As filed with the Securities and Exchange Commission on September 16, 1997
Registration No. 333-32137
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GST TELECOMMUNICATIONS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Canada
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(State or other jurisdiction of
incorporation or organization)
N/A
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(IRS Employer
Identification Number)
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4317 N.E. Thurston Way
Vancouver, Washington 98662
(360) 254-4700
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(Address and telephone number of
Registrant's Principal Executive Offices)
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Daniel L. Trampush, Senior Vice President
GST Telecommunications, Inc.
4317 NE Thurston Way
Vancouver, WA 98662
(360) 254-4700
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(Name, Address and Telephone Number
of Agent for Service)
Copy to:
David J. Adler, Esq.
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
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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, check the following box. /X/
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. / /
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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 of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
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, DATED SEPTEMBER 16, 1997
1,049,417 COMMON SHARES
GST TELECOMMUNICATIONS, INC.
This Prospectus relates to the reoffer and resale by certain selling
shareholders (the "Selling Shareholders") of Common Shares, without par value
(the "Common Shares"), of GST Telecommunications, Inc. (the "Company") issued or
to be issued by the Company to the Selling Shareholders in connection with (i)
the acquisition by the Company of Action Telcom Co. ("Action Telcom"), (ii) the
acquisition by the Company of Tri-Star Residential Communications Corp. ("Tri-
Star"), (iii) the purchase by the Company of the remaining minority interest in
NACT Telecommunications, Inc. (formerly known as National Applied Computer
Technologies, Inc.) ("NACT") and (iv) services rendered relating to the
acquisition by the Company by means of a merger of Call America Business
Communications Corp. and affiliated companies (collectively "Call America"). The
Common Shares are being reoffered and resold for the account of the Selling
Shareholders and the Company will not receive any of the proceeds from the
resale of the Common Shares.
The Selling Shareholders have advised the Company that the resale of
their Common Shares may be effected from time to time in one or more
transactions solely on the American Stock Exchange (the "AMEX"), in negotiated
transactions or otherwise at market prices prevailing at the time of the sale or
at prices otherwise negotiated. The Selling Shareholders may effect such
transactions by selling the Common Shares to or through broker-dealers who may
receive compensation in the form of discounts, concessions or commissions from
the Selling Shareholders and/or the purchasers of the Common Shares for whom
such broker-dealers may act as agent or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer may be in excess of
customary commissions). Any broker-dealer acquiring the Common Shares from the
Selling Shareholders may sell such securities in its normal market making
activities, through other brokers on a principal or agency basis, in negotiated
transactions, to its customers or through a combination of such methods. See
"Plan of Distribution." The Company will bear all expenses in connection with
the preparation of this Prospectus.
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AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES
A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGE 4 HEREOF.
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The Common Shares are traded on the AMEX under the symbol "GST" and on
the Toronto Stock Exchange (the "TSE") and the Vancouver Stock Exchange (the
"VSE") under the symbol "GTE.U." On September 12, 1997, the last sale price for
the Common Shares on the AMEX was $10.625.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (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. Such
material may also be accessed electronically by means of the Commission's home
page on the Internet at http://www.sec.gov. The Common Shares are listed on 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.
TABLE OF CONTENTS
AVAILABLE INFORMATION........................................................2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..............................3
RISK FACTORS.................................................................4
THE COMPANY.................................................................13
USE OF PROCEEDS.............................................................14
SELLING SHAREHOLDERS........................................................14
PLAN OF DISTRIBUTION........................................................15
LEGAL MATTERS...............................................................16
EXPERTS ...................................................................16
ADDITIONAL INFORMATION......................................................16
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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, the Company's Quarterly Reports on Form 10-Q for
the quarters ended June 30, 1997, March 31, 1997 and December 31, 1996, and the
Company's Current Reports on Form 8-K dated 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 subsequent reports filed by the Company on Forms
10-K, 10-Q, 8-K or otherwise, prior to the termination of this 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. All documents filed
by the Company pursuant to Sections 13(a), 13(c), 14 or 15 of the Exchange Act,
subsequently filed by the Company prior to the termination of this 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).
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made hereby, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or the Selling Shareholders. This Prospectus does not constitute
an offer to sell, or a solicitation of an offer to buy, the securities offered
hereby to any person in any state or other jurisdiction in which such offer or
solicitation is unlawful. The delivery of this Prospectus at any time does not
imply that information contained herein is correct as of any time subsequent to
its date.
