As filed with the Securities and Exchange Commission on April 2, 1997
Registration No. 333-21729
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GST TELECOMMUNICATIONS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Canada
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(State or other jurisdiction of
incorporation or organization)
N/A
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(IRS Employer
Identification Number)
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4317 N.E. Thurston Way
Vancouver, Washington 98662
(360) 254-4700
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(Address and telephone number of
Registrant's Principal Executive Offices)
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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. / /
<PAGE>
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
<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, 1,497,102 $7.34375(1) $10,994,342.81 $4,449.43(2)
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 $7.34375, 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 March 27, 1997, except
1,422,172 Common Shares were based upon $9.9375, 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 February 10, 1997.
(2) Of which $4,282.68 was paid with the initial filing of this Registration
Statement.
----------------------
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 APRIL 2, 1997
1,497,102 COMMON SHARES
GST TELECOMMUNICATIONS, INC.
This Prospectus relates to the reoffer and resale by certain selling
shareholders of Common Shares, without par value (the "Common Shares"), of GST
Telecommunications, Inc. (the "Company") issued or to be issued by the Company
in connection with (i) the acquisition by the Company by means of a merger of
Call America Business Communications Corp. and affiliated companies
(collectively "Call America") and (ii) the purchase by the Company of all of the
outstanding capital stock of Tri-Star Residential Communications Corp.
("Tri-Star"). This Prospectus also relates to the reoffer and resale by certain
selling shareholders of Common Shares acquired by way of gift from persons who
received such Common Shares in connection with the acquisition by the Company by
means of a merger of TotalNet Communications Inc. ("TotalNet"). The
aforementioned selling shareholders are referred to herein collectively as the
"Selling Shareholders". 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 March 27, 1997, the last sale price for the
Common Shares on the AMEX was $7.6875.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other information
can be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material can
be obtained from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
material may also be accessed electronically by means of the Commission's home
page on the Internet at http://www.sec.gov. The Common Shares are listed on the
AMEX and such reports and other information may also be inspected at the offices
of the AMEX, 86 Trinity Place, New York, New York 10006.
TABLE OF CONTENTS
AVAILABLE INFORMATION................................................2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE......................3
RISK FACTORS.........................................................4
THE COMPANY.........................................................13
USE OF PROCEEDS.....................................................14
SELLING SHAREHOLDERS................................................14
PLAN OF DISTRIBUTION................................................15
LEGAL MATTERS.......................................................15
EXPERTS ...........................................................15
ADDITIONAL INFORMATION..............................................15
INDEX TO FINANCIAL STATEMENTS......................................F-1
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996, as amended, the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1996, and the Company's Current Reports on Form
8-K dated October 31, 1996 and March 14, 1997 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).
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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<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
BEFORE MAKING AN INVESTMENT DECISION. CERTAIN MATTERS DISCUSSED IN THIS
PROSPECTUS OR WHICH ARE INCORPORATED BY REFERENCE ARE FORWARD-LOOKING STATEMENTS
THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE PROJECTED.
DEVELOPMENT AND EXPANSION RISK AND POSSIBLE INABILITY TO MANAGE GROWTH
The Company is in the early stages of its operations. Certain of its
networks have only recently become commercially operational and the Company has
only recently begun to deploy switches in its networks. The success of the
Company will depend, among other things, upon the Company's ability to assess
potential markets, design fiber backbone routes that provide ready access to a
substantial customer base, secure financing, obtain required rights-of-way,
building access and governmental permits, implement expanded interconnection and
collocation with facilities owned by incumbent local exchange telephone
companies ("ILECs") and achieve a sufficient customer base, and upon subsequent
developments in state and federal regulations. There can be no assurance that
any networks to be developed or further developed will be completed on schedule,
at a commercially reasonable cost or within the Company's specifications. In
addition, the expansion of the Company's business has involved and is expected
to continue to involve acquisitions, which could divert the resources and
management time of the Company and require integration with the Company's
existing operations. The Company's future performance will depend, in part, upon
its ability to manage its growth effectively, which will require it to continue
to implement and improve its operating, financial and accounting systems, to
expand, train and manage its employee base and to effectively manage the
integration of acquired businesses. These factors and others could adversely
affect the expansion of the Company's customer base and service offerings. The
Company's inability either to expand in accordance with its plans or to manage
its growth could have a material adverse effect on its business, financial
condition and results of operations.
HISTORICAL AND ANTICIPATED FUTURE OPERATING LOSSES AND NEGATIVE EBITDA
The Company has incurred and expects to continue to incur increasing
operating losses and negative EBITDA while it expands its business and builds
its customer base. The Company has incurred significant increases in expenses
associated with these activities and there can be no assurance that an adequate
customer base with respect to any or all of its services will be achieved or
sustained. The Company does not expect to achieve a significant market share for
any of its services. The Company had a net loss of approximately $60.4 million
and negative EBITDA of $33.9 million for the year ended September 30, 1996 and a
net loss of approximately $22.6 million and negative EBITDA of $13.2 million for
the three months ended December 31, 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. Further, for United States
income tax purposes, the utilization of U.S. net operating loss carryforwards
against future taxable income is subject to limitation if the Company
experiences an "ownership change" as defined in Section 382 of the Internal
Revenue Code of 1986, as amended.
