As filed with the Securities and Exchange Commission on January 7, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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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Robert H. Hanson, Senior Vice President
GST Telecommunications, Inc.
1285 Sheridan Street, Suite 245
Cody, Wyoming 82413
(307) 527-6048
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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/
<PAGE>
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. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Amount Proposed Maximum Proposed Maximum Amount of
Title of Shares to be Aggregate Price Aggregate Registra-
to be Registered Registered Per Share Offering Price tion Fee
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<S> <C> <C> <C> <C>
Common Shares, 4,129,951 $8.40625(1) $34,717,400.59 $10,520.42
without par
value
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act, based upon $8.40625, the per
Share average of high and low sale prices of the Registrant's Common Shares as
reported by the American Stock Exchange for trading on December 30, 1996.
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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 JANUARY 7, 1997
4,129,951 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") (i) that
will be issued by the Company to certain Selling Shareholders upon exercise of
certain warrants that were sold by the Company to such Selling Shareholders (the
"Warrants"), (ii) that were issued by the Company to certain Selling
Shareholders in connection with the purchase by the Company of all of the
outstanding capital stock of Tri-Star Residential Communications Corp.
("Tri-Star") and (iii) that were issued to securityholders of Pacwest Network,
L.L.C. ("Pacwest") in connection with the purchase by the Company of Pacwest's
interest in GST Telecom Inc. 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") or the Vancouver
Stock Exchange (the "VSE"), 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 VSE under the symbol "GTE.U." On January 3, 1997, the last sale price for
the Common Shares on the AMEX was $9.125.
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.
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<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............................................................... 12
USE OF PROCEEDS........................................................... 13
SELLING SHAREHOLDERS...................................................... 13
PLAN OF DISTRIBUTION...................................................... 15
LEGAL MATTERS............................................................. 16
EXPERTS ................................................................. 16
ADDITIONAL INFORMATION.................................................... 16
INDEX TO FINANCIAL STATEMENTS............................................. F-1
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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 and the Company's Current Report on Form 8-K dated October
31, 1996 reporting the acquisition of assets and other events 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 1030-999 West Hastings Street,
Vancouver, British Columbia, Canada V6C 2W2, Attention: Robert M. Blankstein.
Oral requests should be directed to such individual (telephone number (604)
688-0553).
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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 local exchange telephone companies ("LECs")
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
and negative EBITDA of $33.9 million for the year ended September 30, 1996.
There can be no assurance that the Company will achieve or sustain profitability
or generate positive EBITDA. 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.
SIGNIFICANT CAPITAL REQUIREMENTS
The Company believes that the net proceeds of the private placement
offerings consummated in December 1995 (the "December Offering") and in October
1996 (the "October Offering"), the proposed initial public offering of NACT's
common stock (the "NACT Offering"), other securities offerings, if any,
consummated in the future, together with cash on hand and 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 the
first half of fiscal 1997. Thereafter, the Company expects to require additional
financing. However, in the event that the
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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 relating
to the notes (the "Notes") sold in the December Offering (the "Indentures"),
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 September 30, 1996, the Company had outstanding on a consolidated
basis approximately $239.7 million of indebtedness. The accretion of original
issue discount on the Notes will cause an increase in indebtedness of $151.5
million by December 15, 2000. The Indentures limit, but do not prohibit, the
incurrence of additional indebtedness by the Company. At September 30, 1996, the
Company had $68.2 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 recently
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
$166.0 million of equipment financing and is negotiating with another equipment
manufacturer for additional equipment financing. There can be no assurance that
any such additional equipment 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) the ability
of the Company to obtain any necessary financing in the future for working
capital, capital expenditures, debt service requirements or other purposes may
be limited; (ii) a substantial portion of the Company's cash flow from
operations, if any, must be dedicated to the payment of principal of and
interest on its indebtedness and other obligations and will not be available for
other purposes; (iii) the Company's level of indebtedness could limit its
flexibility in planning for, or reacting to changes in, its business; (iv) the
Company will be more highly leveraged than some of its competitors, which may
place it at a competitive disadvantage; and (v) the Company's high level of
indebtedness will make it more vulnerable in the event of a downturn in its
business.
