communications Services Inc. ("ACSI")
and ICG, and may include 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 ILECs outside their current local service
area. In addition, the Company anticipates future competition from large long
distance carriers, such as AT&T, MCI and Sprint, which have begun 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. In addition, a continuing trend toward business combinations and
strategic alliances in the telecommunications industry may further enhance
competition. For example, WorldCom acquired MFS and recently announced that it
entered into an agreement to acquire Brooks, each of which compete with the
Company in several of the markets in which the Company operates. The Company
cannot determine what effect such acquisitions will have on the Company's
business, financial condition and results of operations.

As a recent entrant in the integrated telecommunications services industry,
the Company has not achieved and does not expect to achieve a significant market
share for any of its services. In particular, the RBOCs, the GTE Companies and
other local telephone companies have long-standing relationships with their
customers, have financial, technical and marketing resources substantially
greater than those of the Company, have the potential to subsidize competitive
services with revenues from a variety of businesses and currently benefit from
certain existing regulations that favor the ILECs over the Company in certain
respects. While recent regulatory and legislative initiatives allow CLECs such
as the Company to interconnect with ILEC facilities and provide increased
business opportunities for the Company, such interconnection opportunities have
been accompanied by increased pricing flexibility for, and relaxation of
regulatory oversight of, the ILECs. For example, the FCC granted ILECs
additional flexibility in pricing their interstate special and switched access
services on a central office specific basis. Under this pricing scheme, ILECs
may establish pricing zones based on access traffic density and charge different
prices for central offices in each zone. On

45
<PAGE> 48

February 8, 1997, new FCC rules became effective allowing ILECs to file
streamlined tariffs on 15 days' notice for rate increases and seven days' notice
for rate decreases. Unless the FCC acts during the notice period, such tariffs
become effective at its end.

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. Local telephone companies may also enter the
long distance market, subject to certain conditions. As a result of the
Telecommunications Act, the Company believes that RBOCs also will become
competitors in the long distance telecommunications industry. The Company
believes that the principal competitive factors affecting its long distance
operations are pricing, customer service, accurate billing, clear pricing
policies and, to a lesser extent, variety of services. The ability of the
Company to compete effectively will depend upon its continued ability to
maintain high quality market driven services at prices generally equal to or
below those charged by its competitors. The FCC has, on several occasions since
1984, approved or required price reductions by AT&T and, in 1995, the FCC
announced that AT&T will no longer be regulated as a dominant long distance
carrier. This decision increased AT&T's flexibility in competing in the long
distance services market and eliminated the longer tariff notice requirements
previously applicable only to AT&T. Recently, the FCC has adopted rules that
would eliminate the ability or need of long distance carriers to file tariffs
with the FCC. On February 13, 1997, the United States Court of Appeals for the
District of Columbia Circuit stayed the implementation of such rules. To
maintain its competitive posture, the Company believes that it must be in a
position to reduce its prices in order to meet reductions in rates, if any, by
others. Any such reductions could adversely affect the Company.

The Internet services market is highly competitive. There are no
substantial barriers to entry, and the Company expects that competition will
continue to intensify. The Company's competitors in this market include Internet
access providers, other telecommunications companies, online services providers
and Internet software providers.

The market for telecommunications equipment is highly competitive and
subject to rapid technological change. NACT expects competition to increase in
the future from existing competitors in the distributed switching systems market
and from other companies that may enter NACT's existing or future markets,
including major central office switch vendors. In its manufacturing operations,
the Company, through its subsidiary NACT, competes with a number of lower
capacity switch manufacturers such as CPDI, ITP and PCS Telecom. NACT also
competes with providers of open architecture (programmable) hardware switching
platforms that are enhanced by applications providers and value added resellers.
Such competitors include Excel, which has agreements with software applications
providers. As NACT's business develops and it seeks to market its switches to a
broader customer base, NACT's competitors may include larger switch and
telecommunications equipment manufacturers such as Lucent Technologies Inc.,
Harris Corporation, Siemens AG, Alcatel Alsthom, Telefonaktiebolaget, L.M.
Ericsson and Northern Telecom, Ltd.

Most of the Company's actual and potential competitors in its local
services, long distance, Internet and data services and manufacturing businesses
have substantially greater financial, technical and marketing resources than the
Company. While the Company believes that it is well positioned to compete
effectively, there can be no assurance that it will be able to do so.

The recent WTO agreement on basic telecommunications services could
increase the Company's competition. Under this agreement, the United States and
other members of the WTO committed themselves to opening their
telecommunications markets to competition and foreign ownership and to adopting
regulatory measures to protect competitors against anticompetitive behavior by
dominant telephone companies, effective as early as January 1, 1998.

46
<PAGE> 49

REGULATION

The Company's telecommunications services business is subject to varying
degrees of federal, state and local regulation.

Federal Regulation

The FCC regulates interstate and international telecommunications services.
The Company provides service either on a private carrier basis or on a common
carrier basis. In the interstate market, the primary distinguishing factor
between private carriers and common carriers is that the former provide
customized services to select customers pursuant to individually negotiated
contracts. Common carriers, on the other hand, hold themselves out to serve the
public generally. The FCC imposes certain regulations on common carriers such as
the RBOCs that have some degree of market power. The FCC imposes less regulation
on common carriers without market power including, to date, CAPs/CLECs. The FCC
requires common carriers to receive an authorization to construct and operate
telecommunications facilities between the United States and international
points.

In August 1996, the FCC released its Interconnection Decision. The
Interconnection Decision establishes rules implementing the Telecommunications
Act requirements that ILECs negotiate interconnection agreements and provides
guidelines for review of such agreements by state public utilities commissions.
On July 18, 1997, the Eighth Circuit vacated certain portions of the
Interconnection Decision, including provisions establishing a pricing
methodology and a procedure permitting new entrants to "pick and choose" among
various provisions of existing interconnection agreements between ILECs and
their competitors. On October 14, 1997, the Eighth Circuit issued a decision
vacating additional FCC rules that will likely have the effect of increasing the
cost of obtaining the use of combinations of an ILEC's unbundled network
elements. The Company had negotiated a number of interconnection agreements with
ILECs prior to the July 18 Eighth Circuit decision. The Eighth Circuit decision
creates uncertainty about the rules governing pricing, terms and conditions of
interconnection agreements, and could make negotiating and enforcing such
agreements more difficult and protracted and may require renegotiation of
existing agreements. There can be no assurance that the Company will be able to
obtain or enforce interconnection agreements on terms acceptable to the Company.
The FCC has announced that it will seek a writ of certiorari from the Supreme
Court to review the July 18 Eighth Circuit decision.

In October 1996, the FCC adopted an order in which it eliminated the
requirement that non-dominant interstate carriers such as the Company maintain
tariffs on file with the FCC for domestic interstate services. This order
applies to all non-dominant interstate carriers, including AT&T. The order does
not apply to the RBOCs or other local exchange providers. The FCC order was
issued pursuant to authority granted to the FCC in the Telecommunications Act to
"forbear" from regulating any telecommunications services provider if the FCC
determines that the public interest will be served. After a nine-month
transition period, relationships between interstate carriers and their customers
will be set by contract. At that point long distance companies may no longer
file with the FCC tariffs for interstate, domestic, interexchange services.
Carriers have the option to immediately cease filing tariffs. Several parties
have filed notices for reconsideration of the FCC order and other parties
appealed the decision. On February 13, 1997, the United States Court of Appeals
for the District of Columbia Circuit stayed the implementation of the FCC order.

If the stay is lifted and the FCC order becomes effective,
telecommunications carriers such as the Company, will no longer be able to rely
on the filing of tariffs with the FCC as a means of providing notice to
customers of prices, terms and conditions on which they offer their interstate
services. The obligation to provide non-discriminatory, just and reasonable
prices remains unchanged under the Communications Act of 1934, as amended (the
"Communications Act"). While tariffs provided a means of providing notice of
prices, terms and conditions, the Company has always relied primarily on its
sales force and direct marketing to provide such information to its customers
and expects to continue to do so in the future.

47
<PAGE> 50

The Telecommunications Act is intended to increase competition. The act
opens the local services market by requiring ILECs to permit interconnection to
their networks and establishing ILEC obligations with respect to:

Reciprocal Compensation. Requires all ILECs and CLECs to complete calls
originated by competing carriers under reciprocal arrangements at prices based
on a reasonable approximation of incremental cost or through mutual exchange of
traffic without explicit payment.

Resale. Requires all ILECs and CLECs to permit resale of their
telecommunications services without unreasonable restrictions or conditions. In
addition, ILECs are required to offer wholesale versions of all retail services
to other telecommunications carriers for resale at discounted rates, based on
the costs avoided by the ILEC in the wholesale offering.

Interconnection. Requires all ILECs and CLECs to permit their competitors
to interconnect with their facilities. Requires all ILECs to permit
interconnection at any technically feasible point within their networks, on
nondiscriminatory terms, at prices based on cost (which may include a reasonable
profit). At the option of the carrier seeking interconnection, collocation of
the requesting carrier's equipment in the ILECs' premises must be offered,
except where the ILEC can demonstrate space limitations or other technical
impediments to collocation.

Unbundled Access. Requires all ILECs to provide nondiscriminatory access
to unbundled network elements (including, network facilities, equipment,
features, functions, and capabilities) at any technically feasible point within
their networks, on nondiscriminatory terms, at prices based on cost (which may
include a reasonable profit).

Number Portability. Requires all ILECs and CLECs to permit users of
telecommunications services to retain existing telephone numbers without
impairment of quality, reliability or convenience when switching from one
telecommunications carrier to another.

Dialing Parity. Requires all ILECs and CLECs to provide "1+" equal access
to competing providers of telephone exchange service and toll service, and to
provide nondiscriminatory access to telephone numbers, operator services,
directory assistance, and directory listing, with no unreasonable dialing
delays.

Access to Rights-of-Way. Requires all ILECs and CLECs to permit competing
carriers access to poles, ducts, conduits and rights-of-way at regulated prices.

ILECs are required to negotiate in good faith with carriers requesting any
or all of the above arrangements. If the negotiating carriers cannot reach
agreement within a prescribed time, either carrier may request binding
arbitration of the disputed issues by the state regulatory commission. Where an
agreement has not been reached, ILECs remain subject to interconnection
obligations established by the FCC and state telecommunication regulatory
commissions.

48
<PAGE> 51

The Telecommunications Act also codifies the ILECs' equal access and
nondiscrimination obligations and preempts inconsistent state regulation. The
Telecommunications Act also contains special provisions that eliminate the AT&T
Antitrust Consent Decree (and similar antitrust restrictions on the GTE
Companies) restricting the RBOCs from providing long distance services and
engaging in telecommunications equipment manufacturing. These provisions permit
a RBOC to enter the long distance market in its traditional service area if it
satisfies several procedural and substantive requirements, including obtaining
FCC approval upon a showing that facilities-based competition is present in its
market, that the RBOC has entered into interconnection agreements in those
states in which it seeks long distance relief, the interconnection agreements
satisfy a 14-point "checklist" of competitive requirements, and the FCC is
satisfied that the RBOC's entry into long distance markets is in the public
interest. SBC, the RBOC serving some of the states served by the Company,
applied to the FCC for such authority which was denied. SBC has appealed the
denial and has sought to have the provisions declared unconstitutional. The
Telecommunications Act permits the RBOCs to enter the out-of-region long
distance market immediately upon its enactment.

Under the Telecommunications Act, any entity, including cable television
companies and electric and gas utilities, may enter any telecommunications
market, subject to reasonable state regulation of safety, quality and consumer
protection. Because implementation of the Telecommunications Act is subject to
numerous federal and state policy rulemaking proceedings and judicial review
there is still uncertainty as to what impact such legislation will have on the
Company.

Pursuant to authority granted by the FCC, the Company resells the
international telecommunications services of other common carriers between the
United States and international points. In connection with such authority,
certain of the Company's subsidiaries have filed tariffs stating the rates,
terms and conditions for their international services. The FCC has determined
that call reorigination service using uncompleted call signaling does not
violate United States or international law, but has held that United States
companies providing such services must comply with the laws of the countries in
which they operate as a condition of such companies' Section 214 authorizations.

With respect to its domestic service offerings, various subsidiaries of the
Company have filed tariffs with the FCC stating the rates, terms and conditions
for their interstate services. To the extent that such subsidiaries provide
intrastate services, they may be required to obtain authority from state
regulatory authorities prior to providing such services. Such subsidiaries have
been granted authority in 43 states and the District of Columbia and the Company
is applying for such authority in the remaining states, excluding Alaska. There
can be no assurance that such state authorizations will be granted.

NACT is authorized by the FCC to provide international telecommunications
services. Any intrastate telecommunications services provided by NACT may
require authority from state regulatory agencies and any interstate services
require NACT to file an FCC tariff. There can be no assurance that such
authorizations will be granted.

Except in certain designated geographically competitive zones, the current
policy of the FCC for most special access services dictates that ILECs charge
all customers the same price for the same service. Thus, the ILECs generally
cannot lower prices to those customers likely to contract for their services
without also lowering charges for the same service to all customers in the same
geographic area, including those whose telecommunications requirements would not
justify the use of such lower prices. The FCC may, however, alleviate this
constraint on the ILECs and permit them to offer special rate packages to very
large customers, as it has done in few cases, or permit other forms of rate
flexibility. The FCC has adopted proposals that significantly lessen the
regulation of ILECs that are subject to competition in their service areas and
provide such ILECs with additional flexibility in pricing their interstate
switched and special access on a central office specific basis.

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effect on the Company's ability to compete in providing interstate access
services. On May 16, 1997, the FCC released an order revising its access charge
rate structure. The new rules substantially increase the costs that ILECs
subject to the FCC's price cap rules ("price cap LECs") recover through monthly,
non-traffic sensitive access charges and substantially decrease the costs that
price cap LECs recover through traffic sensitive access charges. In the May 16th
order, the FCC also announced its plan to bring interstate access rate levels
more in line with cost. The plan will include rules which are expected to be
established sometime in 1997 that grant price cap LECs increased pricing
flexibility upon demonstrations of increased competition (or potential
competition) in relevant markets. The manner in which the FCC implements this
approach to lowering access charge levels could have a material effect on the
Company's ability to compete in providing interstate access services. Several
parties have appealed the May 16th order. Those appeals have been consolidated
and transferred to the United States Court of Appeals for the Eighth Circuit
where they are currently pending.

Under the Communications Act and other federal regulations, foreign
nationals may not own more than 20% of a company, or have more than a 20% voting
interest in a company, that directly holds a common carrier radio license. The
Communications Act also prohibits foreign nationals from owning 25% or more of a
company which, in turn, controls a company holding a radio license, if the FCC
finds that such alien participation would not serve the public interest. Under
the WTO agreement, the United States agreed to increase the foreign ownership up
to 100%, however while the FCC has proposed rules implementing the WTO policies
there can be no assurance as to when the FCC will change its policy. The
operations of GST Hawaii use among other facilities, microwave radio facilities
operating pursuant to FCC licenses granted to PNI, an entity controlled by John
Warta, the Chairman of the Board and Chief Executive Officer of the Company. The
FCC also has the authority, which it is not presently exercising, to impose
restrictions on foreign ownership of communications service providers not
utilizing radio frequencies, which if exercised could have a material adverse
effect on the Company's business. In addition, the networks may subsequently
need to obtain radio licenses to "fill in" certain customers in the networks
that are not practical to reach by wire. Should the Company require a common
carrier radio license in the future, it may be prohibited from obtaining such
license because of the foreign ownership restrictions of the Communications Act.

State Regulation

The Telecommunications Act is intended to increase competition in the
telecommunications industry, especially in the local exchange market. With
respect to local services, ILECs are required to allow interconnection to their
networks and to provide unbundled access to network facilities, as well as a
number of other procompetitive measures. Because the implementation of the
Telecommunications Act is subject to numerous state rulemaking proceedings on
these issues, it is currently difficult to predict how quickly full competition
for local services, including local dial tone, will be introduced.

State regulatory agencies have regulatory jurisdiction when Company
facilities and services are used to provide intrastate services. A portion of
the Company's current traffic may be classified as intrastate and therefore
subject to state regulation. The Company expects that it will offer more
intrastate services (including intrastate switched services) as its business and
product lines expand and state regulations are modified to allow increased local
services competition. To provide intrastate services, the Company generally must
obtain a CPCN from the state regulatory agency and comply with state
requirements for telecommunications utilities, including state tariffing
requirements. The Company has obtained CPCNs for its subsidiaries to provide
intrastate toll service in 43 states and the District of Columbia and has
applied for such authority in the remaining states, excluding Alaska. In
addition, the Company has obtained authority to provide local exchange services
on a resale or facilities-based basis in 10 states and the Northern Marianas
Islands.

Arizona. In Arizona, the Tucson and Phoenix networks and alternate access
transmission services, to the extent that they provide the transmission of
messages or telephone service within Arizona, could be deemed public service
corporations and subject to the jurisdiction of the Arizona Corporation
Commission (the "ACC") for certain purposes. GST Net (AZ), Inc. ("GST Net (AZ)")
has received a Certificate of Convenience and Necessity ("CCN") from the ACC to
provide jurisdictionally intrastate special access, private line and/or local
exchange services in Arizona. GST Tucson Lightwave, Inc. ("GST Tucson") has

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entered into a license agreement with Pima County (the county in which Tucson is
located) which was officially recorded on July 16, 1996, to construct, install,
maintain and operate a fiber optics communication system in the public
right-of-way. See " -- Legal Proceedings."

California. Both GST Pacific Lightwave, Inc. ("GST Pacific") and GST
Telecom California, Inc. ("GST California") have been granted authority to
provide both facilities-based and resale local exchange services in the areas
served by Pacific Bell and GTE California Incorporated ("GTE California"). GST
California and GST Pacific have entered into an interconnection agreement with
GTE California which became effective October 17, 1996. GST California and GST
Pacific have entered into an interconnection agreement with Pacific Bell for the
State of California which became effective December 30, 1996.

Hawaii. The HPUC has granted GST Hawaii a CPCN as a carrier of voice and
data on a point to point basis in Hawaii. Under the HPUC's rules governing
competition in telecommunication services, an application by GST Hawaii for an
expanded CPCN is no longer necessary. GST Hawaii must file an application for
any proposed, modified, or new tariffed service, unless ordered otherwise by the
HPUC. GST Hawaii's CLEC tariff became effective on September 4, 1996. The HPUC
has also approved GST Hawaii's interconnection agreement with GTE. A revision to
the original interconnection agreement is currently pending before the HPUC. GST
Hawaii is in the process of completing its connections to GTE's Hawaiian
network.

Idaho. GST Telecom Idaho, Inc. ("GST Idaho") has authority from the Idaho
Public Utilities Commission (the "Idaho Commission") to provide
telecommunications services on a statewide basis to business customers with six
or more lines. GST Idaho has also been granted authority from the Idaho
Commission to provide telecommunications services to customers with fewer than
six lines in the GTE Companies and U S WEST Communications, Inc. ("U S WEST")
exchanges.

Nevada. GST Telecom Nevada, Inc. was granted CLEC and resale authority on
September 27, 1996, by the issuance of a CPCN by the Public Service Commission
of Nevada.

New Mexico. On October 23, 1995, GST Telecom New Mexico, Inc. was granted
a CPCN from the New Mexico State Corporation Commission to provide intrastate,
non-switched private line services. Its authority to provide resold
interexchange services was approved on January 6, 1997 and its statewide CLEC
authority was granted on May 30, 1997.

Oregon. On March 5, 1997, GST Telecom Oregon, Inc. was granted CLEC
authority.

Texas. The Texas Public Utilities Commission on August 9, 1996 approved
the application of GST Telecom Texas, Inc. ("GST Texas") for a certificate of
operating authority on a statewide basis to resell telecommunications services.
GST Texas' authority was expanded to include facilities-based services on June
4, 1997.

Washington. GST Telecom Washington, Inc. ("GST Washington") is currently
authorized to provide both resold and facilities-based services, including local
exchange services, message toll, operator services and carrier access services.
GST Washington's request for competitive status was approved June 11, 1997.

Local Regulation

The networks are subject to numerous local regulations such as building
codes and licensing. Such regulations vary on a city by city and county by
county basis. The Company needs to obtain rights-of-way over private and
publicly owned land to permit the installation of the fiber optic
telecommunication equipment.

GST GLOBAL TELECOMMUNICATIONS INC.

At September 30, 1997, the Company has invested approximately $3.7 million
in Global and held approximately 3.6 million common shares and warrants to
purchase 750,000 additional shares. On September 30, 1997, Global had
approximately 14.1 million shares outstanding. Global is to issue to the Company
additional common shares of Global, subject to approval of the VSE, in
consideration for the transfer by the Company to Global of its rights in and to
the Bestel Project. In addition, certain executive officers and directors hold
an aggregate of 553,896 common shares of Global and options and warrants to

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purchase 224,500 additional common shares of Global. Global employs its own
operating management and has raised capital required for its proposed
activities. As of September 30, 1997, Global had raised approximately $21.0
million through private placements of its common shares and $37.8 million
through private placements of long term debt.

Global has subscribed, through a subsidiary, GST Mextel, Inc., a Delaware
corporation, for 49% of the outstanding shares of Bestel, S.A. de C.V.
("Bestel"). The total consideration is approximately $13.7 million, of which
approximately $12.0 million has been paid. The remaining 51% will be held by
Occidental Telecommunicacion, S.A. de C.V. ("Occidental"). In addition, Global
has agreed to loan an aggregate of up to $36.0 million to Bestel, of which $26.0
million has been advanced to date. Bestel plans to construct and operate a 2,270
kilometer fiber optic telecommunications network in Mexico to become a
facilities-based long distance carrier, of which approximately 1,100 kilometers
of conduit and 180 kilometers of fiber optic cable has been constructed to date.

Global has also acquired from Cable and Wireless an 80% interest in
Vitacom, for a purchase price of $1.5 million. The remaining 20% is held by
Cable and Wireless, which can require Global to purchase such interest in 1999.
Vitacom is engaged in the provision of voice, high speed data information and
other services and the manufacture and sale of VSAT (very small aperture
satellite terminal) and other equipment used to access the Internet.

EMPLOYEES

As of September 30, 1997, the Company and its subsidiaries had 1,160
full-time employees. None of such employees is covered by a collective
bargaining agreement. The Company considers its relationship with its employees
to be satisfactory.

FACILITIES

The Company owns a building comprising 60,000 square feet that contains its
principal executive offices located at 4317 N.E. Thurston Way, Vancouver,
Washington 98662. Its telephone number at that address is (360) 254-4700.

The Company recently purchased property comprising approximately 13,000
square feet in Molokai, Hawaii for a total purchase price of approximately
$127,000 as well as property comprising approximately 320 square feet in Hilo,
Hawaii for a total purchase price of approximately $38,000.

The Company leases offices elsewhere in the United States, in Vancouver,
British Columbia and in Japan, pursuant to leases which expire on various dates
through December 31, 2007. The Company's current aggregate annual rental expense
is approximately $4.5 million.

The Company is negotiating leases for spaces in California, Washington and
Texas for an aggregate additional cost expected to be approximately $138,000 per
year.

LEGAL PROCEEDINGS

On August 24, 1995, Aerotel, Ltd. and Aerotel U.S.A., Inc. (collectively,
"Aerotel") commenced an action against NACT and a customer of NACT in the United
States District Court, Southern District of New York, alleging that telephone
systems manufactured and sold by NACT incorporating prepaid debit card features
infringe upon Aerotel's patent which was issued in November 1987 (the "Aerotel
Patent"). The initial complaint further alleged defamation and unfair
competition as a result of a Special Report disseminated by NACT to its
customers and tortious interference with prospective business relations,
alleging that NACT induced third parties to abandon licensing negotiations with
Aerotel. Aerotel sought injunctive relief, damages in an unspecified amount,
damages of up to three times the damages found for willful infringement of the
Aerotel Patent and an order requiring NACT to publish a written apology to
Aerotel. NACT filed an answer and Counterclaim in which it denied infringement
of the Aerotel Patent and sought judgment that the Aerotel Patent is invalid and
unenforceable and that Aerotel has misused its patent in violation of antitrust
laws. NACT also denied that it has committed defamation, unfair competition and

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tortious interference with prospective business relations. On May 3, 1996, NACT
served its motion for summary judgment. The Court has indicated it will deny
such motion, although the actual ruling has not yet been received. Aerotel
recently amended its complaint to include as defendants GST and GST USA as well
as Kyle Love, the former President of NACT and Dr. Thomas E. Sawyer, a director
of GST and NACT and the former Chairman and Chief Executive Officer of NACT. The
amended pleadings allege that GST and GST USA have infringed the Aerotel patent,
aided and abetted infringement by others, including NACT, and participated in,
and aided and abetted alleged tortious conduct by NACT. GST and GST USA have
served answers denying all material allegations and intend to defend vigorously.
Pretrial discovery has commenced and is scheduled to be completed in 1998. The
case is not expected to be tried until late 1998 at the earliest. NACT's patent
counsel believes that NACT has valid defenses to the Aerotel claims. If upheld,
these defenses would also be valid for all defendants. An unfavorable decision
in this action could have a material adverse effect on the Company.

On July 5, 1994, the Tucson City Council (the "Council") awarded GST Tucson
a non-exclusive fiber optic communication license that permits GST Tucson, for a
period of 25 years, to conduct, maintain and operate in and across designated
portions of city-owned rights-of-way. On June 12, 1995, the Council approved the
City of Tucson Competitive Telecommunications Code (the "Tucson Code"), which
was subsequently amended on July 10, 1995. The Tucson Code now provides, among
other things, (i) that the City of Tucson grant licenses for a period of 15
years, (ii) for an increase from 2% to 5 1/2% of gross revenues to be paid by
licensees and (iii) for cancellation of a license in certain events. The Council
subsequently refused to permit GST Tucson to modify the route plans previously
approved in order to construct connections between its customers and the
network, asserting that GST Tucson's existing license does not permit such
action and requiring GST Tucson to receive an amended license under the Tucson
Code to modify its route plans. After trying to negotiate a settlement with the
City of Tucson with respect to its license, GST Tucson commenced an action in
the Superior Court of Arizona, County of Pima, against the City of Tucson. The
Court ruled in favor of the City that the City Engineer does not have the
authority to grant modifications from the route map, that such route
modifications must be approved by the Council and that the City could condition
GST Tucson's application for a franchise for intrastate service on a
relinquishment of GST Tucson's existing license. GST Tucson appealed the
Superior Court's rulings and subsequently filed a petition for review in the
Arizona Supreme Court. On May 13, 1996, GST Tucson instituted an action in the
United States District Court for the District of Arizona against the City of
Tucson seeking a declaratory judgment and injunctive relief arising out of the
City of Tucson's failure to manage its public rights-of-way in a competitively
neutral and nondiscriminatory manner in violation of the Telecommunications Act.
The Court dismissed GST Tucson's action. GST Tucson filed a Notice of Appeal to
the United States Court of Appeals for the Ninth Circuit on January 16, 1997. On
August 5, 1997, the Tucson City Council approved a settlement agreement that
resolves the Superior Court action. Under the terms of the settlement agreement,
GST Tucson has agreed to pay the City the annual license fee called for by the
Tucson Code that amounts to 5 1/2% of gross revenues, and the City has permitted
GST Tucson to modify its current route map and to serve customers throughout the
City limits. While dismissing the pending state court appeal, the parties agreed
to allow the United States Court of Appeals for the Ninth Circuit to decide the
pending legal issue relating to whether companies like GST Tucson enjoy a
private right of action to assert right-of-way claims under Section 253(c) of
the Telecommunications Act in the United States District Courts.

On or about February 25, 1997, U S WEST filed a declaratory judgment action
against members of the ACC, the ACC, ACSI, Brooks and the Company in the United
States District Court in Arizona. The Company understands that one or more
substantially similar lawsuits have been filed against other CLECs, including
MFS, Sprint, MCI and AT&T. U S WEST alleges that the ACC has entered into an
interconnection order that unlawfully requires U S WEST to resell services below
cost, imposes resale restrictions and denies U S WEST recovery for construction
and implementation costs, unlawfully treats the cost recovery of access revenues
for interim number portability, requires U S WEST to obtain additional rights of
way or build additional facilities solely to provide access to the Company, and
amounts to a taking of U S WEST's property without just compensation. U S WEST
seeks a declaratory judgment stating that the ACC has violated the
Telecommunications Act and that the ACC has taken U S WEST's property without
providing just compensation. U S WEST also seeks an injunction prohibiting all
defendants, including the

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Company, from taking any action to enforce any of the order's allegedly unlawful
provisions. The Company's time to answer or move against the complaint has been
extended indefinitely by U S WEST, pending a decision with respect to a motion
filed by MFS to dismiss the complaint. Should U S WEST prevail in its suit, it
could have an adverse impact on the Company's operations in Arizona.

On or about April 8, 1997, U S WEST filed a state court proceeding against
the ACC, individual members of the ACC, and GST Net (AZ), which holds a CCN to
provide local exchange service in Arizona. In its complaint appealing the ACC's
February 6, 1997 decision and order granting GST Net (AZ) its CCN, U S WEST
alleges that the ACC's action violates certain requirements of the Arizona
Constitution relating to rate of return regulation, carrier of last resort
obligations, and equal protection. The appeal seeks to subject GST Net (AZ) and
U S WEST to identical forms of regulation, treating both carriers as either
traditional monopoly carriers or as co-equal competitive companies. GST Net (AZ)
answered U S WEST's complaint on August 6, 1997, alleging, among other things,
that U S WEST's complaint is preempted by the Telecommunications Act. Should U S
WEST prevail in its appeal, it could have an adverse impact on the Company's
operations in Arizona; however, the magnitude thereof is uncertain at this time.

The Company is not a party to any other material legal proceedings, nor, to
the knowledge of the Company, are any material legal proceedings threatened
against the Company. The Company is a party to various proceedings before the
public utilities commissions of the states in which it provides or proposes to
provide telecommunications services. These proceedings typically relate to
licensure of the Company or others and to the regulation of the provision of
telecommunications service.

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MANAGEMENT

The following table sets forth certain information concerning the
directors, executive officers and other key personnel of the Company, including
their ages as of October 15, 1997.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- --------------------------------------------------
<S> <C> <C>
John Warta......................... 50 Chairman of the Board and Chief Executive Officer
Stephen Irwin...................... 56 Vice Chairman of the Board and Secretary
Joseph A. Basile, Jr............... 42 President, Chief Operating Officer and Director
Daniel L. Trampush................. 50 Senior Vice President and Chief Financial Officer
Clifford V. Sander................. 60 Senior Vice President and Treasurer
Robert H. Hanson(1)................ 56 Senior Vice President -- Corporate Development and
Director
Thomas E. Sawyer................... 65 Director
Ian Watson(1)...................... 55 Director
Joseph G. Fogg, III(1)(3).......... 50 Director
Mitsuhiro Naoe..................... 64 Director
W. Gordon Blankstein............... 47 Director
Jack G. Armstrong(1)(2)(3)......... 63 Director
Peter E. Legault(2)(3)............. 53 Director
A. Roy Megarry(2).................. 60 Director
Daniel G. Moffat................... 43 Chief Marketing Officer
Kevin Wright....................... 44 Chief Technical Officer
</TABLE>

- ------------

(1) Member of Finance Committee

(2) Member of Audit Committee

(3) Member of Compensation Committee

John Warta has been Chairman of the Board of the Company since March 1997
and has been Chief Executive Officer of the Company since March 1995. Mr. Warta
was President and a director of the Company from March 1995 to March 1997. From
June 1994 to April 1995, he was the President and Chief Executive Officer of GST
Telecom. Mr. Warta co-founded Electric Lightwave, Inc. ("ELI") in 1988, which
operates fiber optic competitive access networks in Portland, Oregon, Salt Lake
City, Utah, Sacramento, California, Phoenix, Arizona and Seattle, Washington and
served as its President and Chief Executive Officer from June 1989 to June 1993.
From June 1993 to June 1994, Mr. Warta was developing the competitive access
networks of Pacwest. From December 1986 to January 1988, he was Senior Vice
President, Marketing, Sales and Corporate Development for NorLight, a regional
fiber optic carrier in the Midwest, and from August 1980 to December 1986 he was
Senior Vice President of The American Network Group, Inc., a long distance
carrier. Prior employment included management positions with Pacific Telecom,
Inc. and Electronic Data Systems Corporation. Mr. Warta attended Metropolitan
State College, Denver, Colorado and completed Effective Executive Training at
the Wharton School of Business, University of Pennsylvania. He currently serves
on the Board of Regents, St. Mary's College, California.

Stephen Irwin has been Vice Chairman of the Board and a director of the
Company since September 1995 and has been the Secretary of the Company since
November 1992 and is a director of NACT. Mr. Irwin has been engaged by the
Company under a personal services agreement since October 1, 1995. Mr. Irwin is
an attorney specializing in corporate matters including finance, securities
regulation, international business and mergers and acquisitions, and has been of
counsel to the New York law firm of Olshan Grundman Frome & Rosenzweig LLP since
1990. Mr. Irwin was a senior partner in Greenberg, Irwin and Weisinger, a New
York

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law firm specializing in securities, business and corporate matters, from 1968
to 1990. He is a graduate of Cornell Law School.

Joseph A. Basile, Jr. has been President and Chief Operating Officer of the
Company since March 1997 and has been a director of the Company since September
1997. From September 1995 to March 1997, Mr. Basile was Chief Operating Officer
of Cable and Wireless, a diversified telecommunications company, and from
September 1991 to September 1995, he was Senior Vice President -- Systems for
Cable and Wireless. Mr. Basile has over 15 years experience in the
telecommunications industry and has held positions with National Telephone
Services, Inc. and MCI. He holds a B.S. in engineering from the United States
Military Academy and an M.B.A. from Golden Gate University.

Daniel L. Trampush has been Senior Vice President and Chief Financial
Officer of the Company since March 1997. From 1980 to February 1997, Mr.
Trampush was a Partner with the telecommunications consulting practice of Ernst
& Young LLP. Mr. Trampush has over 26 years of experience providing financial
and business advisory services to the telecommunications industry.

Clifford V. Sander has been Senior Vice President and Treasurer of the
Company since March 1995 and is a director of NACT. He has also been the
Executive Vice President and Chief Financial Officer of GST Telecom since June
1994. From 1962 to 1994, Mr. Sander was in private accounting practice in
Portland, Oregon. He was acting Chief Financial Officer of ELI during its
formation in 1988 and continued to provide accounting and financial consulting
services to ELI through 1993. Mr. Sander is a Certified Public Accountant.