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RISK FACTORS
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
BEFORE MAKING AN INVESTMENT DECISION. CERTAIN MATTERS DISCUSSED IN THIS
PROSPECTUS OR WHICH ARE INCORPORATED BY REFERENCE ARE FORWARD-LOOKING STATEMENTS
THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE PROJECTED.
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 incumbent local exchange telephone
companies ("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. 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 its plans or to manage
its growth could have a material adverse effect on its business, financial
condition and results of operations.
HISTORICAL AND ANTICIPATED FUTURE OPERATING LOSSES AND NEGATIVE EBITDA
The Company has incurred and expects to continue to incur increasing
operating losses and negative EBITDA while it expands its business and builds
its customer base. The Company has incurred significant increases in expenses
associated with these activities and there can be no assurance that an adequate
customer base with respect to any or all of its services will be achieved or
sustained. The Company does not expect to achieve a significant market share for
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 the year ended September 30, 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. 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. 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, for United States
income tax purposes, the utilization of U.S. net operating loss carryforwards
against future taxable income is subject to limitation if the Company
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experiences an "ownership change" as defined in Section 382 of the Internal
Revenue Code of 1986, as amended.
SIGNIFICANT CAPITAL REQUIREMENTS
The Company believes that cash on hand, the proceeds of the private
placement offerings consummated in December 1995 (the "December Offering"),
October 1996, February 1997 and May 1997 (the "May Offering"), the initial
public offering of common stock of NACT, other securities offerings, if any,
consummated in the future, together with borrowings expected to be available
under both a $100.0 million credit facility (the "Tomen Facility") with Tomen
America and its affiliates ("Tomen") and equipment financings currently
available, will provide sufficient funds for the Company to expand its business
as presently planned and to fund its operating expenses through June 1998.
Thereafter, the Company expects to require additional financing. However, in the
event that the Company's plans or assumptions change or prove to be inaccurate,
or the foregoing sources of funds prove to be insufficient to fund the Company's
growth and operations, or if the Company consummates acquisitions, the Company
may be required to seek additional capital sooner than currently anticipated.
Sources of financing may include public or private equity or debt 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 Tomen Facility, the
indentures (the "Indentures") relating to the notes sold in the December
Offering (the "December Notes") and the notes sold in the May Offering (the "May
Notes" and together with the December Notes, the "Notes"), existing equipment
financing facilities or similar facilities under negotiation or any future
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, which would have a material
adverse effect on the value of the Common Shares. The Company has no working
capital or other credit facility under which it may borrow for working capital
and other general corporate purposes. There can be no assurance that such a
facility will be available to the Company in the future or that if such a
facility were available, that it would be available on terms and conditions
acceptable to the Company.
SUBSTANTIAL INDEBTEDNESS
At June 30, 1997, the Company had outstanding on a consolidated basis
approximately $587.2 million of indebtedness. The accretion of original issue
discount on the December Notes will cause an increase in indebtedness of $130.4
million by December 15, 2000. The Indentures limit, but do not prohibit, the
incurrence of additional indebtedness by the Company. At June 30, 1997, the
Company had $67.7 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. Tomen has agreed in
principle to provide the Company with $41.0 million of additional financing
under the Tomen Facility for the Company's Hawaiian inter-island network and
Hawaiian terrestrial fiber optic network. The Company expects to incur
substantial additional indebtedness in the future. The Company has entered into
loan agreements with an equipment manufacturer and a commercial lender for up to
$166.0 million of equipment financing. There can be no assurance that any
additional financing will be available to the Company on acceptable terms or at
all.
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
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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.
POSSIBLE INABILITY TO SERVICE DEBT
In connection with the buildout of its networks and expansion of
competitive local exchange telephone companies ("CLEC") services, the Company
has been experiencing increasing negative EBITDA and the Company's earnings
before fixed charges were insufficient to cover fixed charges for the nine
months ended June 30, 1997 and the years ended September 30, 1996 and 1995 by
$76.5 million, $62.9 million and $13.8 million, respectively. There can be no
assurance that the Company will be able to improve its earnings before fixed
charges or EBITDA or that the Company will be able to meet its debt service
obligations. As the Company does not currently have a revolving credit facility,
if a shortfall occurs, alternative financing would be necessary in order for the
Company to meet its liquidity requirements and there can be no assurance that
such financing would be available. In such event, the Company could face
substantial liquidity problems. In addition, the Company anticipates that cash
flow from operations may be insufficient to repay the Notes in full at maturity
and that such indebtedness may need to be refinanced. There can be no assurance
that the Company will be able to effect such refinancing. 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, including the Notes, which would permit the holders of such
indebtedness to accelerate the maturity thereof.
