SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KA
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended SEPTEMBER 30, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ----------- to -----------------
Commission file number 1-12866
GST TELECOMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Canada N/A
------------------------------------ --------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
4317 N.E. Thurston Way, Vancouver, Washington 98662
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (360) 254-4700
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
------------------- -------------------
Common Shares, without par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months
<PAGE>
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. / /
The aggregate market value at December 27, 1996 of the
Registrant's Common Shares, without par value (based upon the closing price of
$8 5/16 per share of such Shares on the American Stock Exchange), held by
non-affiliates of the Registrant was approximately $158,925,416. Solely for the
purposes of this calculation, shares held by directors and officers of the
Registrant have been excluded. Such exclusion should not be deemed a
determination or an admission by the Registrant that such individuals are, in
fact, affiliates of the Registrant.
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date: At December
20, 1996, there were outstanding 22,045,638 of the Registrant's Common Shares,
without par value.
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
MANAGEMENT
As of January 24, 1997, the executive officers and directors of GST
Telecommunications, Inc. (the "Company") are as follows:
<TABLE>
<CAPTION>
Present Position Director
Name Age With The Company Since
- ---- --- ---------------- -----
<S> <C> <C> <C>
JOHN WARTA 49 President, Chief March 30, 1995
Executive Officer and
Director of the Company
W. GORDON 46 Chairman of the Board of January 11, 1994; also
BLANKSTEIN the Company and GST November 27, 1992 to
USA, Inc., a subsidiary January 29, 1993
of the Company ("GST
USA")
STEPHEN IRWIN 55 Vice-Chairman of the September 21, 1995
Board, Secretary and
Director of the Company
ROBERT H. HANSON 55 Senior Vice-President, February 22, 1993
Corporate Development,
Chief Financial Officer
and Director of the
Company
THOMAS E. SAWYER 64 Chief Technology Officer July 22, 1995
and Director of the
Company; Chairman of
the Board Emeritus,
NACT
Telecommunications,
Inc., a subsidiary of the
Company ("NACT")
IAN WATSON 54 Director of the Company; January 27, 1993
Vice-President of GST
USA
PETER E. LEGAULT 52 Director of the Company April 21, 1993
JACK G. ARMSTRONG 62 Director of the Company July 11, 1994
TAKASHI YOSHIDA(1) 47 Director of the Company February 14, 1995
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Present Position Director
Name Age With The Company Since
- ---- --- ---------------- -----
<S> <C> <C> <C>
CLIFFORD V. SANDER 60 Senior Vice President and N.A.
Treasurer of the
Company
</TABLE>
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(1) Pursuant to a master financing agreement (the "Tomen Master Agreement")
by and among the Company, GST Telecom Inc., a subsidiary of the Company
("GST Telecom"), Pacwest Network, L.L.C. ("Pacwest") and Tomen America,
Inc. ("Tomen America," and collective with Tomen Corporation, TM
Communications LLC and their affiliates, "Tomen") the Company agreed to
nominate a representative of Tomen for election to the Company's Board
of Directors. Takashi Yoshida is Tomen's representative.
The following information concerning the directors and executive
officers of the Company has been furnished by each of them.
JOHN WARTA has been President, Chief Executive Officer and a director
of the Company since March 1995. Mr. Warta is also a director of GST Global
Telecommunications, Inc. ("Global"). From June 1994 to April 1995, he was the
President and Chief Executive Officer of GST Telecom. Mr. Warta cofounded
Electric Lightwave, Inc., a fiber optic competitive access provider ("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.
W. GORDON BLANKSTEIN has been Chairman of the Board of the Company
since February 1995 and is a director of NACT and Global. He is a founder, past
President and Chairman of the Board and former director of ICG Communications,
Inc. Mr. Blankstein was the founder and a director of the Company from November
1992 to January 1993 and has been a director since January 1994. He was elected
Vice Chairman of the Board in February 1994.
STEPHEN IRWIN has been Vice Chairman of the Board and a director of the
Company since September 1995, has been the Secretary of the Company since
November 1992 and is a director of NACT. 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.
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 Chief Financial Officer of the Company in July 1994. 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.
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. Mr. Sander is a member of the Finance Committee of the Company's Board of
Directors. From 1962 to 1994, Mr. Sander, who is a Certified Public Accountant,
was in private accounting practice in Portland, Oregon. He was acting Chief
Financial Officer of ELI
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<PAGE>
during its formation in 1988 and continued to provide accounting and financial
consulting services to ELI through 1993.
THOMAS E. SAWYER has been the Chief Technology Officer of the Company
since December 1993 and a director of the Company since July 1995. Dr. Sawyer
has been the Chairman of the Board Emeritus of NACT since November 1996, 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 is also Vice President of GST USA.
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. Mr. Watson has been the Chairman of the Board and Chief
Executive Officer of Combined Metals Reduction Company since April 1996. From
1985 until January 1993, Mr. Watson was engaged as a private investor in various
activities. Mr. Watson is also a director of Global.