SIGNIFICANT CAPITAL REQUIREMENTS
The Company believes that cash on hand, the proceeds of the private
placement offerings consummated in December 1995 (the "December Offering"),
October 1996 (the "October Offering") and February 1997 (the "February
Offering"), the initial public offering (the "NACT Offering") of stock of its
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<PAGE>
subsidiary NACT Telecommunications, Inc. ("NACT"), other securities offerings,
if any, consummated in the future, together with borrowings expected to be
available under both a $100.0 million credit facility (the "Tomen Facility")
with Tomen America and its affiliates ("Tomen") and equipment financings
currently available, will provide sufficient funds for the Company to expand its
business as presently planned and to fund its operating expenses through
December 31, 1997. Thereafter, the Company expects to require additional
financing. However, in the event that the Company's plans or assumptions change
or prove to be inaccurate, or the foregoing sources of funds prove to be
insufficient to fund the Company's growth and operations, or if the Company
consummates acquisitions, the Company may be required to seek additional capital
sooner than currently anticipated. Sources of financing may include public or
private equity or debt financing by the Company or its subsidiaries, sales of
assets or other financing arrangements. There can be no assurance that such
additional financing would be available to the Company or, if available, that it
could be obtained on acceptable terms or within the limitations contained in the
Tomen Facility, the indentures 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 December 31, 1996, the Company had outstanding on a consolidated
basis approximately $270.7 million of indebtedness. The accretion of original
issue discount on the Notes will cause an increase in indebtedness of $144.8
million by December 15, 2000. The Indentures limit, but do not prohibit, the
incurrence of additional indebtedness by the Company. At December 31, 1996, the
Company had $67.7 million of availability under the Tomen Facility to finance
the development and construction of additional networks, if and to the extent
that proposals for funding projects are approved by Tomen. Tomen has agreed in
principle to provide the Company with $41.0 million of additional financing
under the Tomen Facility for the Company's Hawaiian inter-island network and
Hawaiian terrestrial fiber optic network. The Company expects to incur
substantial additional indebtedness in the future. The Company has entered into
loan agreements with an equipment manufacturer and a commercial lender for
$166.0 million of equipment financing. There can be no assurance that any
additional financing will be available to the Company on acceptable terms or at
all.
The level of the Company's indebtedness could have important
consequences to its future prospects, including the following: (i) limiting the
ability of the Company to obtain any necessary financing in the future for
working capital, capital expenditures, debt service requirements or other
purposes; (ii) requiring that a substantial portion of the Company's cash flow
from operations, if any, be dedicated to the payment of principal of and
interest on its indebtedness and other obligations; (iii) limting its
flexibility in plannign for, or reacting to changes in, its business; (iv) the
Company will be more highly leveraged than some of its competitors, which may
place it at a competitive disadvantage; and (v) increasing its vulnerability in
the event of a downturn in its business.
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<PAGE>
POSSIBLE INABILITY TO SERVICE DEBT
In connection with the buildout of its networks and expansion of
competitive local exchange telephone companies ("CLEC") services, the Company
has been experiencing increasing negative EBITDA and the Company's earnings
before fixed charges were insufficient to cover fixed charges for the three
months ended December 31, 1996 and the years ended September 30, 1996 and 1995
by $25.2 million, $62.9 million and $13.8 million, respectively. There can be no
assurance that the Company will be able to improve its earnings before fixed
charges or EBITDA or that the Company will be able to meet its debt service
obligations. As the Company does not currently have a revolving credit facility,
if a shortfall occurs, alternative financing would be necessary in order for the
Company to meet its liquidity requirements and there can be no assurance that
such financing would be available. In such event, the Company could face
substantial liquidity problems. In addition, the Company anticipates that cash
flow from operations may be insufficient to repay the Notes in full at maturity
and that such indebtedness may need to be refinanced. There can be no assurance
that the Company will be able to effect such refinancing. The ability of the
Company to meet its obligations and to effect such refinancings will be
dependent upon, among other things, the future performance of the Company, which
will be subject to prevailing economic conditions and to financial, business and
other factors, including factors beyond the control of the Company. Failure by
the Company to meet its obligations could result in a default on its
indebtedness, including the Notes, which would permit the holders of such
indebtedness to accelerate the maturity thereof.
FINANCIAL AND OPERATING RESTRICTIONS IMPOSED BY EXISTING INDEBTEDNESS
The Company's financing agreements impose significant operating and
financial restrictions on the Company. Such restrictions affect, and in certain
cases significantly limit or prohibit, among other things, the ability of the
Company to incur additional indebtedness or to create liens on its assets, sell
assets, engage in mergers or acquisitions or make investments. Failure to comply
with any such covenant could result in a default thereunder, which could result
in an acceleration of such indebtedness.