FINANCIAL AND OPERATING RESTRICTIONS IMPOSED BY EXISTING INDEBTEDNESS
The Company's financing agreements 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.
DIFFICULTIES IN IMPLEMENTING LOCAL AND ENHANCED SERVICES
The Company has begun to deploy 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 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. Until such time, the Company will rely on the ILEC facilities to
originate and terminate a significant portion of its switched services traffic.
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 of 1996 (the "Telecommunications Act"), the ILECs will be
required to unbundle local tariffs and 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 incumbent ILECs, which can
take considerable time, effort and expense.
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In August 1996, the Federal Communications Commission (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 Court of Appeals for the Eighth Circuit (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 incumbent ILECs and their competitors. The
Company had negotiated a number of interconnection agreements with ILECs prior
to this 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 some of these agreements. There can
be no assurance that the Company will be able to obtain interconnection
agreements on terms acceptable to the Company. The FCC has announced it will
seek a writ of certiorari from the Supreme Court.
The Company is a recent entrant into the newly created competitive
local telecommunications services industry. The local dial tone services market
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 facilities
of ILECs at acceptable rates, competition from other CLECs and pricing pressure
from the ILECs. The Company has no experience providing switched access services
and there can be no assurance that the Company will be able to successfully
implement its switched access and enhanced services strategy.
Implementation of the Company's switched and enhanced services is
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. Although as of June 30, 1997 the Company had $116.9 million of
proceeds available under its equipment financings, 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.
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 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 and
the years ended September 30, 1996 and 1995, respectively. During the year ended
September 30, 1995, a former customer, which customer is presently the subject
of a bankruptcy proceeding, accounted for 5.3% of the Company's consolidated
revenues. It is anticipated that during the early stages of development of
individual networks, before obtaining a sufficient amount of end- user revenues,
the Company will be dependent on a limited number of long distance
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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 13.4% and 16.1% of the
Company's consolidated product revenues for the years ended September 30, 1996
and 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.
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 recently 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. Many of these
competitors have greater financial, technological, and marketing resources than
those available to the Company.
As a recent entrant in the integrated telecommunications services
industry, the Company has not achieved and does not expect to achieve a
significant market share for any of its services. In particular, the RBOCs, the
GTE Companies and other local telephone companies have long-standing
relationships with their customers, have financial, technical and marketing
resources substantially greater than those of the Company, have the potential to
subsidize competitive services with revenues from a variety of businesses and
currently benefit from certain existing regulations that favor the 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 the Company's customers, the Company is 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 acceptable. 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.
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
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costs. In addition, as a result of the Telecommunications Act, RBOCs are
expected to become competitors in the long distance telecommunications industry
both outside their service territory and, upon the satisfaction of certain
conditions, within their service territory. SBC has challenged the
constitutionality of the provisions conditioning RBOC entry into in-region long
distance service. As a result of the Company's recent acquisitions of Action
Telcom, Call America, TotalNet Communications Inc. and the business of
Texas-Ohio Communications Inc. and affiliated companies, the Company's long
distance operations will account for a significant portion of the Company's
revenues. 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. The Company's equipment subsidiary, 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., Integrated
Telephony Products, Inc. and PCS Telecom, Inc. NACT also competes with providers
of open architecture (programmable) hardware switching platforms that are
enhanced by applications providers and value added resellers. Such competitors
include Excel, Inc., which has agreements with software application providers.
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.,
Siemens AG, Alcatel Alsthom Compagnie, L.M. Ericcson 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. 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.
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.
-9-
<PAGE>
The FCC exercises jurisdiction over the Company with respect to
interstate and international services. Additionally, the Company must file
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. That order was
stayed by the United States Supreme Court of Appeals of the District of
Columbia. 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 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
control 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. There can be no
assurance that state or federal 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 being contemplated
by federal and state authorities regarding interconnection pricing and other
issues that could result in sharp changes to the business conditions in the
industry. There can be no assurance that these changes will not have a material
adverse effect upon the Company. See "--Competition."