Robert H. Hanson has been a director of the Company since February 1993 and
was appointed Senior Vice President -- Corporate Development in October 1993 and
served as Chief Financial Officer of the Company from July 1994 until March
1997. Mr. Hanson has over 20 years of experience in rendering investment banking
services to the telecommunications industry. From 1965 to 1990, Mr. Hanson was
associated with the investment banking and capital markets division of Merrill
Lynch & Co., Inc., since 1971 as Vice President. From 1990 to 1991, he was
affiliated with Dean Witter Reynolds Inc. and from August 1991 until September
1993, he was Vice President and Branch Manager of the Cody, Wyoming office of
D.A. Davidson & Co., a regional securities firm with headquarters in Great
Falls, Montana. Mr. Hanson is a graduate of Yale University.

Thomas E. Sawyer has been a director of the Company since September 1997
and was a director of the Company from August 1995 to June 1997. Dr. Sawyer has
been a director of NACT since April 1997, was the Chairman of the Board Emeritus
of NACT from November 1996 to April 1997, was a director of NACT from 1982 to
November 1996, the Chairman of the Board of NACT from October 1985 to November
1996 and was the Chief Executive Officer of NACT from October 1988 to March
1996. Dr. Sawyer has over 35 years of experience in information technology
industries and 23 years of experience in senior management of four
publicly-traded information technology firms. He holds an undergraduate degree
in engineering from the University of California at Los Angeles, an M.B.A. from
Occidental and a Ph.D. in management from Walden University.

Ian Watson has been a director of the Company since January 1993, was
appointed Chairman of the Board of the Company in January 1993 and President and
Chief Executive Officer in July 1993. In March 1995, he resigned as President
and Chief Executive Officer but retained the position of Chairman of the Board.
In September 1995, he resigned as Chairman of the Board, but remained a Vice
President of GST USA. He is the Vice Chairman of the Board of Global. From 1982
until January 1993, Mr. Watson was engaged as a private investor in various
activities. From 1974 through 1980, he was the Managing Director of Burns Fry
International, an investment bank, based in London, England, and a director of
Burns Fry of Toronto, Ontario and a member of its five person Executive
Committee. Mr. Watson was the Chairman of the Global Board of The Hunger Project
from 1987 to 1994, and serves as director of a number of international
charities.

Joseph G. Fogg, III has been a director of the Company since June 1997. Mr.
Fogg has been the Chairman and Chief Executive Officer of J.G. Fogg & Co.
Incorporated, a private venture capital firm, since 1993. He has been affiliated
with Morgan Stanley & Co. Incorporated since 1970 and has been an Advisory

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Director since 1992. Mr. Fogg has been Co-Chairman of the Investment Committee
of Princes Gate since its inception.

Mitsuhiro Naoe has been a director of the Company since June 1997. Mr. Naoe
has been the Advisor to the President of Tomen Electronics Corporation since
July 1995. He was the President and a director of Areal Technology, Inc. from
December 1992 to July 1994, the General Manager of the Steel Division of Tomen
from March to December 1992, the Vice President and a Director of Coil Center
Corporation from July 1989 to March 1992. From 1957 to 1989, Mr. Naoe was
affiliated with Tomen.

W. Gordon Blankstein has been a director of the Company since January 1994.
He was the Vice Chairman of the Board of the Company from March 1997 to October
1997, was Chairman of the Board of the Company from February 1995 to March 1997
and was a founder of the Company. Mr. Blankstein is a director of NACT and the
Chairman of the Board of Global. He is a founder, past President and Chairman of
the Board and former director of ICG Communications, Inc. Mr. Blankstein holds a
Bachelor's degree and an M.B.A. from the University of British Columbia.

Jack G. Armstrong has been a director of the Company since July 1994. He
has served as a principal of J.G. Armstrong Consulting, Inc., a consulting firm
offering corporate and financial consulting services to corporations,
municipalities and university related agencies since 1987. From 1977 to 1987, he
served as the Senior Vice President in charge of Finance at Alberta Energy
Company Ltd., an energy company. From 1969 to 1977, Mr. Armstrong served as Vice
President, Treasurer and Comptroller of Panarctic Oils Ltd., an oil company, and
from 1958 to 1969, as Chief Accountant of Triad Oil Co. Ltd., the Canadian
exploration arm of the British Petroleum Group. Mr. Armstrong is a chartered
accountant.

Peter E. Legault has been a director of the Company since April 1993. Mr.
Legault has been a director and Vice President of Thomson Kernaghan & Co. Ltd.,
a member firm of the TSE and The Montreal Exchange (the "ME"), since October 19,
1987. Mr. Legault is also a director of Global. He is also President of Legault
Investment Counsel Inc., a private company providing research and advice to
companies and individuals in the communications industry. Prior to 1987, Mr.
Legault was the President of Pollitt, Legault & Co., a member of each of the TSE
and ME.

A. Roy Megarry has been a director of the Company since September 1997. He
has been the Chairman of The Globe and Mail, Canada's national newspaper since
1993 and was the publisher of The Globe and Mail from 1978 to 1993. Mr. Megarry
is a director of Hewlett-Packard (Canada) Limited, The Bombay Company, Inc.,
Publicitas Globe Media and the Inter American Press Association. He is involved
in Tools for Development, a third-world development program. Mr. Megarry has a
C.M.A. accounting degree and is a Fellow of the Society of Management
Accountants of Canada.

Daniel G. Moffat has been Chief Marketing Officer of the Company since
March 1997. From January 1996 to February 1997, Mr. Moffat was a principal with
the telecommunications consulting firm Cathey, Hutton and Associates where he
was responsible for development of business and marketing strategies for
telecommunications incumbents, new entrants and equipment vendors. From February
1993 to December 1995, Mr. Moffat was President of Access Value Services, a
consulting firm focused on business strategies for telecommunications industry
change. Over the past 20 years, Mr. Moffat has held various senior
telecommunications positions in operations, engineering, marketing and sales
with Tymnet, IBM/ROLM, U S WEST, Pacific Telecom and U.S. Intelco Networks. He
is an instructor in Telecommunications at Marylhurst College. He holds a B.S. in
finance, a M.S. in telecommunications from Golden Gate University and a M.B.A.
from Santa Clara University.

Kevin Wright has been the Chief Technical Officer of the Company since
August 1997. From May 1996 to July 1997, Mr. Wright was Senior Vice President of
engineering and operations for US ONE Communications, a CLEC, where he was
responsible for all network planning, engineering and operations. From September
1994 to March 1996, he was Senior Vice President, Engineering for Qwest
Communications and from May 1993 to September 1994, he was Vice President,
Business and Technology Development with LCI International. Mr. Wright has over
20 years' experience in the telecommunications industry.

57
<PAGE> 60

Each director holds office until the next annual meeting or until his
successor is duly elected, unless his office is vacated earlier in accordance
with the by-laws of GST. Subject to the terms of applicable employment
agreements, the executive officers of GST serve at the pleasure of the Board of
Directors.

SUMMARY COMPENSATION TABLE

The following table discloses the compensation paid by the Company and its
subsidiaries during the previous three fiscal years to the Company's Chief
Executive Officer and the six next highest paid executive officers.

<TABLE>
<CAPTION>
ANNUAL COMPENSATION SECURITIES
----------------------------------------- UNDERLYING
OTHER ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION(1) YEAR SALARY BONUS COMPENSATION(2) GRANTED(#) COMPENSATION
- ----------------------------------- ---- -------- ----- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
John M. Warta,..................... 1996 $200,000 -- $ 156,000(3) 200,000 $105,417(4)
President and Chief Executive
Officer 1995 126,667 -- 200,304(5) 85,000 --
1994 30,000 -- -- 40,000 --
Stephen Irwin,..................... 1996 280,000 -- -- 500,000 105,417(4)
Vice Chairman 1995 -- -- -- 100,000 --
1994 -- -- -- 15,000 --
W. Gordon Blankstein,.............. 1996 190,000 -- -- 200,000 105,417(4)
Chairman 1995 125,833 -- 20,000(6) 85,000 --
1994 20,000 -- -- 92,500 --
Clifford V. Sander,................ 1996 120,000 -- 39,000(3) 28,000 5,104(7)
Senior Vice President and
Treasurer 1995 101,667 -- 65,076(8) 35,000 --
1994 25,000 -- -- 20,000 --
Thomas E. Sawyer,.................. 1996 222,556 2,066 5,608(9) 5,000 5,403(10)
Chief Technology Officer 1995 136,000 2,200 172,037(11) 120,000 4,366(12)
1994 131,505 6,723 12,915(9) 35,000 3,455(12)
Robert Hanson,..................... 1996 120,000 -- -- 15,000 --
Senior Vice President 1995 101,667 -- 20,000(6) 50,000 2,734(7)
1994 87,333 -- -- 50,000 --
Ian Watson,........................ 1996 120,000 -- -- -- --
Vice President of GST USA 1995 120,000 -- 20,000(6) -- --
1994 120,000 -- -- 92,500 --
</TABLE>

- ------------
(1) Positions indicated were as of September 30, 1996. See "Management."

(2) Excludes certain perquisites that do not exceed the lesser of $50,000 or
10% of the named individual's aggregate salary and bonus.

(3) Represents a fee for money borrowed and equity purchased under the Tomen
Master Agreement (the "Pacwest Fee").

(4) Represents an accrual of compensation cost for options vesting based on
share price performance.

(5) Includes (i) 5,000 Common Shares valued at $4.00 per share issued as
consideration for such officers' guarantee of certain indebtedness of the
Company, which indebtedness was subsequently repaid ("Guaranty Shares") and
(ii) $180,304 in payments on account of the Pacwest Fee.

(6) Represents Guaranty Shares.

(7) Represents an accrual of compensation cost for options granted at below the
market price of the Common Shares on the date of grant.

(8) Includes the Guaranty Shares and $45,076 in payments on account of the
Pacwest Fee.

(9) Represents payments made pursuant to NACT's profit sharing plan.

(10) Represents (i) $4,492 in matching contributions by NACT to its 401(k) Plan
(the "NACT 401(k) Plan") and (ii) $911 in accrued compensation cost for
options granted at below the market price of Common Shares on the date of
grant.

(11) Represents (i) $151,365 accrued in respect of an annuity purchased for Dr.
Sawyer, which is based upon compensation due to Dr. Sawyer in prior years
and deferred by him at the Company's request and (ii) $20,672 in payments
made pursuant to NACT's profit sharing plan.

(12) Represents matching contributions by NACT to the NACT 401(k) Plan.

58
<PAGE> 61

EMPLOYMENT AND OTHER AGREEMENTS

John Warta is employed by GST USA and GST Telecom pursuant to an employment
agreement dated as of March 1, 1994 and amended effective September 1, 1995, for
a term ending on February 28, 1999. The agreement provides for an initial base
salary of $120,000 annually (which was increased to $275,000 annually effective
April 1, 1997) and incentive compensation as awarded by the Board of Directors
of the Company from time to time. In the event of Mr. Warta's death while
employed by the Company, the agreement provides for a payment of one and a half
times his then current base annual salary, over a period of one and a half
years, to his designated beneficiary. In the event of his disability, Mr. Warta
is to receive the full amount of his base salary for six months. If such six
month period ends prior to February 28, 1999, he is to receive salary at a rate
of one-half his then current base salary for a further period ending on the
earlier of one year thereafter or February 28, 1999. The agreement contains
covenants restricting Mr. Warta's ability to engage in activities competitive
with those of the Company for a period ending on the earlier of two years after
his termination or February 28, 2000. Upon a change of control of the Company
that results in Mr. Warta's removal from the Company's Board of Directors, a
significant change in the conditions of his employment or other breach of the
agreement, he is to receive liquidated damages equal to 2.99 times the "base
amount," as defined in the Code, of his compensation.

Stephen Irwin and GST USA and GST Telecom are parties to a personal
services agreement for a term commencing on October 1, 1995 and ending on
February 28, 1999, providing, among other things, that (i) Mr. Irwin shall
devote approximately one-half of his working time rendering services to the
Company, (ii) in consideration for such services and in lieu of billing legal
services directly or through a law firm, Mr. Irwin shall receive a retainer of
$280,000 per annum or such greater amount as may be determined by the Board of
Directors of the Company, payable in equal semi-monthly installments and (iii)
Mr. Irwin is entitled to such benefits as are available to senior executive
officers of the Company and GST USA and to a payment upon a change of control
and subsequent breach by the Company of the agreement in accordance with the
formula described above for John Warta. In connection therewith, the Company
issued to Mr. Irwin a five year warrant to purchase 300,000 Common Shares at a
price of $6.75 per share. Such warrant became exercisable as to 100,000 Common
Shares on October 1, 1996 and 100,000 Common Shares on October 1, 1997 and will
become exercisable as to the remainder of such Common Shares on October 1, 1998.

Joseph Basile, Jr. is employed by GST USA pursuant to an employment
agreement effective March 11, 1997 for a five-year term. The agreement provides
for a base salary of $250,000 per annum, incentive compensation annually (not to
exceed 60% of base salary) based upon the achievement by the Company of
predetermined performance objectives and the reimbursement of relocation
expenses. The agreement further provides for payments in the event of death or
disability on the same terms as those provided in Mr. Warta's agreement and
restricts Mr. Basile's ability to engage in activities competitive with those of
the Company. Mr. Basile has been granted options to purchase an aggregate of
450,000 Common Shares as follows: (i) the first option, with respect to 150,000
Common Shares (the "Firm Option"), is exercisable in three equal annual
installments commencing one year after grant; (ii) the second option (the
"Trading Price Option"), with respect to 150,000 Common Shares, is exercisable
in one-third increments at such time as the closing price of the Common Shares
exceeds $13.75, $16.50 and $20.00 per share, respectively, for 20 consecutive
trading days, but in no event earlier than the first, second and third
anniversary of the date of grant, respectively, and (iii) the third option (the
"Performance Option"), with respect to 150,000 Common Shares, may be exercised
in the same installments as the Firm Option, provided that the Company has
achieved the predetermined performance objectives referred to above. In the
event of a change of control, (i) the Firm Option and Performance Option become
exercisable in full, and (ii) the Trading Price Option becomes exercisable as to
those portions thereof the exercise of which is predicated upon the attainment
of trading price levels not greater than the valuation accorded the Common
Shares in the transaction resulting in the change of control (and if no value is
accorded the Common Shares in the change of control transaction, the Trading
Price Option becomes exercisable in full). In addition, pursuant to the
agreement, the Company loaned $100,000 to Mr. Basile to enable him to purchase a
new primary residence in the Vancouver, Washington area. See "Certain
Transactions."

59
<PAGE> 62

Daniel Trampush is employed by GST USA and GST Telecom pursuant to an
employment agreement effective March 3, 1997 for a three-year term. The
agreement provides for a base salary of $240,000 per annum, the reimbursement of
relocation expenses and for payments in the event of death or disability on the
same terms as those provided in Mr. Warta's agreement. The agreement restricts
Mr. Trampush's ability to engage in activities competitive with those of the
Company. Mr. Trampush has been granted options to purchase an aggregate of
100,000 Common Shares (the "Initial Option") exercisable in three equal annual
installments commencing one year after grant. He is also eligible for the grant
annually of options (the "Performance Options") with respect to that number of
Common Shares as is determined by the Compensation Committee based upon his
performance under the agreement with respect to criteria set forth in the
agreement. In the event of a change of control, (i) the Initial Option becomes
exercisable in full, and (ii) Mr. Trampush would be eligible to receive
additional Performance Options or a cash payment in lieu thereof.

Clifford V. Sander and GST Telecom entered into an employment agreement
effective as of March 1, 1994, on terms substantially similar to those of Mr.
Warta's employment agreement. Mr. Sander's agreement provides for his employment
by GST Telecom as its Chief Financial Officer at an initial base salary of
$100,000 annually, which was increased to $150,000 effective January 1, 1997.

Robert H. Hanson is employed by GST USA pursuant to an employment agreement
effective as of August 1, 1994 on terms substantially similar to those contained
in Mr. Warta's employment agreement. Mr. Hanson's agreement provides for an
initial base salary of $100,000 annually, which was increased to $150,000
effective June 18, 1997.

Ian Watson is employed by GST USA as a Vice-President pursuant to an
employment agreement effective as of October 1, 1995 for a term ending on
September 30, 1998. The agreement provides for a salary of $120,000 for the
first year of the agreement, $50,000 for the second year of the agreement and
$10,000 for the third year of the agreement. The agreement contains covenants
restricting Mr. Watson's ability to engage in activities competitive with those
of the Company during the term of his employment and for two years thereafter if
he is terminated for "cause" or he voluntarily terminates his employment for any
reason other than a breach by GST USA of the agreement.

The Company is a party to a consulting agreement with Sunwest Ventures Ltd.
("Sunwest"), a private company of which W. Gordon Blankstein, a director of the
Company, is a principal, for a term commencing on December 30, 1994 and ending
on February 28, 1999 pursuant to which Sunwest (through Mr. Blankstein) is to
provide consulting services to the Company, on terms substantially the same as
those contained in Mr. Warta's employment agreement, for an annual base payment
to Sunwest of $190,000, plus increases as determined by the Board.

EMPLOYEE PLANS

In January 1995, the Company adopted its 1995 Stock Option Plan (the "1995
Plan"). The 1995 Plan is administered by a committee (the "Committee") appointed
by the Board of Directors. The Committee is authorized to grant (i) options that
are intended to qualify as incentive stock options ("Incentive Options") within
the meaning of Section 422 of the Code to employees of the Company and its
subsidiaries (as defined therein), and (ii) options not intended to so qualify
("Nonqualified Options," and together with the Incentive Options, the
"Options"). On September 21, 1995, the Board of Directors increased to 1,750,000
the total number of Common Shares for which options may be granted under the
1995 Plan.

The Committee has the power and authority to designate recipients of the
Options, to determine the terms and conditions of the Options and to interpret
the provisions of the 1995 Plan.

The exercise price of all Options granted under the 1995 Plan must be at
least equal to the fair market value of such shares on the trading day
immediately prior to the date of grant. With respect to any recipient who owns
more than 10% of the voting rights of the Company's outstanding capital stock,
the exercise price of any Incentive Option must be not less than 110% of the
fair market value on the date such options are granted. The maximum term of each
Option granted pursuant to the 1995 Plan is five years. Options shall become

60
<PAGE> 63

exercisable at such times and in such installments as the Committee shall
provide in the terms of each individual Option.

On January 5, 1996, the Board of Directors of the Company adopted, and on
February 15, 1996, the Company's shareholders approved, the 1996 Stock Option
Plan (the "1996 Plan"), which is substantially identical to the 1995 Plan. In
January 1997, the Board of Directors increased the number of Common Shares
reserved for issuance under the 1996 Plan from 400,000 to 700,000 shares and, in
March 1997, the Company's shareholders approved such increase. In September
1997, the Board of Directors increased the number of Common Shares for issuance
under the 1996 Plan to 1,000,000, subject to shareholder approval.

At June 30, 1997, options to purchase an aggregate of 1,345,349 Common
Shares were outstanding under the 1995 Plan and 1996 Plan.

In October 1995, the Board of Directors of the Company established, and on
February 15, 1996, the Company's shareholders approved, the 1996 Employee Stock
Purchase Plan (the "Purchase Plan"), pursuant to which, effective July 1, 1996,
employees of the Company may deduct up to 10% of their respective wages over a
six month period (to a maximum of $12,500) to purchase Common Shares. The
maximum number of Common Shares that may be issued pursuant to the Purchase Plan
is 500,000. At June 30, 1997, 76,551 Common Shares had been issued under the
Purchase Plan.

On May 8, 1996, the Compensation Committee of the Board of Directors
adopted two additional stock options plans, the 1996 Senior Executive Officer
Stock Option Plan (the "Executive Plan") and the 1996 Senior Operating Officer
Stock Option Plan (the "Operating Officer Plan"). The Executive Plan provides
for the grant of Options to purchase up to 600,000 Common Shares to senior
executive officers of the Company. The Company has granted six-year Options to
purchase 200,000 Common Shares to each of Messrs. Warta, Irwin and Blankstein at
an exercise price of $10.00 per share. Each of the Options may be exercised as
to one-third of the shares covered thereby following a period of 20 consecutive
trading days during which the closing sale price of the Common Shares on the
AMEX has been at least $13.75, as to a further one-third of such shares
following a period of 20 consecutive trading days during which the closing sale
price of the Common Shares on the AMEX has been at least $16.50, and as to the
remaining one-third of such shares following a period of 20 consecutive trading
days during which the closing sale price of the Common Shares on the AMEX has
been at least $20.00.

The Operating Officer Plan provides for the grant of Options to purchase up
to 900,000 Common Shares to operating management and directors of GST and its
subsidiaries. At June 30, 1997, Options to purchase 685,000 Common Shares were
outstanding under the Operating Officer Plan.

Thomas Sawyer has been granted options to purchase 85,000 shares of the
common stock of NACT at an exercise price of $9.35 per share. Of such options,
60,000 expire on November 25, 2001 and 25,000 expire on April 10, 2002.

DIRECTORS COMPENSATION

Effective February 24, 1997, each director who is not an employee or does
not provide consulting or personal services to the Company is paid a directors
fee of $15,000 per annum, plus $1,500 per board meeting physically attended.
Each such director is also paid an annual fee of $2,500 for membership on each
committee of the board to which he is appointed. In addition, the Company will
grant to each such director options to purchase 15,000 Common Shares (the
"Directors' Initial Options") and options to purchase 10,000 Common Shares (the
"Directors' Additional Options" and together with the Directors' Initial
Options, the "Directors' Options") for each additional year such person serves
as a director of the Company. The Directors' Options will be exercisable at the
closing price of the Common Shares on the AMEX on the trading day immediately
prior to the date of grant. Initial Directors' Options will vest one year from
the date of grant and Additional Directors' Options will vest immediately on the
date of grant.

61
<PAGE> 64

OPTION GRANTS

The following table discloses the particulars of Options to purchase Common
Shares granted by the Company during Fiscal 1996 to the Company's Chief
Executive Officer and the six next highest paid executive officers:

OPTION GRANTS DURING THE MOST RECENTLY COMPLETED FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
-----------------------------------------------------------------
MARKET VALUE ASSUMED ANNUAL
% OF TOTAL OF SECURITIES RATES OF STOCK PRICE
SECURITIES OPTIONS UNDERLYING APPRECIATION FOR OPTION
UNDER GRANTED TO EXERCISE OR OPTIONS ON THE TERM(2)
OPTIONS EMPLOYEES IN BASE PRICE DATE OF GRANT EXPIRATION --------------------------------
NAME(1) GRANTED(#) FISCAL YEAR (SECURITY) (SECURITY) DATE 5% 10% 0%(3)
- ------------------------- ---------- ------------ ----------- -------------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John Warta............... 200,000(4) 10.7% $ 10.00 11.75 05/07/02 $1,149,225 $2,163,168 $350,000
President and Chief
Executive Officer
Stephen Irwin............ 200,000(4) 10.7% 10.00 11.75 05/07/02 1,149,225 2,163,168 350,000
Vice Chairman 300,000(5) 16.1% 6.75 6.75 09/30/00 559,470 1,236,283 --
W. Gordon Blankstein..... 200,000(4) 10.7% 10.00 11.75 05/07/02 $1,149,225 $2,163,168 $350,000
Chairman
Clifford V. Sander....... 28,000(6) 1.5% 10.00 11.75 05/07/02 160,891 302,844 49,000
Senior Vice President
Thomas E. Sawyer......... 5,000(6) 0.3% 10.00 11.75 05/07/02 28,731 54,079 8,750
Chief Technology
Officer
Robert Hanson............ 15,000(6) 0.8% 10.00 11.75 05/07/02 86,192 162,238 26,250
Senior Vice President
</TABLE>

- ---------------

(1) Positions indicated were as of September 30, 1996. See "Management."

(2) The potential realizable portion of the foregoing table illustrates the
value that might be realized upon exercise of Options immediately prior to
the expiration of their term, assuming (for illustrative purposes only) the
specified compounded rates of appreciation of the Common Shares over the
term of the Option. These numbers do not take into account provisions
providing for the termination of the Option following termination of
employment, nontransferability or difference in vesting terms.

(3) Value at grant date market price.

(4) Options vest in one-third increments at such time as the closing price of
the Common Shares exceeds $13.75, $16.50 and $20.00 per share, respectively,
for 20 consecutive trading days.

(5) Represents a warrant to purchase Common Shares that becomes exercisable in
three equal installments on October 1, 1996, 1997 and 1998.

(6) Options vest over four years.

62
<PAGE> 65

OPTION EXERCISES

No Options were exercised in Fiscal 1996 by the Company's Chief Executive
Officer or the six next highest paid executive officers. The following table
discloses the particulars of Options held by such persons at the end of Fiscal
1996.

FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NO. OF COMMON SHARES UNDERLYING VALUE (2) OF UNEXERCISED IN THE
UNEXERCISED OPTIONS AT FISCAL YEAR- MONEY OPTIONS AT FISCAL YEAR-END
NAME(1) END (#) EXERCISABLE/UNEXERCISABLE ($) EXERCISABLE/UNEXERCISABLE
- ------------------------------------ ----------------------------------- --------------------------------
<S> <C> <C>
John Warta.......................... 125,000/200,000 648,125/275,000
President and Chief Executive
Officer
Stephen Irwin....................... 115,000/500,000 569,375/1,662,500
Vice Chairman
W. Gordon Blankstein................ 177,500/200,000 1,052,188/275,000
Chairman
Clifford V. Sander.................. 55,000/28,000 289,375/38,500
Senior Vice President
Thomas E. Sawyer.................... 155,000/5,000 921,875/6,875
Chief Technology Officer
Robert Hanson....................... 100,000/15,000 587,500/20,625
Senior Vice President
Ian Watson.......................... 92,500/-- 659,963/--
Vice President of GST USA
</TABLE>

- ---------------

(1) Positions indicated were as of September 30, 1996. See "Management."

(2) Represents the total gain that would be realized if all-in-the-money Options
held at September 30, 1996 were exercised, determined by multiplying the
number of Common Shares underlying the Options by the difference between the
per share Option exercise price and the fair market value of $11.38 per
share at September 30, 1996. An Option is in-the-money if the fair market
value of the underlying Common Shares exceeds the exercise price of the
Option.

63
<PAGE> 66

CERTAIN TRANSACTIONS

On June 23, 1994, the Company entered into agreements (the "GST Telecom
Agreements") with Pacwest Network, L.L.C. ("Pacwest") (an entity controlled by
John Warta, now the Company's Chairman of the Board and Chief Executive
Officer), pursuant to which the Company and Pacwest formed a new corporation,
GST Telecom, for the purpose of developing telecommunications networks. Under
the terms of the agreements, Pacwest contributed the stock of GST Pacific, GST
Tucson and GST Hawaii and the Company made certain funding commitments (all of
which were subsequently satisfied) and contributed its 60% interest in GST
Tucson, for which the Company received 60% and Pacwest received 40% of the
capital stock of GST Telecom. Effective June 1, 1995, the Company acquired an
additional 20% ownership interest in GST Telecom from Pacwest in exchange for
1,000,000 Common Shares. Effective October 20, 1995, the Company acquired
Pacwest's remaining 20% interest in GST Telecom for which Pacwest was eligible
to receive up to a maximum of 1,000,000 Common Shares (valued at $10.00 per
Common Share) based upon the fair market value of a 20% interest in GST Telecom,
as determined by independent appraisal. The Company engaged an investment
banking firm to provide such appraisal, which appraisal valued such 20% interest
at not less than $10 million. In November 1996, 1,000,000 Common Shares, which
had been held in escrow since October 20, 1995, were distributed to the
designees of Pacwest, principally Messrs. Warta and Sander.

Prior to his employment with the Company, Mr. Warta served, and continues
to serve, as a consultant to Tomen for which he is paid a fee. Simultaneously
with the execution of the GST Telecom Agreements, Pacwest contracted with the
Company to receive a fee equal to 1% of the aggregate debt and equity financing
provided by Tomen to the Company. Mr. Sander, Senior Vice President and
Treasurer of the Company, is a member of Pacwest and participates in such fees.
Since the beginning of Fiscal 1996 through September 30, 1997, the Company has
incurred approximately $635,000 of such fees to Pacwest.

Under the Tomen Facility, Tomen has the right to act as procurement agent
for each network project it finances. The Company has purchased equipment
through Tomen at competitive prices.

The operations of the Company's Hawaiian microwave network require radio
licenses from the FCC. PNI, an entity controlled by Mr. Warta, the Company's
Chairman of the Board and Chief Executive Officer, holds the Hawaii microwave
licenses. Under agreements between the Company and PNI, the Company pays a
monthly fee of $3,000 to PNI and PNI pays an offsetting monthly fee to the
Company, in connection with the operation and use of the network. PNI has an
application pending with the FCC to assign the microwave radio licenses to
Pacwest Network Hawaii Inc., an entity controlled by John Warta.

Magnacom, a company 99% owned by PNI, which is in turn controlled by Mr.
Warta, the Company's Chairman of the Board and Chief Executive Officer, holds
various PCS licenses. Magnacom has 30 MHz (C Block) PCS licenses for 11 markets
in Arizona, Arkansas, New Mexico, Oregon and Utah. Magnacom won 10 MHz licenses
in the FCC's F Block in 13 markets in Hawaii, Idaho, Oregon and Washington in an
FCC auction. Such licenses have not yet been issued because Magnacom submitted
the down payment late and is waiting for the FCC to rule on Magnacom's request
for a waiver of the down payment deadline.

Magnacom and the Company have entered into the Magnacom Reseller Agreement,
pursuant to which (i) the Company has been designated a non-exclusive reseller
of PCS telephone services in the markets in which Magnacom has obtained
licenses, and (ii) Magnacom has agreed to use the Company on an exclusive basis
to provide switched local and long distance services, and other enhanced
telecommunications services, to all of Magnacom's resellers in markets where the
Company has operational networks. Magnacom agreed to sell PCS minutes to the
Company at five cents per minute, subject to downward adjustment to equal the
most favorable rates offered to Magnacom's other resellers (but in no event less
than Magnacom's cost). In connection with the Magnacom Reseller Agreement, the
Company has paid approximately $14.0 million as pre-payments for future PCS
services.

64
<PAGE> 67

In February 1997, an affiliate of Magnacom, Guam Net, acquired from Poka
Lambro Telephone Cooperative, Inc. a 30 MHz (A Block) PCS license from the FCC
in the market consisting of Guam and the Northern Marianas Islands.
Concurrently, the Company entered into a reseller agreement on terms
substantially similar to the Magnacom Reseller Agreement and paid Guam Net $.4
million as a pre-payment for future PCS services.

The provision of wireless telecommunications service by Magnacom and Guam
Net will be dependent upon their ability to obtain the financing necessary to
make payments to the FCC under the terms of their licenses, to obtain working
capital, and to build the required facilities, including the purchase of
telecommunications equipment. There can be no assurance Magnacom or Guam Net
will obtain such financing or be able to provide PCS services. In such event,
the Company would likely be unable to recover its payments to Magnacom and Guam
Net. See "Risk Factors -- Possible Inability to Recover Payments Made to
Magnacom."

In November 1996, 1,500,000 of the common shares of Global owned by the
Company were purchased at cost from W. Gordon Blankstein, presently a director
of the Company and at that time, Chairman of the Company. In addition, certain
executive officers and directors hold an aggregate of 553,896 common shares of
Global and options and warrants to purchase 224,500 additional common shares of
Global.

Stephen Irwin, Vice Chairman and Secretary of the Company, is of counsel to
the law firm of Olshan Grundman Frome & Rosenzweig LLP, counsel to the Company.
In connection with such services, such firm received fees of approximately $1.8
million for each of Fiscal 1996 and Fiscal 1997.

Peter E. Legault, a director of the Company, is a director and Vice
President of Thomson Kernaghan & Co. Ltd., which was engaged by the Company
during Fiscal 1996 and Fiscal 1997 to solicit sources of financing for the
Company, and was one of the placement agents for the sale of the Special
Warrants. In connection with such services, such firm received fees of
approximately $500,000 during Fiscal 1997.

On May 5, 1997, the Company loaned $100,000 to Joseph Basile, the
President, Chief Operating Officer and a director of the Company, to enable him
to purchase a new primary residence in the Vancouver, Washington area. The loan
matures on May 4, 2000, accrues interest at a rate of 6% per annum and is to be
prepaid to the extent of the proceeds from the sale of Mr. Basile's former
residence and from the sale of Common Shares acquired upon exercise of options
held by Mr. Basile. Such loan was made pursuant to the terms of his employment
agreement with the Company, which was approved by the Board of Directors of the
Company.

65
<PAGE> 68

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information as of September 30, 1997
with respect to the beneficial ownership of the Common Shares by (i) each person
known to the Company to be the beneficial owner of 5% or more thereof, (ii) each
director of the Company, (iii) the Chief Executive Officer and the six most
highly compensated executive officers of the Company whose compensation exceeded
$100,000 for 1996 and (iv) all executive officers and directors as a group.
Unless otherwise indicated, each of the named persons has sole voting and
investment power with respect to all Common Shares owned by him. All persons
identified below as holding options are deemed beneficial owners of the Common
Shares subject to such options by reason of their right to acquire such shares
within 60 days after September 30, 1997.

<TABLE>
<CAPTION>
PERCENTAGE OF CLASS(1)
---------------------------
PRIOR TO FOLLOWING THE
NO. OF THE STOCK STOCK
NAME OF BENEFICIAL OWNER SHARES OFFERING OFFERING
- -------------------------------------------------------- --------- --------- -------------
<S> <C> <C> <C>
John Warta.............................................. 1,672,468(2) 6.0% 4.8%
Tomen................................................... 1,826,057(3) 6.6% 5.2%
Clifford V. Sander...................................... 426,100(4) 1.5% 1.2%
Ian Watson.............................................. 385,100 1.4% 1.1%
Stephen Irwin........................................... 376,345(5) 1.3% 1.1%
Thomas E. Sawyer........................................ 290,254(6) 1.0% *
W. Gordon Blankstein.................................... 286,800(7) 1.0% *
Robert H. Hanson........................................ 151,922(8) * *
Peter E. Legault........................................ 129,806(9) * *
Jack G. Armstrong....................................... 52,500(10) * *
Joseph A. Basile, Jr. .................................. -- -- --
Mitsuhiro Naoe.......................................... --(11) -- --
Joseph G. Fogg, III..................................... --(12) -- --
A. Roy Megarry.......................................... -- -- --
Directors and Officers of the Company
as a Group (13 persons)............................... 3,753,295(13) 13.3% 10.6%
</TABLE>

- ---------------
* Less than 1%.