DIFFICULTIES IN IMPLEMENTING LOCAL AND ENHANCED SERVICES
The Company has begun to deploy and plans to continue to deploy high
capacity digital switches in the cities in which it operates or plans to operate
networks, as well as in certain cities where the Company will rely on ILEC
facilities for transmission. This will enable the Company to offer a variety of
switched access services, enhanced services and local dial tone. The Company
expects negative EBITDA from its switched services during the 24 to 36 month
period after a switch is deployed. For switches operating in conjunction with
the Company's networks, the Company expects operating margins to improve as the
network is expanded and larger volumes of traffic are carried on the Company's
network. Until such time, the Company will rely on the ILEC facilities to
originate and terminate a significant portion of its switched services traffic.
For switches operating in cities where the Company will rely on ILEC facilities
for transmission, the Company will experience lower or negative operating
margins under current ILEC pricing tariffs. Although under the
Telecommunications Act of 1996 (the "Telecommunications Act"), the ILECs will be
required to unbundle local tariffs and permit the Company to purchase only the
origination and termination services it needs, thereby decreasing operating
expenses, there can be no assurance that such unbundling will be effected in a
timely manner and result in prices favorable to the Company. In addition, the
Company's ability to successfully implement its switched and enhanced services
will require the negotiation of resale agreements with ILECs and other CLECs and
the negotiation of interconnection agreements with incumbent ILECs, which can
take considerable time, effort and expense.
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
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<PAGE>
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 ILECs and their competitors.
Although the judicial stay of the Interconnection Decision does not prevent the
Company from negotiating interconnection agreements with ILECs, 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
to vacate the Eighth Circuit's judicial stay. The Eighth Circuit heard oral
arguments in this case on January 17, 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 is a recent entrant into the newly created competitive
local telecommunications services industry. The local dial tone services market
was only recently opened to competition due to the passage of the
Telecommunications Act and related regulatory rulings. There are numerous
operating complexities associated with providing these services. The Company
will be required to develop new products, services and systems and will need to
develop new marketing initiatives to sell these services.
The Company's switched services may not be profitable due to, among
other factors, lack of customer demand, inability to secure access to facilities
of incumbent ILECs at acceptable rates, competition from other CLECs and pricing
pressure from the ILECs. The Company has no experience providing switched access
services and there can be no assurance that the Company will be able to
successfully implement its switched 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, 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 access services primarily to long distance carriers and significant
end-users of telecommunications services, and its long distance services to
small businesses and consumers. Although the Company expects to market a variety
of telecommunications services to all of its customers, there can be no
assurance that the Company will be able to attract or retain and sell additional
services to existing customers.
DEPENDENCE ON KEY CUSTOMERS
The Company's five largest telecommunications services customers
accounted for approximately 25.9%, 46.9% and 26.8% of the Company's consolidated
telecommunications services revenues for the three months ended December 31,
1996 and the years ended September 30, 1996 and 1995, respectively. During the
year ended September 30, 1995, a former customer, which customer is presently
the subject of a bankruptcy proceeding, accounted for 5.3% of the Company's
consolidated revenues. It is anticipated that during the early stages of
development of individual networks, before obtaining a sufficient amount of end-
user revenues, the Company will be dependent on a limited number of long
distance carriers for a significant portion of its local revenues. While long
distance carriers have high volume requirements and have utilized CLECs, they
generally are more price sensitive than end-users. The five largest customers of
the
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Company's manufacturing operations accounted for 13.4% and 16.1% of the
Company's consolidated product revenues for the years ended September 30, 1996
and 1995, respectively. The loss of, or decrease of business from, one or more
significant customers could have a material adverse effect on the business,
financial condition and results of operations of the Company.
COMPETITION
The telecommunications industry is highly competitive. In most markets,
the Company's principal competitor for local exchange services is the Regional
Bell Operating Company ("RBOC") or GTE Corporation and its affiliated companies
(collectively, the "GTE Companies"). Other competitors may include other CLECs,
microwave and satellite carriers, wireless telecommunications providers and
private networks built by large end-users. Potential competitors (using similar
or different technologies) include cable television companies, utilities and
RBOCs outside their current local service areas. In addition, the Company
anticipates future competition from large long distance carriers, such as AT&T
Corp. ("AT&T"), MCI Communications Corporation ("MCI") and Sprint Corporation
("Sprint"), which have begun to offer integrated local and long distance
telecommunications services. AT&T also has recently announced its intention to
offer local services using a new wireless technology. Consolidation of
telecommunications companies and the formation of strategic alliances within the
telecommunications industry, as well as the development of new technologies,
could give rise to significant new competitors to the Company.
As a recent entrant in the integrated telecommunications services
industry, the Company has not achieved and does not expect to achieve a
significant market share for any of its services. In particular, the RBOCs, the
GTE Companies and other local telephone companies have long-standing
relationships with their customers, have financial, technical and marketing
resources substantially greater than those of the Company, have the potential to
subsidize competitive services with revenues from a variety of businesses and
currently benefit from certain existing regulations that favor the ILECs over
the Company in certain respects. While recent regulatory initiatives, which
allow CLECs such as the Company to interconnect with ILEC facilities, provide
increased business opportunities for the Company, such interconnection
opportunities have been accompanied by increased pricing flexibility for and
relaxation of regulatory oversight of the ILECs.