POSSIBLE INABILITY TO SERVICE DEBT
The Company has been experiencing increasing negative EBITDA and the
Company's earnings before fixed charges were insufficient to cover fixed charges
for the years ended September 30, 1996 and 1995 by $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
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<PAGE>
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 in which event such indebtedness would 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
LEC 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 operating margins 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 LEC
facilities to originate and terminate a significant portion of its switched
services traffic. For switches operating in cities where the Company will rely
on LEC facilities for transmission, negative operating margins are expected
under current LEC pricing tariffs. Although under the Telecommunications Act of
1996 (the "Telecommunications Act"), the LECs 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 LECs and other competitive local exchange
telephone companies ("CLECs") and the negotiation of interconnection agreements
with incumbent LECs, which can take considerable time, effort and expenses.
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.
In October 1996, the United States Eighth Circuit Court of Appeals (the "Eighth
Circuit") stayed the effectiveness of 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 LECs and their
competitors. Although the judicial stay of the Interconnection Decision does not
prevent the Company from negotiating interconnection agreements with LECs, it
does create uncertainty about the rules governing pricing, terms and conditions
of interconnection agreements, and could make negotiating such agreements more
difficult and protracted. On November 12, 1996, the U.S. Supreme Court refused
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to vacate the Eighth Circuit's judicial stay. The Eighth Circuit is expected to
hear oral arguments in this case in January 1997 and further appeals are
possible. Prior to the resolution of the stay, there can be no assurance that
the Company will be able to obtain interconnection agreements on terms
acceptable to the Company.
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 incumbent LECs at acceptable rates, competition from other CLECs and pricing
pressure from the LECs. 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 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 the Company has entered into loan agreements with an
equipment manufacturer and a commercial lender for $166.0 million of equipment
financing and is negotiating with another equipment manufacturer for additional
equipment financing, there can be no assurance that all of such 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 services primarily to long distance carriers and significant end-users of
telecommunications services with respect to its access services, and small
businesses and consumers with respect to its long distance services. The Company
expects to leverage its relationships with these customers and market a variety
of services to them. Although the Company has approximately 39,000 customers, it
has generated limited revenue. The Company actively markets its products and
services, however, there can be no assurance that the Company will be able to
attract new customers or retain and sell additional services to existing
customers.
DEPENDENCE ON KEY CUSTOMERS
The Company's five largest telecommunications services customers
accounted for approximately 46.9% and 26.8% of the Company's consolidated
revenues for 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 carriers for a significant portion of its 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 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
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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 as regulations allow. Consolidation of
telecommunications companies and the formation of strategic alliances within the
telecommunications industry, as well as the development of new technologies,
could give rise to significant new competitors to the Company.
As a recent entrant in the integrated telecommunications services
industry, the Company has not achieved and does not expect to achieve a
significant market share for 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 LECs over the
Company in certain respects. While recent regulatory initiatives, which allow
CLECs such as the Company to interconnect with LEC 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 LECs.
To the extent the Company interconnects with and uses LEC networks to
service the Company's customers, the Company is dependent upon the technology
and capabilities of the LECs 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 LECs as switched services
become a greater percentage of the Company's business. The Telecommunications
Act imposes interconnection obligations on LECs, 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 LECs, 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 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. As
a result of the Company's recent acquisition of Call America Business
Communications Corporation and its affiliated companies, TotalNet Communications
Inc. and certain assets of Texas- Ohio Communications Inc., 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
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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 manufacturing subsidiary,
NACT Telecommunications, Inc. ("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.
GOVERNMENT REGULATION
The Company's networks and the provision of switched and private line
services are subject to significant regulation at the federal, state and local
levels. Delays in receiving required regulatory approvals or the enactment of
new adverse regulation or regulatory requirements may have a material adverse
effect upon the Company.
The FCC exercises jurisdiction over the Company and the Company must
file tariffs for international services with the FCC. 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."
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<PAGE>
In addition to requirements placed on LECs, the Telecommunications Act
subjects the Company to certain federal regulatory requirements upon the
Company's provision of local exchange service in a market. All LECs and CLECs
must interconnect with other carriers, provide nondiscriminatory access to
rights-of-way, offer reciprocal compensation for termination of traffic, offer
their services for resale by other carriers 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. The Company and other CLECs may be required
to contribute to a universal service fund provided for in the Telecommunications
Act. The FCC issued a notice of proposed rulemaking that may result in rule
changes that may allow or require LECs to reduce access charges and may give LEC
pricing flexibility with respect to access charges. 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, the FCC imposes 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 GST that
conducts the Company's business in Hawaii, use, among other transmission
facilities, microwave radio facilities operating pursuant to FCC licenses
granted to Pacwest Network, Inc., an entity that is controlled by John Warta,
President and Chief Executive Officer of each of the Company and GST USA, Inc.