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. ("Thomson Kernaghan"), a member firm of The Toronto Stock Exchange and The
Montreal Exchange, since October 19, 1987. Mr. Legault is also a director of
Global.
JACK G. ARMSTRONG has been a director of the Company since July 1994.
Mr. Armstrong, who is a Chartered Accountant, 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.
TAKASHI YOSHIDA has been a director of the Company since February 1995
and a director of GST Pacific Lightwave, Inc., formerly known as Pacific
Lightwave, Inc. ("GST Pacific"), a subsidiary of the Company, since October
1994. He has been principally employed as a Vice President and General Manager
- -- Electronics and Telecommunications Department of Tomen America since February
1994. From April 1991 through January 1994, Mr. Yoshida was the Tokyo Manager of
Tomen.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "Commission"). Officers, directors and greater than ten percent
shareholders are required by the Commission's regulations to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on review of copies of such forms furnished to the
Company, or written representations that no Form 5s were required, the Company
believes that during the year ended September 30, 1996 ("Fiscal 1996"), except
as described below, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten-percent beneficial owners were complied
with.
Two Form 4s for Peter E. Legault, a director of the Company, were filed
late with the Commission in Fiscal 1996.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
====================================================================================================================================
Annual Compensation Long Term Compensation
------------------------------------------ ------------------------------------------------
Awards Payouts
------------------------------------------------
Restricted Securities
Shares or Underlying All Other
Name and Other Annual Restricted Options/ LTIP Compen-
Principal Salary Bonus Compensation Share Units SARs Granted Payouts sation
Position Year (US$) (US$) (US$)(1) (US$) (#) (US$) (US$)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John M. 1996 200,000 156,000(2) 200,000 105,417(3)
Warta, 1995 126,667 200,304(4) 85,000 --
Chief 1994 30,000 -- 40,000 --
Executive
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
W. Gordon 1996 190,000 -- 200,000 105,417(3)
Blankstein, 1995 125,833 20,000(5) 85,000 --
Chairman 1994 20,000 -- 92,500 --
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen
Irwin, 1996 280,000 500,000 105,417(3)
Vice 1995 -- -- 100,000 --
Chairman 1994 -- -- 15,000 --
- ------------------------------------------------------------------------------------------------------------------------------------
Clifford V.
Sander,
Senior V.P. 1996 120,000 39,000(2) 28,000 5,104(6)
and 1995 101,667 65,076(7) 35,000 --
Treasurer 1994 25,000 -- 20,000 --
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas E.
Sawyer,
Chief 1996 222,556 2,066 5,608(8) 5,000 5,403(9)
Technology 1995 136,000 2,200 172,037(10) 120,000 4,366(11)
Officer 1994 131,505 6,723 12,915(8) 35,000 3,455(11)
- ------------------------------------------------------------------------------------------------------------------------------------
Robert
Hanson,
Senior V.P.
and Chief 1996 120,000 -- 15,000 --
Financial 1995 101,667 20,000(5) 50,000 2,734(6)
Officer 1994 87,333 -- 50,000 --
- ------------------------------------------------------------------------------------------------------------------------------------
Ian Watson,
Vice 1996 120,000 -- --
President of 1995 120,000 20,000(5) --
GST USA 1994 120,000 -- 92,500
====================================================================================================================================
</TABLE>
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<PAGE>
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(1) Excludes certain perquisites that do not exceed the lesser of US$50,000
or 10% of the named individual's aggregate salary and bonus.
(2) Represents a fee for money borrowed and equity purchased under the
Tomen Master Agreement (the "Pacwest Fee").
(3) Represents an accrual of compensation cost for options vesting based on
share price performance.
(4) Includes (i) 5,000 of the Company's common shares (the "Common Shares")
valued at US$4.00 per share issued as consideration for such officers'
guarantee of certain indebtedness of the Company, which indebtedness
was subsequently repaid (the "Guaranty Shares") and (ii) US$180,304 in
payments on account of the Pacwest Fee.
(5) Represents Guaranty Shares.
(6) Represents an accrual of compensation cost for options granted at below
the market price of the Company's Common Shares on the date of grant.
(7) Includes the Guaranty Shares and US$45,076 in payments on account of
the Pacwest Fee.
(8) Represents payments made pursuant to NACT's profit sharing plan.
(9) Represents (i) US$4,492 in matching contributions by NACT to its 401(k)
Plan (the "NACT 401(k) Plan") and (ii) US$911 in accrued compensation
cost for options granted at below the market price of Common Shares on
the date of grant.
(10) Represents (i) US$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)
US$20,672 in payments made pursuant to NACT's profit sharing plan.
(11) Represents matching contributions by NACT to the NACT 401(k) Plan.
EMPLOYMENT AND OTHER AGREEMENTS
John Warta is employed by 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 US$120,000 annually (which was increased to US$200,000 annually
effective September 1, 1995) 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 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 United States Internal Revenue Code of 1986, as
amended (the "Code"), of his compensation.