To the extent the Company interconnects with and uses ILEC networks to
service the Company's customers, the Company is dependent upon the technology
and capabilities of the ILECs to meet certain telecommunications needs of the
Company's customers and to maintain its service standards. The Company will
become increasingly dependent on interconnection with ILECs as switched services
become a greater percentage of the Company's business. The Telecommunications
Act imposes interconnection obligations on ILECs, but there can be no assurance
that the Company will be able to obtain the interconnection it requires at
rates, and on terms and conditions, that permit the Company to offer switched
services at rates that are acceptable. In the event that the Company experiences
difficulties in obtaining high quality, reliable and reasonably priced service
from the ILECs, the attractiveness of the Company's services to its customers
could be impaired.
The long distance telecommunications industry has relatively
insignificant barriers to entry, numerous entities competing for the same
customers and a high average churn rate, as customers frequently change long
distance providers in response to the offering of lower rates or promotional
incentives by competitors. The Company competes with major carriers such as
AT&T, MCI and Sprint, as well as other national and regional long distance
carriers and resellers, many of whom are able to provide services at costs that
are lower than the Company's current 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 and its affiliated
companies, TotalNet Communications Inc. and the business of Texas-Ohio
Communications Inc. and affiliated companies,
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<PAGE>
the Company's long distance operations will account for a significant portion of
the Company's revenues. The Company believes that the principal competitive
factors affecting its long distance operations are pricing, customer service,
accurate billing, clear pricing policies and, to a lesser extent, variety of
services. The ability of the Company to compete effectively will depend upon its
continued ability to maintain high quality, market driven services at prices
generally equal to or below those charged by its competitors. To maintain its
competitive posture, the Company believes that it must be in a position to
reduce its prices in order to meet reductions in rates, if any, by others. Any
such reductions could adversely affect the Company.
The Internet services market is highly competitive. There are no
substantial barriers to entry, and the Company expects that competition will
continue to intensify. The Company's competitors in this market include Internet
service providers, other telecommunications companies, online services providers
and Internet software providers. Many of these competitors have greater
financial, technological and marketing resources than those available to the
Company.
The market for telecommunications products is highly competitive and
subject to rapid technological change. The Company's equipment subsidiary, NACT,
expects competition to increase in the future from existing competitors in the
distributed switching systems market and from other companies that may enter
NACT's existing or future markets, including major central office switch
vendors. NACT currently competes with a number of lower capacity switch
manufacturers such as Communications Product Development, Inc., Integrated
Telephony Products, Inc. and PCS Telecom, Inc. NACT also competes with providers
of open architecture (programmable) hardware switching platforms that are
enhanced by applications providers and value added resellers. Such competitors
include Excel, Inc., which has agreements with software application providers.
As NACT's business develops and it seeks to market its switches to a broader
customer base, NACT's competitors may include larger switch and
telecommunications equipment manufacturers such as Lucent Technologies Inc.,
Siemens AG, Alcatel Alsthom Compagnie, L.M. Ericcson and Northern Telecom, Ltd.
Many of NACT's current and potential competitors have substantially greater
financial, technical and marketing resources than NACT. Increased competition
could materially and adversely affect NACT's business, financial condition and
results of operations through price reductions and loss of market share. There
can be no assurance that NACT will be able to continue to compete successfully
with its existing competitors or that it will be able to compete successfully
with new competitors.
The recent World Trade Organization ("WTO") agreement on basic
telecommunications services could increase the Company's competition. Under this
agreement, the United States and other members of the WTO committed themselves
to opening their telecommunications markets to competition and foreign ownership
and to adopting regulatory measures to protect competitors against
anticompetitive behavior by dominant telephone companies, effective as early as
January 1, 1998.
GOVERNMENT REGULATION
The Company's networks and the provision of switched and private line
services are subject to significant regulation at the federal, state and local
levels. Delays in receiving required regulatory approvals or the enactment of
new adverse regulation or regulatory requirements may have a material adverse
effect upon the Company.
The FCC exercises jurisdiction over the Company with respect to
interstate and international services. Additionally, the Company must file
tariffs with the FCC. On October 29, 1996, the FCC approved an order that
eliminates the tariff filing requirements for interstate domestic long distance
service provided by non-dominant carriers such as the Company. 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
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intrastate services. As such a provider, the Company is required to obtain
regulatory authorization and/or file tariffs at state agencies in most of the
states in which it operates. Local authorities control the Company's access to
municipal rights-of-way. The networks are also subject to numerous local
regulations such as building codes and licensing. Such regulations vary on a
city by city and county by county basis. There can be no assurance that state or
federal commissions will grant required authority or refrain from taking action
against the Company, if it is found to have provided services without obtaining
the necessary authorizations. If authority is not obtained or if tariffs are not
filed, or are not updated, or otherwise do not fully comply with the tariff
filing rules of the FCC or state regulatory agencies, third parties or
regulators could challenge these actions. Such challenges could cause the
Company to incur substantial legal and administrative expenses.