(1) Does not reflect the Redeemable Preferred Shares issued in the Princes Gate
Investment. See "Description of Capital Stock -- Preference Shares."

(2) Includes 125,000 Common Shares issuable upon exercise of options. Does not
include 200,000 Common Shares issuable upon the exercise of options that
are not exercisable until the market price of the Common Shares on the AMEX
reaches certain levels for certain prescribed periods. See
"Management -- Employee Plans."

(3) Includes 246,155 Common Shares issuable upon the exercise of warrants held
by Tomen.

(4) Includes 62,000 Common Shares issuable upon exercise of options.

(5) Includes (i) 100,000 Common Shares issuable upon exercise of options and
(ii) 200,000 Common Shares issuable upon exercise of an outstanding
warrant. Does not include (i) 200,000 Common Shares issuable upon the
exercise of options that are not exercisable until the closing price of the
Common Shares on the AMEX reaches certain levels for certain prescribed
periods. See "Management -- Employee Plans."

(6) Includes 81,250 Common Shares issuable upon exercise of options.

(7) Does not include 200,000 Common Shares issuable upon the exercise of
options that are not exercisable until the closing price of the Common
Shares on the AMEX reaches certain levels for certain prescribed periods.
See "Management -- Employee Plans."

(8) Includes 53,750 Common Shares issuable upon exercise of options.

(9) Includes 43,750 Common Shares issuable upon exercise of options.

(10) Includes 32,500 Common Shares issuable upon exercise of options.

(11) Does not include 1,751,048 Common Shares beneficially owned by Tomen.

(12) Does not include the Redeemable Preferred Shares beneficially owned by
Princes Gate. See "Description of Capital Stock -- Preference Shares."

(13) Includes an aggregate of 698,250 Common Shares issuable upon exercise of
options and warrants. Does not include 600,000 Common Shares issuable upon
the exercise of options that are not exercisable until the market price of
the Common Shares on the AMEX reaches certain levels for certain prescribed
periods.

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<PAGE> 69

DESCRIPTION OF CERTAIN INDEBTEDNESS

TOMEN FACILITY

The following summary of the material provisions of the documents
comprising the Tomen Facility does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all the provisions of such
documents, including the definitions of certain terms therein which are
incorporated by reference in the Registration Statement of which this Prospectus
is a part. Terms used and not defined herein have the meanings given to them in
the documents described herein.

General

The Company, GST Telecom and Pacwest are parties to a Master Agreement
dated October 24, 1994 and amended May 24, 1996 (the "Tomen Master Agreement")
with Tomen pursuant to which Tomen agreed, in its sole discretion on a
project-by-project basis, to make available up to a total of $100.0 million of
financing for telecommunications network projects developed and constructed by
the Company. Under the terms of the Tomen Master Agreement, Tomen has the
exclusive right to review the Company's proposed network projects until Tomen
has extended $100.0 million in debt financing or has refused three projects that
the Company subsequently finances. If Tomen approves a project it would enter
into a credit agreement (in substantially the form of the Credit Agreement
hereinafter described) with the subsidiary of the Company developing the project
(a "Development Company") to provide financing for 75% of the project's costs (a
"Project Loan"). The first 25% of such costs would be contributed as equity by
the Company prior to or at the same time as the receipt of the debt financing.
In connection with each project it finances, Tomen has the right to act as
procurement agent for the network project.

Until amended in May 1996, the Tomen Master Agreement had provided that
Tomen could purchase up to 10% (on a fully diluted basis) of the capital stock
of a Development Company to which it agreed to provide financing and Tomen had
purchased 10% of the equity of GST Pacific for the sum of $615,000. In May 1996,
the Company entered into a series of transactions pursuant to which GST Telecom
purchased the shares of GST Pacific held by Tomen for $1,250,000 and the parties
amended the Tomen Master Agreement to eliminate Tomen's right to purchase 10% of
the shares in Development Companies to which it provides a Project Loan and to
grant to Tomen in connection with each Project Loan the right to purchase a
number of Common Shares the aggregate value of which based on their market price
would equal 10% of the total equity contribution by the Company to the
Development Company. In addition, the parties agreed that in connection with
certain Project Loans, Tomen's purchase of Common Shares would include, for no
additional consideration, a specified number of warrants to purchase additional
Common Shares.

The Tomen Master Agreement provides that each Project Loan will bear
interest at LIBOR plus 3% and will amortize in 24 quarterly installments
beginning after the project's construction period (which may not exceed three
years). An upfront fee of 1.50% of the aggregate principal amount of each
Project Loan and a commitment fee of 0.50% per annum on the unused portion of
each Project Loan is payable to Tomen. In addition, Pacwest, an entity
controlled by Mr. Warta, Chairman of the Board and Chief Executive Officer of
the Company, is entitled to receive a fee equal to 1% of the total debt and
equity financing received by the Company under the Tomen Facility. A Project
Loan may be repaid or refinanced at any time; however, Tomen has a right of
first refusal on any such refinancing and Tomen would be entitled to receive
one-third of the net present value of any interest rate savings that would be
realized by the Development Company in connection with any such refinancing.

Each Project Loan is to be secured by all of the Development Company's
assets and a pledge of all capital stock of the Development Company. In
addition, the Tomen Master Agreement requires that the net cash flow of each
project financed under the Tomen Facility be assigned to secure the repayment of
each other Project Loan. Any management fees payable by the Development Company
are subordinated in right of payment to the repayment of Project Loans.

Pursuant to a stock purchase agreement (the "Tomen Stock Purchase
Agreement") entered into in connection with the Tomen Master Agreement, Tomen
purchased (i) for an aggregate purchase price of

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<PAGE> 70

$2.3 million, 500,000 Common Shares and warrants to purchase 250,000 Common
Shares, which have been exercised, (ii) for an aggregate of $1.2 million,
250,000 Common Shares and warrants to purchase 125,000 Common Shares, which have
been exercised, and (iii) for an aggregate of $2.7 million, 250,000 Common
Shares and warrants to purchase 125,000 Common Shares exercisable until May 23,
1998 at an exercise price of $12.96 per share. Pursuant to an amendment to the
Tomen Master Agreement and the Tomen Stock Purchase Agreement, Tomen purchased
(i) for an aggregate of $800,000, 74,074 Common Shares and warrants to purchase
46,155 Common Shares at an exercise price of $12.96 per share and (ii) for an
aggregate of $1.4 million, 130,828 Common Shares and warrants to purchase 75,000
Common Shares at an exercise price of $12.61 per share. The Company has
registered the resale of an aggregate of 1,620,229 Common Shares that have been
issued or are issuable to Tomen upon exercise of warrants.

Financed Projects

The first two projects financed under the Tomen Master Agreement were the
San Bernardino portion of the Southern California network ("Phase I") and the
Ontario portion of the Southern California network ("Phase II"). Pursuant to the
credit agreement between GST Pacific and Tomen America (the "Credit Agreement"),
Tomen agreed to provide $9.0 million of debt financing to develop Phase I and
$9.5 million of debt financing to develop Phase II. The terms of the Credit
Agreement are substantially the terms contemplated by the Tomen Master
Agreement. In addition, the Credit Agreement contains covenants which, among
other things, restrict or prohibit GST Pacific's ability to incur debt, create
liens, sell assets, make investments, enter into transactions with affiliates,
merge or consolidate, transfer GST Pacific's capital stock and pay dividends to
the Company. Failure to satisfy any of the covenants constitutes an event of
default under the Credit Agreement. The Credit Agreement also contains customary
events of default for project financing, including a cross default to other
indebtedness of GST Pacific. An event of default under the Credit Agreement
would allow Tomen to accelerate the maturity of the Project Loan, foreclose on
the collateral or take possession of and complete the project.

In May 1996, Tomen provided financing with respect to the Tucson and
Albuquerque networks, in the amount of up to $8.0 million each. The terms of the
respective credit agreements between Tomen and GST Tucson and GST New Mexico are
substantially similar to the terms of the Credit Agreement.

On September 30, 1997, Tomen agreed to provide the Company with up to $40.5
million of debt financing for the Company's Hawaiian inter-island submarine
network and various other terrestrial installations. In connection with such
financing, the Company entered into a credit agreement with Tomen containing
substantially similar terms as those previously entered into under the Tomen
Facility, except that the loan will amortize in 22 quarterly installments
beginning March 31, 2000.

EQUIPMENT FINANCING

Siemens Switching Equipment Purchase Agreement and Loan Agreement

The Company, through its indirect subsidiary, GST SwitchCo, Inc. ("GST
SwitchCo"), entered into the Siemens Sales Agreement pursuant to which GST
SwitchCo may purchase switching and related equipment from Siemens. The Siemens
Sales Agreement provides price protection for 10 years for several categories of
Siemens switching equipment and related software. In addition, on the same date,
GST SwitchCo entered into the Siemens Loan Agreement that provides for up to an
aggregate of $226.0 million of loans to finance the purchase of Siemens
equipment and equipment from other suppliers, of which $116.0 million is
presently available to the Company (of which $5.8 million had been provided as
of September 30, 1997). The Company may seek to increase the amount available up
to $226.0 million on an as-needed basis, subject to the negotiation and
execution of mutually satisfactory documentation. Each loan made under the
Siemens Loan Agreement initially bears interest at an interim loan rate of LIBOR
plus 4.5% on the outstanding balance of the loan until the beginning of the
calendar quarter following the original loan advance date, at which time the
outstanding balance of the loan converts to a term loan and begins accruing
interest at a term loan rate of LIBOR plus 3.5%. Repayment of the outstanding
principal amount of each loan is required in quarterly installments commencing
on the last day of the fifth quarter following the original loan advance date
with the

68
<PAGE> 71

remaining balance of each outstanding loan being payable in full on the last day
of the 24th quarter following such original loan advance date. GST SwitchCo's
obligations under the Siemens Loan Agreement are secured by the grant to Siemens
of a first priority security interest in all products purchased by GST SwitchCo
with the proceeds of loans by Siemens and are guaranteed in part by GST USA.

Nortel Switching Equipment and Related Financing

The Company, through its wholly-owned subsidiary, GST EquipCo, Inc. ("GST
EquipCo"), entered into the Nortel Purchase Agreement pursuant to which GST
EquipCo may purchase switching and related equipment and software from Nortel.
The Nortel Purchase Agreement provides price protection for 10 years for several
categories of Nortel switching equipment and related products and software and
requires GST EquipCo to purchase at least $50.0 million of equipment, product
and software prior to November 18, 1999.

The Company has entered into the NTFC Loan Agreement that provides for up
to $50.0 million to finance the purchase by GST EquipCo of Nortel equipment and
products (of which $44.6 million had been provided as of September 30, 1997).
Borrowings under the NTFC Loan Agreement may be made through December 31, 1998.
Loans under the NTFC Loan Agreement will bear interest at a floating interest
rate equal to 90 day LIBOR plus 3.5%. GST EquipCo is required to pay interest
only until December 31, 1998 under the NTFC Loan Agreement and the principal
amounts outstanding thereunder will become due and payable in 20 consecutive
quarterly installments following such interest only period. GST EquipCo's
obligations under the NTFC Loan Agreement are secured by the grant to NTFC of a
first priority security interest in all Nortel products purchased by GST EquipCo
with the proceeds of such financing and are guaranteed by GST USA.

SENIOR NOTES AND CONVERTIBLE NOTES

GST USA issued $312.4 million principal amount at maturity of Senior Notes
guaranteed by GST, under a senior notes indenture dated December 19, 1995, among
GST USA, as issuer, GST, as guarantor, and United States Trust Company of New
York, as trustee, and GST issued $39.1 million principal amount at maturity of
the Convertible Notes guaranteed by GST USA, under a convertible notes indenture
dated December 19, 1995, among GST, as issuer, GST USA, as guarantor, and United
States Trust Company of New York, as trustee. The 1995 Notes were issued in
units, with each unit consisting of eight Senior Notes and one Convertible Note.
Cash interest does not accrue on the 1995 Notes prior to December 15, 2000 at
which time the 1995 Notes will have fully accreted to their principal amount at
maturity. From and after December 15, 2000, the 1995 Notes will accrue interest,
payable semiannually in cash, at a rate of 13 7/8% per annum.

The Senior Notes and the Senior Notes guarantee are senior, unsecured
obligations of GST USA and GST, respectively, ranking pari passu in right of
payment with all unsubordinated obligations of GST USA and GST, respectively.
The Convertible Notes and the Convertible Notes guarantee are senior
subordinated, unsecured obligations of GST and GST USA, respectively, ranking
junior in right of payment to all senior obligations of GST and GST USA,
respectively, pari passu with all senior subordinated indebtedness of GST and
GST USA, respectively.

The 1995 Notes may be redeemed at any time on or after December 15, 2000,
in whole or in part, at 106.938% of their principal amount at maturity plus
accrued interest, declining to 100% of their principal amount at maturity plus
accrued interest on and after December 15, 2002. In addition, the 1995 Notes are
redeemable under certain circumstances in the event of certain changes affecting
Canadian withholding taxes.

The Convertible Notes are convertible, at the option of the holders, into
Common Shares at any time after December 19, 1996. The number of Common Shares
issuable upon conversion of Convertible Notes is determined by dividing the
accreted value on the date of conversion of the Convertible Notes being
converted by the conversion price of $7.563, subject to adjustment. In addition,
the Convertible Notes will automatically

69
<PAGE> 72

convert under certain circumstances, if the closing price of the Common Shares
on the AMEX during any period described below exceeds the price for such period
for at least 30 consecutive trading days:

<TABLE>
<CAPTION>
12 MONTHS BEGINNING CLOSING PRICE
---------------------------------------------------------------- -------------
<S> <C>
December 15, 1996............................................... $ 16.77
December 15, 1997............................................... $ 19.80
December 15, 1998............................................... $ 22.82
December 15, 1999............................................... $ 25.84
</TABLE>

The 1995 Indentures contain certain covenants that affect and in some cases
significantly restrict or prohibit, among other things, the ability of GST and
its restricted subsidiaries (including GST USA) to incur additional
indebtedness, create liens, engage in sale-leaseback transactions, pay dividends
or make distributions in respect of its capital stock, make investments or
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.

Upon the occurrence of a Change of Control (as hereinafter defined), GST
USA will be required to make an offer to purchase the Senior Notes and GST will
be required to make an offer to purchase the Convertible Notes, in each case at
a purchase price equal to 101% of their accreted value on the date of purchase
plus accrued interest, if any. For purposes of the 1995 Indentures, a "Change of
Control" is defined to mean 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 December 19, 1995
constituted 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 December 19, 1995 or whose election or nomination for election was
previously 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.

1997 NOTES

GST Funding issued $265.0 million aggregate principal amount of 1997 Notes,
under the 1997 Indenture, dated May 13, 1997, among GST Funding, as issuer, GST
USA, GST, and United States Trust Company of New York, as trustee. The 1997
Notes will mature on May 13, 2007. Interest on the 1997 Notes will be paid in
cash at a rate of 13 1/4% per annum on each May 1 and November 1, commencing
November 1, 1997. Of the net proceeds of the 1997 Notes Offering, as of
September 30, 1997, approximately $91.3 million had been used to finance the
cost of equipment (including $41.5 million used to refinance intercompany
indebtedness incurred in connection with the purchase of equipment),
approximately $93.8 million had been used to purchase securities pledges to fund
the first six scheduled interest payments on the 1997 Notes and the balance will
be used to finance the purchase of equipment such as fiber optic cable, switches
and other related equipment.

The 1997 Notes are senior, secured obligations of GST Funding, and will be
unconditionally and irrevocably assumed by GST USA and guaranteed by GST, on May
13, 2000, or earlier if permitted under the terms of GST USA's and GST's
outstanding indebtedness. Neither GST USA nor GST will be liable on the 1997
Notes until they are assumed by GST USA. There is a substantial risk that GST
USA may be unable to assume the 1997 Notes on or before May 13, 2000. The Notes
are secured by (i) the approximately $93.8 million of U.S. government securities
(the "Pledged Securities") pledged to secure and fund the first six scheduled
interest payments on the 1997 Notes, (ii) a $35.0 million promissory note from
GST USA (the "Initial Note"), guaranteed by GST; provided that the amount of the
Initial Note will be reduced to the extent the principal amount thereof exceeds
the aggregate principal amount of 1997 Notes less (x) the

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<PAGE> 73

aggregate amount of Pledged Securities (other than the Pledged Securities
securing the first six scheduled interest payments on the 1997 Notes), including
accrued interest thereon, and (y) the aggregate principal amount of all
intercompany notes issued by GST USA to GST Funding in payment for the purchase
of equipment ($91.3 million as of September 30, 1997), including the amount of
interest that will accrue on such intercompany notes by May 13, 2000, and (iii)
the remaining proceeds from the 1997 Notes Offering, until such proceeds are
used to purchase equipment to be sold to GST USA for intercompany notes. Once
the 1997 Notes are assumed by GST USA, they will be senior, secured indebtedness
of GST USA and GST USA's obligations under the 1997 Notes will be fully and
unconditionally guaranteed on an unsubordinated basis by GST (the "1997 Note
Guarantee"). The 1997 Note Guarantee will be senior, unsecured indebtedness of
GST.

The 1997 Notes will be redeemable at the option of GST USA, in whole or in
part, at any time or from time to time, on or after May 1, 2002, initially at
106.625% of their principal amount, plus accrued and unpaid interest, declining
ratably to 100% of their principal amount, plus accrued and unpaid interest on
or after May 1, 2004. If on May 13, 2000 GST USA is prohibited by its
outstanding indebtedness from assuming all of the 1997 Notes, GST Funding will
redeem, upon not less than 10 nor more than 30 days' notice, the portion of the
1997 Notes that cannot be assumed, at 101% of their principal amount plus
accrued and unpaid interest to the date of redemption. In addition, upon a
Change of Control (as hereinafter defined), GST Funding or GST USA, as the case
may be, will be required to make an offer to purchase the 1997 Notes at a
purchase price equal to 101% of their principal amount plus accrued interest.
For purposes of the 1997 Indenture, a "Change of Control" is defined to mean
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 May 13, 1997 constituted 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 May 13, 1997 or whose election
or nomination for election was previously 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 or GST Funding is not beneficially
owned by GST.

The 1997 Indenture contains certain covenants that affect and in some cases
significantly restrict or prohibit, among other things, the ability of GST and
its restricted subsidiaries (including GST USA) to incur additional
indebtedness, create liens, engage in sale-leaseback transactions, pay dividends
or make distributions in respect of its capital stock, make investments or
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.

DEBT OFFERING

Concurrent with the Stock Offering, the Company will offer $200.0 million
principal amount of its % Senior Subordinated Accrual Notes due 2007. Until
, 2002 (the "Final Interest Accrual Date"), interest will accrue and
be compounded semi-annually on each and ,
commencing , 1998 but will not be payable in cash. From and after
, 2002, interest on the sum of the principal amount of each Note and
the accrued and unpaid interest thereon through the Final Interest Accrual Date
(the "Final Accumulated Interest Amount") will be payable semiannually (to
holders of record at the close of business on , or ,
immediately preceding the Interest Payment Date) on and
of each year, commencing , 2003.

The Notes will be senior subordinated, unsecured obligations of GST,
ranking junior in right of payment to all senior obligations of GST and pari
passu with all senior subordinated obligations of GST.

The Notes may be redeemed at any time on or after , 2002, in
whole or in part, at % of the sum of their principal amount and Final
Accumulated Interest Amount, plus accrued interest thereon,

71
<PAGE> 74

declining to 100% of the sum of their principal amount and Final Accumulated
Interest Amount, plus accrued interest thereon on and after , 2004.
In addition, the Notes are redeemable under certain circumstances in the event
of certain changes affecting Canadian withholding taxes.

The Indenture relating to the Notes will contain certain covenants that
affect and in some cases significantly restrict or prohibit, among other things,
the ability of GST and its restricted subsidiaries (including GST USA) to incur
additional indebtedness, create liens, pay dividends or make distributions in
respect of its capital stock, make investments or 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 shareholders or affiliates and
consolidate, merge or sell all or substantially all of their assets.

Upon the occurrence of a Change of Control, GST will be required to make an
offer to purchase the Notes at a purchase price equal to 101% of the sum of
their principal amount and the Accumulated Interest Amount thereon, plus accrued
interest. For purposes of the Indenture, a "Change of Control" is defined to
mean 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 of the Debt Offering
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 approved by a vote of at least two-thirds of the members of the
Board of Directors then in office who either are members of the Board of
Directors on the closing date of the Debt Offering or whose election or
nomination for election was previously 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.

The closing of the Debt Offering is conditioned upon the closing of the
Stock Offering, but the closing of the Stock Offering is not conditioned upon
the closing of the Debt Offering and there can be no assurance that the Debt
Offering will be consummated.

DESCRIPTION OF CAPITAL STOCK

The following summary of certain terms of the Common Shares and the
Preference Shares of the Company does not purport to be complete and is subject
to, and qualified in its entirety by, the provisions of the Company's Articles
of Incorporation and By-laws, each as amended, which are included as exhibits
to, or incorporated by reference in, the Registration Statement of which this
Prospectus is a part, and the provisions of applicable law. The authorized
capital of the Company consists of an unlimited number of Common Shares and
10,000,000 Preference Shares. At September 30, 1997, there were 27,627,442
Common Shares and 500 Redeemable Preferred Shares outstanding.

COMMON SHARES

Holders of Common Shares are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders. Holders of Common
Shares do not have cumulative voting rights, so that holders of more than 50% of
the outstanding Common Shares are able to elect all of the Company's directors
eligible for election in a given year. Subject to the preferences that may be
applicable to any then outstanding Preference Shares, holders of Common Shares
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board out of funds legally available therefor. See "Dividend
Policy." Upon any liquidation, dissolution or winding up, whether voluntary or
involuntary, of the Company, holders of Common Shares are entitled to receive
pro rata all assets available for distribution to shareholders after payment or
provision for payment of the debts and other liabilities of the Company and the
liquidation preferences of any then outstanding Preference Shares. There are no
preemptive or other subscription rights, conversion rights, or redemption or
sinking fund provisions with respect to Common Shares.

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<PAGE> 75

PREFERENCE SHARES

The Company's Board of Directors has the authority, without any further
vote or action by the Company's shareholders, to issue up to 10,000,000
Preference Shares, in one or more series and to determine the designations,
powers, preferences and relative, participating, optional or other rights
thereof, including without limitation, the dividend rate (and whether dividends
are cumulative), conversion rights, voting rights, rights and terms of
redemption, redemption price and liquidation preference. In connection with the
Princes Gate Investment, the Company issued 500 Redeemable Preferred Shares.
Although the Company has no present plans to issue additional Preference Shares,
the ownership and control of the Company by the holders of the Common Shares
would be further diluted if the Company were to issue additional Preference
Shares that had voting rights or that were convertible into Common Shares. In
addition, the issuance of additional Preference Shares could also have the
effect of delaying, deferring or preventing a change in control of the Company.

The Redeemable Preferred Shares issued in connection with the Princes Gate
Investment will not pay dividends, except to the extent that cash dividends are
paid on the Common Shares. The liquidation and redemption prices of the
Redeemable Preferred Shares will accrete at a semi-annual rate of 11 7/8%.

The Company is required to redeem the Redeemable Preferred Shares on
February 28, 2004 (the "Mandatory Redemption Date") in cash at a redemption
price of approximately $224,231 per share (the "Mandatory Redemption Price");
provided that to the extent the Company is prohibited from paying such
redemption price in cash, the holders of Redeemable Preferred Shares have the
option to convert each Redeemable Preferred Share into a number of Common Shares
equal to the Mandatory Redemption Price divided by 95% of the then market price
for Common Shares. In the event the Company is prevented from paying the
redemption price for Redeemable Preferred Shares in cash and any holder of
Redeemable Preferred Shares does not exercise such conversion option, the
Company has the option of extending the Mandatory Redemption Date to August 28,
2007. The Company has the option of redeeming the Redeemable Preferred Shares at
any time after February 28, 2000 in cash at a redemption price per Redeemable
Preferred Share equal to the number of Common Shares into which such Redeemable
Preferred Share is then convertible multiplied by the price at which such
Redeemable Preferred Share would become subject to mandatory conversion. Under
the terms of the Redeemable Preferred Shares, the holders thereof are entitled
to designate for election one person to the Board of Directors of the Company.
In June 1997, Joseph G. Fogg III, designee of the holders of the Redeemable

Preferred Shares, was appointed to the Board of Directors of the Company.

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<PAGE> 76

Redeemable Preferred Shares are convertible at the option of the holders
into the applicable number of Common Shares set forth in the table below
(subject to adjustments) at any time after February 28, 2000.

<TABLE>
<CAPTION>
PER SHARE AGGREGATE
CONVERSION NUMBER NUMBER
- --------------------------------------------------------------------- --------- ----------
<S> <C> <C>
February 28, 2000.................................................... 12,426.45 6,213,223
May 31, 2000......................................................... 13,164.27 6,582,133
November 30, 2000.................................................... 13,945.89 6,972,947
May 31, 2001......................................................... 14,773.93 7,386,966
November 30, 2001.................................................... 15,651.13 7,825,567
May 31, 2002......................................................... 16,580.42 8,290,210
November 30, 2002.................................................... 17,564.88 8,782,441
May 31, 2003......................................................... 18,607.80 9,303,898
November 30, 2003.................................................... 19,712.63 9,856,317
May 31, 2004......................................................... 20,883.07 10,441,536
November 30, 2004.................................................... 22,123.00 11,061,502
May 31, 2005......................................................... 23,436.56 11,718,279
November 30, 2005.................................................... 24,828.10 12,414,052
May 31, 2006......................................................... 26,302.27 13,151,136
November 30, 2006.................................................... 27,863.97 13,931,985
May 31, 2007......................................................... 29,518.39 14,759,197
</TABLE>

Further, the Redeemable Preferred Shares are subject to mandatory
conversion into the number of Common Shares set forth in the table above, if the
market price of Common Shares exceeds $15.925 per share (subject to adjustment)
for a specified period after February 28, 2000. The holders of Redeemable
Preferred Shares have the right to require the Company to repurchase their
shares upon a change of control of the Company after February 28, 2002; upon a
change of control occurring prior to that time, holders have a right to convert
their Redeemable Preferred Shares into a number of Common Shares equal to the
greater of (i) the applicable number set forth in the table below and (ii) the
liquidation preference of the Redeemable Preferred Shares divided by 95% of the
amount per share received in the change of control transaction.

<TABLE>
<CAPTION>
PER SHARE AGGREGATE
CHANGE OF CONTROL NUMBER NUMBER
- ---------------------------------------------------------------------- --------- ---------
<S> <C> <C>
February 28, 1997..................................................... 8,791.21 4,395,604
May 31, 1997.......................................................... 9,313.19 4,656,593
November 30, 1997..................................................... 9,866.16 4,933,079
May 31, 1998.......................................................... 10,451.98 5,225,980
November 30, 1998..................................................... 11,072.55 5,536,273
May 31, 1999.......................................................... 11,729.98 5,864,989
November 30, 1999..................................................... 12,426.45 6,213,223
May 31, 2000.......................................................... 13,164.27 6,582,133
November 30, 2000..................................................... 13,945.89 6,972,947
May 31, 2001.......................................................... 14,773.93 7,386,966
November 30, 2001..................................................... 15,651.13 7,825,567
May 31, 2002.......................................................... 15,580.42 8,290,210
</TABLE>

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Shares in Canada is
Montreal Trust Company of Canada. The co-transfer agent for the Common Shares in
the United States is Registrar and Transfer Company, Cranford, New Jersey.

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<PAGE> 77

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Stock Offering, the Company will have outstanding
34,627,442 Common Shares (based upon the number of shares outstanding at
September 30, 1997 and assuming no exercise of the Underwriters' over-allotment
option). Of these shares, the 7,000,000 Common Shares sold in the Stock Offering
and an additional 22,083,030 Common Shares will be freely tradeable, except for
any Common Shares held by "affiliates" of the Company within the meaning of Rule
144 under the Securities Act, which shares will be subject to the resale
limitations of Rule 144. The remaining 5,544,412 Common Shares will be
"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. In addition, at September 30, 1997, (i) 4,003,600 Common Shares were
reserved for issuance upon exercise of outstanding stock options at prices
ranging from $3.55 to $10.00 per share, (ii) 1,596,155 Common Shares were
reserved for issuance upon exercise of outstanding warrants at exercise prices
ranging from $6.75 to $13.00 per share, (iii) 3,359,782 Common Shares were
reserved for issuance upon conversion of the Convertible Notes (based on the
aggregate accreted value of Convertible Notes on September 30, 1997) and (iv)
4,656,587 Common Shares were reserved for issuance upon conversion of the
Redeemable Preferred Shares (based on the aggregate accreted value of the
Redeemable Preferred Shares on September 30, 1997). The Company has registered
the resale of the Common Shares issuable upon exercise of the options and
warrants and the Common Shares issuable upon conversion of the Convertible
Notes.

Each of the Company and the directors, executive officers and certain other
shareholders of the Company has agreed that, without the prior written consent
of Morgan Stanley on behalf of the Underwriters, it will not (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of, directly or indirectly, any Common Shares or
any securities convertible into or exercisable or exchangeable for Common Shares
or (ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Shares, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Shares or such other securities, in cash or
otherwise, during the period ending 120 days after the date of this Prospectus,
other than (w) the Shares (x) the issuance by the Company of Common Shares upon
the exercise of an option or a warrant or the conversion of a security
outstanding on the date of this Prospectus of which the Underwriters have been
advised in writing, (y) the issuance of additional options to purchase Common
Shares under the 1995 Plan, the 1996 Plan, the Purchase Plan, the Executive Plan
or the Operating Officer Plan and (z) transactions relating to Common Shares or
other securities acquired in open market transactions after completion of the
Stock Offering. See "Underwriters." The future sale or the expectation of future
sales of Common Shares in the public market could adversely affect the
prevailing market prices for the Common Shares and could impair the Company's
ability to raise capital through the sale of Common Shares.

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 Common Shares.
This summary is based on current provisions of the Code, applicable final,
temporary and proposed Treasury Regulations ("Treasury 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 occur at any time after the
issuance of the Common Shares 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 Common
Shares in light of their personal investment or tax

75
<PAGE> 78

circumstances, or to certain types of investors (including insurance companies,
financial institutions, brokers-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
Common Shares as part of a straddle with other investments, or situations in
which the functional currency of a holder who is a U.S. Holder (as defined
below) is not the United States dollar. In addition, this discussion deals only
with securities 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 Common Shares 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 Common Shares that is, for the United States federal income tax
purposes, not a 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 COMMON SHARES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.

Cash Dividends. The Company does not presently intend to pay cash
dividends on the Common Shares in the foreseeable future. If the Company should
pay a dividend on the Common Shares, the dividend would be includible in the
gross income of a U.S. Holder of Common Shares to the extent that such dividend
is distributed out of the Company's current or accumulated earnings and profits
(as "earnings and profits" are defined in the Code), in the amount equal to the
gross amount (i.e., before any Canadian withholding) of the dividend and U.S.
Holders could recognize foreign currency gain or loss in the event such dividend
were paid in currency other than the U.S. dollar. Subject to certain conditions
and limitations, the United States dollar value of Canadian taxes, if any,
withheld from dividends may be claimed as a credit against the U.S. Holder's
United States federal income tax liability. A U.S. Holder will not be entitled
to a dividends received deduction with respect to such distributions by the
Company. If the Company does not have such earnings and profits as determined
for U.S. tax purposes, such dividend would be treated first as a return of
capital to the extent of the U.S. Holder's tax basis in the Common Shares, and
then, if the amount of the dividend exceeds such tax basis, as capital gain to
the extent of such excess. As a result, until such time as the Company has
earnings and profits, distributions on Common Shares will be a nontaxable return
of capital and will be applied against and reduce the adjusted tax basis of any
Common Share (but not below zero) in the hands of its holder. The Company
believes that it does not presently have accumulated earnings and profits for
tax purposes. However, the Company cannot predict whether it will have earnings
and profits for future taxable years. See "Risk Factors -- Historical and
Anticipated Future Operating Losses and Negative EBITDA."

Sale of Common Shares. Gain or loss will generally be recognized upon a
sale of the Common Shares in an amount equal to the difference between the
amount realized on the transfer and the holder's adjusted tax basis in the
Common Shares. Such gain or loss will generally be capital gain or loss and will
be taxable at various preferential rates depending on the extent to which a U.S.
Holder's holding period exceeds one year.

Passive Foreign Investment Company Rules. Under the current United States
federal income tax law, a foreign corporation is a "passive foreign investment
company" ("PFIC") for any taxable year if 75% or more or its gross income
consists of passive income, or 50% or more of the average value of its assets
consists of assets that produce, or are held for the production of, passive
income. Based upon its current and projected income, business investment plan,
assets and activities, the Company does not expect to be considered a PFIC for
the Company's current taxable year or for future years. However because the
determination of whether the Company constitutes a PFIC will be based upon the
composition of the income and assets of the Company and entities in which it
holds at least a 25% interest, form time to time and because there are
uncertainties in the application of the relevant rules, there can be no
assurance that the Company will not be considered a PFIC for any taxable year.
The Company will take reasonable steps necessary to minimize accumulation of
passive assets and passive income earnings. If the Company becomes a PFIC for
any taxable year, U.S. Holders of Common Shares (including certain indirect U.S.
Holders) may be subject to reporting

76
<PAGE> 79

requirements and adverse tax consequences upon a sale or other disposition of
such Common Shares, or upon the receipt of certain distributions from the
Company, unless (a) such U.S. Holders elected, if such election is available,
generally for the first taxable year for which shares of a PFIC are considered
to be held, to be taxed currently on a pro rata portion of the Company's income,
whether or not such income was distributed in the form of dividends or otherwise
(and the Company made available certain information required for such election),
or (b) such U.S. Holders elected, if such election (the "market-to-market
election") is available, to include in income each year an amount equal to the
excess, if any, of (i) the fair market value of the PFIC Stock as of the close
of the tax year over (ii) the adjusted basis (increased by amounts includable in
income in prior periods as a result of having made such election) of the U.S.
Holders in their PFIC Stock. If the Company determines that it has become a
PFIC, within two months after the end of each year it will supply the PFIC
annual information statement necessary to make the qualified election for each
year to each holder of Common Shares of record at the end of such year. In such
case, the Company will also supply the PFIC annual information statement to any
holder or former holder of Common Shares who requests it.

CERTAIN CANADIAN TAX CONSIDERATIONS

In the opinion of Thorsteinssons, special tax counsel to the Company, the
following is, as of the date of this Prospectus, a fair and adequate summary of
the principal federal income tax consequences arising under the Canada Act to an
investor who acquires Common Shares.