The Company has entered into a consulting agreement with Sunwest
Ventures Ltd. ("Sunwest"), a private company of which W. Gordon Blankstein, the
Chairman of the Board of the Company, is a principal, pursuant to which Sunwest
(through Mr. Blankstein) is to provide consulting services to the Company, on
terms substantially the same as those contained in John Warta's employment
agreement. Effective September 1, 1995, the Board of Directors increased the
annual payment to Sunwest from US$120,000 to US$190,000.
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<PAGE>
GST USA has entered into a personal services agreement with Stephen
Irwin, Vice-Chairman of the Board and Secretary of the Company and Secretary of
GST USA, for the 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 US$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 of the Company at a price of
US$6.75 per share, such warrant to become exercisable in three equal annual
installments on October 1, 1996, 1997 and 1998.
Effective as of March 1, 1994, GST Telecom entered into an employment
agreement with Clifford V. Sander on terms substantially similar to those of
John 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 US$100,000 annually, which was increased to US$120,000 effective
September 1, 1995.
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 John Warta's employment agreement. Mr. Hanson's agreement
provides for an initial base salary of US$100,000 annually, which was increased
to US$120,000 effective September 1, 1995.
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 US$120,000 for the
first year of the agreement, US$50,000 for the second year of the agreement and
US$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.
GST USA and GST Telecom have entered into a consulting agreement dated
April 1, 1996 with Infotec Consulting, Inc. ("Infotec") under which Thomas E.
Sawyer is to provide personal services to the Company at the rate of US$125 per
hour for hours invoiced monthly until June 30, 1997. Such consulting agreement
also contains covenants restricting Dr. Sawyer's ability to engage in activities
competitive with those of the Company and its subsidiaries. The agreement also
provides for a payment of one and one half times the amount paid to Infotec
during the six months preceding Dr. Sawyer's death in the event of Dr. Sawyer's
death during the term of the agreement. Previously, Dr. Sawyer was employed by
NACT pursuant to an employment agreement effective September 1, 1993, for a term
that ended on March 31, 1996. The agreement provided for an annual salary of
US$168,000 and contains covenants restricting Dr. Sawyer's ability to engage in
activities competitive with those of the Company for a period ending three years
from his termination. In addition, pursuant to the agreement, an annuity has
been purchased for US$144,000 for the benefit of Dr. Sawyer. On November 26,
1996, NACT granted Dr. Sawyer an option to purchase 60,000 shares of the Common
Stock of NACT at an exercise price of US$9.35 per share.
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<PAGE>
COMPENSATION OF DIRECTORS
Except as described above, the Company does not have any arrangements
pursuant to which directors are remunerated by the Company or its subsidiaries
for their services in their capacities as directors, consultants or experts
other than stock options to purchase shares of the Company which are granted to
the Company's directors from time to time.
STOCK OPTION PLANS
In January 1995, the Board of Directors of the Company established an
incentive stock option plan (the "1995 Plan"). In September 1995, the Board of
Directors increased the number of Common Shares reserved for issuance under the
1995 Plan from 750,000 to 1,750,000 shares. In January 1996, the Board of
Directors established the Company's 1996 Stock Option Plan (the "1996 Plan"),
whose terms are substantially similar to those of the 1995 Plan, except that the
number of Common Shares reserved for issuance pursuant to options granted under
the 1996 Plan is 400,000 shares. In January 1997, the Board of Directors
increased, subject to shareholder approval, the number of Common Shares reserved
for issuance under the 1996 Plan from 400,000 to 700,000 shares. At September
30, 1996, options to purchase an aggregate of 1,360,044 Common Shares were
outstanding under the 1995 Plan and the 1996 Plan.
On May 8, 1996, the Compensation Committee of the Board of Directors
adopted, subject to shareholder approval, two additional stock option plans, the
1996 Senior Executive Stock Option Plan (the "Executive Plan") and the 1996
Senior Operating Officer Stock Option Plan (the "Operating Officer Plan," and
collectively with the 1995 Plan, the 1996 Plan and the Executive Plan, the
"Option Plans") whose terms are substantially similar to those of the 1995 Plan,
except that the number of Common Shares reserved for issuance pursuant to
options granted under the Executive Plan and the Operating Officer Plan is
600,000 shares and 900,000 shares, respectively.
As of January 24, 1997 there were options outstanding under the
Executive Plan with respect to an aggregate of 600,000 shares of Common Shares.
Six-year options to purchase 200,000 Common Shares have been granted under the
Executive Plan to each of Messrs. Warta, Blankstein and Irwin at an exercise
price of US$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
American Stock Exchange ("AMEX") has been at least US$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 US$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 US$20.00.