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. Under recently
announced FCC rules the Company and other CLECs will be required to contribute
to a universal service fund provided for in the Telecommunications Act. That
decision has been appealed. The FCC issued rules that require ILECs to reduce
access charges paid by long distance carriers. Some of the charges may also
result in increased costs to the Company for the "transport" component of access
charges. Pricing flexibility for the ILECs with respect to access charges is not
yet resolved. No assurance can be given that the changes to current regulations
or the adoption of new regulations (pursuant to the Telecommunications Act or
otherwise) by the FCC or state commissions will not have an adverse material
effect on the Company.
In addition, federal regulations impose restrictions on foreign
ownership of communications service providers utilizing radio frequencies. The
operations of GST Telecom Hawaii Inc. ("GST Hawaii"), a wholly-owned subsidiary
of the Company 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., an entity that is controlled by John
Warta, Chairman of the Board and Chief Executive Officer of the Company. In
addition, under the FCC's foreign ownership rules, the Company cannot hold
Personal Communications Services ("PCS") licenses. PCS Plus, LLC ("PCS Plus"), a
company controlled by John Warta, has won various PCS licenses. PCS Plus and the
Company have entered into a twelve year reseller agreement (the "PCS Plus
Reseller Agreement") pursuant to which (i) the Company has been designated a
non-
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<PAGE>
exclusive reseller of PCS telephone services in the markets in which PCS Plus
has obtained licenses, and (ii) PCS Plus has agreed to use the Company on an
exclusive basis to provide switched local and long distance, and other enhanced
telecommunications services, to all of PCS Plus' resellers in markets where the
Company has operational networks. 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 (such as the
Company). In the event the FCC exercises such authority, it could have a
material adverse effect on the Company's CLEC and other businesses.
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.
POSSIBLE ADVERSE LITIGATION OUTCOME
An action was commenced against NACT alleging that its telephone
systems incorporating prepaid debit card features infringe upon a patent issued
in 1987. An unfavorable decision in this action could have a material adverse
effect on the Company.
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.
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
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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.
VOLATILITY OF MARKET PRICE OF COMMON SHARES
Since the Common Shares have been publicly traded, their market price
has fluctuated over a wide range and may continue to do so in the future. The
market price of the Common Shares could be subject to significant fluctuations
in response to various factors and events, including among other things, the
depth and liquidity of the trading market of the Common Shares, variations in
the Company's operating results and the difference between actual results and
the results expected by investors and analysts. In addition, from time to time
the stock market has experienced broad price and volume fluctuations that have
often been unrelated to the operating performance of companies. These broad
market fluctuations also may adversely affect the market price of the Common
Shares.
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 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 the Company's
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 currency 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.
As of June 30, 1997, the Company had invested approximately $3.7
million in a publicly-traded Canadian corporation, subsequently renamed GST
Global Telecommunications Inc. ("Global"), and holds approximately 3.6 million
shares. In addition the Company has warrants to purchase 750,000 additional
shares. Global will issue to the Company additional common shares, 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. Global has also
acquired from a subsidiary of Cable & Wireless Holding Plc 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 terminals) and other equipment used to access the Internet. On June 30,
1997, Global had approximately 12.6 million shares outstanding.
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 for U.S. shareholders to effect service of process within
the United States upon the Company or 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. The Company has been
advised that there is substantial doubt as to 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 common carrier radio frequency licenses in the United
States.
-12-
<PAGE>
POTENTIAL RESALES OF A SUBSTANTIAL NUMBER OF SHARES; REGISTRATION RIGHTS
At June 30, 1997, the Company had outstanding 27,076,169 Common Shares.
Of these shares, 22,261,336 Common Shares are 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 are subject to the resale limitations of
Rule 144 and an aggregate of 750,000 Common Shares subject to escrow provisions
of the VSE. The remaining 4,814,833 Common Shares are "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 Rule 144. In addition, at June 30, 1997, (i)
3,385,349 Common Shares were reserved for issuance upon exercise of outstanding
stock options, with exercise prices ranging from $3.55 to $10.00 per share, (ii)
1,521,155 Common Shares were reserved for issuance upon exercise of outstanding
warrants, with exercise prices ranging from $6.75 to $13.00 per share and (iii)
3,247,773 Common Shares were reserved for issuance upon conversion of the
convertible notes sold in the December Offering (the "Convertible Notes") (based
on the aggregate accreted value of the Convertible Notes on June 30, 1997). The
Company has registered the resale of the Common Shares issuable upon conversion
of the Convertible Notes. 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.