The income tax consequences will not be the same for all purchasers but may
vary depending on a number of factors, including the jurisdiction in which the
purchaser is resident and whether the Common Shares acquired by him under the
Stock Offering will be characterized as capital property. The following
discussion of the Canadian federal income tax consequences is, therefore, of a
general nature only and is not intended to constitute a complete analysis of the
income tax consequences and should not be interpreted as legal or tax advice to
any particular purchaser. EACH PROSPECTIVE PURCHASER SHOULD OBTAIN ADVICE FROM
HIS OWN TAX ADVISOR AS TO BOTH THE CANADIAN FEDERAL AND PROVINCIAL INCOME TAX
CONSEQUENCES OF HIS PARTICIPATION IN THE STOCK OFFERING.

This summary is based on the current provisions of the Canada Act, the
regulations thereunder (the "Regulations") and any proposed amendments to the
Canada Act or Regulations publicly announced before the date hereof by the
federal Minister of Finance. It also takes into account counsel's understanding
of the current administrative practices of the federal tax authorities.

It has been assumed that any proposed amendments to the Canada Act and
Regulations as described above will be enacted in substantially their present
form and that no other relevant amendments to the Canada Act or Regulations will
come into force. However, no assurance can be given to this effect.

DIVIDENDS

Generally, dividends paid by a Canadian corporation to non-resident
shareholders are, under the Canada Act, subject to a withholding tax of 25%.
However, for U.S. shareholders, paragraph 2 of Article X of the Canada-United
States Income Tax Convention (1980) (the "Treaty") provides for the following
maximum withholding tax rates:

(a) 5% of the gross amount of the dividends if the beneficial owner of such
dividends is a United States resident company which owns at least 10%
of the voting stock of the corporation paying the dividends; and

(b) 15% of the gross amount of the dividends in all other cases.

Dividends paid by a Canadian corporation to shareholders resident in Canada
will not be subject to withholding tax. Any dividends received by a Canadian
resident on shares of the Company will be treated for tax purposes as dividends
from a taxable Canadian corporation. Accordingly, where a dividend is received
by an individual resident in Canada, the individual will be entitled to claim a
federal dividend tax credit equal to

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<PAGE> 80

16 2/3% of the dividend. Where the dividend is received by a corporation
resident in Canada, the dividend will normally be free of tax under Part I of
the Canada Act but may be subject to refundable tax under Part IV of the Canada
Act.

DISPOSITION OF CAPITAL PROPERTY

If shares of a Canadian public corporation held by a non-resident
shareholder constitute capital property to that shareholder, the disposition of
such shares will not be subject to tax under the Canada Act unless the shares
constitute "taxable Canadian property" to the vendor. Where a non-resident
shareholder or persons with whom the non-resident shareholder does not deal at
arm's length have, at any time during the five years period immediately
preceding the disposition, owned not less than 25% of the issued shares of any
class of the capital stock of the public corporation, the shares so disposed of
will constitute "taxable Canadian property". Under the Canada Act, a disposition
of shares that constitute taxable Canadian property will give rise to a capital
gain (or a capital loss) equal to the amount by which the proceeds of
disposition of such shares, net of any cost of disposition, exceeds (or is less
than) the adjusted cost basis of such shares to that investor. Generally,
three-quarters of any capital gain realized by an investor on a disposition or a
deemed disposition of such shares must be included in computing his Canadian
income for that year as a taxable capital gain. Three-quarters of any capital
loss realized by an investor on a disposition or deemed disposition of such a
share in a taxable year may generally be deducted from his Canadian taxable
capital gains for that year.

Any gains realized by a U.S.-resident shareholder from the disposition of
shares which are taxable Canadian property may be exempt from tax under the
Canada Act by virtue of Article XIII of the Treaty if, at the time of the
disposition of the subject shares, the value thereof was derived principally
from something other than direct or indirect real property interests situated in
Canada.

Under the Canada Act, the disposition of a share by an investor may occur
or be deemed to occur in a number of circumstances including on a sale or gift
of such share or upon the death of that investor.

The initial adjusted cost base of a share to an investor will be the cost
to him of that share. Under the Canada Act, certain addition or reduction
adjustments may be required to be made to the cost base of a share. The adjusted
cost base of each common share of a corporation owned by an investor at any
particular time will be the average adjusted cost base to him of all common
shares of that corporation owned at that time.

In general, the disposition by a shareholder resident in Canada of the
capital stock in a Canadian corporation will be subject to Canadian income
taxation under the Canada Act in the same manner as rules described above
relating to a disposition of shares which constitute taxable Canadian property.

DISPOSITIONS OF NON-CAPITAL PROPERTIES

If the shares of a Canadian public corporation held by a non-resident do
not constitute capital property to that shareholder, any gains realized from the
disposition thereof will be fully taxable under the Canada Act if their
disposition arises in the course of a business carried on by the shareholder in
Canada. Under the Canada Act, a shareholder will be deemed to carry on business
in Canada in respect of particular shares if he offers them for sale in Canada
through an agent, including the TSE and the VSE. Under the Treaty, any business
profits derived by a United States resident shareholder of a Canadian public
corporation from the disposition of the subject corporation's shares will only
be taxable in Canada to the extent that such profits are attributable to a
permanent establishment of the shareholder in Canada.

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<PAGE> 81

UNDERWRITERS

Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters
named below for whom Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc.
and Credit Suisse First Boston Corporation are acting as U.S. Representatives,
and the International Underwriters named below for whom Morgan Stanley & Co.
International Limited, Bear, Stearns International Limited and Credit Suisse
First Boston (Europe) Limited are acting as International Representatives, have
severally agreed to purchase, and the Company has agreed to sell to them,
severally, the respective number of Common Shares set forth opposite the names
of such Underwriters below:

<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated..................................
Bear, Stearns & Co. Inc. ..........................................
Credit Suisse First Boston Corporation.............................
---------

Subtotal................................................... 5,600,000
---------

International Underwriters:
Morgan Stanley & Co. International Limited.........................
Bear, Stearns International Limited................................
Credit Suisse First Boston (Europe) Limited........................
---------

Subtotal................................................... 1,400,000
---------

Total...................................................... 7,000,000
=========
</TABLE>

The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the Common Shares offered hereby are subject
to the approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all of the Common
Shares offered hereby (other than those covered by the U.S. Underwriters'
over-allotment option described below) if any such shares are taken.

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
Shares or distribute any prospectus relating to the Shares outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will

79
<PAGE> 82

not offer or sell, directly or indirectly, any Shares or distribute any
prospectus relating to the Shares in the United States or Canada or to any
United States or Canadian Person. With respect to any Underwriter that is a U.S.
Underwriter and an International Underwriter, the foregoing representations and
agreements (i) made by it in its capacity as a U.S. Underwriter apply only to it
in its capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter apply only to it in its capacity as an International
Underwriter. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement between
U.S. and International Underwriters. As used herein, "United States or Canadian
Person" means any national or resident of the United States or Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
thereof (other than a branch located outside the United States and Canada of any
United States or Canadian Person), and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian Person. All
Common Shares to be purchased by the Underwriters under the Underwriting
Agreement are referred to herein as the "Shares."

Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of Shares as may be mutually agreed. The per share price of any
Shares sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers set forth below.

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.

Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Shares in, from or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in connection
with the offering of the Shares to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.

Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has

80
<PAGE> 83

further agreed to send to any dealer who purchases from it any of the Shares a
notice stating in substance that, by purchasing such Shares, such dealer
represents and agrees that it has not offered or sold, and will not offer or
sell, any of such Shares, directly or indirectly, in Japan or to or for the
account of any resident thereof except for offers or sales to Japanese
International Underwriters or dealers and except pursuant to any exemption from
the registration requirements of the Securities and Exchange Law and otherwise
in compliance with applicable provisions of Japanese law, and that such dealer
will send to any other dealer to whom it sells any of such Shares a notice
containing substantially the same statement as is contained in this sentence.

The Underwriters initially propose to offer part of the Common Shares
directly to the public at the public offering price set forth on the cover page
hereof and part to certain dealers at a price that represents a concession not
in excess of $ a share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ a share to other Underwriters or to certain dealers. After the
initial offering of the Common Shares, the offering price and other selling
terms may from time to time be varied by the Representatives.

Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an aggregate of 1,050,000 additional Common Shares
at the public offering price set forth on the cover page hereof, less
underwriting discounts and commissions. The U.S. Underwriters may exercise such
option to purchase solely for the purpose of covering over-allotments, if any,
made in connection with the offering of the Common Shares offered hereby. To the
extent such option is exercised, each U.S. Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional Common Shares as the number set forth next to such U.S.
Underwriter's name in the preceding table bears to the total number of Common
Shares set forth next to the names of all U.S. Underwriters in the preceding
table.

Each of the Company and the directors, executive officers and certain other
shareholders of the Company has agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any Common Shares or any securities convertible into or exercisable or
exchangeable for Common Shares or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Shares, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Shares or such
other securities, in cash or otherwise, during the period ending 120 days after
the date of this Prospectus, other than (w) the Shares (x) the issuance by the
Company of Common Shares upon the exercise of an option or a warrant or the
conversion of a security outstanding on the date of this Prospectus of which the
Underwriters have been advised in writing, (y) the issuance of additional
options to purchase Common Shares under the 1995 Plan, the 1996 Plan, the
Purchase Plan, the Executive Plan or the Operating Officer Plan and (z)
transactions relating to Common Shares or other securities acquired in open
market transactions after completion of the Stock Offering.

In order to facilitate the Stock Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Shares. Specifically, the Underwriters may over-allot in connection with
the Stock Offering, creating a short position in the Common Shares for their own
account. In addition, to cover over-allotments or to stabilize the price of the
Common Shares, the Underwriters may bid for, and purchase, Common Shares in the
open market. Finally, the underwriting syndicate may reclaim selling concessions
allowed to an Underwriter or a dealer for distributing the Common Shares in the
Stock Offering, if the syndicate repurchases previously distributed Common
Shares in transactions to cover syndicate short positions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the Common Shares above independent market levels. The
Underwriters are not required to engage in these activities, and may end any of
these activities at any time.

The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.

81
<PAGE> 84

LEGAL MATTERS

The validity of the issuance of the Shares offered hereby and certain other
legal matters will be 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 the Company, owns 76,345 Common Shares,
and options and warrants to purchase 600,000 Common Shares. In addition, other
attorneys affiliated with Olshan Grundman Frome & Rosenzweig LLP hold Common
Shares and/or options to purchase 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. Certain Canadian tax matters are
being passed upon for the Company by Thorsteinssons, Vancouver, British
Columbia. Certain legal matters will be passed upon for the Underwriters by
Shearman & Sterling, New York, New York.

EXPERTS

The consolidated balance sheets of GST Telecommunications, Inc. and its
subsidiaries as of September 30, 1996 and 1995 and the consolidated statements
of operations, shareholders' equity and cash flows for the years ended September
30, 1996 and 1995, have been included herein in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing. The consolidated
statements of operations, shareholders' equity and cash flows of GST
Telecommunications, Inc. and its subsidiaries for the 13 months ended September
30, 1994 have been included 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.

82
<PAGE> 85

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GST TELECOMMUNICATIONS, INC.
Independent Auditors' Report of KPMG Peat Marwick LLP................................. F-2
Auditors' Report of KPMG Peat Marwick Thorne.......................................... F-3
Consolidated Balance Sheets at September 30, 1995, 1996 and June 30, 1997
(unaudited)......................................................................... F-4
Consolidated Statements of Operations for the thirteen months ended September 30,
1994, the years ended September 30, 1995 and 1996 and the nine months ended June 30,
1996 and 1997 (unaudited)........................................................... F-5
Consolidated Statements of Shareholders' Equity (Deficit) for the thirteen months
ended September 30, 1994, the years ended September 30, 1995 and 1996 and the nine
months ended June 30, 1997 (unaudited).............................................. F-6
Consolidated Statements of Cash Flows for the thirteen months ended September 30,
1994, the years ended September 30, 1995 and 1996 and the nine months ended June 30,
1996 and 1997 (unaudited)........................................................... F-7
Notes to Consolidated Financial Statements............................................ F-9
</TABLE>

F-1
<PAGE> 86

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
GST Telecommunications, Inc.:

We have audited the accompanying consolidated balance sheets of GST
Telecommunications, Inc. as of September 30, 1995 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of GST
Telecommunications, Inc. as of September 30, 1995 and 1996, and the results of
its operations and cash flows for the years then ended in conformity with
generally accepted accounting principles in the United States.

Accounting principles generally accepted in the United States vary in
certain significant respects from accounting principles generally accepted in
Canada. Application of accounting principles generally accepted in Canada would
have affected results of operations for the year ended September 30, 1995 and
1996, and shareholders' equity as of September 30, 1995 and 1996, to the extent
summarized in note 10 to the consolidated financial statements.

KPMG Peat Marwick LLP
Portland, Oregon
November 22, 1996

F-2
<PAGE> 87

AUDITORS' REPORT

To the Board of Directors
GST Telecommunications, Inc.

We have audited the consolidated statements of operations, shareholders'
equity, and cash flows of GST Telecommunications, Inc. for the thirteen months
ended September 30, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in
all material respects, the results of its operations and cash flows of the
Company for the thirteen months ended September 30, 1994 in accordance with
generally accepted accounting principles in the United States.

Accounting principles generally accepted in the United States vary in
certain significant respects from accounting principles generally accepted in
Canada. Application of accounting principles generally accepted in Canada would
have affected results of operations for the thirteen months ended September 30,
1994 and shareholders' equity as at September 30, 1994, to the extent summarized
in note 10 to the consolidated financial statements.

KPMG Peat Marwick Thorne

Chartered Accountants
Vancouver, Canada
December 8, 1994

F-3
<PAGE> 88

GST TELECOMMUNICATIONS, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(IN U.S. DOLLARS)

<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1995 1996 JUNE 30, 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 6,024 $ 61,343 $ 38,350
Restricted investments............................... -- 16,000 128,479
Accounts receivable, net............................. 4,306 9,472 22,212
Investments.......................................... 871 5,176 2,315
Inventory............................................ 387 2,406 2,852
Other current assets................................. 1,252 6,151 11,760
-------- ------- ---------
12,840 100,548 205,968
-------- ------- ---------
Restricted investments................................. -- -- 80,695
Property and equipment, net............................ 38,033 127,575 300,356
Goodwill, net.......................................... 13,004 35,730 38,027
Other assets, net...................................... 9,248 37,848 56,980
-------- ------- ---------
60,285 201,153 476,058
-------- ------- ---------
$ 73,125 $301,701 $ 682,026
======== ======= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable..................................... $ 9,683 $ 12,443 $ 15,010
Accrued expenses..................................... 3,090 26,743 21,085
Current portion of capital lease obligations......... 223 722 4,640
Current portion of long-term debt.................... 736 4,832 3,700
Other current liabilities............................ 512 726 106
-------- ------- ---------
14,244 45,466 44,541
-------- ------- ---------
Deferred compensation.................................. 151 158 158
Capital lease obligation, less current portion......... 658 1,453 11,427
Long-term debt, less current portion................... 19,088 232,674 567,405
Minority interest...................................... 3,279 182 12,065
Commitments and contingencies
Preference shares:
Authorized -- 10,000,000 no par shares; no shares
issued or outstanding at September 30, 1995 and
1996, 500 issued and outstanding at June 30,
1997 (unaudited)................................ -- -- 52,968
Shareholders' equity (deficit):
Common shares:
Authorized -- unlimited number of no par common
shares; issued and outstanding -- September 30,
1995 -- 18,700,290 shares, September 30,
1996 -- 21,257,697 shares, June 30,
1997 -- 27,076,169 (unaudited).................. 50,166 72,647 132,400
Commitment to issue shares:
September 30, 1995 -- 336,498 shares, September
30, 1996 -- 1,922,007 shares, June 30,
1997 -- 174,906 (unaudited)..................... 1,494 25,454 4,707
Accumulated deficit.................................. (15,955) (76,333) (143,645)
-------- ------- ---------
35,705 21,768 (6,538)
-------- ------- ---------
$ 73,125 $301,701 $ 682,026
======== ======= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 89

GST TELECOMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
(IN U.S. DOLLARS)

<TABLE>
<CAPTION>
THIRTEEN NINE MONTHS
MONTHS ENDED YEAR ENDED YEAR ENDED ENDED JUNE 30,
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, -------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Telecommunication services............. $ 112 $ 11,118 $ 31,726 $ 19,452 $ 58,738
Product................................ 5,889 7,563 9,573 5,772 16,186
-------- -------- ------- ---------- ----------
Total revenues................. 6,001 18,681 41,299 25,224 74,924
-------- -------- ------- ---------- ----------
Operating costs and expenses:
Network expenses....................... 149 10,103 26,580 14,922 48,250
Facilities administration and
maintenance......................... 26 2,096 10,317 5,793 9,833
Cost of product revenues............... 2,137 3,096 3,974 2,803 5,557
Selling, general and administrative.... 3,953 11,373 33,375 20,689 49,395
Research and development............... 689 1,270 1,352 910 1,739
Depreciation and amortization.......... 384 2,374 8,298 5,385 14,833
-------- -------- ------- ---------- ----------
Total operating costs and
expenses..................... 7,338 30,312 83,896 50,502 129,607
-------- -------- ------- ---------- ----------
Loss from operations........... (1,337) (11,631) (42,597) (25,278) (54,683)
-------- -------- ------- ---------- ----------
Other expenses (income):
Interest income........................ (254) (303) (5,549) (4,209) (3,377)
Interest expense, net of amounts
capitalized......................... 27 838 21,224 14,801 21,321
Loss from joint venture................ 1,099 661 1,495 987 --
Write-off of pre-operating costs....... 691 -- -- -- --
Loss on investments.................... -- 526 26 -- --
Other.................................. 87 160 839 547 (6,549)
-------- -------- ------- ---------- ----------
1,650 1,882 18,035 12,126 11,395
-------- -------- ------- ---------- ----------
Loss before minority interest
in income (loss) of
subsidiary and income tax.... (2,987) (13,513) (60,632) (37,404) (66,078)
-------- -------- ------- ---------- ----------
Income tax expense:
Current................................ 487 70 157 31 843
Deferred............................... 15 96 -- -- --
-------- -------- ------- ---------- ----------
502 166 157 31 843
-------- -------- ------- ---------- ----------
Loss before minority interest
in income (loss) of
subsidiaries................. (3,489) (13,679) (60,789) (37,435) (66,921)
Minority interest in (income) loss of
subsidiaries........................... (2) 2,364 411 335 (391)
-------- -------- ------- ---------- ----------
Loss for the period............ $ (3,491) $ (11,315) $ (60,378) $ (37,100) $ (67,312)
======== ======== ======= ========== ==========
Loss per share........................... $ (.35) $ (.82) $ (3.18) $ (2.00) $ (2.87)
======== ======== ======= ========== ==========
Weighted average common and common
equivalents shares outstanding......... 9,878,704 13,780,796 18,988,127 18,512,988 23,460,468
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 90

GST TELECOMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(IN U.S. DOLLARS)

<TABLE>
<CAPTION>
COMMITMENT TO
ISSUE COMMON
SHARES (NOTE 6) COMMON SHARES TOTAL
--------------------- --------------------- ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT EQUITY (DEFICIT)
---------- -------- ---------- -------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1993....... -- $ -- 9,003,421 $ 10,511 $ (1,149) $ 9,362
Issuance of common stock for
services................... -- -- 48,000 183 -- 183
Issuance of common stock,
net........................ -- -- 2,515,479 10,368 -- 10,368
Issuance of common stock
under option plans......... -- -- 343,750 974 -- 974
Commitment to issues shares
for business
combinations............... 551,536 3,038 -- -- -- 3,038
Net loss..................... -- -- -- -- (3,491) (3,491)
--------- ------- ---------- ------- -------- --------
Balance, September 30, 1994.... 551,536 3,038 11,910,650 22,036 (4,640) 20,434
Issuance of common stock for
services................... -- -- 34,057 150 -- 150
Issuance of common stock in
business combinations...... (551,536) (3,038) 1,719,785 8,785 -- 5,747
Issuance of common stock,
net........................ -- -- 4,593,598 17,965 -- 17,965
Issuance of common stock
under option plans......... -- -- 442,200 1,230 -- 1,230
Commitment to issues shares
for business
combinations............... 336,498 1,494 -- -- -- 1,494
Net loss..................... -- -- -- -- (11,315) (11,315)
--------- ------- ---------- ------- -------- --------
Balance, September 30, 1995.... 336,498 1,494 18,700,290 50,166 (15,955) 35,705
Issuance of common stock for
services................... -- -- 85,627 621 -- 621
Issuance of common stock in
business combinations...... (168,249) (747) 1,200,873 11,097 -- 10,350
Issuance of common stock,
net........................ -- -- 1,189,849 9,672 -- 9,672
Issuance of common stock
under option plans......... -- -- 67,500 293 -- 293
Commitment to issues shares
for business
combinations............... 1,753,758 24,707 -- -- -- 24,707
Issuance of common stock
under employee stock
purchase plan.............. -- -- 13,558 132 -- 132
Accrual of compensation costs
for stock award and option
plans...................... -- -- -- 666 -- 666
Net loss..................... -- -- -- -- (60,378) (60,378)
--------- ------- ---------- ------- -------- --------
Balance, September 30, 1996.... 1,922,007 25,454 21,257,697 72,647 (76,333) 21,768
Issuance of common stock in
business combinations...... (1,747,101) (20,747) 2,792,265 29,195 -- 8,448
Issuance of common stock,
net........................ -- -- 2,595,285 28,330 -- 28,330
Issuance of common stock
under option plans......... -- -- 367,929 1,634 -- 1,634
Issuance of common stock
under employee stock
purchase plan.............. -- -- 62,993 400 -- 400
Accrual of compensation costs
for stock award and option
plans...................... -- -- -- 194 -- 194
Net loss..................... -- -- -- -- (67,312) (67,312)
--------- ------- ---------- ------- -------- --------
Balance, June 30, 1997
(unaudited).................. 174,906 $ 4,707 27,076,169 $132,400 $(143,645) $ (6,538)
========= ======= ========== ======= ======== ========
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE> 91

GST TELECOMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(IN U.S. DOLLARS)

<TABLE>
<CAPTION>
THIRTEEN NINE MONTHS
MONTHS ENDED YEAR ENDED YEAR ENDED ENDED JUNE 30,
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, ---------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operations:
Loss for the period....................... $ (3,491) $ (11,315) $ (60,378) $ (37,100) $ (67,312)
Items not involving cash:
Minority interest in income (loss) of
subsidiary............................ 2 (2,364) (411) (335) 391
Loss from joint ventures................ 1,099 661 1,495 -- --
Write-off of pre-operating costs........ 691 -- -- -- --
Depreciation and amortization........... 557 2,824 9,496 6,218 16,070
Deferred income taxes................... 15 96 -- -- --
Deferred compensation................... -- 151 7 -- --
Accretion of interest................... -- -- 19,978 13,312 13,981
Write-off of other assets............... -- 122 766 486 --
Issuance of stock for compensation...... -- -- 890 -- 446
Issuance of stock for financing
commitment............................ 183 150 396 396 --
Loss on disposal of fixed assets........ -- -- 246 -- --
Loss on investments..................... -- 526 26 986 796
Gain on sale of subsidiary shares....... -- (7,424)
Changes in non-cash operating working
capital:
Accounts receivable, net................ (882) (1,549) (1,066) (1,113) (8,457)
Inventory............................... (163) (13) (2,019) (1,238) 151
Other current and other assets, net..... (120) (417) (5,304) (1,150) (5,435)
Accounts payable and accrued
liabilities........................... 2,350 (190) 2,387 (1,427) 5,698
Other current liabilities............... 53 262 185 233 (370)
-------- -------- --------- --------- --------
Cash provided by (used in)
operations..................... 294 (11,056) (33,306) (20,732) (51,465)
-------- -------- --------- --------- --------
Investments:
Acquisition of subsidiaries, net of cash
acquired.............................. (4,235) 207 (1,441) 11 (1,564)
Investment in joint ventures............ (35) -- -- -- --
Settlement of notes receivable.......... (5,107) 3,367 -- -- --
Purchase of investment in affiliate..... -- -- (294) -- --
Purchase of investments................. (843) 848 (9,799) (4,452) (3,065)
Proceeds from sale of investments....... -- -- 5,493 -- 5,176
Purchase of fixed assets................ (906) (27,730) (76,192) (40,971) (159,736)
Proceeds from sale of fixed assets...... -- -- 8 -- 5,774
Purchase of other assets................ (580) (1,829) (7,449) (9,025) (12,151)
Change in restricted cash............... -- -- (16,000) -- --
Proceeds from the sales of subsidiary
shares................................ -- -- -- -- 27,365
Cash and investments restricted for
purchase of fixed assets.............. -- -- -- -- (110,203)
-------- -------- --------- --------- --------
Cash used in investing
activities..................... (11,706) (25,137) (105,674) (54,437) (248,404)
-------- -------- --------- --------- --------
Financing:
Proceeds from long-term debt............ -- 19,857 196,207 193,109 314,850
Principal payments on long-term debt.... (387) (816) (2,112) (1,026) (6,765)
Issuance of common shares, net of
issuance costs........................ 11,342 19,195 10,098 9,918 24,652
</TABLE>

F-7
<PAGE> 92

GST TELECOMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)

See accompanying notes to consolidated financial statements.

F-8
<PAGE> 93

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
SEPTEMBER 30, 1995 AND 1996
(IN U.S. DOLLARS)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Description of the Company

GST Telecommunications, Inc. (the Company) is a Canadian company in the
business of providing competitive local exchange services primarily in the
western United States. In addition, the Company provides a range of
telecommunications services which include long distance, Internet access and
data services. The Company also manufactures telecommunications switching
equipment.

The consolidated financial statements for the thirteen months ended
September 30, 1994, and the years ended September 30, 1995 and 1996 have been
reported in U.S. dollars, the functional currency of the Company. The Company
changed its fiscal year-end to September 30 effective in 1994 (note 10).

(b) Basis of Consolidation

These consolidated financial statements include the accounts of the Company
and its greater than 50% owned subsidiaries. The Company's investments in
unconsolidated companies owned 20% or more are accounted for using the equity
method. All significant intercompany accounts have been eliminated.

Cash equivalents consist of short-term, highly liquid investments with
original maturities of ninety days or less.

(d) Restricted Cash

Pursuant to an agreement between the Company and a vendor relating to a
construction in progress as of September 30, 1996, the Company is required to
maintain $16 million in a restricted account pending the completion of the
project as collateral against payment. Completion of the project is anticipated
in the next fiscal year. At September 30, 1996, the Company is committed to
purchase approximately $20.7 million relating to this project.

(e) Accounts and Notes Receivable

The Company maintains a security interest in the telecommunications systems
it sells until the Company is paid in full. Management provides an allowance for
doubtful accounts and notes based on current customer information and historical
statistics. The allowance for doubtful accounts was $1,401 and $1,264 at
September 30, 1995 and 1996, respectively.

(f) Investments

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities (Statement 115) at October 1, 1994. Under Statement 115, the Company
classifies its debt and equity securities in one of three categories: trading,
available-for-sale, or held-to-maturity. Trading securities are bought and held
principally for the purpose of selling them in the near term. Held-to-maturity
securities are those securities in which the Company has the ability and intent
to hold the security until maturity. All other securities not included in
trading or held-to-maturity are classified as available-for-sale.

F-9
<PAGE> 94

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Trading and available-for-sale securities are recorded at fair value. All
of the Company's investments comprised primarily of U.S. Treasury Securities and
commercial paper, are classified as available-for-sale and mature in periods
ranging from 3 to 9 months. Unrealized holding gains and losses, net of the
related tax effect, on available-for-sale securities are excluded from earnings
and are reported as a separate component of shareholders' equity until realized.
A decline in the market value of any available-for-sale security below cost that
is deemed other than temporary is charged to earnings resulting in the
establishment of new cost basis for the security. Dividend income is recognized
when earned. Realized gains and losses for securities classified as
available-for-sale are included in earnings and are derived using the
specific-identification method for determining the cost of securities sold. The
amortized cost approximated the market value of these securities at September
30, 1995 and 1996.

(g) Inventory

Inventory is stated at the lower of cost (first-in, first-out) or market
(net realizable value) and consists of the following:

<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Raw materials.............................................. $ 317 $ 378
Work in process............................................ 70 346
Finished and refurbished goods............................. -- 1,682
------ ----
Total inventory.................................. $ 387 $2,406
====== ====
</TABLE>

(h) Investments in Affiliates

The Company has a 50% interest in Phoenix Fiber Access, Inc., a competitive
access fiber optic telecommunications network in the Phoenix, Arizona
metropolitan area. The carrying value of this investment, which is included in
other assets in the accompanying consolidated balance sheet, was $2,859 and
$1,364 at September 30, 1995 and 1996, respectively.

The Company has an approximate 40% interest in GST Global
Telecommunications, Inc. (GST Global), a publicly traded corporation on the
Vancouver Stock Exchange which intends to conduct telecommunications operations
on a worldwide basis. The carrying value of this investment, which is included
in other assets in the accompanying consolidated balance sheet, was $3,634 at
September 30, 1996 (see note 2).

(i) Property and Equipment

Property and equipment is recorded at cost and is depreciated on the
straight-line basis over their estimated useful lives, which are as follows:

<TABLE>
<S> <C>
Telecommunications networks...................................... 10 years
Electronic and related equipment................................. 10 years
Leasehold improvements........................................... 10 years
Furniture, office equipment and other............................ 3-7 years
Building......................................................... 40 years
</TABLE>

Construction, engineering and overhead costs directly related to the
development of competitive access networks are capitalized. The Company begins
depreciating these costs when the networks become commercially operational.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets owned.

F-10
<PAGE> 95

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(j) Goodwill

Goodwill, which represents the excess of the purchase price over the fair
value of net assets acquired, is amortized over periods ranging from five to
twenty years using the straight-line method. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through
discounted projected future cash flows of the acquired businesses from which the
goodwill arose. Amortization charged to operations was $19, $389 and $1,690 for
the thirteen month period ended September 30, 1994, and the years ended
September 30, 1995 and 1996, respectively.

(k) Revenue Recognition

Telecommunication services revenue is recorded upon placing of calls or
rendering of other related services. Telecommunication product revenue is
recorded upon shipment of product and is presented in the accompanying
consolidated statements of operations net of product returns.

Deferred revenue, of which $373 and $477 are included in other current
liabilities in the accompanying balance sheet at September 30, 1995 and 1996,
respectively, consists of monthly service contract payments received in advance,
warranty payments received in advance and research and development advances.
Advance warranty payments are amortized over the length of warranty on the
system sold, which is typically one year.

(l) Loss Per Share

Loss per share has been calculated using the weighted average number of
common and dilutive common equivalent shares assumed to be outstanding during
the period (using the treasury stock method for dilutive common equivalent
shares). Common equivalent shares consist of options and warrants to purchase
common stock.

Fully diluted loss per share has not been presented for the outstanding
options and warrants as they are anti-dilutive.

(m) Issuance of Subsidiary Stock

Issuances of subsidiary stock are accounted for as capital transactions in
the accompanying consolidated financial statements.

(n) Segmented Information

Segmented information has not been presented as the Company is presently
operating 100% in the telecommunications industry in the United States and all
revenues and operating profits and losses are derived from United States
operations and substantially all assets reside in the United States.

(o) Income Taxes

The Company accounts for income taxes under the asset and liability method.
Under the asset and liability method, deferred income taxes reflect the future
tax consequences of differences between the tax bases of assets and liabilities
and their financial reporting amounts at each year-end. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in the tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts expected to be realized.

F-11
<PAGE> 96

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(p) Foreign Currency

The functional currency of all of the Company's operations is the U.S.
dollar. In accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation", nonmonetary balance sheet items recorded in
Canadian dollars are remeasured at historical rates and monetary balance sheet
items recorded in Canadian dollars are remeasured at current rates. Exchange
gains and losses from remeasurement of monetary assets and liabilities are
recognized currently in income.

(q) Financial Instruments

The carrying amounts reported in the balance sheet for cash and cash
equivalents, receivables, short-term investments, short-term borrowings and
accounts payable and accrued liabilities approximate fair values due to the
short maturity of those instruments.

The carrying amount of the Company's long-term debt approximates its fair
value. The fair value of the Company's long-term debt was determined based on
quoted market prices for similar issues or on current rates available to the
Company for debt of the same remaining maturities and similar terms.

Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.

(r) Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

(s) Unaudited Interim Financial Information

The consolidated financial data for the nine months ended June 30, 1996 and
1997 is unaudited, but in the opinion of the management of the Company, reflects
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of results for interim periods.

(t) Reclassifications

Certain reclassifications have been made in the accompanying consolidated
financial statements for 1995 and 1994 to conform with the 1996 presentation.

(2) ACQUISITIONS

From September 1, 1993 through September 30, 1996, the Company made the
acquisitions set forth below, each of which was accounted for as a purchase,
except for Canadian Programming Concepts, Inc., which was accounted for as an
equity investment. The consolidated financial statements include the operating
results from the effective date of acquisition.

(a) Call America Business Communications, Inc. (Call America)

In the fourth quarter of 1996, the Company acquired 100% of the outstanding
capital stock of Call America. Call America is a California company that
provides long distance and ancillary communications services. The Company
acquired Call America for consideration of $14,777, consisting of 1,177,692
shares of

F-12
<PAGE> 97

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

common stock valued at $12.50 per share, and $56 in legal fees. An additional
130,000 common shares have been placed in escrow and will be issued to the
former owners of Call America in one year, subject to certain indemnification
clauses contained in the purchase agreement. Up to an additional 114,489 shares
could be issued to the former Call America owners if the market price of the
Company's common stock is less than $12.50 six months after the closing date.
Additionally, $533 in notes receivable due from the former owners of Call
America will be forgiven if certain operating milestones are met over the next
10 years. In connection with this acquisition, the Company recorded $21,166 in
assets, including $9,798 in goodwill, and $6,389 in liabilities.

(b) TotalNet Communications, Inc. (TotalNet)

In the fourth quarter of 1996, the Company acquired 100% of the outstanding
capital stock of TotalNet, a long distance service provider. The Company
acquired TotalNet for consideration of $7,911, consisting of 401,160 common
shares valued at $4,373, a commitment to issue shares valued at $3,498 at the
one year anniversary of the agreement, and $40 in legal fees. The number of
shares issuable at the one year anniversary will be determined by a share price
based on the weighted average market price of the Company's common shares for
the ten days preceding the anniversary providing that in no case will the
anniversary share price be lower than $7.63 or greater than $20. An additional
80,232 common shares will be issued to the former owners of TotalNet at the
anniversary date, subject to certain indemnification clauses contained in the
purchase agreement. In connection with this acquisition, the Company recorded
$10,149 in assets, including $4,700 in goodwill, and $2,239 in liabilities.