As of January 24, 1997, the Company has granted options to purchase
714,000 Common Shares under the Operating Officer Plan, of which options to
purchase 13,000 Common Shares have been cancelled as a result of termination of
employment. As a result, options to purchase 701,000 Common Shares remain
outstanding, and 199,000 shares remain available for the grant of options under
the Operating Officer Plan. All of such options were granted on May 8, 1996 at
an exercise price of US$10.00 per share. Options become exercisable to the
extent of one-quarter of the shares covered thereby on each of June 1, 1997,
1998, 1999 and 2000.
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<PAGE>
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" and collectively with the Option Plans,
the "Plans"), pursuant to which an eligible employee may arrange to have
withheld up to 10% of his wages over a six month period (to a maximum of
US$12,500) to purchase Common Shares.
The purpose of the Plans is to attract and motivate the directors,
officers and employees of the Company and its subsidiaries (collectively the
"Optionees") and thereby advance the Company's interests by affording such
persons with an opportunity to acquire an equity interest in the Company through
the stock options.
The Option Plans authorize the Board of Directors to grant stock
options to the Optionees on the following terms (subject to certain exceptions
set out in the Executive Plan and Operating Plan):
1. The number of shares subject to each option is determined by
the Board of Directors provided that, at the time the options
are granted, no Optionee may hold options to purchase more
than five percent of the issued shares of the Company. The
aggregate fair market value, determined as of the date of
grant, of Common Shares for which incentive stock options
(within the meaning of Section 422 of the Code) are
exercisable for the first time by any Optionee during any
calendar year under the Plans (and/or any other stock options
plans of the Company or any of its subsidiaries) shall not
exceed US$100,000.
2. The exercise price of the options cannot be set at less than
the minimum price permitted under the policies of the AMEX and
the Vancouver Stock Exchange ("VSE") and, for incentive stock
options, the exercise price must be at least equal to 100% of
the fair market value of such shares on the date of grant
while for all other options the exercise price must be at
least equal to 80% of the fair market value of such shares on
the date of grant; PROVIDED, HOWEVER, that an Optionee who is
a Canadian taxpayer may require that any nonqualified option
granted to him provide for the purchase of Common Shares upon
exercise thereof at a price equal to the fair market value per
share on the date of grant. For any Optionee who owns more
than 10% of the Company's outstanding shares, the exercise
price of an incentive stock option must not be less than 110%
of the fair market value on the date such option is granted.
3. The options may be exercisable for a period of up to five
years.
4. Optionees may hold more than one option.
5. The option can only be exercised by the Optionee and only so
long as the Optionee is a director, officer or employee of the
Company or its subsidiary or within a period of not more than
30 days after ceasing to be a director, officer or employee
or, if the Optionee dies, within one year from the date of the
Optionee's death.
Thomas Sawyer has been granted options to purchase 60,000 shares of the
Common Stock of NACT.
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<PAGE>
OPTION/SAR GRANTS
The following table discloses the particulars of options to purchase
Common Shares or stock appreciation rights ("SARs") granted by the Company
during Fiscal 1996 to the Company's Chief Executive Officer and the six next
highest paid executive officers:
OPTION/SAR GRANTS DURING THE MOST RECENTLY COMPLETED FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
====================================================================================================================================
Potential Realizable Value at Assumed
Annual Rates of Stock Price
Appreciation for Option
Individual Grants Term(US$)(1)
- -------------------------------------------------------------------------------- --------------------------------------
Market Value
of Securities
% of Total Underlying
Options/SARs Options/SARs
Securities Under Granted to Exercise or on the Date of
Options/SARs Employees in Base Price Grant Expira-
Name Granted (#) Fiscal Year (US$/Security) (US$/Security) tion Date 5% 10% 0%(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John Warta, 200,000(3)/-- 10.7%/-- 10.00 11.75 5/7/02 1,149,225 2,163,168 350,000
Chief
Executive
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
W. Gordon 200,000(3)/-- 10.7%/-- 10.00 11.75 5/7/02 1,149,225 2,163,168 350,000
Blankstein,
Chairman
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen Irwin, 200,000(3)/-- 10.7%/-- 10.00 11.75 5/7/02 1,149,225 2,163,168 350,000
Vice Chairman 300,000(4)/-- 16.1%/-- 6.75 6.75 9/30/00 559,470 1,236,283 --
- ------------------------------------------------------------------------------------------------------------------------------------
Clifford V 28,000(5)/-- 1.5%/-- 10.00 11.75 5/7/02 160,891 302,844 49,000
Sander, Sr
V.P
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas E 5,000(5)/-- 0.3%/-- 10.00 11.75 5/7/02 28,731 54,079 8,750
Sawyer, Chief
Technology
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
Robert 15,000(5)/-- 0.8%/-- 10.00 11.75 5/7/02 86,192 162,238 26,250
Hanson,
Senior V.P
and Chief
Financial
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
Ian Watson, --/-- --/-- -- -- -- -- -- --
Vice President
of GST USA
====================================================================================================================================
</TABLE>
- -----------------------------
(1) The potential realizable portion of the foregoing table illustrates
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
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<PAGE>
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.
(2) Value at grant date market price.