In addition, under the FCC's foreign ownership rules, the Company cannot hold
Personal Communications Services ("PCS") licenses. Magnacom Wireless, LLC
("Magnacom"), a company controlled by John Warta, has applied for various PCS
licenses. The Company is in the process of establishing a non-exclusive 12 year
agreement with Magnacom whereby the Company will purchase services relating to
such licenses from Magnacom for use or resale. 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.
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<PAGE>
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
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.
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.
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<PAGE>
POTENTIAL RESALES OF A SUBSTANTIAL NUMBER OF SHARES; REGISTRATION RIGHTS
At September 30, 1996, the Company had outstanding 21,244,139 Common
Shares. Of these shares, 20,276,210 Common Shares are freely tradeable, except
for (i) any Common Shares held by "affiliates" of the Company within the meaning
of Rule 144 under the Securities Act (2,960,182 of such 20,276,210 shares at
September 30, 1996), which shares will be subject to the resale limitations of
Rule 144 and an aggregate of 750,000 Common Shares subject to escrow under
regulations of the VSE. The remaining 967,929 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. Of such 967,929 shares, the
Company is contractually obligated to register for resale an aggregate of 26,624
shares. In addition, at September 30, 1996, (i) 3,057,719 Common Shares were
reserved for issuance upon exercise of outstanding stock options (the
"Outstanding Options"), with exercise prices ranging from $3.55 to $10.00 per
share, (ii) 896,155 Common Shares were reserved for issuance upon exercise of
outstanding warrants (the "Outstanding Warrants"), with exercise prices ranging
from $5.52 to $12.96 per share, (iii) 3,019,598 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 Convertible
Notes on December 15, 1996). In addition, 3,200,000 Common Shares were reserved
for issuance upon exercise of the warrants sold in the October Offering (the
"October Warrants"). The Company has registered or is obligated to register the
resale of the Common Shares issuable upon exercise of the Outstanding Options
and the Outstanding Warrants. The Company is also obligated to register the
issuance of the Common Shares issuable upon conversion of the Convertible Notes
and upon exercise of the October Warrants. 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 10,000,000
Preference Shares, without par value (the "Preference Shares"), in one or more
series and to determine the designations, powers, preferences and relative,
participating, optional or other rights thereof, including without limitation,
the dividend rate (and whether dividends are cumulative), conversion rights,
voting rights, rights and terms of redemption, redemption price and liquidation
preference. 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. Since inception as a facilities-based competitive
access provider ("CAP"), the Company has constructed and operated digital
interconnected telecommunications networks that provide an alternative to LECs.
The Company has expanded beyond the scope of traditional CAP operations into
CLEC services and currently provides, through its established sales channels, a
range of enhanced telecommunications services that include long distance,
Internet access and data services. In addition, the Company provides switched
access and recently began to offer local dial tone services to complement its
existing telecommunications service offerings. The Company also provides
advanced
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<PAGE>
telecommunications switching platforms with integrated applications software and
network telemanagement capabilities through its subsidiary, NACT.
The Company's fiber optic networks currently serve 24 cities in
Arizona, California, New Mexico and Washington and its digital microwave
networks serve four of the Hawaiian Islands. In addition, the Company has 18
networks under construction and other networks in various stages of development.
The Telecommunications Act and state regulatory initiatives have
substantially changed the telecommunications regulatory environment in the
United States. As a result of these regulatory changes, the Company is permitted
in certain states to provide local dial tone in addition to its existing
telecommunications service offerings. In order to capitalize on these
opportunities, the Company has accelerated the development and construction of
additional networks within its region. In addition, to facilitate the provision
of local services, the Company has deployed four high capacity digital switches
and intends to deploy additional switches in the first half of 1997.