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.
THE COMPANY
The Company provides a broad range of integrated telecommunications
products and services, primarily to customers located in the western continental
United States and Hawaii. As a CLEC, the Company operates state-of-the-art,
digital telecommunications networks that provide an alternative to ILECs. The
Company provides, through its established sales channels, telecommunications
services that include long distance, Internet and data transmission services and
recently introduced local dial tone services. The Company also produces advanced
telecommunications switching platforms with integrated applications software and
network telemanagement capabilities through its equipment subsidiary, NACT.
The Company's digital networks currently serve cities in Arizona,
California, Hawaii, New Mexico and Washington. In addition, the Company has
networks under construction which, when completed will expand its regional
footprint to Idaho, Oregon, Utah and five Hawaiian Islands.
Management believes that the Company has an opportunity to leverage its
network infrastructure and service capabilities to provide customers with a
complete solution to their telecommunications requirements. The
Telecommunications Act and state regulatory initiatives have substantially
changed the telecommunications regulatory environment in the United States. As
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<PAGE>
a result of these regulatory changes, the Company is permitted, in certain
states, to provide local dial tone in addition to its existing
telecommunications service offerings. In order to capitalize on these
opportunities, the Company has accelerated the development and construction of
additional networks within its region while significantly expanding its product
and service offerings, primarily with respect to the provision of local
services.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the reoffer and
resale of the Common Shares by the Selling Shareholders.
SELLING SHAREHOLDERS
The following table sets forth (i) the number of Common Shares
beneficially owned by each Selling Shareholder as of June 30, 1997, (ii) the
number of Shares to be offered for resale by each Selling Shareholder and (iii)
the number and percentage of Common Shares to be held by each Selling
Shareholder after completion of the offering.
<TABLE>
<CAPTION>
Number of
Common
Shares/Percen-
tage of Class
Number of to be Owned
Number of Common Shares to After
Shares Owned at be Offered Completion of
Name and Address June 30, 1997 (1) for Resale the Offering
- -------------------------------------------- ---------------------------- -------------- -------------------
<S> <C> <C> <C>
Glenn R. Meyer(2) 46,960(3) 14,612 32,348/*
Frederick W. Grimm(2) 40,251(3) 12,525 27,726/*
John Goodman(2) 40,251(3) 12,525 27,726/*
Gregory C. Roberts(2) 7,213(3) 2,088 5,125/*
Tory Anderson(4) 1,120(5) 150 970/*
Gary Brown(4) 26,549(6) 6,509 20,040/*
Alan Christensen(4) 8,266(7) 751 7,515/*
Roger Clarke(4) 12,764 3,191 9,573/*
Dan Gale(4) 3,528 882 2,646/*
Eric Gurr(4) 15,221(8) 2,157 13,064/*
Dan Iroz(4) 6,069(9) 1,556 4,513/*
Earl Jack(4) 313(10) 75 238/*
Gary Knudsen(4) 4,132(11) 939 3,193/*
Kent Lewis(4) 2,525(12) 235 2,290/*
KCL Family Limited Partnership(4) 52,536 26,268 26,268/*
KCL NACT Unitrust(4) 105,638 23,500 82,138/*
Kyle Bowen Love(4) 175,913(13) 8,870 167,043/*
William H. Love(4) 6,508 1,627 4,881/*
Steve McDaniel(4) 156 39 117/*
Pamela Paradee(4) 4,264(14) 188 3,286/*
Joseph Parchesky(4) 3,756(15) 470 3,286/*
J&B Investment LC(4) 6,006 1,001 5,005/*
Scott Raffensparger(4) 2,956(16) 751 2,205/*
Robert Sawyer(4) 7,297(17) 921 6,376/*
Benjamin Winnie(4) 16,200(18) 3,254 12,946/*
Britt E. Bilberry(19) 301,300 301,000 300/*
Timothy Harding Bilberry(19) 301,000 301,000 0
Paul S Bilberry(19) 301,000 301,000 0
Clark Company(20) 21,333 21,333 0
</TABLE>
- ------------------------
* Less than 1%.
(1) The persons named in the table, to the Company's knowledge, have sole
voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws where
applicable and the footnotes to this table. The calculation of Common
Shares beneficially owned was determined in accordance with Rule
13d-3 of the Exchange Act.