In the third quarter of 1994, the Company acquired 60% of the shares of GST
Telecom in exchange for contributing 60% of the shares of Tucson Lightwave, Inc.
(Tucson) and a commitment to provide at least $11,024 in equity financing. GST
Telecom develops, constructs, and operates competitive local exchange networks
and other communications systems. The shares of Tucson were acquired from
Pacwest, LLC (Pacwest) (an entity controlled by the Chief Executive Officer of
the Company) in exchange for 100,000 common shares of the Company valued at
$447. The Company has made $132,184 in equity contributions to GST Telecom
through September 30, 1996.

In the third quarter of 1995, the Company acquired an additional 20% of GST
Telecom for 1,000,000 common shares valued at $5 per share.

In the first quarter of 1996, the Company acquired the remaining 20% of GST
Telecom for consideration of up to a maximum of 1,000,000 common shares (valued
at $10.00 per share) based upon the fair market value of a 20% interest in GST
Telecom, which was determined by an independent appraisal during September 1996.
Currently, 1,000,000 common shares are held in escrow pending the release of
such shares. In addition, the parties agreed that the Company has fulfilled all
of its obligations relating to the funding of GST Telecom and its subsidiaries.

In connection with these acquisitions, the Company recorded $40,516 in net
assets, including goodwill of $15,330, and liabilities of $3,478.

(d) National Applied Computers Technologies, Inc. (NACT)

In the fourth quarter of 1993, the Company purchased 52% of the common
shares of NACT. Subsequent to September 1, 1993, at various times, the Company
acquired the remaining 48% interest of NACT. NACT is a Utah manufacturer of
telecommunications switching and network management equipment for the inter-
exchange industry.

F-13
<PAGE> 98

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The consideration paid for 100% of NACT's outstanding common shares
consisted of $3,621 in cash, $466 in notes payable, $160 in legal fees and
956,283 common shares valued at $4,832. 15% of the stock acquired from NACT was
purchased from NACT's former President, who is also the Company's Chief
Technology Officer and a Director of the Company, for 384,195 common shares of
the Company. In connection with these acquisitions, the Company recorded $10,122
in net assets, including goodwill of $1,387, and liabilities of $1,203.

(e) International Telemanagement Group, Inc. (ITG)

In the third quarter of 1995, the Company acquired 100% of the outstanding
capital stock of ITG. ITG is an Ohio company that provides a variety of domestic
and international long distance services. The Company acquired ITG for
consideration of $75, the assumption of certain liabilities, and an earn out
provision. In connection with this acquisition, the Company recorded $7,261 in
net assets, including goodwill of $4,025, and liabilities of $7,185.

(f) Others

In May 1996, the Company purchased from Tomen America, Inc. the remaining
10% interest in the GST Pacific Lightwave, Inc., a GST Telecom subsidiary which
operates a fiber optic competitive local exchange network in southern
California. The consideration paid for this acquisition consisted of $1,250 in
cash, which was recorded as goodwill.

In a series of transactions during the third and fourth quarters of 1996,
the Company acquired approximately 40% of Canadian Programming Concepts, Inc.
(CPC), a Canadian corporation which is publicly traded on the Vancouver Stock
Exchange, for consideration of $3,659. As a result of this investment, CPC's
name was changed to GST Global. Concurrent with this investment, four of the
Company's directors and one of the Company's employees were appointed to GST
Global's six member board of directors. The key officers of GST Global are
officers of the Company. Several employees and directors of the Company own
shares in GST Global amounting to approximately 5% of GST Global's outstanding
shares at September 30, 1996. At September 30, 1996, the market value of GST
Global totaled approximately $26,366.

During 1996, the Company acquired the assets of Reservations, Inc. dba
Hawaii Online (HOL), the assets of Texas-Ohio Communications, Inc. (TOC), and
100% of the outstanding capital stock of Tri-Star Residential Communications,
Inc. (Tri-Star). HOL is an Internet service provider; TOC is a long distance
service provider; and Tri-Star provides shared tenant services consisting of
long distance, cable television and security service to tenants of
multi-dwelling apartment units. Consideration paid for these acquisitions
totaled $3,341 and consisted of 32,624 common shares valued at $350, a
commitment to issue common shares valued at $2,115 over the next two years, $599
in accrued payments to be made during 1997, $120 of cash, and $157 in legal
fees. In connection with these acquisitions, the Company recorded $5,529 in
assets, including $1,085 of goodwill, and $2,278 in liabilities.

The pro forma results shown below reflect purchase accounting adjustments
assuming the acquisitions described above occurred as of the beginning of each
of the periods presented:

<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues.......................................... $ 54,762 $ 71,600
Net loss.......................................... (22,918) (65,196)
Net loss per share................................ $ (1.34) $ (3.05)
</TABLE>

F-14
<PAGE> 99

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The pro forma results are not necessarily indicative of what actually would
have occurred had the acquisitions been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results that may be achieved from the combined operations.

(3) PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
JUNE 30
1997
SEPTEMBER 30, SEPTEMBER 30, --------
1995 1996
------------- ------------- (UNAUDITED)
<S> <C> <C> <C>
Telecommunications networks............ $ 9,577 $ 25,551 $ 79,707
Electronic and related equipment....... 10,058 31,547 62,430
Leasehold improvements................. 300 3,619 9,241
Furniture, office equipment and
other................................ 2,201 8,746 13,930
Building............................... 2,134 2,134 3,366
Construction in progress............... 15,313 62,763 146,312
-------- ------- --------
39,583 134,360 314,986
Less accumulated depreciation.......... (1,550) (6,785) (14,630)
-------- ------- --------
$ 38,033 $ 127,575 $300,356
======== ======= ========
</TABLE>

Property and equipment includes $15,313 and $62,763 of equipment which had
not been placed in service at September 30, 1995 and 1996, respectively, and
accordingly, is not being depreciated. During the years ended September 30, 1995
and 1996, and the nine months ended June 30, 1997, $291, $2,316 and $10,387
(unaudited) of interest, respectively, was capitalized as part of
telecommunications networks and networks in progress.

(4) ACCRUED EXPENSES

<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
Fixed asset purchases............................ $ 796 $14,153
Accrued acquisition costs........................ -- 4,213
Carrier costs.................................... 680 4,057
Other............................................ 1,614 4,320
------- ------
Total.................................. $ 3,090 $26,743
======= ======
</TABLE>

F-15
<PAGE> 100

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) FINANCING ARRANGEMENTS

(a) Debt

The Company's long-term debt at September 30, 1995 and 1996 and June 30,
1997 is as follows:

<TABLE>
<CAPTION>
JUNE 30,
1997
1995 1996 -----------
------- -------- (UNAUDITED)
<S> <C> <C> <C>
Note payable to Tomen, quarterly interest payments
at the LIBOR rate plus 3% (8.7% at September 30,
1996) with quarterly principal payments (together
with interest) beginning in fiscal 1998 through
2005, collateralized by equipment. The Company
has the option to convert the interest rate to a
fixed rate equal to the Treasury index rate plus
3% during the term of the loan................... $16,674 $ 31,771 $ 32,300
Senior discount notes, 13 7/8% effective interest
with semi-annual interest payments due beginning
June 15, 2001 on a total maturity value of
$312,448, principal due December 15, 2005........ -- 177,760 196,503
Convertible senior subordinated discount notes
13 7/8% effective interest with semi-annual
interest payments due beginning June 15, 2001 on
a total maturity value of $39,056, principal due
December 15, 2005................................ -- 22,220 24,563
Senior secured notes, 13 1/4% effective interest
with semi-annual interest payments due beginning
November 1, 1997, principal due May 1, 2007...... -- -- 265,000
Notes payable to NTFC, monthly interest payments at
LIBOR plus 3.5%, quarterly principal payments
beginning January 1, 1999 through October 1,
2003............................................. -- -- 44,634
Other.............................................. 3,150 5,755 8,105
------- -------- --------
19,824 237,506 571,105
Less current portion of long-term debt............. 736 4,832 3,700
------- -------- --------
$19,088 $232,674 $ 567,405
======= ======== ========
</TABLE>

The schedule of future principal payments on long-term debt as of September
30, 1996 is as follows:

<TABLE>
<S> <C> <C>
1997.......................................................... $ 4,832
1998.......................................................... 3,474
1999.......................................................... 4,567
2000.......................................................... 5,438
2001.......................................................... 5,295
Thereafter.................................................... 213,900
--------
$237,506
========
</TABLE>

(b) Issuance of Debt and Convertible Debt Securities

In the first quarter of 1996, the Company issued approximately $180 million
in 39,056 Units (the Units) each consisting of eight 13.875% (effective interest
rate) Senior Discount Notes (the senior notes) and one 13.875% (effective
interest rate) Convertible Senior Subordinated Discount Note (the convertible
notes) maturing on December 15, 2005. The Units were sold at a substantial
discount and there will be no accrual of cash interest prior to December 15,
2000 or payment of interest until June 15, 2001. The Units accrete to a total
principal amount of approximately $351.5 million by December 15, 2000. The
senior notes will rank in

F-16
<PAGE> 101

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

right of payment with all unsubordinated indebtedness of the Company while the
convertible notes will be junior to all senior Company debt. The senior and
convertible notes are subject to certain debt covenants.

Each of the convertible notes is convertible at the option of the holder
into common shares any time after December 15, 1996. The number of shares to be
issued upon conversion is based on an accreted value on the conversion date
divided by $7.563. In addition, after December 15, 1996, all of the convertible
notes may be automatically converted to common shares by the Company if the
Company's common shares sustain certain market value levels for 30 consecutive
trading days.

On or after December 15, 2000, the senior and convertible notes will be
redeemable at the option of the Company.

In the first quarter of 1995, the Company entered into a master financing
agreement with Tomen America, Inc. (Tomen). Under the agreement, Tomen will loan
up to $100 million to subsidiaries of the Company for development and
construction of network projects. An upfront fee of 1.50% of the aggregate
principal amount of each project loan and a commitment fee of 0.50% per annum on
the unused portion of each project loan is payable to Tomen. Tomen will evaluate
each network project separately to determine if it will participate in financing
the project. The agreement originally provided Tomen the right to purchase a 10%
equity interest in each network project it financed. Pursuant to such right, in
1995 Tomen purchased a 10% interest in the Company's southern California
project. In May 1996, the Company repurchased the 10% interest in the project
and the agreement was amended to cancel Tomen's right to purchase an equity
interest in funded projects. As of September 30, 1996, Tomen has agreed to
provide a total of $34.45 million in debt financing to the Company's
subsidiaries ($31.8 million of which has been drawn down as of September 30,
1996) for construction and operation of its fiber optic networks in Southern
California, New Mexico, and Arizona. The Tomen financing agreements are subject
to certain debt covenants.

Concurrent with the signings of the master financing agreement and
subsidiary credit agreements, the Company has also signed stock purchase
agreements with Tomen wherein Tomen purchased shares of common stock and
received warrants to purchase additional shares of common stock. Pursuant to
such agreements, through September 30, 1996, Tomen has purchased 1,074,074
shares of common stock at prices ranging from $4.60 to $10.80 per share for
total cash consideration of $6,955. Tomen also holds warrants to purchase up to
546,155 additional shares of common stock at prices ranging from $5.52 to $12.96
per share. Such warrants expire at various times between October 1996 and May
1998. Subsequent to September 30, 1996, Tomen exercised a warrant and purchased
250,000 shares of common stock at $5.52 per share for total cash consideration
of $1,380.

The Company's Chief Executive Officer serves as a consultant to Tomen for
which he is paid a fee. Simultaneous with the execution of the June 21, 1994
purchase of 60% of GST Telecom from Pacwest. Pacwest contracted with the Company
to receive a fee equal to 1% of the aggregate debt and equity financing provided
by Tomen to the Company.

(d) Siemens Stromberg-Carlson Agreement

In the fourth quarter of 1996, the Company entered into a loan and security
agreement with Siemens Stromberg-Carlson (Siemens). Under the terms of the
agreement, Siemens will loan up to $226 million to the Company for the purchase
and installation of telecommunications switching and related equipment. Amounts
borrowed under the agreement will initially bear interest at LIBOR plus 4.5% and
will be secured by the equipment. Such interest will decrease to LIBOR plus 3.5%
at the time each initial loan is converted to a term

F-17
<PAGE> 102

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

loan, which conversion will occur at the first calendar quarter following the
initial loan. Upon making the first loan request, the Company will be committed
to purchase a minimum of $16.5 million in equipment over 3 years. Amounts
borrowed under the agreement will be repaid in 24 quarterly installments
beginning 5 quarters after the initial loan is converted to a term loan. At
September 30, 1996, no amount had been borrowed pursuant to this agreement.

(e) Northern Telecom, Inc. Purchase Agreement

In the fourth quarter of 1996, the Company entered into a purchase
agreement with Northern Telecom, Inc. (Nortel), pursuant to which the Company is
committed to purchase a minimum of $50 million, of which $1.9 million has been
purchased as of September 30, 1996, in telecommunications switching equipment
over the next three years. The Company is currently negotiating an agreement to
finance such equipment purchases with a third party.

(f) Line of Credit

At September 30, 1996, the Company was contingently liable under repurchase
agreements for a maximum of $1,035 to a financial institution. The financial
institution provides lease financing to NACT customers on a recourse basis. The
Company has established a $1,000 line of credit with the financial institution
to provide funding for payment of these leases, if required. No balance was
outstanding under the line of credit at September 30, 1996.

(6) SHAREHOLDERS' EQUITY

(a) Commitment to Issue Shares

Pursuant to a final agreement dated January 5, 1995, the Company is
committed to issue 168,249 common shares at a fair value of $4.44 per share
($747) to former shareholders of NACT on January 5, 1997. Additionally, pursuant
to the terms of the purchase agreements discussed in note 2, the Company is
committed to issue a minimum of 1,753,758 shares valued at $24,707 at various
times throughout 1997.

(b) Preference Shares

The Company's Board of Directors has the authority, without any further
vote or action by the Company's shareholders, to issue up to 10,000,000
Preference Shares, without par value (the Preference Shares), in one or more
series and to determine the designations, powers, preferences and relative,
participating, optional or other rights thereof, including without limitation,
the dividend rate (and whether dividends are cumulative), conversion rights,
voting rights, rights and terms of redemption, redemption price and liquidation
preference.

Of the 21,257,697 shares outstanding as of September 30, 1996, 750,000 are
held pursuant to an escrow agreement, their release being subject to the
approval of regulatory authorities. These common shares have been issued by the
Company and have rights equal to those of all other common shares except that
the holders may not exercise voting rights on a resolution to cancel shares, and
have waived their rights to receive dividends or to participate in the assets
and property of the Company on a winding-up or dissolution of the Company. In
accordance with the escrow provisions of this agreement, these shares cannot be
sold or traded by the owner until they are released by the regulatory
authorities in accordance with a formula adopted by the regulatory authorities.
If the Company has not met the conditions set for the release of these shares by
January 16, 2001, these shares will be canceled.

F-18
<PAGE> 103

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Pursuant to the Company acquiring the remaining 20% interest in GST Telecom
during 1996, 1,000,000 common shares were put in escrow pending a valuation of
GST Telecom. An independent appraisal of GST Telecom was received in September
1996 allowing the release of such shares from escrow (see note 2). On November
7, 1996, such shares were released from escrow.

(d) 1996 Employee Stock Purchase Plan

In July 1996, the Company adopted the 1996 Employee Stock Purchase Plan
(the Stock Purchase Plan) which provides eligible employees of the Company with
an opportunity to acquire common shares of the Company. It is the intention of
the Company that the Stock Purchase Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code. Under this Stock Purchase
Plan, the Company authorized the issuance of 500,000 common shares to be issued
to employees of the Company.

Employees who own 5% or more of the voting rights of the Company's
outstanding common shares may not participate in the Plan.

(e) Stock Option Plans

Employee Stock Option Plans

In January 1995, the Company created a Stock Option Plan (the 1995 Plan)
which provides for the granting to employees (including officers and employee
directors) of incentive stock options within the meaning of Section 422A of the
Internal Revenue Code of 1986, and for the granting of non-statutory stock
options to employees (including officers and employee directors), directors and
consultants. The options have a term of five years and vest and become
exercisable at the discretion of the Board of Directors. Under the plan, no
options vest until at least six months after the date of grant.

In January 1996, the Company created an additional Stock Option Plan (the
1996 Plan) in which the Board of Directors approved and authorized the issuance
of 400,000 stock options to be granted to employees of the Company. The terms of
the 1996 Plan are identical to those of the 1995 Plan. In January 1996, the
Board of Directors also authorized a 1 million increase in the number of common
shares reserved for issuance under the Company's 1995 Stock Option Plan.

1996 Senior Operating and Executive Officer Stock Option Plans

In May 1996, the Company adopted the 1996 Senior Operating Officer Stock
Option Plan (the Senior Operating Plan) and the 1996 Senior Executive Officer
Stock Option Plan (the Senior Executive Plan) in which the Board of Directors
approved and authorized the issuance of up to 900,000 and 600,000 options,
respectively, to be awarded to senior operating and executive management of the
Company, at a $10 option exercise price. The options have a term of six years
and vest and become exercisable at the discretion of the Board of Directors. All
stock options granted under the Senior Executive Plan as of September 30, 1996
vest upon the achievement of certain milestones as were determined by the Board
of Directors. It is the intention of the Company that certain options granted
pursuant to these Plans shall constitute incentive stock options under Section
422 of the Internal Revenue Code, while certain other options granted pursuant
to these Plans shall be nonqualified stock options.

The exercise price of all incentive stock options granted under these four
Plans must be at least equal to the fair market value of the shares on the date
of grant. With respect to any participant who owns stock possessing more than
10% of the voting rights of the Company's outstanding share capital, the
exercise price of any incentive stock option granted must equal at least 110% of
the fair market value on the grant date. The exercise price of all nonqualified
stock options granted under the 1995 and 1996 Plans and the Senior Operating and
Executive Plans must be at least 80% and 50%, respectively, of the fair market
value of the common stock on the date of grant.

F-19
<PAGE> 104

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Activity under the various stock option plans is as follows:

<TABLE>
<CAPTION>
NUMBER OF PRICE
SHARES RANGE
--------- -----------------
<S> <C> <C> <C> <C>
Options outstanding at August 31, 1993..................... 785,250 $1.00 - 3.00
Options:
Granted.................................................. 435,000 4.25 - 5.00
Exercised................................................ (343,750) 1.00 - 3.00
Canceled................................................. -- --
---------
Options outstanding at September 30, 1994.................. 876,500 1.00 - 5.00
Options:
Granted.................................................. 1,190,035 3.55 - 6.75
Exercised................................................ (442,200) 1.00 - 4.25
Canceled................................................. (30,042) 3.55 - 5.00
---------
Options outstanding at September 30, 1995.................. 1,594,293 3.55 - 6.75
Options:
Granted.................................................. 1,563,373 5.00 - 10.00
Exercised................................................ (67,500) 3.55 - 6.75
Canceled................................................. (32,447) 6.75 - 10.00
---------
Options outstanding at September 30, 1996.................. 3,057,719 $3.55 - 10.00
=========
</TABLE>

Of the 3,057,719 options outstanding, 1,208,843 options were vested and
exercisable and 966,089 options were available for future grant.

(f) 1996 Stock Bonus Agreement

In September 1994, the Company's Board of Directors adopted a Stock Award
Plan which provides for the awarding of up to 70,000 common shares of the
Company to a certain member of management upon the achievement of certain
milestones.

(g) Warrants Outstanding

Warrants outstanding and exercisable at September 30, 1996:

<TABLE>
<CAPTION>
NUMBER OF
COMMON SHARES EXERCISE EXERCISE
ISSUABLE PRICE EXPIRATION DATE
- ------------- -------- --------------------
<C> <C> <S>
250,000 $ 5.52 October 23, 1996
125,000 $ 5.62 April 26, 1997
171,155 $12.96 May 23, 1998
50,000 $10.00 April 29, 1999
300,000 $ 6.75 September 30, 2000
</TABLE>

The 546,155 warrants expiring October 23, 1996 through May 23, 1998 were
granted to Tomen in conjunction with the Tomen financing agreements (see note
5), of which the 250,000 warrants expiring October 23, 1996 were exercised
during October 1996. The 50,000 warrants expiring April 29, 1999 were granted in
conjunction with a private placement of common stock during fiscal year ending
1994. The 300,000 warrants expiring September 30, 2000 were granted to a
director of the Company. No value has been assigned to any granted warrants as
the exercise price exceeded the common stock market price at the time of grant.

F-20
<PAGE> 105

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(7) INCOME TAXES

The provision for income taxes differs from the amount computed by applying
the Canadian statutory income tax rate to net income before taxes as follows:

<TABLE>
<CAPTION>
THIRTEEN
MONTHS
ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Computed expected income tax expense
(benefit) at Canadian statutory rate...... (39)% (39)% (39)%
Expected state/province income tax expense
(benefit)................................. (5) (6) (4)
Increase (decrease) in valuation
allowance................................. 56 38 21
Amortization of goodwill.................... 5 5 1
Minority interest........................... -- (7) --
Effect of difference in United States
statutory rate............................ 6 5 5
Effect of acquisition of new subsidiaries... -- 1 10
Non-deductible interest..................... -- -- 2
Other....................................... (6) 4 4
--- --- ---
Income tax expense (benefit)........... 17% 1% --%
=== === ===
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The tax effects of
significant items comprising the Company's deferred tax asset and liability are
as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
Deferred tax assets:
United States Federal and state net operating loss
carryforwards........................................ $ 3,325 $16,378
Canadian net operating loss carryforwards............... 2,533 3,065
Non-deductible interest................................. -- 4,608
Canadian non-deductible interest........................ -- 798
Canadian capital loss carryforward...................... -- 128
Other................................................... 1,633 2,063
------- ------
Total gross deferred tax assets................. 7,491 27,040
Less valuation allowance................................ (6,734) (19,429)
------- ------
Deferred tax liabilities:
Furniture, fixtures and equipment, due to differences in
depreciation......................................... 693 2,110
Capitalized software/intangibles........................ 64 5,501
------- ------
Total gross deferred tax liabilities............ 757 7,611
------- ------
Net deferred taxes.............................. $ -- $ --
======= ======
</TABLE>

The valuation allowance for deferred tax assets as of September 1, 1993 was
$593. The net change in total valuation allowance for the thirteen month period
ended September 30, 1994, and the years ended September 30, 1995 and 1996, was
an increase of $1,795, $4,346, and $12,695, respectively.

F-21
<PAGE> 106

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has non-capital losses for income tax purposes of approximately
Canadian $6,811 available to reduce Canadian taxable income of future years,
expiring as follows:

Based on a history of recurring losses, it is questionable whether the
Company will be allowed to utilize these Canadian losses if the tax authority
determines that the Company has no reasonable expectation of profit. As of
September 30, 1996, the Company also has a Canadian net capital loss
carryforward of $389. Net capital losses can be carried forward indefinitely but
can only be utilized to offset taxable capital gain.

The Company has net operating losses for income tax purposes of
approximately $44,985 available to reduce United States taxable income of future
years, expiring as follows:

For United States income tax purposes, utilization of net operating losses
may be subject to limitation in the event a change in ownership of the Company
has occurred pursuant to IRC Section 382. However, it is the belief of
management that the likelihood of incurring such a change in ownership after the
Company became publicly held in the U.S. in March 1994 is minimal. The Company
does not expect to generate sufficient taxable income so as to utilize all or a
substantial portion of such loss carryforwards prior to their expiration and
maintains a 100% valuation allowance relating to such deferred tax assets.

(8) LEASES

The Company is obligated under capital leases for equipment which expire at
various dates during the next five years. At September 30, 1995 and 1996, the
gross amounts of equipment and related accumulated amortization recorded under
capital leases were as follows:

<TABLE>
<CAPTION>
1995 1996
---- -------
<S> <C> <C>
Equipment.................................................. $853 $ 2,068
Less accumulated amortization.............................. (67) (291)
-----
--
----
$786 $ 1,777
======= ====
</TABLE>

The Company also has noncancelable operating leases, primarily for
facilities, which expire over the next five years. Rental expense under
operating leases was $253, $866 and $1,501 for the thirteen month period ended
September 30, 1994, and the years ended September 30, 1995 and 1996,
respectively.

F-22
<PAGE> 107

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum lease payments under noncancelable leases (with initial or
remaining lease terms in excess of one year) and future minimum capital lease
payments as of September 30, 1996 are:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year ending September 30:
1997................................................... $ 980 $ 2,777
1998................................................... 900 2,902
1999................................................... 494 2,797
2000................................................... 235 1,960
2001................................................... 4 1,493
Thereafter............................................. -- 7,335
------ -------
Total minimum lease payments................... 2,613 $19,264
=======
Less amount representing interest (at rates ranging
from 8.7 to 18.6%).................................. 438
------
Net minimum lease payments..................... 2,175
Less current installments of obligations under capital
leases.............................................. 722
------
Obligations under capital leases, excluding
current installments......................... $ 1,453
======
</TABLE>

Under the terms of two noncancelable subleases, the Company will receive
$220 over the next ten years.

(9) COMMITMENTS AND CONTINGENCIES

(a) Pension and Profit Sharing Plans

In 1995, the Company adopted a defined contribution 401(k) plan (the Plan).
Employees are eligible to participate in the Plan upon commencement of service.
Participants may defer up to 15% of eligible compensation. Currently, the
Company does not provide matching contributions for the Plan.

NACT also sponsors a defined contribution 401(k) plan for employees who
have completed one year of service and attained the age of 21. Participants may
defer up to 15% of eligible compensation. The Company, at its discretion, may
match 50% of participant contributions up to 7.5% of participant compensation.
NACT made employer contributions to this plan of $32, $51 and $60 for the
thirteen month period ended September 30, 1994, and the years ended September
30, 1995 and 1996, respectively.

Through September 30, 1996, NACT provided a discretionary profit sharing
program for full time employees who had completed one full year of employment.
Under the plan, 10% of the increase in profits based on NACT's previous highest
retained earnings balance were allocated among employees determined on length of
employment and salary level at the discretion of the Board of Directors.
Contributions to the program were $105, $171 and $132 for the thirteen month
period ended September 30, 1994, and years ended September 30, 1995 and 1996,
respectively. The program was terminated on September 30, 1996.

(b) Long Distance Carriers

The Company is party to various contracts with long distance carriers
pursuant to which the Company is committed to minimum service fees. The average
monthly minimum commitments range from $1.6 million to $5.1 million per month
over the next three years. The Company must pay the carriers for differences
between the commitment amounts and the actual amounts billed.

F-23
<PAGE> 108

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On August 24, 1995, Aerotel, Ltd. and Aerotel U.S.A., Inc. (collectively,
"Aerotel") filed a patent infringement suit against NACT alleging that telephone
systems manufactured and sold by NACT incorporate prepaid calling features which
infringe upon a patent issued to Aerotel in November 1987. The complaint further
alleges defamation and unfair competition by NACT and seeks various damages.
NACT has filed an Answer and Counterclaim denying patent infringement,
committing defamation or unfair competition and seeks judgment that the Aerotel
patent is invalid and that Aerotel has misused its patent in violation of
antitrust laws. Based on information currently available, NACT's management is
of the opinion that there will be no material impact of NACT's financial
position or results of operations as a result of this suit. Accordingly, no
provision for loss has been provided in the accompanying financial statements.

On April 24, 1996, C.W. Holdings (formerly Martin Holdings Ltd.) filed a
damages suit against the Company alleging negligence in failing to safely
deliver to C.W. Holdings a share certificate representing 209,738 common shares
of the Company. C.W. Holdings has commenced an action in the Supreme Court of
British Columbia against the Company, the Company's registrar and transfer
agent, and other parties unrelated to the Company. The Company's legal counsel
believes that it is improbable that there will be an outcome unfavorable to the
Company in the legal proceedings.

The Company is involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material effect on the Company's
financial position.

(d) Employment Agreements

The Company has entered into employment agreements with key members of
management. These agreements provide for payments based upon death, disability
and change of control. The agreements also contain covenants not to compete.

(10) RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE
UNITED STATES AND IN CANADA

These financial statements have been prepared by management in accordance
with generally accepted accounting principles in the United States (U.S. GAAP).
Except for the earnings/loss per share calculations as noted below, these
financial statements also conform, in all material respects, with those
accounting principles that are generally accepted in Canada (Canadian GAAP).

For U.S. GAAP purposes, the 750,000 escrow shares disclosed in note 6 are
considered contingent shares and are not included in the loss per share
calculations. For U.S. GAAP purposes, when these shares are released from
escrow, to the extent their fair market value exceeds their issuance price,
compensation expense will be recognized by the Company. The loss per share
determined in accordance with accounting principles generally accepted in Canada
was $(0.33), $(0.78) and $(3.06) for the thirteen month period ended September
30, 1994, and the years ended September 30, 1995 and 1996, respectively.

F-24
<PAGE> 109

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company changed its fiscal year-end to September 30 effective in 1994.
Accordingly, amounts reported in the consolidated financial statements are for
the thirteen-month period ended September 30, 1994. Selected financial
information as at and for the year ended August 31, 1994 is as follows:

<TABLE>
<S> <C>
Selected information from statement of operations:
Revenues........................................................ $ 5,253
Operating expenses.............................................. 6,147
--------
Loss from operations.................................... 894
Other expenses.................................................. 1,681
--------
Loss before minority interest and income tax............ 2,575
Income tax expense.............................................. 470
--------
Loss before minority interest........................... 3,045
Minority interest in income of subsidiaries..................... 126
--------
Loss for the year....................................... $ 3,171
========
Selected information from statement of cash flows:
Operations:
Loss for the year............................................ $ (3,171)
Items not involving cash..................................... 2,420
Changes in non-cash operating working capital................ (154)
--------
Cash used in operations................................. (905)
Financing....................................................... 14,040
Investing....................................................... (12,846)
--------
Increase in cash and cash equivalents................... 289
Cash and cash equivalents, beginning of year.................... 4,745
--------
Cash and cash equivalents, end of year.......................... $ 5,034
========
</TABLE>

(11) INFORMATION RELATING TO CONSOLIDATED STATEMENTS OF CASH FLOWS

"Cash provided by (used in) operations" includes cash payments for interest
of $24, $364 and $1,813 and cash payments for taxes of $253, $264 and $-0-, for
the thirteen month period ended September 30, 1994 and the years ended September
30, 1995 and 1996, respectively.

Non-Cash Investing and Financing Activities Which Affect the Consolidated
Statements of Cash Flows

Effective May 1, 1995, the Company acquired a 100% interest in ITG. See
note 2 for a discussion of the assets and liabilities acquired.

On January 5, 1995, the Company acquired the remaining 20% of National
Applied Computer Technologies, Inc. (see note 2). As a result of this
transaction, the Company recorded $2,137 in other assets, $521 in liabilities,
$747 in common stock, $1,494 in a commitment to issue common shares and a
reduction of $886 to its non-controlling interest in subsidiaries account.

Effective June 1, 1995, the Company acquired an additional 20% of GST
Telecom (see note 2). The Company recorded $5,000 in common stock, $3,226 in
other assets, and a reduction of $1,774 to its non-controlling interest in
subsidiaries account related to this transaction.

F-25
<PAGE> 110

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As a result of capital contributions made to GST Telecom, Inc. throughout
the year ending September 30, 1995, the Company recorded $4,457 in other assets
and an increase of $4,457 to its non-controlling interest in subsidiaries
account.

During the year ending September 30, 1995, the Company recorded a $200
reduction in notes receivable and a $200 increase to deferred financing costs
pursuant to a loan agreement and promissory note dated July 7, 1994, whereby the
Company loaned $200 to Pacwest Network, L.L.C. (Pacwest) which was repaid in
full by crediting against fees payable to Pacwest in respect of financing
provided by Tomen America, Inc.

Property and equipment includes amounts in accounts payable and accrued
liabilities of $-0-, $4,363 and $18,291 at September 30, 1994, 1995 and 1996,
respectively.

In September 1996, the Company acquired an additional 1.5 million common
shares of GST Global, for consideration of $3,364 (see note 2). The Company
recorded $3,364 in other assets and accrued liabilities relating to this
transaction.

During the year ending September 30, 1996, the Company recorded $45,478 in
assets, $11,665 in liabilities, a reduction of $2,686 to minority interest,
$29,444 in common stock and $5,613 in commitments to issue common stock as a
result of the 1996 acquisitions discussed in note 2.

(12) RELATED PARTY TRANSACTIONS

During the third and fourth quarters of Fiscal 1996, the Company made
payments of $5,997 and $2,970 to Magnacom Wireless, LLC (Magnacom), a company
controlled by the Chief Executive Officer of the Company, as pre-payments for
future PCS services. The $2,970 payment is included as an other current asset in
the accompanying balance sheet, whereas the $5,997 payment is included as an
other asset in the accompanying balance sheet. The Company is in the process of
establishing a non-exclusive twelve year agreement with Magnacom; whereby, the
Company will purchase services relating to such licenses from Magnacom for use
or resale. As consideration for services provided by Magnacom to the Company,
the Company will make lump sum payments to Magnacom in accordance with an agreed
to schedule (with the $5,997 payment being the first of such payments) as
advanced payments for the services to be provided by Magnacom. Subsequent to
September 30, 1996, the Company made an additional payment of $5,426 as a pre-
payment for future PCS services to Magnacom. (See note 14).

The operations of the Company's Hawaiian microwave network require the use
of radio licenses from the FCC. Such licenses are owned by PNI, a company
controlled by the Company's Chief Executive Officer. Under agreements between
the Company and PNI, (1) the Company pays a monthly fee of $3,000 to PNI to
utilize PNI's licenses for its communications traffic and (2) PNI pays an equal
monthly fee to the Company for the right to utilize the Company's facilities for
other communications traffic using up to 10% of PNI's license capacity.

A bridge loan that was obtained and paid back by the Company during 1995
was guaranteed by five executive officers of the Company. In consideration for
the guarantee, such officers were issued 25,000 shares of common stock of the
Company.

The Company paid approximately $396, $770 and $2,264 in legal fees in 1994,
1995 and 1996, respectively, to a firm having a member who is also a director of
the Company.

Under the Tomen facility, Tomen has the right to act as procurement agent
for each network project it finances. The Company has purchased equipment
through Tomen at competitive prices. (See Note 5(c)).