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 December 31, 1996, (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 December 31, 1996* for Resale the Offering
- --------------------------------------------- ---------------------------- -------------- ------------------
<S> <C> <C> <C>
Glenn R. Meyer 21,201(1) 11,883 9,318(2)/(3)
Frederick W. Grimm 18,172(1) 10,185 7,987(2)/(3)
John Goodman 18,172(1) 10,185 7,987(2)/(3)
Gregory C. Roberts 3,030(1) 1,698 1,332(2)/(3)
The Canada Trust Company Account No 204,450 204,450 0/(3)
058-103882-3
The Canada Trust Company Account No 21,900 21,900 0/(3)
058-103892-5
The Canada Trust Company Account No 15,000 15,000 0/(3)
009-101512-2
The Canada Trust Company Account No 15,000 15,000 0/(3)
058-104272-3
The Canada Trust Company 15,000 15,000 0/(3)
Account No 058-103872-0
The Canada Trust Company Account No 21,150 21,150 0/(3)
055-151020-7
The Canada Trust Company Account No 495,450 495,450 0/(3)
009-107121-6
National Trust Company Account 695 437,050 373,050 64,000/(3)
3-000-004
Royal Trust Corporation of Canada 15,000 15,000 0/(3)
Account 027-476-005
Royal Trust Corporation of Canada 15,000 15,000 0/(3)
Account 007-476-001
Royal Trust Corporation of Canada 15,600 15,600 0/(3)
Account 022-791-001
Royal Trust Corporation of Canada 15,000 15,000 0/(3)
Account 023-538-001
Royal Trust Corporation of Canada 15,000 15,000 0/(3)
Account 007-478-001
Royal Trust Corporation of Canada 15,000 15,000 0/(3)
Account 007-329-008
</TABLE>
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<PAGE>
<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 December 31, 1996* for Resale the Offering
- --------------------------------------------- ---------------------------- -------------- ------------------
<S> <C> <C> <C>
Royal Trust Corporation of Canada 38,100 38,100 0/(3)
Account 092-601-001
Royal Trust Corporation of Canada 34,500 34,500 0/(3)
Account 079-420-004
Royal Trust Corporation of Canada 57,300 57,300 0/(3)
Account 096-048-001
Royal Trust Corporation of Canada 67,050 67,050 0/(3)
Account 032-312-003
Royal Trust Corporation of Canada 101,400 101,400 0/(3)
Account 045-361-030
Royal Trust Corporation of Canada 31,500 31,500 0/(3)
Account 098-166-033
Royal Trust Corporation of Canada 30,000 30,000 0/(3)
Account 771-080-985-004
Royal Trust Corporation of Canada 30,000 30,000 0/(3)
Account 093-416-001
Royal Trust Corporation of Canada 27,000 27,000 0/(3)
Account 079-420-003
Altamira Management Ltd. Account 499,050 499,050 0/(3)
#102
Altamira Management Ltd. Account 100,950 100,950 0/(3)
#301
Montreal Trust Company of Canada 33,150 33,150 0/(3)
Account 902-310-002
Montreal Trust Company of Canada 37,250 25,050 12,200/(3)
Account 995-380-004
Montreal Trust Company of Canada 16,700 15,000 1,700/(3)
Account 921-310-003
Montreal Trust Company of Canada 13,800 10,500 3,300/(3)
Account 981-530-003
Montreal Trust Company of Canada 21,000 21,000 0/(3)
Account 995-370-009
BPI Canadian Equity Value Fund 127,500 127,500 0/(3)
Jones Heward Investment Counsel 60,000 60,000 0/(3)
7C309
Jones Heward Investment JH5 18,000 18,000 0/(3)
Dofasco Supplementary Retirement 116,800 76,800 40,000/(3)
Income Fund
Dofasco Employees Savings & Profit 84,300 54,300 30,000/(3)
Sharing Fund
Lincluden Management Limited as 50,550 35,250 15,300/(3)
Agent for Bansco & Co. - Canadian
Medical Protective Association
Caisse de Depot et Placement du 255,000 255,000 0/(3)
Quebec
Clifford V. Sander(4) 419,100(5)(6) 140,000 279,100/(3)(7)
John Warta(8) 1,672,000(6)(9) 725,000 947,000/4.3%(7)
Clint Warta (10) 45,680(6)(11) 25,000 20,680/(3)(7)
Gregory S. Warta (12) 45,816(6)(13) 25,000 20,816/(3)(7)
Tim Sansom (14) 83,767(6)(15) 60,000 23,767/(3)(7)
Matthew T. Wetzel (16) 44,721(17) 30,000 14,721/(3)
</TABLE>
- ----------------------------
* 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
13-3(d) of the Exchange Act.