(3) Options vest in one-third increments at such time as the market value
of the Company's Common Shares trades above US$13.75, US$16.50 and
US$20.00 per share, respectively, for 20 consecutive trading days.
(4) Represents a warrant to purchase shares that becomes exercisable in
three equal installments on October 1, 1996, 1997 and 1998.
(5) Options vest over four years.
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<PAGE>
OPTION/SAR EXERCISES
The following table discloses the particulars of stock options
exercised during Fiscal 1996 by the Company's Chief Executive Officer and the
six next highest paid executive officers and of stock options held by such
persons at the end of Fiscal 1996.
AGGREGATED OPTION/SAR EXERCISES
DURING THE MOST RECENTLY COMPLETED
FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
==================================================================================================================================
Name Securities Aggregate No. of Common Value(1) of
Acquired on Value Realized Shares Unexercised in the
Exercise (#) (US$) Underlying Money
Unexercised Options/SARs at
Options/SARs at FY-End (US$)
FY-End (#)
Exercisable/ Exercisable/
Unexercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John Warta, -- -- 125,000/200,000 648,125/275,000
Chief Executive
Officer
- ----------------------------------------------------------------------------------------------------------------------------------
W. Gordon -- -- 177,500/200,000 1,052,188/275,000
Blankstein,
Chairman
- ----------------------------------------------------------------------------------------------------------------------------------
Stephen Irwin -- -- 115,000/500,000 569,375/1,662,500
Vice Chairman
- ----------------------------------------------------------------------------------------------------------------------------------
Clifford V. -- -- 55,000/28,000 289,375/38,500
Sander, Sr. V.P.
- ----------------------------------------------------------------------------------------------------------------------------------
Thomas E. -- -- 155,000/5,000 921,875/6,875
Sawyer, Chief
Technology
Officer
- ----------------------------------------------------------------------------------------------------------------------------------
Robert Hanson, -- -- 100,000/15,000 587,500/20,625
Sr. V.P. and
Chief Financial
Officer
- ----------------------------------------------------------------------------------------------------------------------------------
Ian Watson, Vice -- -- 92,500/0 659,063/0
President of GST
USA
==================================================================================================================================
</TABLE>
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<PAGE>
- --------------
(1) 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 shares underlying the options by the
difference between the per share option exercise price and the fair
market value of US$11.38 per share at September 30, 1996. An option is
in-the-money if the fair market value of the underlying shares exceeds
the exercise price of the option.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During Fiscal 1996 the compensation of the Company's senior management
was determined by a Compensation Committee consisting of Ian Watson, Peter E.
Legault and Jack G. Armstrong.
Of the Company's Compensation Committee, Ian Watson was an executive
officer of the Company until 1995 and was and continues to be an executive
officer of its subsidiary, GST USA. Neither Mr. Armstrong nor Mr. Legault is an
executive officer of the Company. However, Thomas Kernaghan, a firm of which Mr.
Legault is a director and Vice President, was engaged by the Company during
Fiscal 1996.
REPORT ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
The Compensation Committee is responsible for developing and making
recommendations to the Board of Directors with respect to the Company's
executive compensation and stock option policies and practices. In addition, the
Compensation Committee determines the compensation to be paid to the Chief
Executive Officer and each of the other executive officers of the Company.
The Company's executive compensation programs are designed to enhance
the value of the Company to its shareholders. This is accomplished through
policies and practices that facilitate the achievement of the Company's
performance objectives, provide compensation that will attract and retain the
superior talent required by the Company's aggressive goals and align the
executive officers' interests with the interests of its shareholders.
The Company's approach to executive compensation, as implemented by the
Compensation Committee, has been designed to provide a competitive compensation
program that will enable the Company to attract, motivate, reward and retain
individuals who possess the skills, experience and talents necessary to advance
the growth and financial performance of the Company. The Company's compensation
policies are based on the principle that each executive's financial rewards
should be aligned with the financial interests of the shareholders of the
Company. The Compensation Committee also believes that the potential for equity
ownership by management is beneficial in aligning management's and shareholders'
interest in the enhancement of shareholder value. The Company's executive
compensation has two key elements: (i) a long-term component consisting of stock
options and participation in the Purchase Plan and (ii) an annual component,
i.e., base salary, with more emphasis being placed on the long-term component
than on the annual component. The Company has not established a policy with
regard to Section 162(m) of the Code because the Company has not to date paid
compensation in excess of $1 million per annum to any employee.
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<PAGE>
SALARIES
Base salaries for the Company's executive officers are determined
initially by evaluating the responsibilities associated with the position held
and the experience of the individual, and by reference to the competitive
marketplace for management talent, including a comparison of base salaries for
comparable positions at comparable companies within the Company's industry.