The Telecommunications Act provides for a significant deregulation of
the domestic telecommunications industry, including the local exchange, long
distance and cable television industries. The Telecommunications Act remains
subject to judicial review and additional FCC rulemaking, and thus it is
difficult to predict what effect the legislation will have on the Company and
its operations. There are currently many regulatory actions being contemplated
by federal and state authorities regarding interconnection pricing and other
issues that could result in sharp changes to the business conditions in the
industry. There can be no assurance that these changes will not have a material
adverse effect upon the Company. See "--Competition."
In addition to requirements placed on ILECs, the Telecommunications Act
subjects the Company to certain federal regulatory requirements upon the
Company's provision of local exchange service in a market. All ILECs and CLECs
must interconnect with other carriers, provide nondiscriminatory access to
rights-of-way, offer reciprocal compensation for termination of traffic and
provide dialing parity and telephone number portability. The Telecommunications
Act also requires all telecommunications carriers to ensure that their services
are accessible to and usable by persons with disabilities. 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 ILECs to reduce access
charges and may give ILEC 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, federal regulations impose restrictions on foreign
ownership of communications service providers utilizing radio frequencies. The
operations of GST Telecom Hawaii Inc. ("GST Hawaii"), a wholly-owned subsidiary
of the Company that conducts the Company's business in Hawaii, use, among other
transmission facilities, microwave radio facilities operating pursuant to FCC
licenses granted to Pacwest Network, Inc., an entity that is controlled by John
Warta, Chairman of the Board and Chief Executive Officer of the Company. In
addition, under the FCC's foreign ownership rules, the Company cannot hold
Personal Communications Services ("PCS") licenses. PCS Plus, LLC ("PCS Plus"), a
company controlled by John Warta, has won various PCS licenses. PCS Plus and the
Company have entered into a twelve year reseller agreement (the "PCS Plus
Reseller Agreement") pursuant to which (i) the Company has been designated a
non- exclusive reseller of PCS telephone services in the markets in which PCS
Plus has obtained licenses, and (ii) PCS Plus has agreed to use the Company on
an exclusive basis to provide switched local and long distance, and other
enhanced telecommunications services, to all of PCS Plus' resellers in markets
where the Company has operational networks. The FCC also has the authority,
which it is not presently exercising, to impose restrictions on foreign
ownership of communications service providers not utilizing radio frequencies
(such as the Company). In the event the FCC exercises such authority, it could
have a material adverse effect on the Company's CLEC and other businesses.
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NEED TO ADAPT TO TECHNOLOGICAL CHANGE
The telecommunications industry is subject to rapid and significant
changes in technology, with the Company relying on third parties for the
development of and access to new technology. The effect of technological changes
on the business of the Company cannot be predicted. The Company believes its
future success will depend, in part, on its ability to anticipate or adapt to
such changes and to offer, on a timely basis, services that meet customer
demands.
The future success of NACT will depend in part upon its ability to keep
pace with advancing technology, evolving industry standards within the
telecommunications industry and changing customer requirements in a cost-
effective manner. There can be no assurance that NACT's products will not be
rendered obsolete by other telecommunications products incorporating
technological advances designed by competitors that NACT is unable to
incorporate into its products in a timely manner.
POSSIBLE ADVERSE LITIGATION OUTCOME
An action was commenced against NACT alleging that its telephone
systems incorporating prepaid debit card features infringe upon a patent issued
in 1987. An unfavorable decision in this action could have a material adverse
effect on the Company.
DEPENDENCE ON KEY PERSONNEL
The efforts of a small number of key management and operating personnel
will largely determine the Company's success and the loss of any of such persons
could adversely affect the Company. The success of the Company also depends in
part upon its ability to hire and retain highly skilled and qualified operating,
marketing, financial and technical personnel. The competition for qualified
personnel in the telecommunications industry is intense and, accordingly, there
can be no assurance that the Company will be able to hire or retain necessary
personnel.
DEPENDENCE ON RIGHTS-OF-WAY AND OTHER THIRD PARTY AGREEMENTS
The Company must obtain easements, rights-of-way, entry to premises,
franchises and licenses from various private parties, actual and potential
competitors and state and local governments in order to construct and operate
its networks. There can be no assurance that the Company will obtain
rights-of-way and franchise agreements on acceptable terms or that current or
potential competitors will not obtain similar rights-of-way and franchise
agreements that will allow them to compete against the Company. If any of the
existing franchise or license agreements were terminated or not renewed and the
Company were forced to remove its fiber optic cables or abandon its networks in
place, such termination could have a material adverse effect on the Company.
VARIABILITY OF QUARTERLY OPERATING RESULTS
As a result of the limited revenues and significant expenses associated
with the expansion and development of its networks and services, the Company
anticipates that its operating results could vary significantly from period to
period. In addition, revenues relating to the Company's network businesses are
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
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<PAGE>
stock market has experienced broad price and volume fluctuations that have often
been unrelated to the operating performance of companies. These broad market
fluctuations also may adversely affect the market price of the Common Shares.