(1) Includes Common Shares registered pursuant to the Company's
Registration Statement 333- 16141 on Form S-3. Does not include Common
Shares issuable in quarterly installments on or after March 19, 1996 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.
(2) Assumes that the Common Shares registered pursuant to the Company's
Registration Statement 333-16141 on Form S-3 are owned by the Selling
Shareholder after the completion of this offering.
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<PAGE>
(3) Less than 1%.
(4) Mr. Sander became the Senior Vice President and Treasurer of the
Company in March 1995. He became the Executive Vice President and Chief
Financial Officer of GST Telecom Inc. in June 1994.
(5) Includes 55,000 shares issuable upon exercise of options.
(6) Includes Common Shares registered pursuant to the Company's
Registration Statement 333-1538 on Form S-3.
(7) Assumes that the Common Shares registered pursuant to the Company's
Registration Statement 333-1538 on Form S-3 are owned by the Selling
Shareholder after the completion of this offering.
(8) Mr. Warta became the President, Chief Executive Officer and a director
of the Company in March 1995. He was the President and Chief Executive
Officer of GST Telecom from June 1994 to April 1995.
(9) Includes 177,500 shares issuable upon exercise of options. Does not
include 200,000 Common Shares issuable upon 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.
(10) Mr. Warta became the Director of Product Development of the Company in
August 1995.
(11) Includes 15,680 Common Shares issuable upon exercise of options.
(12) Mr. Warta became the Assistant Vice President of Network Development of
the Company in April 1996.
(13) Includes 15,680 Common Shares issuable upon exercise of options.
(14) Mr. Sansom became Controller of the Company in June 1994.
(15) Includes 17,514 Common Shares issuable upon exercise of options.
(16) Mr. Wetzel became the Senior Analyst-Exchange and Wireless Services of
the Company in February 1996.
(17) Includes 14,721 Common Shares issuable upon exercise of options.
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 offered for the account of the Selling
Shareholders from time to time solely on the AMEX or the VSE, 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 the VSE or at
prices related to such prevailing market prices or at negotiated prices to its
customers or a 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
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<PAGE>
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 61,345 Common Shares and has been granted
options and warrants to purchase an additional 615,000 Common Shares. In
addition, other attorneys of such firm hold 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....................................... $ 10,520.42
Accounting Fees and Expenses............................... 7,500.00
Legal Fees and Expenses.................................... 10,000.00
Blue Sky Fees and Expenses................................. 550.00
Miscellaneous Expenses..................................... 1,429.58
--------
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 $5,000,000 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).
ITEM 17. UNDERTAKINGS
II-2
<PAGE>
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 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 7th day of January, 1997.
GST TELECOMMUNICATIONS, INC.
----------------------------------------
(Registrant)
By: /s/ W. Gordon Blankstein
----------------------------------------
W. Gordon Blankstein, Chairman of the Board
II-4
<PAGE>
POWERS OF ATTORNEY AND SIGNATORIES
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. Each of the undersigned officers and
directors of GST Telecommunications, Inc. hereby constitutes and appoints W.
Gordon Blankstein, John Warta, Stephen Irwin and Robert H. Hanson and each of
them singly, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him in his name in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
Registration Statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission and to prepare any and all exhibits thereto, and other documents in
connection therewith, and to make any applicable state securities law or blue
sky filings, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done to enable GST Telecommunications, Inc. to comply with the provisions
of the Securities Act of 1933, as amended, and all requirements of the
Securities and Exchange Commission, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/W. Gordon Blankstein Chairman of the Board
- ---------------------------------------
(W. Gordon Blankstein) January 7, 1997
/s/John Warta President, Chief Executive Officer
- --------------------------------------- (Principal Executive Officer) and
(John Warta) Director January 7, 1997
/s/Robert H. Hanson Senior Vice President - Corporate
- ---------------------------------------- Development, Chief Financial
(Robert H. Hanson) Officer (Principal Financial January 7, 1997
Officer) and Director
/s/Clifford V. Sander Senior Vice President, Treasurer
- ---------------------------------------- and Chief Accounting Officer January 7, 1997
(Clifford V. Sander) (Principal Accounting Officer)
/s/Stephen Irwin Vice Chairman of the Board,
- ---------------------------------------- Secretary and Director January 7, 1997
(Stephen Irwin)
/s/Ian Watson Director
- ----------------------------------------
(Ian Watson) January 7, 1997
/s/ Peter E. Legault
- ---------------------------------------- Director
(Peter E. Legault) January 7, 1997
- ---------------------------------------- Director January , 1997
(Jack G. Armstrong)
- ---------------------------------------- Director January , 1997
(Takashi Yoshida)
/s/Thomas E. Sawyer Director
- ----------------------------------------
(Thomas E. Sawyer) January 7, 1997
The Company's Authorized Representative
in the United States
/s/Robert H. Hanson
- ----------------------------------------
Robert H. Hanson January 7, 1997
</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).