Adjustments in salary are determined by evaluating the competitive marketplace,
the performance of the Company, the performance of the executive officer,
particularly with respect to the ability to manage growth of the Company, and
any increased responsibilities assumed by the executive officer. As long term
compensation such as stock options is the more important component of the
compensation package, much consideration is given to the stock options held by
such executive officers in determining their cash remuneration. The Company
believes that its executive officers' salaries are generally less than those of
its competitors. The Company has employment agreements with each of Messrs
Warta, Sander, Hanson and Watson, consulting agreements with Mr. Blankstein and
Dr. Sawyer and a personal services agreement with Mr. Irwin, which initially set
the base salaries/retainer for such individuals.
BONUSES
The Company has not paid cash bonuses and has no present intention of
paying significant and regular cash bonuses to its executive officers. At such
time in the future as the Company were to determine to pay cash bonuses and
incentive compensation to its executive officers, the Compensation Committee
would consider the extent of achievement by the Company of its strategic and
operating goals, the level of personal achievement by the executive officer
(such as the level of cost savings achieved by such executive officer), the
executive officer's ability to manage and motivate employees and the achievement
of projects for which the executive officer is responsible. The Compensation
Committee would also take into consideration the extent of the Company's cash
reserves available for such payments.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
In addition, with respect to the determination of the Chief Executive
Officer's compensation, the Compensation Committee made comparisons to other
companies in the telecommunications industry carrying on businesses similar to
those of the Company, in particular the business of competitive local exchange
carriers. The consideration accounted for approximately 50% of the determination
of the Chief Executive Officer's salary. The other 50% was based on the
Compensation Committee's determination of what level of remuneration was
necessary to attract and retain people having the experience and ability of the
Company's Chief Executive Officer.
STOCK OPTION PLANS
The Option Plans contribute to the Company's ability to attract and
retain the best available personnel. It is the philosophy of the Compensation
Committee to tie a significant portion of an executive's total opportunity for
financial gain to increases in the value of the Common Shares. In the belief
that employees who have a proprietary interest in the Company will focus on its
long term success and on building shareholder wealth, the Compensation Committee
uses Option Plans as a basis to create a foundation for the long term growth of
the Company and increased shareholder value by providing executive officers and
key employees with an opportunity to obtain and build a meaningful stake in the
Company's future. In adherence to this philosophy, the Compensation Committee
has recommended to
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<PAGE>
the Board of Directors that the number of shares available for the grant of
options under the 1996 Plan be amended and that the Executive and Operating
Officer Plans be approved.
All employees, including executive officers and part-time employees,
consultants, advisors and directors of the Company and its subsidiaries are
eligible for grants of stock options pursuant to one or more of the Option
Plans. During each fiscal year, the Compensation Committee grants stock options
to employees, including executive officers, who are recommended by management as
being in a position to continue to contribute to the Company's growth and
profitability. The number of options granted to a particular employee is based
on management's assessment of his performance and contribution. Options have
been granted to key employees at all levels of the Company's management. The
ultimate value of the options, if any, depends on the extent to which Common
Shares appreciate in market value.
The Compensation Committee granted options to the Chief Executive
Officer and each of the six most highly compensated executive officers of the
Company in May 1996. The size of these awards to each of such officers was based
generally on the factors described in the "Salaries" paragraph above. In
addition, the Compensation Committee considered the extensive nature and the
significant services rendered by such executive officers, their seasoned
managerial skills and the fact that the executive officers' base salaries are
generally less than executive officers with similar positions in comparable
companies.
DATED this 28th day of January, 1997.
(signed)
Jack G. Armstrong
Committee Chairman
(signed)
Ian Watson
Director
(signed)
Peter Legault
Director
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the
cumulative total shareholder return on the Common Shares (being the percentage
increase (or decrease) in the trading price of the Common Shares on a yearly
basis based on an investment in the Common Shares on September 22, 1992 (the
last date on which the Common Shares traded prior to entering into the
telecommunications business)) with the cumulative total shareholder return of
the American Stock Exchange Market Value Index and with a telephone (other than
radio telephone) communication industry index (which is shown on the graph as
the SIC Code Index). The Common Shares did not trade on the AMEX until March 11,
1994 and before that time were traded only on the VSE -- initially in Canadian
dollars and on and after March 9, 1995 in U.S. dollars. For comparison purposes
it is assumed that US$100 had been invested in the Common Shares and in the
securities contained in such indices on September 22, 1992. For the purposes of
this graph, Canadian dollars have been converted into U.S. dollars on the basis
of Cdn. $1.00 = US$0.75.
-15-
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG GST TELECOMMUNICATIONS, INC.,
AMEX MARKET INDEX AND SIC CODE INDEX
COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, INDUSTRY INDEX AND BROAD MARKET
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
----------------------------------------------------------------------
COMPANY 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
GST TELECOMMU 100.00 611.11 712.59 962.96 1685.93
INDUSTRY INDEX 100.00 132.61 131.51 150.45 150.36
BROAD MARKET 100.00 117.39 119.64 144.16 150.03
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of January 24,
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 five percent or more
thereof, (ii) each director of the Company, (iii) the Chief Executive Officer
and each of the six most highly compensated executive officers of the Company
other than the Chief Executive Officer and (iv) all executive officers and
directors as a group. Each of the named persons has sole voting and investment
power with respect to all Common Shares owned by him. All persons
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<PAGE>
identified below as holding options are deemed to be beneficial owners of the
Common Shares subject to such options by reason of their right to acquire such
shares within 60 days after January 24, 1997, through the exercise of such
options.