RISK OF JOINT INVESTMENTS
The Company has invested in one joint venture and may enter into
additional joint ventures in the future. There are risks in participating in
joint ventures, including the risk that the other joint venture partners may at
any time have economic, business or legal interests or goals that are
inconsistent with those of the joint venture or the Company. The risk is also
present that a joint venture partner may be unable to meet its economic or other
obligations to the venture and that the Company may be required to fulfill some
or all of those obligations. In addition, to the extent that the Company
participates in international joint ventures, the operations of such ventures
will be subject to various additional risks not present in the Company's
domestic joint ventures, such as fluctuations in currency exchange rates,
nationalization or expropriation of assets, import/export controls, political
instability, limitations on foreign investment, restrictions on the ability to
convert currency and the additional expenses and risks inherent in conducting
operations in geographically distant locations with customers speaking different
languages and having different cultural approaches to the conduct of business.
As of February 28, 1997, the Company had invested approximately $3.7
million in a publicly-traded Canadian corporation (subsequently renamed GST
Global Telecommunications Inc. "Global") and holds approximately 3.6 million
shares. In addition the Company has warrants to purchase 750,000 additional
shares. Global will issue to the Company up to an additional 5,000,000 of its
common shares, subject to approval of the Vancouver Stock Exchange ("VSE"), in
consideration for the transfer by the Company to Global of its rights in and to
a telecommunications project in Mexico (the "Bestel Project"). Global has also
acquired from a subsidiary of Cable & Wireless Holding Plc ("Cable & Wireless")
an 80% interest in Vitacom Corporation ("Vitacom"). Vitacom provides voice, high
speed data information and other services and manufactures and sells VSATs (very
small aperture terminals) and other equipment used to access the Internet. On
February 28, 1997, Global had approximately 12.6 million shares outstanding.
RISKS OF INVESTMENT IN A CANADIAN CORPORATION
The Company is a Canadian corporation. Certain directors and officers
and certain of the Company's professionals are residents of Canada. As a result,
it may be difficult for U.S. shareholders to effect service of process within
the United States upon the Company or upon such directors, officers and
professionals or to collect judgments of U.S. courts predicated upon civil
liability under U.S. federal securities and other laws. The Company has been
advised that there is substantial doubt as to whether Canadian courts would (i)
enforce judgments of U.S. courts obtained against the Company or such directors,
officers and professionals predicated upon the civil liabilities provisions of
U.S. laws or (ii) impose liabilities in original actions against the Company or
its directors, officers and professionals predicated solely upon U.S. laws. In
addition, the Company's status as a Canadian company limits the ability of the
Company to hold or control common carrier radio frequency licenses in the United
States.
POTENTIAL RESALES OF A SUBSTANTIAL NUMBER OF SHARES; REGISTRATION RIGHTS
At December 31, 1996, the Company had outstanding 23,353,323 Common
Shares. Of these shares, 21,077,709 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 (2,826,522 of such 21,077,709 shares at
December 31, 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 2,275,614 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 2,275,614 shares, the
Company is contractually obligated to register for resale an aggregate of
1,307,685 shares.
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In addition, at December 31, 1996, (i) 3,039,594 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) 646,155 Common
Shares were reserved for issuance upon exercise of outstanding warrants (the
"Outstanding Warrants"), with exercise prices ranging from $5.62 to $12.96 per
share, (iii) 3,037,022 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 31,
1996). In addition, 3,000,000 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. As a CLEC, the Company operates state-of-the-art,
digital telecommunications networks that provide an alternative to ILECs. The
Company provides, through its established sales channels, telecommunications
services that include long distance, Internet and data transmission services and
recently introduced local dial tone services. The Company also produces advanced
telecommunications switching platforms with integrated applications software and
network telemanagement capabilities through its equipment subsidiary, NACT.
The Company's digital networks currently serve 19 cities in Arizona,
California, Hawaii, New Mexico and Washington. In addition, the Company has
networks under construction which, when completed will serve 18 additional
cities and expand its regional footprint to Idaho, Oregon, Utah and five
Hawaiian Islands.
Management believes that the Company has an opportunity to leverage its
network infrastructure and service capabilities to provide customers with a
complete solution to their telecommunications requirements. The
Telecommunications Act and state regulatory initiatives have substantially
changed the telecommunications regulatory environment in the United States. As a
result of these regulatory changes, the Company is permitted, in certain states,
to provide local dial tone in addition to its existing telecommunications
service offerings. In order to capitalize on these opportunities, the Company
has accelerated the development and construction of additional networks within
its region while significantly expanding its product and service offerings,
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primarily with respect to the provision of local services. To facilitate its
entry into local services, the Company has in service two high capacity digital
switches, has installed and is currently testing two additional high capacity
digital switches and is planning to deploy an additional five such 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 March 31, 1997, (ii) the
number of Shares to be offered for resale by each Selling Shareholder and (iii)
the number and percentage of Common Shares to be held by each Selling
Shareholder after completion of the offering.