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<PAGE>
(2) The address for this selling shareholder is c/o Tri-Star Residential
Communications Corporation, 320 Andover Park East Suite 325, Seattle,
Washington 98188.
(3) Includes Common Shares registered pursuant to the Company's
Registration Statements 333-16141, 333-19339 and 333-21729 on Form
S-3. Does not include Common Shares issuable in quarterly installments
after June 19, 1997 in connection with Company's purchase of Tri-Star.
The number of Common Shares issuable in each installment is based on a
formula using the trading price of the Common Shares at the date of
issuance.
(4) The address for this selling shareholder is c/o NACT
Telecommunications, Inc., 191 West 5200 North, Provo, Utah 84604.
(5) Includes 220 Common Shares issuable upon exercise of options.
(6) Includes 3,512 Common Shares issuable upon exercise of options.
(7) Includes 5,262 Common Shares issuable upon exercise of options.
(8) Includes 8,750 Common Shares issuable upon exercise of options.
(9) Includes 220 Common Shares issuable upon exercise of options.
(10) Includes 88 Common Shares issuable upon exercise of options.
(11) Includes 1,317 Common Shares issuable upon exercise of options.
(12) Includes 1,225 Common Shares issuable upon exercise of options.
(13) Includes 52,536 Common Shares held by KCL Family Limited Partnership
and 105,638 Common Shares held by KCL NACT Unitrust.
(14) Includes 3,512 Common Shares issuable upon exercise of options.
(15) Includes 2,817 Common Shares issuable upon exercise of options.
(16) Includes 703 Common Shares issuable upon exercise of options.
(17) Includes 658 Common Shares issuable upon exercise of options.
(18) Includes 2,700 Common Shares issuable upon exercise of options.
(19) The address for this selling shareholder is c/o GST Action Telecom,
Inc., 400 Pine, Suite 500, Abilene, Texas 79601.
(20) The address for this selling shareholder is 1031 Pine Street, Pasa
Robles, California 93446.
PLAN OF DISTRIBUTION
This offering is self-underwritten; neither the Company nor the Selling
Shareholders have employed an underwriter for the sale of Common Shares by the
Selling Shareholders. The Company will bear all expenses in connection with the
preparation of this Prospectus. The Selling Shareholders will bear all expenses
associated with the sale of the Common Shares.
The Common Shares may be sold from time to time by the Selling
Shareholders, or by pledgees, donees, transferees or other successors in
interest on the AMEX, at fixed prices that may be changed or at negotiated
prices. The Selling Shareholders may effect such transactions by selling shares
to or through broker-dealers, and all such broker-dealers may receive
compensation in the form of discounts, concessions, or commissions from the
Selling Shareholders and/or the purchasers of Common Shares for whom such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
Any broker-dealer acquiring Common Shares from the Selling Shareholders
may sell the shares either directly, in its normal market-making activities,
through or to other brokers on a principal or agency basis or to its customers.
Any such sales may be at prices then prevailing on the AMEX or at prices related
to such prevailing market prices or at negotiated prices to its customers or a
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<PAGE>
combination of such methods. The Selling Shareholders and any broker-dealers
that act in connection with the sale of the Common Shares hereunder might be
deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act; any commissions received by them and any profit on the resale of
shares as principal might be deemed to be underwriting discounts and commissions
under the Securities Act. Any such commissions, as well as other expenses
incurred by the Selling Shareholders and applicable transfer taxes, are payable
by the Selling Shareholders.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Shares
offered hereby have been passed upon for the Company by Messrs. Olshan Grundman
Frome & Rosenzweig LLP, 505 Park Avenue, New York, New York 10022. Stephen
Irwin, counsel to Olshan Grundman Frome & Rosenzweig LLP, is an officer and
director of the Company and holds 76,345 Common Shares and has been granted
options and warrants to purchase an additional 600,000 Common Shares. In
addition, other attorneys of such firm hold Common Shares and/or options to
purchase Common Shares.
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 has 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.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act with respect to the Shares offered hereby. For
further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the
securities being registered, all of which will be paid by the Registrant, are as
follows:
SEC Registration Fee............................................. $3,260.18
Accounting Fees and Expenses..................................... 10,000.00
Legal Fees and Expenses.......................................... 12,500.00
Blue Sky Fees and Expenses....................................... 550.00
Miscellaneous Expenses........................................... 3,789.82
--------
Total............................................................ $30,000.00
==========
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 Company is insured or indemnified in any
manner against liability which he may incur in his capacity as such.