AMOUNT AND
NATURE OF
BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP PERCENTAGE
- ------------------------------------ --------- ----------
John Warta 1,672,468(2) 7.0%
Tomen Corporation and affiliates 1,620,220(3) 6.8%
1285 Avenue of the Americas
New York, New York 10019
W. Gordon Blankstein 399,300(4) 1.7%
Stephen Irwin 276,345(5) 1.2%
Ian Watson 460,100(6) 1.9%
Thomas E. Sawyer 384,004(7) 1.6%
Clifford V. Sander 419,100(8) 1.8%
Robert H. Hanson 167,214(9) *
Peter E. Legault 126,056(10) *
Jack G. Armstrong 50,000(11) *
Takashi Yoshida 0(12) --
Directors and Executive Officers
of the Company as a
Group (10 persons) 3,954,587(13) 16.1%
- ----------------
* Less than 1%.
(1) Unless otherwise indicated, the address for each person or entity
listed below is the Company's principal executive offices.
(2) Includes 125,000 Common Shares issuable upon the 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.
(3) Includes 296,155 Common Shares issuable upon the exercise of warrants
held by Tomen.
(4) Includes (i) 177,500 Common Shares issuable upon the exercise of
options and (ii) 200,000 Common Shares held in escrow pursuant to
policies of the VSE. 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.
(5) Includes (i) 115,000 Common Shares issuable upon exercise of options
and (ii) 100,000 Common Shares issuable upon exercise of an outstanding
warrant. Does not include 200,000 Common Shares issuable upon the
exercise of options that are not exercisable until the trading price of
the Common Shares on the AMEX reaches certain levels for certain
prescribed periods.
(6) Includes (i) 92,500 Common Shares issuable upon the exercise of options
and (ii) 362,500 Common Shares held in escrow pursuant to policies of
the VSE.
(7) Includes 155,000 Common Shares issuable upon the exercise of options.
(8) Includes 55,000 Common Shares issuable upon the exercise of options.
(9) Includes 100,000 Common Shares issuable upon the exercise of options.
(10) Includes 40,000 Common Shares issuable upon the exercise of options.
-17-
<PAGE>
(11) Includes 30,000 Common Shares issuable upon the exercise of options.
(12) Mr. Yoshida is an officer of Tomen America. Does not include 1,620,220
Common Shares beneficially owned by Tomen as to which Mr. Yoshida
disclaims any beneficial ownership interest.
(13) Includes an aggregate of 890,000 Common Shares issuable upon the
exercise of options, 396,155 Common Shares issuable upon the exercise
of warrants and 562,500 Common Shares held in escrow. 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None of the directors or officers of the Company, nor any person who
beneficially owns, directly or indirectly, shares carrying more than 10% of the
voting rights attached to all outstanding shares of the Company, nor any
associate or affiliate of the foregoing persons has any material interest,
direct or indirect, in any transaction since the commencement of Fiscal 1996 or
in any proposed transaction which, in either case has or will materially affect
the Company except as follows or as disclosed herein.
On June 23, 1994, the Company entered into agreements (the "GST Telecom
Agreements") with Pacwest (an entity controlled by John Warta, now the President
and Chief Executive Officer of each of the Company and GST USA), 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 Lightwave,
Inc. and Pacwest Telecommunications, Inc. (now GST Pacwest Telecom Hawaii, Inc.)
and the Company made certain funding commitments (all of which were subsequently
satisfied), 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 US$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 Dillon Read & Co.,
Inc. to provide such appraisal, which appraisal valued such 20% interest at not
less than US$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. Through September 30, 1996, the Company has paid US$420,380 of
such fees to Pacwest.
The Company, GST Telecom and Pacwest are parties to the Tomen Master
Agreement dated October 24, 1994 and amended May 24, 1996 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 US$100 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 for purposes of determining
whether to provide financing for such projects until Tomen has
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<PAGE>
extended US$100 million in debt financing or has refused three projects that the
Company subsequently finances. Upon approval of a project by Tomen, Tomen is to
enter into a credit agreement (a "Project Credit Agreement") 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 is to be contributed as equity by the Company prior to or at the same
time as the receipt of the debt financing. Tomen has the right to act as
procurement agent for each network project it finances.
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 US$615,000. In May
1996, the Company entered into a series of transactions pursuant to which (i)
GST Telecom purchased the shares of GST Pacific held by Tomen for $1,250,000,
(ii) 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, (iii) the Company granted 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 and (iv) 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 is to bear
interest at LIBOR plus 3% and is to be amortized 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 John Warta, President and Chief Executive Officer of each of the
Company and GST USA, is entitled to receive the Pacwest Fee, which is equal to
1% of the total debt and equity financing received by the Company under the
Tomen Master Agreement.