<TABLE>
<CAPTION>
Number of
Common
Shares/Percen-
tage of Class
Number of to be Owned
Number of Common Shares to After
Shares Owned at be Offered Completion of
Name and Address March 31, 1997* for Resale the Offering
- -------------------------------------- ------------------ ---------- -------------
<S> <C> <C> <C>
Jeffrey C. Buckingham 1997 200,000 200,000(2) 0
Charitable Trust(1)
Cuesta College Foundation(1) 10,000 10,000(2) 0
Jeffrey C. Buckingham Family 264,059 264,059(2) 0
Trust(1)
Carolyn C. Hindes(1) 94,810 94,810(2) 0
F. Scott Hindes Trustee U/A dated 47,434 47,434(2) 0
2/14/84(1)
F. Scott Hindes Charitable Trust(1) 237,000 237,000(2) 0
Theodore B. Hindes(1) 94,810 94,810(2) 0
Jerry A. Linthicum 1997 Charitable 100,000 100,000(2) 0
Trust(1)
Euleta F. Linthicum 1997 Charitable 100,000 100,000(2) 0
Trust(1)
Jerry A. Linthicum Family Trust(1) 274,059 274,059(2) 0
Glenn R. Meyer(3) 32,348(4) 11,147 21,201/(5)
Frederick W. Grimm(3) 27,726(4) 9,554 18,172/(5)
John Goodman(3) 27,726(4) 9,554 18,172/(5)
Gregory C. Roberts(3) 4,623(4) 1,593 3,030/(5)
Rodney H. and Judy E. Margolis 12,980 12,980 0
Foundation(6)
YMCA of Greater Houston(7) 11,765 11,765 0
Boys and Girls Club of Deep East 12,837 12,837 0
Texas(8)
Second Baptist Church of Houston(9) 5,500 5,500 0
</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) The address for this selling shareholder is c/o Call America Business
Communications Corp., 4251 South Higuera Street, Suite 800, San Luis
Obispo, California 93401.
(2) Includes Common Shares issued pursuant to the Agreement and Plan of
Merger dated as of September 26, 1996, as amended (the "Merger
Agreement") by and among Call America, certain selling shareholders,
the Company and GST Newco of California, Inc. Also included are the
maximum number of Common Shares issuable as post-closing consideration
as set forth in the Merger Agreement, such number of Common Shares not
to exceed 114,489 Common Shares.
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(3) The address for this selling shareholder is c/o Tri-Star Residential
Communications Corporation, 320 Andover Park East Suite 325, Seattle,
Washington 98188.
(4) Includes Common Shares registered pursuant to the Company's
Registration Statements 333-16141 and 333-19339 on Form S-3. Does not
include Common Shares issuable in quarterly installments after March
19, 1997 in connection with Company's purchase of Tri-Star. The number
of Common Shares issuable in each installment is based on a formula
using the trading price of the Common Shares at the date of issuance.
(5) Less than 1%.
(6) The address for this selling shareholder is 411 Thamer Circle, Houston,
Texas 77024.
(7) The address for this selling shareholder is 1600 Louisiana, Houston,
Texas 77002.
(8) The address for this selling shareholder is 320 North Street, Suite
404, Nacogdoches, Texas 75961.
(9) The address for this selling shareholder is 6400 Woodway, Houston,
Texas 77057.
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 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 Common Shares and/or options to
purchase Common Shares.
EXPERTS
The consolidated balance sheets of GST Telecommunications, Inc. and its
subsidiaries as of September 30, 1996 and 1995 and the consolidated statements
of operations, shareholders' equity and cash flows for the years ended September
30, 1996 and 1995, have been included herein in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing. The consolidated
statements of operations, shareholders' equity and cash flows of GST
Telecommunications, Inc. and its subsidiaries for the 13 months ended September
30, 1994 has been included herein in reliance upon the report of KPMG Peat
Marwick Thorne, independent chartered accountants, upon the authority of said
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act with respect to the Shares offered hereby. For
further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement. Statements contained in
this Prospectus as to the contents of any contract or other
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<PAGE>
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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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................................ $ 4,449.43
Accounting Fees and Expenses........................ 7,500.00
Legal Fees and Expenses............................. 10,000.00
Blue Sky Fees and Expenses.......................... 550.00
Miscellaneous Expenses.............................. 2,500.57
----------
Total............................................... $25,000.00
==========
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
(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.
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<PAGE>
(5) APPLICATION TO COURT. A corporation or a person referred to in
subsection (1) may apply to a court for an order approving an indemnity under
this section and the court may so order and make any further order it thinks
fit.
(6) NOTICE TO DIRECTOR. An applicant under subsection (5) shall give
the Director notice of the application and the Director is entitled to appear
and be heard in person or by counsel.
(7) OTHER NOTICE. On an application under subsection (5), the court may
order notice to be given to any interested person and such person is entitled to
appear and be heard in person or by counsel.
The Company's by-laws provide that every director and officer of the
Company and his heirs, executors, administrators and other legal personal
representatives shall be indemnified and held harmless from and against (a) any
liability and all costs, charges and expenses that he sanctions or incurs in
respect of any action, suit or proceeding that is proposed or commenced against
him for or in respect of anything done or permitted by him in respect of the
execution of the duties of his office and (b) all other costs, charges and
expenses that he sustains or incurs in respect of the affairs of the Company.