II-6
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
505 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 753-7200
January 7, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: GST Telecommunications, Inc. -
Registration Statement On Form S-3
----------------------------------
Gentlemen:
Reference is made to the Registration Statement on Form S-3
dated the date hereof (the "Registration Statement"), filed with the Securities
and Exchange Commission by GST Telecommunications, Inc., a federally chartered
Canadian corporation (the "Company"). The Registration Statement relates to the
issuance of 4,129,951 Common Shares, without par value, of the Company (the
"Shares") (i) that are issuable by the Company upon the exercise by holders of
certain warrants (the "Special Warrants") that were privately placed by the
Company on October 22, 1996 and the holders of certain other warrants (the
"Underlying Warrants," and together with the Special Warrants, the "Warrants")
issuable upon the exercise of the Special Warrants; (ii) that were issued by the
Company to former shareholders of Tri-Star Residential Communications Corp.
("Tri-Star") in connection with the acquisition by the Company of all of the
outstanding capital stock of Tri-Star; and (iii) that were issued by the Company
to securityholders of Pacwest Network, L.L.C. ("Pacwest") in connection with the
purchase by the Company of Pacwest's interest in GST Telecom Inc.
We advise you that we have examined originals or copies
certified or otherwise identified to our satisfaction of the Articles of
Incorporation and By-laws of the Company, minutes of meetings of the Board of
Directors and shareholders of the Company and such other documents, instruments
and certificates of officers and representatives of the Company and public
officials, and we
<PAGE>
Securities and Exchange Commission
January 7, 1997
Page -2-
have made such examination of law, as we have deemed appropriate as the basis
for the opinion hereinafter expressed. In making such examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, and the conformity to original documents of
documents submitted to us as certified or photostatic copies.
Based upon the foregoing, we are of the opinion that the
Shares have been, or will be, when issued and paid for in accordance with the
terms of the Warrants, as the case may be, duly and validly issued, fully paid
and non-assessable.
We are members of the Bar of the State of New York and, except
as stated below, we express no opinion as to the laws of any jurisdiction other
than the State of New York and the federal laws of the United States of America.
With respect to the opinion set forth above, we have relied exclusively upon the
opinion of O'Neill & Company, an association of independent law corporations,
Vancouver, British Columbia.
We advise you that Stephen Irwin, the Vice Chairman of the
Board and Secretary of the Company, is of counsel to this firm. Mr. Irwin owns
61,345 Shares of the Company and holds options and warrants to purchase an
aggregate of 615,000 Shares. In addition, other attorneys of this firm hold
options to purchase Shares.
We consent to the reference to this firm under the caption
"Legal Matters" in the Prospectus.
Very truly yours,
/s/ Olshan Grundman Frome & Rosenzweig LLP
------------------------------------------
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
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 January 7,
1997, of GST Telecommunications, Inc. and to the references to our firm under
the "Experts" heading in the prospectus.
by: /s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Portland, Oregon
January 7, 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
January 7, 1997 on Form S-3 of GST Telecommunications, Inc. (formerly Greenstar
Telecommunications Inc.) of our report dated December 8, 1994, relating to the
consolidated statements of operations, shareholders' equity and cash flows of
GST Telecommunications, Inc. for the thirteen months ended September 30, 1994
which report appears in the September 30, 1996 annual report on Form 10-K of GST
Telecommunications, Inc., and to the reference to our firm as experts in the
registration statement.
Chartered Accountants
Vancouver, Canada
January 7, 1997