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 US$2.3 million, 500,000 Common
Shares and warrants to purchase 250,000 Common Shares which have been exercised
(ii) for an aggregate of US$1.2 million, 250,000 Common Shares and warrants to
purchase 125,000 Common Share exercisable until April 26, 1997 at an exercise
price of US$5.62 per share, and (iii) for an aggregate of US$2,700,000, 250,000
Common Shares and warrants to purchase 125,000 Common Shares exercisable until
May 23, 1998 at an exercise price of US$12.96 per share and (iv) pursuant to an
amendment to the Tomen Master Agreement and the Tomen Stock Purchase Agreement
for an aggregate of US$800,000, 74,074 Common Shares and 46,155 Warrants to
purchase Common Shares at an exercise price of US$12.96 per share.
The first projects financed under the Tomen Master Agreement were the
San Bernardino, Ontario, Tucson and Albuquerque networks, for which Tomen
provided, pursuant to Project Credit Agreements, approximately US$34.5 million
of financing in the aggregate.
Tomen has recently agreed in principle to provide the Company with
US$41.0 million of debt financing for the upgrade of its Hawaiian network and
the construction of the Hawaiian inter-island network. The Company expects that
GST Telecom Hawaii, Inc., a subsidiary of the Company, will enter into a credit
agreement with Tomen containing substantially similar terms as the Project
Credit
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<PAGE>
Agreements and in connection with such financing will purchase additional Common
Shares and warrants to purchase 75,000 additional Common Shares.
The operations of the Company's Hawaiian microwave network require
radio licenses from the Federal Communications Commission (the "FCC"). Pacwest
Network, Inc. ("PNI"), an entity controlled by John Warta, President and Chief
Executive Officer of each of the Company and GST USA, holds the Hawaii microwave
licenses. Under agreements between the Company and PNI, (i) the Company pays a
monthly fee to PNI to utilize the licensed facilities for communications traffic
and (ii) PNI pays an equal monthly fee to the Company for the right to utilize
the facilities for other communications traffic using up to 10% of PNI's license
capacity.
Magnacom Wireless, LLC ("Magnacom"), a company controlled by John
Warta, the Chief Executive Officer of the Company, has applied for various
Personal Communication Services ("PCS") licenses. Magnacom has been granted
30mhz (C Block) PCS licenses from the FCC for 5 cities and Guam/Saipan. Magnacom
also has submitted bids in the FCC's 10mhz (D, E and F block) PCS license
auctions for 14 additional cities.
Magnacom and the Company have entered into an agreement pursuant to
which the Company has made payments to the FCC on behalf of Magnacom. The
Company paid US$5,997,000 and US$2,970,000 during the third and fourth quarters
of Fiscal 1996 and made an additional payment of US$5,426,000 after the end of
Fiscal 1996. In return, Magnacom agreed to allow the Company to provide switched
local and long distance services and manage Magnacom's networks in markets where
the Company has operational CLEC networks. The Company agreed to purchase a
designated amount of minutes from Magnacom at the most favorable rates offered
to Magnacom customers and the three payments that the Company has made will be
applied as advances against such purchase. In addition, the Company acquired an
option to purchase for nominal consideration a 24% interest (to be increased to
a 99% interest) in Magnacom. The exercise of such option as to such increased
interest is contingent upon, among other things, FCC approval.
Magnacom has acquired licenses and bid for additional licenses in
cities located on or near the Company's existing and planned networks.
Management of the Company believes the capability of the Company to provide a
wireless telecommunications service is consistent with and enhances the
Company's strategy of providing a full array of services to its customers. The
Magnacom agreement will increase product capability with wireless local loop and
wireless Internet access. The Company further believes the agreement with
Magnacom will allow the Company to provide wireless telecommunication services
to its customers at competitive prices.
Stephen Irwin, Vice-Chairman of the Board 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 $1,820,000 for Fiscal 1996 and will receive fees for Fiscal 1997.
Peter E. Legault, a director of the Company, is a director and Vice
President of Thomson Kernaghan, which was engaged by the Company during Fiscal
1996 to solicit sources of financing for the Company.
None of the current or former directors, executive officers or senior
officers of the Company or persons who were directors, executive officers or
senior officers of the Company at any time during Fiscal
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<PAGE>
1996, and none of the affiliates and associates (including members of the
immediate families of such persons) are or have been indebted to the Company or
its subsidiaries at any time since the beginning of Fiscal 1996. Furthermore,
none of such persons were indebted to a third party during such period where
their indebtedness was the subject of a guarantee, support agreement, letter of
credit or other similar arrangement or understanding provided by the Company or
its subsidiaries.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Vancouver, State of Washington, on the 28th day of January, 1997.
GST TELECOMMUNICATIONS, INC.
By: /S/ STEPHEN IRWIN
-----------------
Stephen Irwin,
Vice Chairman of the Board