The Company maintains a $15,000,000 directors and officers liability
insurance policy.
ITEM 16. EXHIBITS.
EXHIBIT INDEX
EXHIBIT
5 Opinion of Olshan Grundman Frome & Rosenzweig LLP with respect to
the securities registered hereunder.
23(a) Consent of KPMG Peat Marwick LLP.
23(b) Consent of KPMG Peat Marwick Thorne.
23(c) Consent of Olshan Grundman Frome & Rosenzweig LLP (included within
Exhibit 5).
24(a) Powers of Attorney (included on Page II-5).
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
a) To file, during any period in which offers or sales are
being made,a post-effective amendment to this registration statement to include
any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
b) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against each such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
II-2
<PAGE>
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Vancouver, Province of British Columbia, Country
of Canada on this 31st day of March, 1997.
GST TELECOMMUNICATIONS, INC.
(Registrant)
By: *
-----------------------------------
John Warta, 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>
* Chairman of the Board, Chief Executive March 31, 1997
- ---------------------------------------- Officer (Principal Executive Officer)
(John Warta) and Director
* Senior Vice President, Treasurer and March 31, 1997
- ---------------------------------------- Chief Accounting Officer (Principal
(Clifford V. Sander) Accounting Officer)
/S/ DANIEL TRAMPUSH Senior Vice President and Chief March 31, 1997
- ---------------------------------------- Financial Officer (Principal Financial
(Daniel Trampush) Officer)
* Vice Chairman of the Board March 31, 1997
- ----------------------------------------
(W. Gordon Blankstein)
/S/ STEPHEN IRWIN Vice Chairman of the Board, Secretary March 31, 1997
- ---------------------------------------- and Director
(Stephen Irwin)
* Director March 31, 1997
- ----------------------------------------
(Robert H. Hanson)
* Director March 31, 1997
- ----------------------------------------
(Ian Watson)
* Director March 31, 1997
- ----------------------------------------
(Peter E. Legault)
* Director March 31, 1997
- ----------------------------------------
(Jack G. Armstrong)
Director
- ----------------------------------------
(Takashi Yoshida)
* Director March 31, 1997
- ----------------------------------------
(Thomas E. Sawyer)
The Company's Authorized Representative
in the United States
*
- ---------------------------------------
Robert H. Hanson March 31, 1997
*By:/S/ STEPHEN IRWIN
---------------------
Stephen Irwin
Attorney-in-fact
</TABLE>
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<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
505 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 753-7200
April 2, 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 (i)
the issuance of 1,497,102 common shares, without par value, of the Company (the
"Common Shares") issued and to be issued by the Company to (a) former
shareholders of Call America Business Communications Corp. and affiliated
companies (collectively "Call America") in connection with the acquisition by
the Company by means of a merger of Call America; and (b) 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 (ii) the reoffer and resale by certain selling shareholders of Common Shares
acquired by way of gift from persons who received such Common Shares in
connection with the acquisition by the Company by means of a merger of TotalNet
Communications Inc. ("TotalNet"). The aforementioned selling shareholders are
referred to herein collectively as the "Selling Shareholders" (such 1,497,102
Common Shares being hereinafter referred to as the "Shares"). The Shares have
been or will be issued in accordance with that certain Agreement and Plan of
Merger dated as of September 26, 1996, as amended (the "Call America Merger
Agreement"), by and among Call America, certain selling shareholders, the
Company and GST Newco of California, Inc.; that certain Stock Purchase Agreement
dated as of September
<PAGE>
Securities and Exchange Commission
April 2, 1997
Page -2-
4, 1996 ("the Stock Purchase Agreement") by and among Tri-Star, Glenn R. Meyer,
Frederick W. Grimm, John Goodman, Gregory C. Roberts, GST Telecom Inc. and the
Company; and that certain Agreement and Plan of Merger dated September 27, 1996
(the "TotalNet Merger Agreement") by and among TotalNet, GST Newco of Texas,
Inc. and the Company.
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, the Call America Merger Agreement, the Stock Purchase
Agreement and the TotalNet Merger Agreement, 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 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, when issued and
paid for in accordance with the terms of the Call America Merger Agreement, the
Stock Purchase Agreement and the TotalNet Merger Agreement, as the case may be,
the Shares have been or will 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
Common Shares and holds options and warrants to purchase an aggregate of 615,000
Common Shares. In addition, other attorneys of this firm hold Common Shares
and/or options to purchase Common Shares.
<PAGE>
Securities and Exchange Commission
April 2, 1997
Page -3-
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 April 2,
1997, of GST Telecommunications, Inc. and to the references to our firm under
the "Experts" heading in the prospectus.
KPMG Peat Marwick LLP
Portland, Oregon
April 2, 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
April 2, 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.
KPMG Peat Marwick Thorne
Chartered Accountants
Vancouver, Canada
April 2, 1997