F-26
<PAGE> 111

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(13) GST USA

In August 1994, the Company formed a wholly-owned subsidiary, GST USA, and
transferred all U.S. assets, liabilities and operations into GST USA. Selected
financial information is as follows:

Selected balance sheet information:

<TABLE>
<CAPTION>
JUNE 30, 1997
SEPTEMBER 30, SEPTEMBER 30, -------------
1995 1996
------------- ------------- (UNAUDITED)
<S> <C> <C> <C>
Current assets......................... $11,415 $ 77,506 $ 180,892
Non-current assets..................... 60,006 168,882 434,996
------- -------- --------
$71,421 $ 246,388 $ 615,888
======= ======== ========
Current liabilities.................... $13,712 $ 34,286 101,487
Non-current liabilities................ 19,646 210,243 551,889
Minority interest...................... 3,279 182 12,066
Share capital.......................... 44,471 66,520 75,009
Accumulated deficit.................... (9,687) (64,843) (124,573)
------- -------- --------
$71,421 $ 246,388 $ 615,888
======= ======== ========
</TABLE>

Selected information from statement of operations:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED YEAR ENDED JUNE 30, 1997
SEPTEMBER 30, SEPTEMBER 30, -------------
1995 1996
------------- ------------- (UNAUDITED)
<S> <C> <C> <C>
Revenues............................... $ 18,681 $ 37,721 $ 47,985
Operating costs and expenses........... (28,942) (77,590) (98,101)
-------- -------- --------
Loss from operations......... (10,261) (39,869) (50,116)
Other expenses......................... (1,384) (15,625) (8,323)
-------- -------- --------
Loss before minority interest
in loss of subsidiaries and
income tax................. (11,645) (55,494) (58,439)
Income tax expense..................... (166) (72) (900)
-------- -------- --------
Loss before minority interest
in loss of subsidiaries.... (11,811) (55,566) (59,339)
Minority interest in loss (income) of
subsidiaries......................... 2,364 411 (391)
-------- -------- --------
Net loss..................... $ (9,447) $ (55,155) $ (59,730)
======== ======== ========
</TABLE>

F-27
<PAGE> 112

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Selected information from statement of cash flows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
YEAR ENDED YEAR ENDED 1997
SEPTEMBER 30, SEPTEMBER 30, -----------------
1995 1996
------------- ------------- (UNAUDITED)
<S> <C> <C> <C>
Operations:
Loss for the year.............. $ (9,447) $ (55,155) $ (59,730)
Items not involving cash....... 1,590 29,256 17,828
Changes in non-cash operating
working capital............. (3,419) (6,400) (7,815)
--------- -------- ---------
Cash used in
operations........... (11,276) (32,299) (49,717)
Investing...................... (29,684) (105,090) (244,429)
Financing...................... 43,544 174,915 271,835
--------- -------- ---------
Increase in cash and
cash equivalents..... 2,584 37,526 (22,311)
Cash and cash equivalents,
beginning of year........... 1,310 3,894 41,420
--------- -------- ---------
Cash and cash equivalents, end
of year..................... $ 3,894 $ 41,420 $ 19,109
========= ======== =========
</TABLE>

(14) SUBSEQUENT EVENTS

Special Warrants Offering

On October 22, 1996, the Company completed a private placement to non-U.S.
investors of 2,000,000 Special Warrants at a purchase price of U.S. $11.125 per
Special Warrant. The Special Warrants become exercisable by holders for no
additional consideration upon the later to occur of (i) the date upon which
approval for a final Canadian prospectus qualifying the common shares and share
purchase warrants (the Underlying Warrants) issuable upon exercise of the
Special Warrants is received from the securities commission of each of the
Canadian provinces where the Special Warrants were sold and (ii) the date that a
registration statement filed with the Securities and Exchange Commission
registering the resale of the common shares issuable upon exercise of the
Special Warrants and Underlying Warrants is declared effective, but in any
event, no later than September 22, 1997. Each Special Warrant is exercisable for
one common share and one-half of one Underlying Warrant. Each full Underlying
Warrant entitles the holder to purchase one additional common share for a
purchase price of U.S. $13.00 for one year from the date of issuance. In the
event that the requisite regulatory approvals of the Canadian Prospectus are not
received by the Company and the U.S. Registration Statement is not declared
effective, in each case by February 19, 1997, then each Special Warrant will
become exercisable for 1.1 common shares and one-half of one Underlying Warrant.

The Company received U.S. $9.7 million, constituting 50% of the aggregate
purchase price of the Special Warrants (net of placement agency fees and
expenses), on October 22, 1996. The balance of the net purchase price of Special
Warrants (U.S. $11.1 million) is being held in escrow and is payable to the
Company upon the earlier to occur of (x) the date of receipt of final regulatory
approval of a preliminary Canadian Prospectus from the securities commissions of
the applicable Canadian provinces and (y) the initial filing of the U.S.
Registration Statement with the Commission, in each case covering the resale of
the Common Shares issuable upon exercise of the Special Warrants and the
Underlying Warrants.

F-28
<PAGE> 113

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Magnacom Wireless, LLC

Magnacom and the Company have entered into a twelve-year reseller agreement
(the "Magnacom Reseller Agreement") pursuant to which (i) the Company has been
designated a non-exclusive reseller of PCS telephone services in the markets in
which Magnacom has obtained licenses, and (ii) Magnacom has agreed to use the
Company on an exclusive basis to provide switched local and long distance
services, and other enhanced telecommunications services, to all of Magnacom's
resellers in markets where the Company has operational networks. Magnacom agreed
to sell PCS minutes to the Company at five cents per minute, subject to downward
adjustment to equal the most favorable rates offered to Magnacom's other
resellers (but in no event less than Magnacom's cost). Subsequent to September
30, 1996, in connection with the Magnacom Reseller Agreement, the Company paid
an additional $5.4 million for a total of approximately $14.4 million as
pre-payments for future PCS services.

In addition, the Company has been granted a conditional option to acquire
up to a 99% interest in Magnacom, conditioned upon Magnacom and the Company
entering into an agreement for the construction and/or operation of Magnacom's
facilities. The condition precedent to such option has not yet been met. Such
option, if and when the condition precedent is met, shall be subject to
compliance with all applicable FCC regulations relating to prior approval of any
transfer of control of PCS licenses, including those relating to foreign
ownership or control. Accordingly, until such time as may be permitted by FCC
regulations or administrative action, the option will be initially limited to a
24% interest in Magnacom.

(15) UNAUDITED DEVELOPMENTS AND SUBSEQUENT EVENTS FOR THE NINE-MONTH PERIOD
ENDED JUNE 30, 1997

(A) ACQUISITION OF REMAINING 50% OF THE PHOENIX FIBER JOINT VENTURE

In the first quarter of Fiscal 1997, the Company acquired the 50% interest
in Phoenix Fiber owned by ICG Telecom Group, Inc. ("ICG") in consideration of
(i) the repayment to ICG at closing of approximately $2.1 million of
intercompany indebtedness and the repayment, under certain circumstances, of up
to an additional $2.0 million of such intercompany indebtedness and (ii)
indemnifying ICG in respect of all indebtedness of Phoenix Fiber to the Company
and third parties, other than certain liabilities of Phoenix Fiber that were
assumed by ICG.

(B) NACT PUBLIC OFFERING

On February 26, 1997 NACT completed an initial public offering of its
common stock (the "NACT Offering") pursuant to which the Company and NACT sold
one million and two million shares, respectively, of NACT's common stock,
resulting in gross proceeds to the Company and NACT of $10 million and $20
million, respectively. As a result of the NACT Offering, the Company's interest
in NACT has been reduced to approximately 63%.

In December 1996, the Company entered into a $50 million equipment loan and
security agreement with NTFC Capital Corporation to finance the purchase of
certain equipment from Nortel. Borrowings under the NTFC Loan Agreement may be
made through December 31, 1998, $44.6 million of which had been borrowed by the
Company at June 30, 1997.

(D) SPECIAL WARRANTS

In January of 1997, the Company filed a registration statement with the
U.S. Securities and Exchange Commission covering the resale of the common shares
issuable upon the exercise of the special warrants, resulting in the $11.125
million held in escrow relating to the sale of the Special Warrants being
released to the Company.

F-29
<PAGE> 114

GST TELECOMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(E) REDEEMABLE PREFERRED SHARES

In February 1997, the Company consummated a private placement of $50.0
million of Redeemable Preferred Shares. The Redeemable Preferred Shares, which
are convertible at any time after February 28, 2000 at an imputed conversion
price of $11.375 per share, will not pay dividends in cash, except to the extent
such dividends are paid on Common Shares. In addition, the liquidation,
conversion and redemption prices of the Redeemable Preferred Shares will accrue
at a semi-annual rate of 11 7/8%. Under certain circumstances, the Redeemable
Preferred Shares will also be subject to mandatory conversion or redemption.

(F) ISSUANCE OF SENIOR SECURED NOTES

In May 1997, the Company issued $265 million in senior secured notes due
May 1, 2007. The notes bear interest at a rate of 13.25% with semi-annual
interest payments due beginning November 1, 1997. Approximately $93.8 million of
the proceeds have been set aside to fund the first six scheduled interest
payments. The remainder of the net proceeds will be used to purchase and install
telecommunications equipment.

(G) ACQUISITION OF ACTION TELCOM, CO.

Effective May 31, 1997, the Company acquired 100% of the outstanding
capital stock of Action Telcom, Co. (Action), a Texas company which provides
long distance and ancillary telecommunications services, and produces software
used in the telecommunications industry. The Company acquired Action for
consideration of $12,046, consisting of $8,161 in common shares, $1,290 in cash,
$2,580 in notes payable and $16 in acquisition costs. In connection with this
acquisition, the Company recorded $13,457 of assets, including $4,500 of
purchased software technology and $3,622 of goodwill, and $3,991 in liabilities.

(H) TOMEN FINANCING

On September 30, 1997, Tomen provided the Company with up to an additional
$40.5 million of debt financing (of which $36.8 million was borrowed on such
date) under the Tomen Facility for the Hawaiian inter-island submarine network
and various other terrestrial installations in the Hawaiian Islands.

F-30
<PAGE> 115

[GST TELECOMMUNICATIONS LOGO]
<PAGE> 116

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

PROSPECTUS (Subject to Completion)

Issued November 10, 1997

[GST TELECOMMUNICATIONS LOGO]

7,000,000 Shares
GST Telecommunications, Inc.
COMMON SHARES
------------------------

ALL OF THE 7,000,000 COMMON SHARES BEING OFFERED HEREBY ARE BEING SOLD BY THE
COMPANY. OF THE 7,000,000 COMMON SHARES BEING OFFERED HEREBY, 1,400,000 COMMON
SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 5,600,000 COMMON SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE
"UNDERWRITERS." THE COMMON SHARES OF THE COMPANY ARE LISTED ON THE AMERICAN
STOCK EXCHANGE UNDER THE SYMBOL "GST" AND ON THE TORONTO STOCK EXCHANGE UNDER
THE SYMBOL "GTE.U." ON NOVEMBER 6, 1997, THE REPORTED LAST SALE PRICE OF THE
COMMON SHARES ON THE AMERICAN STOCK EXCHANGE WAS $14 1/2 PER SHARE.

SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------

PRICE $ A SHARE
------------------------

MORGAN STANLEY DEAN WITTER
BEAR, STEARNS INTERNATIONAL LIMITED
CREDIT SUISSE FIRST BOSTON

, 1997
<PAGE> 117

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the various expenses (other than selling
commissions and other fees paid to the Underwriters) which will be paid by the
Registrant. With the exception of the SEC registration fee and NASD filing fee,
all amounts shown are estimates: in connection with the issuance and
distribution of the securities being registered, all of which will be paid by
the Registrant, are as follows:

<TABLE>
<S> <C>
SEC registration fee.............................................. $ 36,591
NASD filing fee................................................... 12,575
AMEX, TSE and VSE listing fees and expenses....................... 36,000
Accounting Fees and Expenses...................................... 50,000
Legal fees and expenses (other than Blue Sky)..................... 125,000
Blue Sky fees and expenses........................................ 10,000
Printing expenses................................................. 150,000
Miscellaneous Expenses............................................ 229,834
----------
-
Total................................................... $650,000
===========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

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 the Registrant is insured or indemnified in any manner
against liability which he may incur in his capacity as such.

The Registrant'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.

(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

II-1
<PAGE> 118

(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.

The Registrant's by-laws provide that every director and officer of the
Registrant 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 the Registrant.

The Registrant maintains a $15,000,000 directors and officers liability
insurance policy.

The Registrant 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 Registrant.

ITEM 16. EXHIBITS.

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
- ------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated By-Laws of the Registrant.
4.1 Specimen Common Share Certificate.
5.1 Opinion of Olshan Grundman Frome & Rosenzweig LLP.
8.1 Opinion of Olshan Grundman Frome & Rosenzweig LLP with respect to certain tax matters
(included in Exhibit 5.1 to this Registration Statement).
8.2 Opinion of Thorsteinssons with respect to certain tax matters.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of KPMG Peat Marwick Thorne.
23.3 Consent of Olshan Grundman Frome & Rosenzweig LLP (included within Exhibit 5).
24.1 Powers of Attorney (included on Page II-4).
</TABLE>

II-2
<PAGE> 119

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

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 annual report, to security holders that is incorporated by reference
in the prospectus and furnished to and meeting the requirements of Rule 14a-3
and Rule 14c-3 under the Securities Exchange Act of 1934; and where interim
financial information required to be presented by Article 3 of Regulation S-X is
not set forth in the prospectus, to deliver or cause to delivered to each person
to whom the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such interim
financial information.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 "Indemnification
of Directors and Officers," above, or otherwise, the Registrant has 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 payment by the Registrant 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 Registrant 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.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

(2) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(3) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE> 120

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 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 this
6th day of November, 1997.

GST TELECOMMUNICATIONS, INC.
(Registrant)

By: *

------------------------------------
John Warta, Chairman of the Board

POWERS OF ATTORNEY AND SIGNATORIES

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed by the
following persons in the capacities and on the date indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------- -----------------
<C> <S> <C>

* Chairman of the Board, November 6, 1997
- ------------------------------------------ Chief Executive Officer
(John Warta) (Principal Executive
Officer) and Director
* Senior Vice President and November 6, 1997
- ------------------------------------------ Chief Financial Officer
(Daniel L. Trampush) (Principal Financial
Officer)

* Senior Vice President, November 6, 1997
- ------------------------------------------ Treasurer and Chief
(Clifford V. Sander) Accounting Officer
(Principal Accounting
Officer)

/s/ STEPHEN IRWIN Vice Chairman of the November 6, 1997
- ------------------------------------------ Board, Secretary and
(Stephen Irwin) Director

President, Chief Operating
- ------------------------------------------ Officer and Director
(Joseph A. Basile, Jr.)
</TABLE>

II-4
<PAGE> 121

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------- -----------------

* Director November 6, 1997
- ------------------------------------------
(W. Gordon Blankstein)

* Director November 6, 1997
- ------------------------------------------
(Robert H. Hanson)

* Director November 6, 1997
- ------------------------------------------
(Ian Watson)

* Director November 6, 1997
- ------------------------------------------
(Peter E. Legault)

* Director November 6, 1997
- ------------------------------------------
(Jack G. Armstrong)

* Director November 6, 1997
- ------------------------------------------
(Mitsuhiro Naoe)

Director
- ------------------------------------------
(Joseph G. Fogg, III)

* Director November 6, 1997
- ------------------------------------------
(Thomas E. Sawyer)

* Director November 6, 1997
- ------------------------------------------
(A. Roy Megarry)

The Company's Authorized Representative November 6, 1997
in the United States

*
- ------------------------------------------
Daniel L. Trampush

*By: /s/ STEPHEN IRWIN
- ------------------------------------------
Stephen Irwin
Attorney-in-Fact
</TABLE>

II-5
<PAGE> 122

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------- -----------------
<C> <S> <C>
</TABLE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated By-Laws of the Registrant.
4.1 Specimen Common Share Certificate.
5.1 Opinion of Olshan Grundman Frome & Rosenzweig LLP.
8.1 Opinion of Olshan Grundman Frome & Rosenzweig LLP with respect to certain tax matters
(included in Exhibit 5.1 to this Registration Statement).
8.2 Opinion of Thorsteinssons with respect to certain tax matters.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of KPMG Peat Marwick Thorne.
23.3 Consent of Olshan Grundman Frome & Rosenzweig LLP (included within Exhibit 5).
24.1 Powers of Attorney (included on Page II-4).
</TABLE>

<PAGE> 1

EXHIBIT 1.1

7,000,000 Shares

GST TELECOMMUNICATIONS, INC.

Common Shares

UNDERWRITING AGREEMENT

November [___], 1997
<PAGE> 2

November [__], 1997

Morgan Stanley & Co. Incorporated
Bear, Stearns & Co. Inc.
Credit Suisse First Boston Corporation
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036

Morgan Stanley & Co. International Limited
Bear, Stearns International Limited
Credit Suisse First Boston (Europe) Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England

Ladies and Gentlemen:

GST Telecommunications, Inc., a federally chartered Canadian corporation
(the "Company"), proposes to issue and sell to the several Underwriters named in
Schedule I hereto (the "Underwriters") an aggregate of 7,000,000 Common Shares,
without par value, of the Company (the "Firm Shares").

It is understood that, subject to the conditions hereinafter stated,
5,600,000 Firm Shares (the "U.S. Firm Shares") will be sold to the several U.S.
Underwriters named in Schedule I hereto (the "U.S. Underwriters") in connection
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as such terms are defined in the
Agreement between U.S. and International Underwriters of even date herewith),
and 1,400,000 Firm Shares (the "International Shares") will be sold to the
several International Underwriters named in Schedule II hereto (the
"International Underwriters") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Morgan Stanley & Co. Incorporated, Bear,
Stearns & Co. Inc. and Credit Suisse First Boston Corporation shall act as
representatives (the "U.S. Representatives") of the several U.S. Underwriters
and Morgan Stanley & Co. International Limited, Bear, Stearns International
Limited and Credit Suisse First Boston (Europe) Limited shall act as
representatives (the "International Representatives") of the several
International Underwriters. The U.S. Underwriters and the International
Underwriters are hereinafter collectively referred to as the "Underwriters."

The Company also proposes to issue and sell to the several U.S.
Underwriters not more than an additional 1,050,000 Common Shares, without par
value, (the "Additional
<PAGE> 3
2

Shares"), if and to the extent that the U.S. Representatives shall have
determined to exercise, on behalf of the U.S. Underwriters, the right to
purchase such common shares granted to the U.S. Underwriters in Article II
hereof. The Firm Shares and the Additional Shares are hereinafter collectively
referred to as the "Shares." The Common Shares, without par value, of the
Company to be outstanding after giving effect to the sales contemplated hereby
are hereinafter referred to as the "Common Shares."

Pursuant to an underwriting agreement, dated the date hereof, among the
Company and Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc. and
Credit Suisse First Boston, the Company will issue and sell an aggregate of
$200.0 million principal amount of its [__]% Senior Subordinated Accrual Notes
due 2007 (the "Senior Subordinated Accrual Notes") (the "Debt Offering").

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the Shares. The registration
statement contains two prospectuses to be used in connection with the offering
and sale of the Shares: the U.S. prospectus, to be used in connection with the
offering and sale of Shares in the United States and Canada to United States and
Canadian Persons,and the international prospectus, to be used in connection with
the offering and sale of Shares outside the United States and Canada to persons
other than United States and Canadian Persons. The international prospectus is
identical to the U.S. prospectus except for the outside front cover. The
registration statement, as amended at the time it becomes effective, including
the exhibits thereto, the documents incorporated by reference therein and the
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rule 430A under the Securities Act of 1933 (the
"Securities Act") is hereinafter referred to as the "Original Registration
Statement"; any registration statement filed pursuant to Rule 462(b) under the
Securities Act is hereinafter referred to as the "Rule 462(b) Registration
Statement"; the Original Registration Statement and any Rule 462(b) Registration
Statement are hereinafter referred to collectively as the "Registration
Statement"; and the U.S. prospectus and the international prospectus in the
respective forms first used to confirm sales of Shares are hereinafter
collectively referred to as the "Prospectus". As used herein, the term
"Specified Subsidiaries" means the following subsidiaries of the Company: GST
USA, Inc., a Delaware corporation, GST Telecom Inc., a Delaware corporation, GST
Pacific Lightwave, Inc. a Washington corporation, GST Telecom Hawaii, Inc., a
Hawaii corporation, GST Tucson Lightwave, Inc., an Arizona corporation, GST
Telecom New Mexico, Inc., a New Mexico corporation, GST Telecom California,
Inc., a Delaware corporation, NACT Telecommunications, Inc., a Delaware
corporation, Wasatch International Network Services, Inc., a Utah corporation,
GST Net, Inc., a Delaware corporation, International Telemanagement Group, Inc.,
an Ohio corporation, TotalNet Communications, Inc., a Texas corporation, GST
Call America, Inc., a California corporation, Tri-Star Residential
Communications Corp., a Washington corporation, GST Equipco, Inc., a Washington
corporation, GST Internet, Inc., a Delaware corporation,
<PAGE> 4
3

GST Equipment Funding, Inc., a Delaware corporation and GST Action Telecom,
Inc., a Delaware corporation.

The Company represents and warrants to, and agrees with, each of the
Underwriters that:

(a) The Original Registration Statement has become effective and, if
the Company has elected to rely upon Rule 462(b) under the Securities Act,
the Rule 462(b) Registration Statement shall have become effective not
later than the earlier of (i) 10:00 p.m. Eastern time on the date hereof
and (ii) the time confirmations are sent or given, as specified by Rule
462(b) under the Securities Act; no stop order suspending the
effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or, to the Company's
knowledge, threatened by the Commission.

(b) (i) Each part of the Registration Statement, when such part
became effective, did not contain and each such part, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii)
the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder and (iii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and warranties
set forth in this paragraph (b) do not apply to statements or omissions in
the Registration Statement or the Prospectus based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein.

(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own or lease its
property and to conduct its business as described in the Prospectus and is
duly qualified or licensed to transact business and is in good standing as
a foreign corporation in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification or licensing, except to the extent that the failure to be so
qualified or licensed or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole.

(d) Each of the Specified Subsidiaries has been duly incorporated,
is validly existing as a corporation in good standing under the laws of
the jurisdiction of its
<PAGE> 5
4

incorporation, has the corporate power and authority to own or lease its
property and to conduct its business as described in the Prospectus and is
duly qualified or licensed to transact business and is in good standing as
a foreign corporation in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification or licensing, except to the extent that the failure to be so
qualified or licensed or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole. The
only direct subsidiaries of the Company are GST USA, GST Call America,
Inc., TotalNet Communications, Inc. and GST Action Telecom, Inc. and the
Company owns all of the outstanding capital stock of such subsidiaries,
free and clear of any claims, liens, pledges or other encumbrances. The
total assets and revenues of the Company's direct and indirect
subsidiaries other than the Specified Subsidiaries, in the aggregate,
comprised less than 5% of the Company's total consolidated assets and
revenues, respectively, at and for the year ended September 30, 1996 and
at and for the quarter ended June 30, 1997.

(e) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.

(f) The Common Shares outstanding prior to the issuance of the
Shares have been duly authorized and are validly issued, fully paid and
nonassessable.

(g) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and nonassessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights.

(h) This Agreement has been duly authorized, executed and delivered
by the Company.

(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
(including the issuance, sale and delivery of the Shares) will not
contravene any provision of applicable law or the articles of
incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company that is material to the Company and
its subsidiaries, taken as a whole, or any judgment, order or decree of
any governmental body, agency or court having jurisdiction over the
Company or any subsidiary, and no consent, approval, authorization or
order of or qualification with any governmental body or agency is required
for the performance by the Company of its obligations under this
Agreement, except such as may be required by the securities or Blue Sky
laws of the various states in connection with the offer and sale of the
Shares.

(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise,
<PAGE> 6
5

or in the earnings, business or operations of the Company and its
subsidiaries, taken as a whole, from that set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the date
of this Agreement).

(k) There are no legal or governmental proceedings pending or, to
the best of the Company's knowledge, threatened to which the Company or
any of the Specified Subsidiaries is a party or to which any of the
properties of the Company or any of the Specified Subsidiaries is subject
that are required to be described in the Registration Statement or the
Prospectus and are not so described or any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.

(l) The Company and the Specified Subsidiaries have all necessary
permits, licenses, authorizations, consents and approvals and have made
all necessary filings required under any federal, state, local or foreign
supranational, national or regional law, regulation or rule, and have
obtained all necessary authorizations, consents and approvals from other
persons, to own, lease, license and use their respective properties and
assets and to conduct its businesses in the manner described in the
Prospectus, in each case except to the extent that the failure to obtain
such permits, licenses, authorizations, consents or approvals or to make
such filings would not, singly or in the aggregate, have a material
adverse effect on the properties, assets, prospects, condition, financial
or otherwise, business or operations of the Company and its subsidiaries,
taken as a whole; except as accurately described in all material respects
in the Prospectus, the Company and the Specified Subsidiaries have not
received any notice of proceedings which remain unresolved relating to
revocation or modification of any such permits, licenses, authorizations,
consents or approvals, nor is the Company or any of the Specified
Subsidiaries in violation of, or in default under, any such license,
authorization, consent or approval or any federal, state, local or foreign
supranational, national or regional law, regulation or rule or any decree,
order or judgment applicable to the Company or any of the Specified
Subsidiaries the effect of which could have a material adverse effect on
the properties, assets, prospects, condition, financial or otherwise,
business or operations of the Company and its subsidiaries, taken as a
whole.

(m) Each preliminary prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 or Rule 462 under the Securities Act, complied
when so filed in all material respects with the Securities Act and the
rules and regulations of the Commission thereunder.

(n) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
<PAGE> 7
6

(o) The Company and the Specified Subsidiaries are (i) in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure
to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or
approvals would not, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.

(p) There are no holders of securities (debt or equity) of the
Company or any of its subsidiaries, or holders of rights, options, or
warrants to obtain securities of the Company or any of its subsidiaries,
who have the right, during the 120 day period after the date of this
Agreement to request the Company to register securities held by them under
the Securities Act, other than holders who have waived such right for the
120 day period after the date of the initial public offering of the Shares
and have waived their rights with respect to the inclusion of their
securities in the Registration Statement.

(q) The financial statements contained in the Prospectus comply with
the requirements of Regulation S-X of the Commission.

(r) Schedule A to the Certificate of Responsible Officer dated
[______], 1997 signed by John Warta and delivered in connection with the
opinion of Swidler & Berlin delivered pursuant to Article V(g) hereof
lists all of the telecommunications services provided by the Specified
Subsidiaries (other than NACT Telecommunications, Inc. and Wasatch
International Network Services, Inc.), other than services which are not,
singly or in the aggregate, material to the Company and its subsidiaries,
taken as a whole.

II.

The Company hereby agrees to sell to the several Underwriters, and the
Underwriters, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agree, severally
and not jointly, to purchase from the Company the respective numbers of Firm
Shares set forth in Schedules I and II hereto opposite their names at U.S.$[__]
a share (the "purchase price").

On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the U.S. Underwriters the Additional Shares, and the U.S. Underwriters shall
have a one-time right to purchase, severally and not jointly, up to 1,050,000
Additional Shares at the purchase price.
<PAGE> 8
7

Additional Shares may be purchased as provided in Article IV hereof solely for
the purpose of covering overallotments made in connection with the offering of
the Firm Shares. If any Additional Shares are to be purchased, each U.S.
Underwriter agrees, severally and not jointly, to purchase the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
the U.S. Representative may determine) that bears the same proportion to the
total number of Additional Shares to be purchased as the number of U.S. Firm
Shares set forth in Schedule I hereto opposite the name of such U.S. Underwriter
bears to the total number of U.S. Firm Shares.

The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend or otherwise transfer or dispose of, directly or indirectly, any
Common Shares or any securities convertible into or exercisable or exchangeable
for Common Shares or (ii) enter into any swap or other agreement that transfers,
in whole or in part, any of the economic consequences of ownership of the Common
Shares, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise for a period of 120 days after the date of the Prospectus, other than
(A) the Shares to be sold hereunder, (B) any options granted pursuant to the
Company's benefit plans existing on the date hereof that are referred to in the
Prospectus or (C) any Common Shares sold by the Company upon the exercise of an
option or warrant or the conversion of a security outstanding on the date hereof
of which the Underwriters have been advised in writing or that are referred to
in the Prospectus.

III.

The Company is advised by you that the Underwriters propose to make a
public offering of their respective portions of the Shares as soon after the
Original Registration Statement and this Agreement have become effective as in
your judgment is advisable. The Company is further advised by you that the
Shares are to be offered to the public initially at U.S.$[__] a share (the
"public offering price") and to certain dealers selected by you at a price that
represents a concession not in excess of U.S.$[____] a share under the public
offering price, and that any Underwriter may allow, and such dealers may
reallow, a concession, not in excess of U.S.$[____] a share, to any Underwriter
or to certain other dealers.

IV.

Payment for the Firm Shares to be sold by the Company shall be made in
same day funds by wire transfer to the Company's account at [_______] at a
closing to be held at the offices of Shearman & Sterling, 599 Lexington Avenue,
New York, New York, at [____]
<PAGE> 9
8

A.M., local time, on [_________], 1997 or at such other time on the same or such
other date, not later than [_________], 1997, as shall be designated in writing
by you. The time and date of such payment are hereinafter referred to as the
Closing Date.

Payment for any Additional Shares shall be made in same day funds by wire
transfer to the Company's account at [_______] at a closing to be held at the
offices of Shearman & Sterling, 599 Lexington Avenue, New York, New York, at
[____] A.M., local time, on such date (which may be the same as the Closing Date
but shall in no event be earlier than the Closing Date nor later than ten
business days after the giving of the notice hereinafter referred to) as shall
be designated in a written notice from the U.S. Representatives to the Company
of their determination, on behalf of the U.S. Underwriters, to purchase a
number, specified in said notice, of Additional Shares, or on such other date,
in any event not later than [______], 1997, as shall be designated in writing by
the U.S. Representatives. The time and date of such payment are hereinafter
referred to as the Option Closing Date. The notice of the determination to
exercise the option to purchase Additional Shares and of the Option Closing Date
may be given at any time within 30 days after the date of this Agreement.

Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one business day prior to the Closing
Date or the Option Closing Date, as the case may be. The certificates evidencing
the Firm Shares and Additional Shares shall be delivered to you on the Closing
Date or the Option Closing Date, as the case may be, for the respective accounts
of the several Underwriters, with any transfer taxes payable in connection with
the transfer of the Shares to the Underwriters duly paid, against payment of the
purchase price therefor.

The obligations of the Company and the several obligations of the
Underwriters hereunder are subject to the condition that the Registration
Statement shall have become effective not later than 5:30 p.m. (New York City
time) on the date hereof.

The several obligations of the Underwriters hereunder are subject to the
following further conditions:

(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date,

(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading
or of any review for a possible change that does not indicate the
direction of the possible change, in the
<PAGE> 10
9

rating accorded any of the Company's securities by any "nationally
recognized statistical rating organization," as such term is defined
for purposes of Rule 436(g)(2) under the Securities Act; and

(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations,
of the Company and its subsidiaries, taken as a whole, from that set
forth in the Registration Statement, that, in your judgment, is
material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.

(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, on behalf of the Company, to the effect set forth in clause
(a)(i) above and to the effect that the representations and warranties of
the Company contained in this Agreement are true and correct in all
material respects as of the Closing Date and that the Company has complied
with all of the agreements and satisfied all of the conditions contained
in this Agreement on its part to be performed or satisfied on or before
the Closing Date.

The officer signing and delivering such certificate may rely upon
the best of his knowledge as to proceedings threatened.

(c) No stop order suspending the effectiveness of the Registration
Statement shall be in effect and no proceedings for such purpose shall be
pending before or, to the knowledge of the Company or the Underwriters,
threatened by the Commission.

(d) You shall have received on the Closing Date an opinion of Olshan
Grundman Frome & Rosenzweig LLP, U.S. counsel for the Company, dated the
Closing Date, in the form attached hereto as Exhibit A.

The opinion of Olshan Grundman Frome & Rosenzweig LLP shall be
rendered to you at the request of the Company and shall so state therein.

(e) You shall have received on the Closing Date an opinion of
O'Neill & Company, Canadian counsel for the Company, dated the Closing
Date, in the form attached hereto as Exhibit B.

The opinion of O'Neill & Company shall be rendered to you at the
request of the Company and shall so state therein.

(f) You shall have received on the Closing Date an opinion of
Thorsteinssons, Canadian tax counsel for the Company, dated the Closing
Date, which shall be to the effect that such counsel is of the opinion
that the statements in the Prospectus under the
<PAGE> 11
10

caption "Certain Canadian Tax Considerations" are accurate in all material
respects and fairly summarize the matters referred to therein.

(g) You shall have received on the Closing Date an opinion of
Swidler & Berlin, Chartered, special regulatory counsel for the Company,
in the form attached hereto as Exhibit C.

The opinion of Swidler & Berlin, Chartered shall be rendered to you
at the request of the Company and shall so state therein.

(h) You shall have received on the Closing Date opinions from local
regulatory counsel in the forms attached hereto as Exhibit D.

(i) You shall have received on the Closing Date an opinion of
Shearman & Sterling, counsel for the Underwriters, dated the Closing Date,
with respect to the Registration Statement and the Prospectus and such
other related matters as you may reasonably request, and such counsel
shall have received such documents and information as they may reasonably
request to enable them to pass upon such matters.

(j) You shall have received, on each of the date hereof and the
Closing Date, a letter dated the date hereof or the Closing Date, as the
case may be, in form and substance satisfactory to you, from KPMG Peat
Marwick LLP, independent public accountants, containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and
the Prospectus; provided that the letter delivered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof.

(k) You shall have received "lock-up" agreements substantially in
the form of Exhibit D hereto from certain management stockholders,
officers and directors of the Company listed on Schedule III hereto and
such agreements shall be in full force and effect on the Closing Date.

(l) The Company shall have complied with the provisions of Article
VI(a) hereof with respect to the furnishing of Prospectuses on the
business day next succeeding the date of this Agreement, in such
quantities as you shall have reasonably requested.

(m) You shall have received such other documents and certificates as
are reasonably requested by you or your counsel.

(n) The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they may
reasonably request with respect to the good
<PAGE> 12
11

standing of the Company, the due authorization and issuance of the
Additional Shares and other matters related to the issuance of the
Additional Shares.

VI.

In further consideration of the agreements of the Underwriters herein
contained, the Company covenants and agrees as follows:

(a) To furnish to you, without charge, seven signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and, during the period mentioned in paragraph
(c) below, as many copies of the Prospectus and any supplements and
amendments thereto or to the Registration Statement as you may reasonably
request. In the case of the Prospectus, to furnish to you copies of the
Prospectus in New York City and London, prior to 3:00 p.m., on the
business day following the date of this Agreement, in such quantities as
you reasonably request.

(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment
or supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.

(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of your counsel the Prospectus is
required by law to be delivered in connection with sales by an Underwriter
or dealer, any event shall occur or condition shall exist as a result of
which it is necessary in your judgment to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if, in the opinion of your counsel, it is necessary to
amend or supplement the Prospectus to comply with applicable law,
forthwith to prepare, file with the Commission and furnish, at its own
expense, to the Underwriters and to the dealers (whose names and addresses
you will furnish to the Company) to which Shares may have been sold by you
on behalf of the Underwriters and to any other dealers upon request,
either amendments or supplements to the Prospectus so that the statements
in the Prospectus as so amended or supplemented will not, in the light of
the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will
comply with law.

(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request; provided that the Company shall not be required to (A) qualify as
a foreign corporation or as a dealer in
<PAGE> 13
12

securities in any jurisdiction where it would not otherwise be required to
qualify but for this paragraph (d), (B) file any general consent to
service of process or (C) subject itself to taxation in any such
jurisdiction if it is not otherwise so subject.

(e) If the Company elects to rely on Rule 462(b) under the
Securities Act, the Company shall file a Rule 462(b) Registration
Statement with the Commission in compliance with Rule 462(b) under the
Securities Act no later than the earlier of (i) 10:00 p.m. Eastern time on
the date hereof and (ii) the time confirmations are sent or given, as
specified by Rule 462(b)(2) under the Securities Act, and shall pay the
applicable fees in accordance with Rule 111 under the Securities Act.

(f) To make generally available to the Company's security holders
and to you as soon as practicable an earnings statement of the Company
covering the twelve-month period ending December 31, 1998 that satisfies
the provisions of Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder.

(g) To use the net proceeds received by the Company from the sale of
(i) the Shares hereunder and (ii) the Senior Subordinated Accrual Notes
sold in the Debt Offering, in the manner specified in the Prospectus under
the caption "Use of Proceeds."

(h) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be
paid all expenses incident to the performance of its obligations under
this Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
registration and delivery of the Shares under the Securities Act and all
other fees or expenses in connection with the preparation and filing of
the Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies
thereof to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and
delivery of the Shares to the Underwriters, including any transfer or
other taxes payable thereon, (iii) the cost of printing or producing any
Blue Sky or Legal Investment memorandum in connection with the offer and
sale of the Shares under state securities laws and all expenses in
connection with the qualification of the Shares for offer and sale under
state securities laws as provided in Article VI(d) hereof, including
filing fees and the reasonable fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with
the Blue Sky or Legal Investment memorandum, (iv) all filing fees and the
reasonable fees and disbursements of counsel to the Underwriters incurred
in connection with the review and qualification of the offering of the
Shares by the National Association of Securities Dealers, Inc., (v) all
costs and expenses incident to listing the Shares on the AMEX and other
national securities exchanges and foreign stock exchanges, (vi) the cost
of printing certificates
<PAGE> 14
13

representing the Shares, (vii) the costs and charges of any transfer
agent, registrar or depositary, (viii) the costs and expenses of the
Company relating to investor presentations on any "road show" undertaken
in connection with the marketing of the offering of the Shares, including,
without limitation, expenses associated with the production of road show
slides and graphics, fees and expenses of any consultants engaged in
connection with the road show presentations with the prior approval of the
Company, travel and lodging expenses of the representatives and officers
of the Company and any such consultants, and the cost of any aircraft
chartered in connection with the road show, (ix) all expenses in
connection with any offer and sale of the Shares outside of the United
States, including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection with offers and sales outside
of the United States, and (x) all other costs and expenses incident to the
performance of the obligations of the Company hereunder for which
provision is not otherwise made in this Section. It is understood,
however, that except as provided in this Article, Article VII and the
third paragraph of Article IX below, the Underwriters will pay all of
their costs and expenses, including fees and disbursements of their
counsel, stock transfer taxes payable on resale of any of the Shares by
them and any advertising expenses connected with any offers they may make.

VII.

The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary prospectus or
the Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein.

Each Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to such Underwriter,
but only with reference to information relating to such Underwriter furnished to
the Company in writing by such Underwriter through you expressly
<PAGE> 15
14

for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.

In case any proceeding (including any governmental investigation) shall be
instituted involving any person in respect of which indemnity may be sought
pursuant to either of the two preceding paragraphs, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated, in the case of
parties indemnified pursuant to the second preceding paragraph, and by the
Company, in the case of parties indemnified pursuant to the first preceding
paragraph. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
<PAGE> 16
15

To the extent the indemnification provided for in the first or second
paragraph of this Article VII is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party or parties on the one hand
and the indemnified party or parties on the other hand from the offering of the
Shares or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the indemnifying party or parties on the one hand and of the indemnified party
or parties on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Underwriters on the other hand in connection with the
offering of the Shares shall be deemed to be in the same respective proportions
as the net proceeds from the offering of the Shares (before deducting expenses)
received by the Company and the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover of the Prospectus, bear to the aggregate public offering price of the
Shares. The relative fault of the Company on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Underwriters' respective obligations to contribute
pursuant to this Article VII are several in proportion to the respective number
of Shares they have purchased hereunder, and not joint.

The Company and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Article VII were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Article VII, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any
<PAGE> 17
16

person who was not guilty of such fraudulent misrepresentation. The remedies
provided for in this Article VII are not exclusive and shall not limit any
rights or remedies which may otherwise be available to any indemnified party at
law or in equity.

The indemnity and contribution provisions contained in this Article VII
and the representations, warranties and other statements of the Company
contained in this Agreement shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any investigation made
by or on behalf of any Underwriter or any person controlling any Underwriter or
by or on behalf of the Company, its officers or directors or any person
controlling the Company and (iii) acceptance of and payment for any of the
Shares.

VIII.

This Agreement shall be subject to termination by notice given by you to
the Company, if (a) after the execution and delivery of this Agreement and prior
to the Closing Date (i) trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the National Association of Securities
Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange, the Chicago Board of Trade or the Vancouver Stock Exchange, (ii)
trading of any securities of the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been declared by either
federal or New York State authorities or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or any
calamity or crisis that, in your judgment, is material and adverse and (b) in
the case of any of the events specified in clauses (a)(i) through (iv), such
event singly or together with any other such event makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus.

IX.

This Agreement shall become effective upon the later of (x) execution and
delivery hereof by the parties hereto and (y) release of notification of the
effectiveness of the Original Registration Statement by the Commission.

If, on the Closing Date or the Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares that
it or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares
<PAGE> 18
17

set forth opposite their respective names in Schedule I or Schedule II bears to
the aggregate number of Firm Shares set forth opposite the names of all such
nondefaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to Article
II be increased pursuant to this Article IX by an amount in excess of one-ninth
of such number of Shares without the written consent of such Underwriter. If, on
the Closing Date or the Option Closing Date, as the case may be, any Underwriter
or Underwriters shall fail or refuse to purchase Shares and the aggregate number
of Shares with respect to which such default occurs is more than one-tenth of
the aggregate number of Shares to be purchased on such date, and arrangements
satisfactory to you and the Company for the purchase of such Shares are not made
within 36 hours after such default, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter or the Company. In any
such case either you or the Company shall have the right to postpone the Closing
Date or the Option Closing Date, as the case may be, but in no event for longer
than seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.

If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of the Company to comply with the
terms or to fulfill any of the conditions of this Agreement, or if for any
reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.

This Agreement may be signed in two or more counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.

The Company hereby (i) acknowledges that it has irrevocably designated and
appointed Olshan Grundman Frome & Rosenzweig LLP, 505 Park Avenue, New York, New
York 10022, Attention: David J. Adler, Esq. (together with any successor, the
"Process Agent"), as its authorized agent upon which process may be served in
any suit, action or proceeding arising out of or relating to this Agreement or
the transactions contemplated herein, that may be instituted in any federal or
state court in the State of New York, or brought under federal or state
securities laws, and acknowledges that the Process Agent has accepted such
designation, (ii) agrees that service of process upon the Process Agent and
written notice of such service to the Company (mailed or delivered to its Chief
Executive Officer at its principal office at 4317 N.E. Thurston Way, Vancouver,
Washington 98662),
<PAGE> 19
18

shall be deemed in every respect effective service of process upon the Company
in any such suit, action or proceeding and (iii) agrees to take any and all
action, including the execution and filing of any and all such documents and
instruments as may be necessary to continue such designation and appointment of
the Process Agent in full force and effect so long as any of the Shares shall be
outstanding. The Company hereby agrees to submit to the nonexclusive
jurisdiction of any federal or state court in the State of New York in any such
suit, action or proceeding arising out of or relating to this Agreement or the
transactions contemplated herein.

To the extent that the Company has or hereafter may acquire any immunity
from jurisdiction of any court or from any legal process (whether through
service of notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise) with respect to itself or its property, it hereby
irrevocably waives such immunity in respect of its obligations under this
Agreement to the extent permitted by law.

Any notice required or permitted to be given hereunder shall be given in
writing and shall be deemed effective three days after deposit in the United
States mail (certified or registered, return receipt requested), postage
prepaid, or when received if personally delivered, addressed as follows:

To the Underwriters: To the Company:

Morgan Stanley & Co. GST Telecommunications, Inc.
Incorporated 4317 N.E. Thurston Way
1585 Broadway Vancouver, Washington 98662
New York, New York 10036 Attention: Chief Executive Officer
Attention: James Avery

with a copy to: with a copy to:

Shearman & Sterling Olshan Grundman Frome &
599 Lexington Avenue Rosenzweig LLP
New York, New York 10022 505 Park Avenue
Attention: Jerry V. Elliott, Esq. New York, New York 10022
Attention: Stephen Irwin, Esq.

or to such other address of which written notice is given to the other.
<PAGE> 20
19

This Agreement shall be governed by the laws of the State of New York.

Very truly yours,

GST TELECOMMUNICATIONS, INC.

By______________________________
Name:
Title:

Accepted, November [__], 1997

MORGAN STANLEY & CO. INCORPORATED
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON CORPORATION

Acting severally on behalf of themselves
and the several U.S. Underwriters
named in Schedule I hereto.

By Morgan Stanley & Co. Incorporated

By__________________________
Authorized Signatory

MORGAN STANLEY & CO. INTERNATIONAL LIMITED
BEAR, STEARNS INTERNATIONAL LIMITED
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED

Acting severally on behalf of themselves
and the several International Underwriters
named in Schedule II hereto.

By Morgan Stanley & Co. International Limited

By__________________________
Authorized Signatory
<PAGE> 21

SCHEDULE I

U.S. Underwriters

Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------

Morgan Stanley & Co. Incorporated
Bear, Stearns & Co. Inc.
Credit Suisse First Boston Corporation

---------
Total U.S. Firm Shares................................
<PAGE> 22
21

SCHEDULE II

International Underwriters

Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------

Morgan Stanley & Co. International Limited

Bear, Stearns International Limited

Credit Suisse First Boston (Europe) Limited

---------
Total International Firm Shares.......................
<PAGE> 23

SCHEDULE III
Shareholders Executing Lock Up Agreements

John Warta
Tomen
Clifford V. Sander
Ian Watson
Stephen Irwin
Thomas E. Sawyer
W. Gordon Blankstein
Robert H. Hanson
Peter E. Legault
Jack G. Armstrong
Joseph A. Basile, Jr.
Mitsuhiro Naoe
Joseph G. Fogg, III
A. Roy Megarry
<PAGE> 24

EXHIBIT A

OPINION OF U.S. COUNSEL FOR THE COMPANY

The opinion of the U.S. counsel for the Company to be delivered
pursuant to Article V(d) of the Underwriting Agreement shall be to the effect
that:

(A) Each Specified Subsidiary has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority
to own or lease its property and to conduct its business as described in
the Prospectus and is duly qualified or licensed to transact business and
is in good standing as a foreign corporation in each jurisdiction in which
the conduct of its business or its ownership or leasing of property
requires such qualification or licensing, except to the extent that the
failure to be so qualified or licensed or be in good standing would not
have a material adverse effect on the properties, assets, prospects,
condition, financial or otherwise, business or operations of the Company
and its subsidiaries, taken as a whole; and to such counsel's knowledge,
after due inquiry (i) the only direct subsidiaries of the Company are GST
USA, Inc., GST Call America, Inc., TotalNet Communications, Inc. and GST
Action Telecom, Inc. and (ii) the Company owns all the outstanding shares
of capital stock of such subsidiaries free and clear of any claims, liens,
pledges, or other encumbrances;

(B) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, the Underwriting
Agreement (including the issuance, sale and delivery of the Shares by the
Company), will not contravene (i) any provision of applicable law, (ii) to
such counsel's knowledge, any agreement or other instrument binding upon
the Company that is material to the Company and its subsidiaries, taken as
a whole, or (iii) to such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having jurisdiction over
the Company, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under the Underwriting
Agreement;

(C) the Registration Statement has become effective under the
Securities Act; and, to our knowledge, no stop order suspending the
effectiveness of the Registration Statement or suspending or preventing
the use of the Prospectus has been issued and no proceedings for that
purpose have been instituted or are threatened by the Securities and
Exchange Commission;

(D) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or any
of the Specified Subsidiaries is a party or to which any of the properties
of any of the Specified Subsidiaries is subject that are required to be
described in the Registration Statement or Prospectus and are not so
described or of any statutes, regulations,
<PAGE> 25
A-2

contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required;

(E) the Company is not and after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended;

(F) the statements (1) in the Prospectus under the captions
"Management --Employment and Other Agreements," "Certain Transactions,"
"Description of Certain Indebtedness," "Description of Capital Stock,"
"Business -- Legal Proceedings" and "Certain United States Federal Income
Tax Considerations" and (2) in the Registration Statement in Item 15,
insofar as such statements constitute a summary of the legal matters,
documents or proceedings referred to therein, fairly present the
information called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein; and

(G) such counsel (1) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and schedules
and other financial data included therein as to which such counsel need
not express any opinion) comply as to form in all material respects with
the Securities Act and the rules and regulations of the Commission
thereunder, (2) believes that (except for financial statements and
schedules and other financial data as to which such counsel need not
express any belief) the Registration Statement and the prospectus included
therein at the time the Registration Statement became effective did not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading and (3) believes that (except for
financial statements and schedules and other financial data as to which
such counsel need not express any belief) the Prospectus does not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

With respect to paragraph (G) above, counsel may state that their
opinion and belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements thereto
and review and discussion of the contents thereof, but are without independent
check or verification except as specified.
<PAGE> 26

EXHIBIT B

OPINION OF CANADIAN COUNSEL FOR THE COMPANY

The opinion of Canadian counsel for the Company to be delivered
pursuant to Article V(e) of the Underwriting Agreement shall be to the effect
that:

(A) the Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus and is
duly qualified or licensed to transact business and is in good standing as
a foreign corporation in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification or licensing, except to the extent that the failure to be so
qualified or licensed or be in good standing would not have a material
adverse effect on the properties, assets, prospects, condition, financial
or otherwise, business or operations of the Company and its subsidiaries,
taken as a whole;

(B) the authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus;

(C) the shares of Common Stock outstanding prior to the issuance of
the Shares to be sold by the Company have been duly authorized and are
validly issued, fully paid and non-assessable;

(D) the Shares to be sold by the Company have been duly authorized
and, when issued and delivered, in accordance with the terms of the
Underwriting Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights;

(E) the Underwriting Agreement has been duly authorized, executed
and delivered by the Company;

(F) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, the Underwriting
Agreement (including the issuance, sale and delivery of the Shares) will
not contravene (i) any provision of applicable British Columbia or federal
Canadian law, (ii) the certificate of incorporation or by-laws of the
Company, (iii) to such counsel's knowledge, any agreement or other
instrument binding upon the Company that is material to the Company and
its subsidiaries, taken as a whole or (iv) to such counsel's knowledge any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Company and no consent, approval, authorization or
order of, or qualification with, any governmental body or agency in Canada
is required for the performance by the Company of its obligations under
the Underwriting Agreement;
<PAGE> 27

B-2

(G) the statements in the Prospectus under the captions "Risk
Factors--Risks of Investment in a Canadian Corporation," "Enforceability
of Civil Liabilities against Foreign Persons" and "Exchange Controls and
Other Limitations Affecting Shareholders" insofar as such statements
constitute summaries of the legal matters, documents or proceedings
referred to therein, fairly present the information called for with
respect to such legal matters, documents and proceedings and fairly
summarize the matters referred to therein; and

(H) after due inquiry, such counsel is not aware of any Canadian
legal or governmental proceeding pending or threatened to which the
Company or any of its subsidiaries is a party or to which any of the
properties of the Company or any of its subsidiaries is subject other than
proceedings fairly summarized in all material respects in the Prospectus
and proceedings which are not likely to have a material adverse effect on
the Company and its subsidiaries, taken as a whole.
<PAGE> 28

EXHIBIT C

OPINION OF SPECIAL REGULATORY COUNSEL FOR THE COMPANY

The opinion of special regulatory counsel for the Company to be
delivered pursuant to Article V(g) of the Underwriting Agreement shall be to the
effect that:

(A) The Company and its subsidiaries have all necessary permits,
licenses, authorizations, consents and approvals and have made all
necessary filings required under any federal, state, local or foreign
supranational, national or regional law, regulation or rule, and have
obtained all necessary authorizations, consents and approvals from other
persons, material to the conduct of their respective businesses, in each
case except to the extent that the failure to obtain such permits,
licenses, authorizations, consents or approvals or to make such filings
would not, singly or in the aggregate, have a material adverse effect on
the properties, assets, prospects, condition, financial or otherwise,
business or operations of the Company and its subsidiaries, taken as a
whole; and except as accurately described in all material respects in the
Prospectus, the Company and its subsidiaries have not received any notice
of proceedings which remain unresolved relating to revocation or
modification of any such permits, licenses, authorizations, consents or
approvals, nor is the Company or any of its subsidiaries in violation of,
or in default under, any such license, authorization, consent or approval
or any federal, state, local or foreign supranational, national or
regional law, regulation or rule or any decree, order or judgment
applicable to the Company or its subsidiaries the effect of which could
have a material adverse effect on the properties, assets, prospects,
condition, financial or otherwise, business or operations of the Company
and its subsidiaries, taken as a whole; and

(B) the statements in the Prospectus under the captions "Risk
Factors --Government Regulation" and "Business -- Regulation" insofar as
such statements constitute a summary of the legal matters, licenses,
documents, procedures or proceedings referred to therein, fairly summarize
the matters referred to therein.
<PAGE> 29

EXHIBIT D

[INSERT LOCAL REGULATORY OPINIONS]
<PAGE> 30

EXHIBIT D

______ __, 1997

Morgan Stanley & Co. Incorporated
Bear, Stearns & Co. Inc.
Credit Suisse First Boston Corporation

c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036

Ladies and Gentlemen:

The undersigned understands that you, as representatives of the
several Underwriters, propose to enter into an Underwriting Agreement with GST
Telecommunications, Inc. (the "Company") providing for the public offering (the
"Public Offering") by the several Underwriters, including yourselves, of Common
Shares, without par value (the "Common Shares") of the Company.

In consideration of the Underwriters' agreement to purchase and make
the Public Offering of the Common Shares, and for other good and valuable
consideration receipt of which is hereby acknowledged, the undersigned hereby
agrees that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters, it will not, during the period
ending 120 days after the date of the Prospectus, (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of, directly or indirectly, any Common Shares or
any securities convertible into or exercisable or exchangeable for Common Shares
or (2) enter into any swap or similar agreement that transfers, in whole or in
part, any of the economic consequences of ownership of the Common Shares,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Shares or such other securities, in cash or
otherwise, other than transfers of Common Shares to the Company. In addition,
the undersigned agrees that, without the prior written consent of Morgan Stanley
& Co. Incorporated on behalf of the Underwriters, it will not, during the period
ending 120 days after the date of the Prospectus, make any demand for or
exercise any right with respect to, the registration of any Common Shares or any
security convertible into or exercisable or exchangeable for Common Shares.

Very truly yours,

------------------------------
(Name)

------------------------------
(Print Name)

Accepted as of the date
first set forth above:

Morgan Stanley & Co. Incorporated

By:
------------------------------

<PAGE> 1
Exhibit 3.1

BY-LAW NO. 1
of

GST TELECOMMUNICATIONS, INC.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
HEADING SECTION PAGE
- ------- ------- ----
<S> <C> <C>
INTERPRETATION 1 1
DIRECTORS 2 - 6 1
MEETINGS OF DIRECTORS 7 - 11 3
REMUNERATION OF DIRECTORS 12 4
SUBMISSION OF CONTRACTORS OR 13 4
TRANSACTIONS TO SHAREHOLDERS
FOR APPROVAL
FOR THE PROTECTION OF 14 - 15 4
DIRECTORS AND OFFICERS
INDEMNITIES TO DIRECTORS 16 6
AND OFFICERS
OFFICERS 17-30 6
SHAREHOLDERS' MEETINGS 31-40 9
SHARES 41-42 12
TRANSFER OF SECURITIES 43-46 13
DIVIDENDS 47 14
VOTING SHARES AND 48 14
SECURITIES IN OTHER COMPANIES
INFORMATION AVAILABLE TO 49-50 14
SHAREHOLDERS
NOTICES 51-57 14
CHEQUES, DRAFTS AND NOTES 58 16
CUSTODY OF SECURITIES 59 16
EXECUTION OF INSTRUMENTS 60 16
FINANCIAL YEAR 61 17
</TABLE>
<PAGE> 2
BY-LAW NO. 1

A by-law relating generally to the conduct of the affairs of
GST TELECOMMUNICATIONS, INC.

BE IT ENACTED AND IT IS HEREBY ENACTED as a by-law of
GST TELECOMMUNICATIONS, INC. (hereinafter called the
"Corporation") as follows:

INTERPRETATION

1. In this by-law and all other by-laws of the Corporation,
unless the context otherwise specifies or requires:

(a) "Act" means the Canada Business Corporations Act, S.C.
1985, c.44 as from time to time amended and every statute that may be
substituted therefor and, in the case of such substitution, any references in
the by-laws of the Corporation to provisions of the Act shall be read as
references to the substituted provisions therefor in the new statute or
statutes:

(b) "Regulations" means the Regulations under the Act as
published or from time to time amended and every regulation that may be
substituted therefor and, in the case of such substitution, any references in
the by-laws of the Corporation to provisions of the Regulations shall be read as
references to the substituted provisions therefor in the new regulations;

(d) all terms which are contained in the by-laws of the
Corporation and which are defined in the Act or the Regulations shall have the
meanings given to such terms in the Act or the Regulations; and

(e) the singular shall include the plural and the plural shall
include the singular; the masculine shall include the feminine; and the word
"person" shall include bodies corporate, corporations, companies, partnerships,
syndicates, trusts and any number or aggregate of persons.

DIRECTORS

2. NUMBER: Subject to the articles of the Corporation and any
unanimous shareholder agreement, the business and affairs of the Corporation
shall be managed by a board of directors consisting of not less than one nor
more than fifteen directors except if any of the issued securities of the
Corporation are or were a part of a distribution to the public, the board
of directors
<PAGE> 3
shall consist of not less than three directors, at least two of whom are not
officers or employees of the Corporation or any affiliate of the Corporation.

3. TERM OF OFFICE: A director's term of office (subject to the
provisions, if any, of the articles of the Corporation and to the provisions of
the Act) shall be from the date on which he is elected or appointed until the
annual meeting next following.

4. VACATION OF OFFICE: The office of a director shall ipso
facto be vacated: (a) if he becomes bankrupt or suspends payments of his debts
generally or compounds with his creditors or makes an authorized assignment or
is declared insolvent; (b) if he is found to be a mentally incompetent person;
or (c) if by notice in writing to the Corporation he resigns his office. Any
such resignation shall be effective at the time it is sent to the Corporation or
at the time specified in the notice, whichever is later.

5. ELECTION AND REMOVAL: Directors shall be elected by the
shareholders on a show of hands unless a ballot is demanded in which case such
election shall be by ballot. The whole board shall retire at the annual meeting
at which the yearly election of directors is to take place but, if qualified,
any retiring director shall be eligible for re-election provided always that the
shareholders of the Corporation may, by ordinary resolution passed at a special
meeting of shareholders, remove any director or directors from office and a
vacancy created by the removal of a director may be filled at the meeting of the
shareholders at which the director is removed.

5(a). FILLING A VACANCY: Subject to the Act, a quorum of the
board may fill a vacancy in the board, except a vacancy resulting from an
increase in the minimum number of directors or from a failure of the
shareholders to elect the minimum number of directors. In the absence of a
quorum of the board, or if the vacancy has arisen from a failure of the
shareholders to elect the minimum number of directors, the board shall forthwith
call a special meeting of shareholders to fill the vacancy. If the board fails
to call such meeting or if there are no directors then in office, any
shareholder may call the meeting.

6. COMMITTEE OF DIRECTORS: The directors may appoint from
among their number a committee of directors and subject to section 115 of the
Act may delegate to such committee any of the powers of the directors.

6(a). ALTERNATE DIRECTORS: Any Director may by instrument in
writing delivered to the Corporation appoint any person to be his alternate to
act in his place at meetings of the Directors at which he is not present unless
the Directors shall have reasonably disapproved the appointment of such person
as an alternate Director and shall have given notice to that effect to the
Director appointing the alternate Director within a reasonable time after
delivery of such instrument to the Corporation. Every such alternate shall be
entitled to notice of meetings of the Directors and to attend and vote as a
Director at a meeting at which the person appointing him is not personally
present. A person may be appointed as an alternate Director by more than one
Director, and an alternate Director shall be counted separately in determining
the quorum for, and having a separate

-2-
<PAGE> 4
vote on behalf of, each Director he is representing, in addition to being so
counted and voting where he is himself a Director. Every alternate Director, if
authorized by the instrument appointing them, may sign in place of the Director
who appointed him resolutions submitted to the Directors to be consented to in
writing as referred to in paragraph 11 of this by-law. Every alternate Director
shall be deemed not to be the agent of a Director appointing him. An alternate
Director shall be deemed to be a Director for all purposes of this by-law in the
performance of any function authorized under this paragraph 6(a), but shall not
otherwise be deemed to be a Director or to have power to act as a Director. A
Director may at any time by instrument, telegram, telex or any method of
transmitting legibly recorded messages delivered to the Corporation revoke the
appointment of an alternate appointed by him. An alternate Director may be
repaid by the Corporation such expenses as might properly be repaid to him if he
were a Director and he shall be entitled to receive from the Corporation such
proportion, if any, of the remuneration otherwise payable to the Director
appointing him as such Director may from time to time direct.

MEETINGS OF DIRECTORS

7. PLACE OF MEETING: Meetings of the board of directors and of
the committee of directors (if any) may be held within or outside Canada.

8. NOTICE: A meeting of directors may be convened by the
Chairman of the Board, a Vice-Chairman of the Board, the Managing Director, the
President if he is a director, a Vice-President who is a director or any two
directors at any time, when directed or authorized by any of such officers or
any two directors, shall convene a meeting of directors. Subject to subsection
114(5) of the Act the notice of any such meeting need not specify the purpose of
or the business to be transacted at the meeting. Notice of any such meeting
shall be served in the manner specified in paragraph 51 of this by-law not less
than two days (exclusive of the day on which the notice is delivered or sent but
inclusive of the day for which notice is given) before the meeting is to take
place; provided always that a director may in any manner waive notice of a
meeting of directors and attendance of a director at a meeting of directors
shall constitute a waiver of notice of the meeting except where a director
attends a meeting for the express purpose of objecting to the transaction of any
business on the grounds that the meeting is not lawfully called.

For the first meeting of the board of directors to be held
immediately following the election of directors by the shareholders for a
meeting of the board of directors at which a director is appointed to fill a
vacancy in the board, no notice of such meeting shall be necessary to the newly
elected or appointed director or directors in order to legally constitute the
meeting, provided that a quorum of the directors is present.

9. QUORUM: A majority of the directors shall form a quorum for
the transaction of business and, notwithstanding any vacancy among the
directors, a quorum of directors may exercise all the powers of directors. No
business shall be transacted at a meeting of directors, unless a quorum of the
board is present.

-3-
<PAGE> 5
A director may, if all the directors of the Corporation
consent, participate in a meeting of directors or of the committee of directors
(if any) by means of such telephone or other communications facilities as permit
all persons participating in the meeting to hear each other and a director
participating in such a meeting by such means is deemed to be present at that
meeting.

10. VOTING: Questions arising at any meeting of the Board of
directors shall be decided by a majority of votes. In case of an equality of
votes the chairman of the meeting in addition to his original vote shall not
have a second or casting vote.

11. RESOLUTION IN LIEU OF MEETING: Notwithstanding any of the
foregoing provisions of this by-law a resolution in writing signed by all the
directors entitled to vote on that resolution at a meeting of the directors or
the committee of directors (if any) is as valid as if it had been passed at a
meeting of the directors or the committee of directors (if any).

REMUNERATION OF DIRECTORS

12. The remuneration to be paid to the directors shall be such
as the board of directors shall from time to time determine and such
remuneration shall be in addition to the salary paid to any officer or employee
of the Corporation who is also a member of the board of directors. The directors
may also award special remuneration to any director undertaking any special
services on the Corporation's behalf other than the routine work ordinarily
required of a director by the Corporation and the confirmation of any such
resolution or resolutions by the shareholders shall not be required. The
directors shall also be entitled to be paid their travelling and other expenses
properly incurred by them in connection with the affairs of the Corporation.

SUBMISSION OF CONTRACTS OR TRANSACTIONS
TO SHAREHOLDERS FOR APPROVAL

13. The board of directors in its discretion may submit any
contract, act or transaction for approval or ratification at any annual meeting
of the shareholders or at any special meeting of the shareholders called for the
purpose of considering the same and, subject to the provisions of section 120 of
the Act, any such contract, act or transaction that shall be approved or
ratified or confirmed by a resolution passed by a majority of the votes cast at
any such meeting (unless any different or additional requirement is imposed by
the Act or by the Corporation's articles or any other by-law) shall be as valid
and as binding upon the Corporation and upon all the shareholders as though it
had been approved, ratified or confirmed by every shareholder of the
Corporation.

FOR THE PROTECTION OF DIRECTORS AND OFFICERS

14. In supplement of and not by way of limitation upon any
rights conferred upon directors by section 120 of the Act, it is declared that
no director shall be disqualified by his office from, or vacate his office by
reason of, holding any office or place of profit under the Corporation

-4-
<PAGE> 6
or under any body corporate in which the Corporation shall be a shareholder or
by reason of being otherwise in any way directly or indirectly interested or
contracting with the Corporation either as vendor, purchaser or otherwise or
being concerned in any contract or arrangement made or proposed to be entered
into with the Corporation in which he is in any way directly or indirectly
interested either as vendor, purchaser or otherwise nor shall any director be
liable to account to the Corporation or any of its shareholders or creditors for
any profit arising from any such office or place of profit; and, subject to the
provisions of section 120 of the Act, no contract or arrangement entered into by
or on behalf of the Corporation in which any director shall be in any way
directly or indirectly interested shall be avoided or voidable and no director
shall be liable to account to the Corporation or any of its shareholders or
creditors for any profit realized by or from any such contract or arrangement by
reason of any fiduciary relationship. Subject to the provisions of section 120
of the Act, no director or officer shall be obliged to make any declaration of
interest in respect of a contract or proposed contract with the Corporation in
which such director or officer is in any way directly or indirectly interested
nor shall any director be obliged to refrain from voting in respect of any such
contract.

15. Except as otherwise provided in the Act, no director or
officer for the time being of the Corporation shall be liable for the acts,
receipts, neglects or defaults of any other director or officer or employee or
for joining in any receipt or act for conformity or for any loss, damage or
expense happening to the Corporation through the insufficiency or deficiency of
title to any property acquired by the Corporation or for or on behalf of the
Corporation or for the insufficiency or deficiency of any security in or upon
which any of the moneys of or belonging to the Corporation shall be placed out
or invested or for any loss or damage arising from the bankruptcy, insolvency or
tortious act of any person, firm or corporation including any person, firm or
corporation with whom or which any moneys, securities or effects shall be lodged
or deposited or for any loss, conversion, misapplication or misappropriation of
or any damage resulting from any dealings with any moneys, securities or other
assets belonging to the Corporation or for any other loss, damage or misfortune
whatever which may happen in the execution of the duties of his respective
office or trust or in relation thereto unless the same shall happen by or
through his failure to exercise the powers and to discharge the duties of his
office honestly and in good faith with a view to the best interests of the
Corporation and in connection therewith to exercise the care, diligence and
skill that a reasonably prudent person would exercise in comparable
circumstances. The directors for the time being of the Corporation shall not be
under any duty or responsibility in respect of any contract, act or transaction
whether or not made, done or entered into the name or on behalf of the
Corporation, except such as shall have been submitted to and authorized or
approved by the board of directors. If any director or officer of the
Corporation shall be employed by or shall perform services for the Corporation
otherwise than as a director or officer or shall be a member of a firm or a
shareholder, director or officer of a company which is employed by or performs
services for the Corporation, the fact of his being a director or officer of the
Corporation shall not disentitle such director or officer or such firm or
company, as the case may be, from receiving proper remuneration for such
services.

-5-
<PAGE> 7
INDEMNITIES TO DIRECTORS AND OFFICERS

16. Subject to section 124 of the Act, every director and
officer of the Corporation and his heirs, executors, administrators and other
legal personal representatives, shall from time to time be indemnified and saved
harmless by the Corporation from and against,

(a) any liability and all costs, charges and expenses that he
sustains or incurs in respect of any action, suit or proceeding that is proposed
or commenced against him for or in respect of anything done or permitted by him
in respect to 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 the Corporation.

OFFICERS

17. APPOINTMENT: The board of directors shall annually or as
often as may be required appoint a President and a Secretary and, if deemed
advisable, may annually or as often as may be required appoint a Chairman of the
Board, one or more Vice-Chairman of the Board, a Managing Director, one or more
Vice-Presidents, a Treasurer, one or more Assistant Secretaries and/or one or
more Assistant Treasurers. A Director may be appointed to any office of the
Corporation but none of the officers except the Chairman of the Board, the
Vice-Chairman of the Board and the Managing Director need be a member of the
board of directors. Two or more of the aforesaid offices may be held by the same
person. In case and whenever the same person holds the offices of Secretary and
Treasurer he may but need not be known as the Secretary-Treasurer. The board may
from time to time appoint such other officers and agents as it shall deem
necessary who shall have such authority and shall perform such duties as may
from time to time be prescribed by the board of directors.

18. REMUNERATION AND REMOVAL: The remuneration of all officers
appointed by the board of directors shall be determined from time to time by
resolution of the board of directors. The fact that any officer or employee is a
director or shareholder of the Corporation shall not disqualify him from
receiving such remuneration as may be determined. All officers, in the absence
of agreement to the contrary, shall be subject to removal by resolution of the
board of directors at any time, with or without cause.

19. POWERS AND DUTIES: All officers shall sign such contracts,
documents or instruments in writing as require their respective signatures and
shall respectively have and perform all powers and duties incident to their
respective offices and such other powers and duties respectively as may from
time to time be assigned to them by the board.

20. DUTIES MAY BE DELEGATED: In case of the absence of
inability to act of any officer of the Corporation except the Managing Director
or for any other reason that the board of

-6-
<PAGE> 8
directors may deem sufficient the board of directors may delegate all or any of
the powers of such officer to any other officer or to any director for the time
being.

21.(a) CHAIRMAN OF THE BOARD: The Chairman of the Board (if
any) shall, when present, preside at all meetings of the board of directors, the
committee of directors (if any) and the shareholders.

21.(b) VICE-CHAIRMAN OF THE BOARD: The Vice-Chairman of the
Board (if any), or, if more than one, each Vice-Chairman of the Board, shall
have such powers and duties as the board of directors may determine. If the
Chairman of the Board is absent or unable or refuses to act, a Vice-Chairman of
the Board shall, when present, preside at all meetings of the board of
directors, the committee of directors (if any) and the shareholders.

22. MANAGING DIRECTOR: The Managing Director (if any) shall be
a resident Canadian and shall exercise such powers and have such authority as
may be delegated to him by the board of directors in accordance with the
provisions of section 115 of the Act.

23. PRESIDENT: The President, subject to the direction of the
board of directors, shall have general and active management of the business of
the Corporation and shall perform such duties and shall have such powers as the
board of directors may from time to time prescribe.

24.(a) CHIEF EXECUTIVE OFFICER: The Chief Executive Officer
(if any) shall be the principal executive officer of the Corporation and,
subject to the direction of the board of directors, shall have general
supervision and control of the business of the Corporation. The Chief Executive
Officer shall perform such other duties and shall have such other powers as the
board of directors may from time to time prescribe.

24.(b) CHIEF OPERATING OFFICER: The Chief Operating Officer
shall perform such duties and possess such powers as the board of directors may
from time to time prescribe.

25. VICE-PRESIDENT: The Vice-President or, if more than one,
the Vice-Presidents, in order of seniority, shall have such powers and duties as
the board of directors may be determine. The Vice-President or, if more than
one, the Vice-Presidents, in order of seniority, shall be vested with all the
powers and shall perform all the duties of the President in the absence or
inability or refusal to act of the President; provided, however, that a
Vice-President who is not a director shall not preside as chairman at any
meeting of directors or of the committee of directors (if any) or, subject
paragraph 37 of this by-law, at any meeting of shareholders. The board of
directors may assign to any Vice President the title of Executive Vice
President, Senior Vice President or any other title selected by the Board of
Directors.

26. SECRETARY: The Secretary shall give or cause to be given
notices for all meetings of the board of directors, the committee of directors
(if any) and the shareholders when directed to do so and shall have charge of
the minute books of the Corporation and, subject to the

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<PAGE> 9
provisions of paragraph 43 of this by-law, of the records (other than accounting
records) referred to in section 20 of the Act.

27. TREASURER: Subject to the provisions of any resolution of
the board of directors, the Treasurer shall have the care and custody of all the
funds and securities of the Corporation and shall deposit the same in the name
of the Corporation in such bank or banks or with such other depository or
depositaries as the board of directors may direct. He shall keep or cause to be
kept the accounting records referred to in section 20 of the Act. He may be
required to give such bond for the faithful performance of his duties as the
board of directors in its uncontrolled discretion may require but no director
shall be liable for failure to require any such bond or for the insufficiency of
any such bond or for any loss by reason of the failure of the Corporation to
receive any indemnity thereby provided.

28. ASSISTANT SECRETARY AND ASSISTANT TREASURER: The Assistant
Secretary or, if more than one, the Assistant Secretaries in order of seniority,
and the Assistant Treasurer or, if more than one, the Assistant Treasurers in
order of seniority, shall respectively perform all the duties of the Secretary
and the Treasurer, respectively, in the absence or inability or refusal to act
of the Secretary or the Treasurer, as the case may be.

29. GENERAL MANAGER OR MANAGER: The board of directors may
from time to time appoint one or more General Managers or Managers and may
delegate to him or them full powers to manage and direct the business and
affairs of the Corporation (except such matters and the duties as by law must be
transacted or performed by the board of directors and/or by the shareholders)
and to employ and discharge agents and employees of the Corporation or may
delegate to him or them any lesser authority. A General Manager or Manager shall
conform to all lawful orders given to him by the board of directors of the
Corporation and shall at all reasonable times give to the directors or any of
them all information they may require regarding the affairs of the Corporation.
Any agent or employee appointed by a General Manager or Manager shall be subject
to discharge by the board of directors.

30. VACANCIES: If the office of any officer of the Corporation
shall be or become vacant by reason of death, resignation, disqualification or
otherwise, the directors by resolution shall, in the case of the President or
the Secretary, and may, in the case of any other office, appoint a person to
fill such vacancy.

SHAREHOLDERS' MEETINGS

31. ANNUAL MEETING: Subject to the provisions of section 132
of the Act, the annual meeting of the shareholders shall be held on such day in
each year and at such time as the directors may by resolution determine at any
place within Canada or, if all the shareholders entitled to vote at such meeting
so agree, outside Canada.

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<PAGE> 10
32. SPECIAL MEETINGS: Special meetings of the shareholders may
be convened by order of the Chairman of the Board, a Vice-Chairman of the Board,
the Managing Director, the President if he is a director, a Vice-President who
is a director or by the board of directors at any date and time and at any place
within Canada or, if all the shareholders entitled to vote at such meeting so
agree, outside Canada.

33. NOTICE: A printed, written or typewritten notice stating
the day, hour and place of meeting shall be given by serving such notice on each
shareholder entitled to vote at such meeting, on each director and on the
auditor of the Corporation in the manner specified in paragraph 51 of this
by-law, not less than twenty-one days or more than fifty days (in each case
exclusive of the day on which the notice is delivered or sent and of the day for
which notice is given) before the date of the meeting. Notice of a meeting at
which special business is to be transacted shall state (a) the nature of that
business in sufficient detail to permit the shareholder to form a reasoned
judgment thereon, and (b) the text of any special resolution to be submitted to
the meeting.

34. WAIVER AND NOTICE: A shareholder and any other person
entitled to attend a meeting of shareholders may in any manner waive notice of a
meeting of shareholders and attendance of such person at a meeting of
shareholders and attendance of any such person at a meeting of shareholders
shall constitute a waiver of notice of the meeting except where such person
attends a meeting for the express purpose of objecting to the transaction of any
business on the grounds that the meeting is not lawfully called.

35. OMISSION OF NOTICE: The accidental omission to give notice
of any meeting or any irregularity in the notice of any meeting or the
non-receipt of any notice by any shareholder or shareholders, director or
directors or the auditor of the Corporation shall not invalidate any resolution
passed or any proceedings taken at any meeting of shareholders.

36. VOTES: Every question submitted to any meeting of
shareholders shall be decided in the first instance by a show of hands unless a
person entitled to vote at the meeting has demanded a ballot and in the case of
an equality of votes the chairman of the meeting shall neither on a show of
hands nor on a ballot have a second or casting vote in addition to the vote or
votes to which he may be otherwise entitled.

At any meeting unless a ballot is demanded, a declaration by
the chairman of the meeting that a resolution has been carried or carried
unanimously or by a particular majority or lost or not carried by a particular
majority shall be conclusive evidence of the fact.

In the event that the Chairman of the Board and the
Vice-Chairman of the Board are absent and the President is absent or is not a
director and there is no Vice-President present who is a director, the persons
who are present and entitled to vote shall choose another director as chairman
of the meeting and if not director is present or if all the directors present
decline to take the chair then the persons who are present and entitled to vote
shall choose one of their number to be chairman.

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<PAGE> 11
A ballot may be demanded either before or after any vote by
show of hands by any person entitled to vote at the meeting. If at any meeting a
ballot is demanded on the election of a chairman or on the question of
adjournment it shall be taken forthwith without adjournment. If at any meeting a
ballot is demanded on any other question or as to the election of directors, the
vote shall be taken by ballot in such manner and either at once, later in the
meeting or after adjournment as the chairman of the meeting directs. The result
of a ballot shall be deemed to be the resolution of the meeting at which the
ballot was demanded. A demand for a ballot may be withdrawn.

Where two or more persons hold the same share or shares
jointly one of those holders present at a meeting of shareholders may, in the
absence of the other or others, vote the share or shares but if two or more of
those persons who are present, in person or by proxy, vote, they shall vote as
one on the share or shares jointly held by them.

37. PROXIES: Votes at meetings of shareholders may be given
either personally or by proxy or, in the case of a shareholder who is a body
corporate or association, by an individual authorized by a resolution of the
board of directors or governing body of the body corporate or association to
represent it at meetings of shareholders of the Corporation. At every meeting at
which he is entitled to vote, every shareholder and/or person appointed by proxy
and/or individual so authorized to represent a shareholder who is present in
person shall have one vote on a show of hands. Upon a ballot at which he is
entitled to vote, every shareholder present in person or represented by proxy or
by an individual so authorized shall (subject to the provisions, if any, of the
articles of the Corporation) have one vote for every share held by him.

A proxy shall be executed by the shareholder or his attorney
authorized in writing and is valid only at the meeting in respect of which it is
given or any adjournment thereof.

A person appointed by proxy need not to be a shareholder.

Subject to the provision of Part IV of the Regulations, a
proxy may be in the following form:

The undersigned shareholder of ______________________ hereby
appoints ________________________ of _____________________, or failing him,
_______________________ of ____________________ as the nominee of the
undersigned to attend and act for the undersigned and on behalf of the
undersigned at the ___________________ meeting of the shareholders of the said
Corporation to be held on the ____ day of _______________, 19__ and at any
adjournment or adjournments thereof in the same manner, to the same extent and
with the same powers as if the undersigned were present at the said meeting or
such adjournment or adjournments thereof.

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<PAGE> 12
DATED this _______ day of ________________________, 19___

________________________________
Signature of Shareholder

The directors may from time to time make regulations regarding
the lodging of proxies at some place or places other than the place at which a
meeting or adjourned meeting of shareholders is to be held and for particulars
of such proxies to be cabled or telegraphed or sent by telex or in writing
before the meeting or adjourned meeting to the Corporation or any agent of the
Corporation for the purpose of receiving such particulars and providing that
proxies so lodged may be voted upon as though the proxies themselves were
produced at the meeting or adjourned meeting and votes given in accordance with
such regulations shall be valid and shall be counted. The chairman of any
meeting of shareholders may, subject to any regulations made as aforesaid, in
his discretion accept telegraphic or cable or telex or written communication as
to the authority of any person claiming to vote on behalf of and to represent a
shareholder notwithstanding that no proxy conferring such authority has been
lodged with the Corporation, and any votes given in accordance with such
telegraphic or cable or telex or written communication accepted by the chairman
of the meeting shall be valid and shall be counted.

38. ADJOURNMENT: The chairman of any meeting may with the
consent of the meeting adjourn the same from time to time to a fixed time and
place and no notice of such adjournment need be given to the shareholders unless
the meeting is adjourned by one or more adjournments for an aggregate of thirty
days or more in which case notice of the adjourned meeting shall be given as for
an original meeting. Any business may be brought before or dealt with at any

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<PAGE> 13
adjourned meeting for which no notice is required which might have been brought
before or dealt with at the original meeting in accordance with the notice
calling the same.

39. QUORUM: A quorum at any meeting of shareholders (unless a
greater number of persons are required to be present or a greater number of
shares are required to be represented by the Act or by the articles or any other
by-law) shall be persons present not being less than two in number and holding
or representing not less than five per cent of the total number of the issued
shares of the Corporation for the time being enjoying voting rights at such
meeting. No business shall be transacted at any meeting unless the requisite
quorum be present at the time of the transaction of such business. If a quorum
is not present at the opening of a meeting of shareholders, the persons present
and entitled to vote may adjourn the meeting to a fixed time and place but may
not transact any other business.

40. RESOLUTION IN LIEU OF MEETING: Notwithstanding any of the
foregoing provisions of this by-law a resolution in writing signed by all the
shareholders entitled to vote on that resolution at a meeting of the
shareholders is, subject to section 136 of the Act, as valid as if it had been
passed at a meeting of the shareholders.

41. ALLOTMENT AND ISSUANCE: Subject to the provisions of
section 25 of the Act, shares in the capital of the Corporation may be allotted
and issued by resolution of the board of directors at such times and on such
terms and conditions and to such persons or class of persons as the board of
directors determines.

42. CERTIFICATES: Shares certificates and the form of stock
transfer power on the reverse side thereof shall (subject to section 49 of the
Act) be in such form as the board of directors may by resolution approve and
such certificates shall be signed by the Chairman of the Board or a
Vice-Chairman of the Board or the Managing Director or the President or a
Vice-President and the Secretary or an Assistant Secretary holding office at the
time of signing.

The signature of the Chairman of the Board, a Vice-Chairman of
the board, the Managing Director, the President or a Vice-President may be
printed, engraved, lithographed or otherwise mechanically reproduced upon
certificates for shares of the Corporation. Certificates so signed shall be
deemed to have been manually signed by the Chairman of the Board, a
Vice-Chairman of the Board, the Managing Director, the President or the
Vice-President whose signature is so printed, engraved, lithographed or
otherwise mechanically reproduced thereon and shall be as valid to all intents
and purposes as if they have been signed manually. Where the Corporation has
appointed a registrar, transfer agent or branch transfer agent for the shares
(or for the shares of any class or classes) of the Corporation the signature of
the Secretary or Assistant Secretary may also be printed, engraved, lithographed
or otherwise mechanically reproduced on certificates representing the shares (or
the shares of the class or classes in respect of which any such appointment has
been

-12-
<PAGE> 14
made) of the Corporation and when countersigned by or on behalf of a registrar,
transfer agent or branch transfer agent such certificates so signed shall be as
valid to all intents and purposes as if they had been signed manually. A share
certificate containing the signature of a person which is printed, engraved,
lithographed or otherwise mechanically reproduced thereon may be issued
notwithstanding that the person has ceased to be an officer of the Corporation
and shall be as valid as if he were an officer at the date of its issue.

42(a). If a share certificate

(i) is worn out or defaced, the Directors shall, upon
production to them of the said certificate and upon such other terms, if any, as
they may think fit, order the said certificate to be cancelled and shall issue a
new certificate in lieu thereof;

(ii) is lost, stolen or destroyed, then, upon proof thereof to
the satisfaction of the Directors and upon such indemnity, if any, as the
Director deem adequate being given, a new share certificate in lieu thereof
shall be issued to the person entitled to such lost, stolen or destroyed
certificate; or

(iii) represents more than one share and the registered owner
thereof surrenders it to the Corporation with a written request that the
Corporation issue in his name two or more certificates each representing a
specified number of shares and in the aggregate representing the same number of
shares as the certificate so surrendered, the Corporation shall cancel the
certificate so surrendered and issue in lieu thereof certificates in accordance
with such request.

Such sum as the Directors may from time to time fix shall be
paid to the Corporation for each certificate to be issued as aforesaid.

TRANSFER OF SECURITIES

43. TRANSFER AGENT AND REGISTRAR: The directors may from time
to time by resolution appoint or remove one or more transfer agents and/or
branch transfer agents and/or registrars and/or branch registrars (which may or
may not be the same individual or body corporate) for the securities issued by
the Corporation in registered form (or for such securities of any class or
classes) and may provide for the registration of transfers of such securities
(or such securities of any class or classes) in one or more places and such
transfer agents and/or branch transfer agents and/or registrars and/or branch
registrars shall keep all necessary books and registers of the Corporation for
the registering of such securities (or such securities of the class or classes
in respect of which any such appointment has been made). In the event of any
such appointment in respect of the shares (or the shares of any class or
classes) of the Corporation, all share certificates issued by the Corporation in
respect of the shares (or the shares of the class or classes in respect of which
and such appointment has been made) of the Corporation shall be countersigned by
or on behalf of one of the said transfer agents and/or branch transfer agents
and by or on behalf of one of the said registrars and/or branch registrars, if
any.

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<PAGE> 15
44. SECURITIES REGISTERS: A central securities register of the
Corporation shall be kept at the registered office of the Corporation or at such
other office or place in Canada as may from time to time be designated by
resolution of the board of directors and a branch securities register or
registers may be kept at such office or offices of the Corporation or other
place or places, either in or outside Canada, as may from time to time be
designated by resolution of the directors.

45. SURRENDER OF CERTIFICATES: Subject to subparagraph
42(a)(ii) of this by-law no transfer of shares shall be recorded or registered
unless or until the certificate representing the shares to be transferred has
been surrendered and cancelled.

46. SHAREHOLDER INDEBTED TO THE CORPORATION: If so provided in
the articles of the Corporation, the Corporation has a lien on share registered
in the name of a shareholder or his legal representative for a debt of that
shareholder to the Corporation. By way of enforcement of such lien the directors
may refuse to permit the registration of a transfer of such share.

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<PAGE> 16
DIVIDENDS

47. The directors may from time to time by resolution declare
and the Corporation may pay dividends on the issued and outstanding shares in
the capital of the Corporation subject to the provisions (if any) or the
articles of the Corporation.

In case several persons are registered as the joint holders of
any shares any one of such persons may give effectual receipts for all dividends
and payments on account of dividends and/or redemption of shares (if any)
subject to redemption.

VOTING SHARES AND SECURITIES IN OTHER COMPANIES

48. All of the shares or other securities carrying voting
rights of any other body corporate held from time to time by the Corporation may
be voted at any and all meetings of shareholders, bondholders, debenture holders
or holders of other securities (as the case may be) of such other body corporate
and in such manner and by such person or persons as the board of directors of
the Corporation shall from time to time determine. The proper signing officers
of the Corporation may also from time to time execute and deliver for and on
behalf of the Corporation proxies and/or arrange for the issuance of voting
certificates and/or other evidence of the right to vote in such names as they
may determine without the necessity of a resolution or other action by the board
of directors.

INFORMATION AVAILABLE TO SHAREHOLDERS

49. Except as provided by the Act, no shareholder shall be
entitled to discovery of any information respecting any details or conduct of
the Corporation's business which in the opinion of the directors it would be
inexpedient in the interests of the Corporation to communicate to the public.

50. The directors may from time to time, subject to rights
conferred by the Act, determine whether and to what extent and at what time and
place and under what conditions or regulations the documents, books and
registers and accounting records of the Corporation or any of them shall be open
to the inspection of shareholders and no shareholder shall have any right to
inspect any document or book or register or accounting record of the Corporation
except as conferred by statute or authorized by the board of directors or by a
resolution of the shareholders.

NOTICES

51. SERVICE: Any notice or other document required by the Act,
the Regulations, the articles or the by-laws to be sent to any shareholder or
director or to the auditor shall be delivered personally or sent by prepaid mail
or by telegram or cable or telex to any such shareholder at his latest address
as shown in the records of the Corporation or its transfer agent and to any such
director at his latest address as shown in the records of the Corporation or in
the last notice filed under

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<PAGE> 17
section 106 or 113 of the Act, and to the auditor at his business address;
provided always that notice may be waived or the time for the notice may be
waived or abridged at any time with the consent in writing of the person
entitled thereto. If a notice or document is sent to a shareholder by prepaid
mail in accordance with this paragraph and the notice or document is returned on
three consecutive occasions because the shareholder cannot be found it shall not
be necessary to send any further notices or documents to the shareholder until
he informs the Corporation in writing of his new address.

52. SHARES REGISTERED IN MORE THAN ONE NAME: All notices or
other documents with respect to any shares registered in more than one name
shall be given to whichever of such persons is named first in the records of the
Corporation and any notice or other document so given shall be sufficient notice
or delivery to all the holders of such shares.

53. PERSONS BECOMING ENTITLED BY OPERATION OF LAW: Subject to
section 51 of the Act, every person who by operation of law, transfer or by any
other means whatsoever shall become entitled to any share or shares shall be
bound by every notice or other document in respect of such share or shares
which, previous to his name and address being entered in the records of the
Corporation, shall be duly given to the person or persons from whom he derives
his title to such shares or shares.

54. DECEASED SHAREHOLDERS: Subject to section 51 of the Act,
any notice or other document delivered or sent by post, telegram or telex or
left at the address of any shareholder as the same appears in the records of the
Corporation shall, notwithstanding that such shareholder be then deceased, and
whether or not the Corporation has notice of his decease, be deemed to have been
duly served in respect of the shares held by such shareholder (whether held
solely or with any other person or persons) until some other person be entered
in his stead in the records of the Corporation as the holder or one of the
holders thereof and such service shall for all purposes be deemed a sufficient
service of such notice or document on his heirs, executors or administrators and
on all persons, if any, interested with him in such shares.

55. SIGNATURE TO NOTICES: The signature of any director or
officer of the Corporation to any notice or document to be given by the
Corporation to any notice or document to be given by the Corporation may be
written, stamped, typewritten or printed or partly written, stamped, typewritten
or printed.

56. COMPUTATION OF TIME: Where a given number of days' notice
or notice extending over a period is required to be given under any provisions
of the articles or by-laws of the Corporation the day of service or posting of
the notice or document shall, unless it is otherwise provided, be counted in
such number of days or other period.

57. PROOF OF SERVICE: With respect to every notice or other
document sent by post it shall be sufficient to prove that the envelope or
wrapper containing the notice or other document was properly addressed as
provided in paragraph 51 of this by-law and put into a post office or into

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<PAGE> 18
a letter box. A certificate of an officer of the Corporation in office at the
time of the making of the certificate or of a transfer officer of any transfer
agent or branch transfer agent of shares of any class of the Corporation as to
facts in relation to the sending or delivery of any notice or other document to
any shareholder, director, officer or auditor or publication of any notice or
other document shall be conclusive evidence thereof and shall be binding on
every shareholder, director, officer or auditor of the Corporation as the case
may be.

CHEQUES, DRAFTS AND NOTES

58. All cheques, drafts or orders for the payment of money and
all notes and acceptances and bills of exchange shall be signed by such officer
or officers or person or persons, whether or not officers of the Corporation,
and in such manner as the board of directors may from time to time designate by
resolution.

CUSTODY OF SECURITIES

59. All shares and securities owned by the Corporation shall
be lodged (in the name of the Corporation) with a chartered bank or trust
company or in a safety deposit box or, if so authorized by resolution of the
board of directors, with such other depositaries or in such other manner as may
be determined from time to time by the board of directors.

All share certificates, bonds, debentures, notes or other
obligations belonging to the Corporation may be issued or held in the name of a
nominee or nominees of the Corporation (and if issued or held in the names or
more than one nominee shall be held in the names of the nominees jointly with
the right of survivorship) and shall be endorsed in blank with endorsement
guaranteed in order to enable transfer to be completed and registration to be
effected.

EXECUTION OF INSTRUMENTS

60. Contracts, documents or instruments in writing requiring
the signature of the Corporation may be signed by:

(a) The Chairman of the Board, a Vice-Chairman of the Board,
the Managing Director, the President or a Vice-President together with the
Secretary or the Treasurer, or

(b) any two directors

and all contracts, documents and instruments in writing so signed shall be
binding upon the Corporation without any further authorization or formality. The
board of directors shall have power from time to time by resolution to appoint
any officer or officers, or any person or persons, on behalf of the Corporation
either to sign contracts, documents and instruments in writing generally or to
sign specific contracts, documents or instruments in writing.

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<PAGE> 19
The corporate seal (if any) of the Corporation may be affixed
to contracts, documents and instruments in writing signed as aforesaid or by any
officer or officers, person or persons, appointed as aforesaid by resolution of
the board of directors, but any such contract, document or instrument is not
invalid merely because the corporate seal is not affixed thereto.

The term "contracts, documents or instruments in writing" as
used in this by-law shall include deeds, mortgages, hypothecs, charges,
conveyances, transfers and assignments of property real or personal, immovable
or movable, agreements, releases, receipts and discharges for the payment of
money or other obligations, conveyances, transfers and assignments of shares,
share warrants, stocks, bonds, debentures or other securities and all paper
writings.

In particular without limiting the generality of the foregoing

(a) The Chairman of the Board, a Vice-Chairman of the Board,
the Managing Director, the President or a Vice-President together with the
Secretary or the Treasurer, or

(b) any two directors

shall have authority to sell, assign, transfer, exchange, convert or convey any
and all shares, stocks, bonds, debentures, rights, warrants or other securities
owned by or registered in the name of the Corporation and to sign and execute
(under the seal of the Corporation or otherwise) all assignments, transfers,
conveyances, powers of attorney and other instruments that may be necessary for
the purpose of selling, assigning, transferring, exchanging, converting or
conveying any such shares, stocks, bonds, debentures, rights, warrants or other
securities.

The signature or signatures of the Chairman of the Board, a
Vice-Chairman of the Board, the Managing Director, the President, a
Vice-President, the Secretary, the Treasurer, an Assistant Secretary or an
Assistant Treasurer or any director of the Corporation and/or of any other
officer or officers, person or persons, appointed as aforesaid by resolution of
the board of directors may, if specifically authorized by resolution of the
directors, be printed, engraved, lithographed or otherwise mechanically
reproduced upon any contracts, documents or instruments in writing or bonds,
debentures or other securities of the Corporation executed or issued by or on
behalf of the Corporation and all contracts, documents or instruments in writing
or bonds, debentures or other securities of the Corporation on which the
signature or signatures of any of the foregoing officers or persons authorized
as aforesaid shall be so reproduced pursuant to special authorization by
resolution of the directors shall be deemed to have been manually signed by such
officers or persons whose signature or signatures is or are so reproduced and
shall be as valid to all intents and purposes as if they had been signed
manually and notwithstanding that the officers or persons whose signature or
signatures is or are so reproduced may have ceased to hold office at the date of
the delivery or issue of such contracts, documents or instruments in writing or
bonds, debentures or other securities of the Corporation.

FINANCIAL YEAR

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<PAGE> 20

61. The financial year of the Corporation shall terminate on
such date in each year as the directors may from time to time by resolution
determine.

ENACTED this 9th day of September, 1997.

(WITNESS the corporate seal of the Corporation).

Corporate
Seal

/S/ Joseph A. Basile, Jr. /S/ Stephen Irwin
- --------------------------- -----------------------------
Joseph A. Basile, Jr. Stephen Irwin
President Secretary

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<PAGE> 1
Exhibit 4.1

[LOGO]

NUMBER SHARES
[G00000] [ ]

[GST TELECOMMUNICATIONS LOGO]
(INCORPORATED UNDER THE CANADA BUSINESS CORPORATIONS ACT)

[CUSIP 361942 10 5]

This certifies that

is the registered holder of

fully paid and non-assessable common shares of
GST TELECOMMUNICATIONS, INC.

transferable on the books of the Company by such registered holder in person or
by attorney duly authorized in writing upon surrender of this certificate
properly endorsed. This certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.

In Witness Whereof the said Company has caused this certificate to be
signed by its duly authorized officers.

[COMMON]

Dated

Transfer Agent and Registrar
Montreal Trust Company of Canada Toronto Vancouver
Countersigned and Registered
Co-Transfer Agent
Registrar and Transfer Company Cranford
Countersigned and Registered

By ___________________________________
Authorized Officer

Transferable at the offices of Montreal Trust Company of Canada, Toronto,
Ontario or Vancouver, British Columbia or the Registrar and Transfer Company,
Cranford, New Jersey.

[SEAL] Chairman of the Board and
Chief Executive Officer

Vice Chairman of the Board and Secretary
<PAGE> 2
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto

PLEASE INSERT SOCIAL INSURANCE NUMBER OF TRANSFEREE

[ ][ ][ ]-[ ][ ][ ]-[ ][ ][ ]

_______________________________________________________________________________
(Name and address of transferee)

_______________________________________________________________________________

________________________________________________________________________ shares
registered in the name of the undersigned on the books of the Company named on
the face of this certificate and represented hereby, and irrevocably
constitutes and appoints

__________________________________________________________________ the attorney
of the undersigned to transfer the said shares on the register of transfers and
books of the Company with full power of substitution hereunder.

DATED:

_____________________________________ ________________________________________
(Signature of Witness) (Signature of Shareholder)

NOTICE: The signature of this assignment must correspond with the name as
written upon the face of the certificate, in every particular, without
alteration or enlargement, or any change whatever, and must be
guaranteed by a bank, trust company or a member of a recognized stock
exchange.

Signature Guaranteed By:

BACK 2 - Vancouver

<PAGE> 1
EXHIBIT 5.1

November 7, 1997

Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: GST Telecommunications, Inc.

Gentlemen:

We have acted as counsel to GST Telecommunications, Inc., a
federally chartered Canadian corporation (the "Company"), in connection with its
filing of a registration statement on Form S-3 (the "Registration Statement")
relating to 8,050,000 of its common shares (the "Shares"), without par value
(the "Common Shares"), 1,050,000 of which are subject to an over-allotment
option, all as more particularly described in the Registration Statement.

In our capacity as counsel to the Company, we have examined
the Company's Articles of Incorporation and By-Laws, each as amended to date,
the Registration Statement and such other documents as we have considered
appropriate for purposes of this opinion. With respect to factual matters, we
have relied upon statements and certificates of officers of the Company. We have
also reviewed such other matters of law and examined and relied upon such other
documents, records and certificates as we have deemed relevant hereto. In all
such examinations we have assumed conformity with original documents of all
documents submitted to us as conformed or photostatic copies, the authenticity
of all documents submitted to us as original documents and the genuineness of
all signatures on all documents submitted to us.

<PAGE> 2
November 7, 1997
Page -2-

On the basis of the foregoing, we are of the opinion that the
Shares have been duly authorized and will, when sold as contemplated by the
Registration Statement, be validly issued, fully paid and non-assessable.

We are members of the Bar of the State of New York and, except
as stated below, we express no opinion as to the laws of any jurisdiction other
than the State of New York and the federal laws of the United States of America.
With respect to the opinion set forth above, we have relied upon the opinion of
O'Neill & Company, an association of independent law corporations, Vancouver,
British Columbia.

Our opinion with respect to the material United States federal
income tax consequences of the purchase, ownership and disposition of the Shares
is set forth in full under the caption "Certain United States Federal Income Tax
Considerations" in the
Registration Statement.

We advise you that Stephen Irwin, the Vice Chairman of the
Board and Secretary of the Company, is of counsel to this firm. Mr. Irwin owns
76,345 Common Shares of the Company and holds options and warrants to purchase
an aggregate of 600,000 Common Shares. In addition, other attorneys of this
firm hold Common Shares and/or options to purchase Common Shares.

We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference made to us under the captions
"Legal Matters" and "Certain United States Federal Income Tax Considerations" in
the prospectus constituting part of the Registration Statement.

Very truly yours,

/s/ Olshan Grundman Frome & Rosenzweig LLP
-------------------------------------------
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP

<PAGE> 1
Exhibit 8.2

[THORSTEINSSONS LETTER HEAD] P.O. BOX 49123, THREE BENTALL CENTRE
TWENTY-SEVENTH FLOOR, 595 BURRARD STREET
VANCOUVER, B.C. CANADA V7X IJ2
TAX LAWYERS--------------------------------------------------------------------
TELEPHONE (604) 689-1261
FACSIMILE (604) 688-4711

November 6, 1997

Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: GST Telecommunications, Inc. (the "Company")
- -------------------------------------------------

Gentlemen:

We have acted as Canadian tax counsel to GST Telecommunications, Inc., a
federally chartered Canadian corporation (the "Company") in connection with its
filing of a registration statement on Form S-3 (the "Registration Statement")
relating to the issuance of 7,000,000 common shares of the Company (the
"Share") and more particularly described in the Registration Statement.

Our opinion with respect to the material Canadian federal income tax
consequences of the purchase, ownership and disposition of the Shares is set
forth in full under the caption "Certain Canadian Tax Considerations" in the
Registration Statement.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference made to us under the captions
"Legal Matters" and "Certain Canadian Tax Considerations" in the prospectus
constituting part of the Registration Statement.

Your truly,

/s/ S. M. Cook
- -------------------------
S. M. Cook

SMC:whd
F:\WORK\SMC\25220002008LTR

LONDON TORONTO
1 FLEET PLACE P.O. BOX 611, BCE PLACE
KIBDIBM EC4M 7RA THIRTY-SIXTH FLOOR, 161 BAY STREET
ENGLAND TORONTO, ONTARIO, CANADA M5J 251
- ------------- ----------------------------------
TELEPHONE 44-171-463-9650 TELEPHONE (416) 864-0829
FACSIMILE 44-171-463-9651 FACSIMILE (416) 864-1106

<PAGE> 1

Exhibit 23.1

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
GST Telecommunications, Inc.:

We consent to the use of our report, dated November 22, 1996, included in
the Registration Statement on Form S-3, dated November 10, 1997, of GST
Telecommunications, Inc. and to the references to our firm under the headings
"Selected Consolidated Financial Data" and "Experts" in the Prospectus.

/s/ KPMG PEAT MARWICK LLP

--------------------------------------

Portland, Oregon

November 10, 1997

<PAGE> 1

Exhibit 23.2

ACCOUNTANTS' CONSENT

To the Directors of
GST Telecommunications, Inc.
(formerly Greenstar Telecommunications Inc.)

We consent to the inclusion in the registration statement, filed November
10, 1997 on Form S-3 of GST Telecommunications, Inc. (formerly Greenstar
Telecommunications Inc.) of our report dated December 8, 1994, relating to the
consolidated statements of operations, shareholders' equity and cash flows of
GST Telecommunications, Inc. for the thirteen months ended September 30, 1994
which report appears in the September 30, 1996 annual report on Form 10-K of GST
Telecommunications, Inc., and to the references to our firm under the headings
"Selected Consolidated Financial Data" and "Experts" in the registration
statement.

/s/ KPMG
- ---------------------------------------------------------
Chartered Accountants

Vancouver, Canada

November 10, 1997