The Company'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>
(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 Company's by-laws provide that every director and officer of the
Company 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 Company.
The Company maintains a $15,000,000 directors and officers liability
insurance policy.
ITEM 16. EXHIBITS.
EXHIBIT INDEX
EXHIBIT
5 Opinion of Olshan Grundman Frome & Rosenzweig LLP with respect
to the securities registered hereunder.
*23(a) Consent of KPMG Peat Marwick LLP.
*23(b) Consent of KPMG Peat Marwick Thorne.
23(c) Consent of Olshan Grundman Frome & Rosenzweig LLP (included
within Exhibit 5).
24(a) Powers of Attorney (included on Page II-5).
- -------------------------
*Filed herewith
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<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
a) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement to include
any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
b) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment 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.
c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, 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 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 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.
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 foregoing provisions, 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 each 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 by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
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 to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Vancouver, Province of British Columbia, Country
of Canada on this 15th day of September, 1997.
GST TELECOMMUNICATIONS, INC.
(Registrant)
By: *
---------------------------------
John Warta, Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Chairman of the Board, Chief September 15, 1997
- -------------------------- Executive Officer (Principal
(John Warta) Executive Officer) and Director
* Senior Vice President, Treasurer
- -------------------------- and Chief Accounting Officer September 15, 1997
(Clifford V. Sander) (Principal Accounting Officer)
* Senior Vice President and Chief September 15, 1997
- ------------------------- Financial Officer (Principal
(Daniel Trampush) Financial Officer)
* Vice Chairman of the Board September 15, 1997
- ------------------------- and Director
(W. Gordon Blankstein)
/S/ STEPHEN IRWIN Vice Chairman of the Board, September 15, 1997
- ------------------------- Secretary and Director
(Stephen Irwin)
President, Chief Operating Officer September 15, 1997
- ------------------------- and Director
(Joseph A. Basile, Jr.)
* Director September 15, 1997
- -------------------------
(Robert H. Hanson)
* Director September 15, 1997
- -------------------------
(Ian Watson)
* Director September 15, 1997
- -------------------------
(Peter E. Legault)
Director September 15, 1997
- -------------------------
(Roy Megarry)
II-4
<PAGE>
Director September 15, 1997
- -------------------------
(Thomas E. Sawyer)
* Director September 15, 1997
- -------------------------
(Jack G. Armstrong)
Director September 15, 1997
- -------------------------
(Mitsuhiro Naoe)
* Director September 15, 1997
- -------------------------
(Joseph G. Fogg, III)
The Company's Authorized Representative
in the United States
* September 15, 1997
- -------------------------
Robert H. Hanson
*By: /S/ STEPHEN IRWIN September 15, 1997
-----------------
Stephen Irwin
Attorney-in-fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT
5 Opinion of Olshan Grundman Frome & Rosenzweig LLP with respect
to the securities registered hereunder.
*23(a) Consent of KPMG Peat Marwick LLP.
*23(b) Consent of KPMG Peat Marwick Thorne.
23(c) Consent of Olshan Grundman Frome & Rosenzweig LLP (included
within Exhibit 5).
24(a) Powers of Attorney (included on Page II-5).
- ----------------------
*Filed herewith
II-6
Exhibit 23(a)
KPMG Peat Marwick LLP
Independent Auditors' Consent
-----------------------------
The Board of Directors
GST Telecommunications, Inc.
We consent to the use of our report, dated November 22, 1996, incorporated
herein by reference in the Registration Statement on Form S-3, dated September
16, 1997, of GST Telecommunications, Inc. and to the references to our firm
under the "Experts" heading in the prospectus.
By: /s/ KPMG Peat Marwick
------------------------------
KPMG Peat Marwick
Portland, Oregon
September 16, 1997
Exhibit 23(b)
ACCOUNTANTS' CONSENT
To the Directors of
GST Telecommunications, Inc.
(formerly Greenstar Telecommunications Inc.)
We consent to the incorporation by reference in the registration statement filed
September 16, 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, shareholder' 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 reference to our firm
as experts in the registration statement.
/s/ KPMG
- ---------------------
Chartered Accountants
Vancouver, Canada
September 16, 1997
