As filed with the Securities and Exchange Commission on August 14, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GST EQUIPMENT FUNDING, INC.
GST TELECOMMUNICATIONS, INC.
(Exact name of Registrants as specified in their charters)
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<CAPTION>
<S> <C> <C>
DELAWARE 4813 91-1785734
CANADA (Primary Standard Industrial Classification NOT APPLICABLE
(State or other jurisdiction Code Number) (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
GST Equipment Funding, Inc.
GST Telecommunications, Inc.
4317 N.E. Thurston Way
Vancouver, Washington 98662
(360) 254-4700
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
------------------------------------
DANIEL L. TRAMPUSH
GST EQUIPMENT FUNDING, INC.
GST TELECOMMUNICATIONS, INC.
CHIEF FINANCIAL OFFICER
4317 N.E. THURSTON WAY
VANCOUVER, WASHINGTON 98662
(360) 254-4700
(Name, address and telephone number of agent for service for registrants)
------------------------------------
Copy to:
DAVID J. ADLER, ESQ.
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
505 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 753-7200
------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED EXCHANGE OFFER: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. o
------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
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===================================================================================================================================
Proposed Maximum
Title of Each Class of Amount to be Proposed Maximum Aggregate Offering Amount of
Securities to be Registered Registered Offering Price Per Note Price Registration Fee
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
13 1/4% Senior Secured Exchange Notes Due $265,000,000 $1,000 $265,000,000 $80,303.03
2007(1)
===================================================================================================================================
</TABLE>
(1) The conditional guarantee of principal and interest on the Notes is
also being registered hereby.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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 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 AUGUST 14, 1997
OFFER TO EXCHANGE
13 1/4% SENIOR SECURED EXCHANGE NOTES DUE 2007
FOR
ALL OUTSTANDING
13 1/4% SENIOR SECURED NOTES DUE 2007
($265,000,000 AGGREGATE PRINCIPAL AMOUNT OUTSTANDING)
OF
GST EQUIPMENT FUNDING, INC.
WHICH, UNDER CERTAIN CIRCUMSTANCES, MAY BE
GUARANTEED BY GST TELECOMMUNICATIONS, INC.
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON __________ __, 1997, UNLESS EXTENDED
--------------
SEE "RISK FACTORS" IMMEDIATELY FOLLOWING THE PROSPECTUS SUMMARY FOR A
DISCUSSION OF CERTAIN INFORMATION THAT SHOULD BE CONSIDERED IN CONNECTION WITH
THE EXCHANGE OFFER AND AN INVESTMENT IN THE NEW NOTES.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------
THE DATE OF THIS PROSPECTUS IS _________, 1997
(CONTINUED ON NEXT PAGE)
<PAGE>
(COVER PAGE CONTINUED)
GST Equipment Funding, Inc., a Delaware corporation ("GST Funding"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (the "Exchange Offer"), to
exchange $1,000 principal amount of its 13 1/4% Senior Secured Exchange Notes
Due 2007 (the "New Notes") for each $1,000 principal amount of its outstanding
13 1/4% Senior Secured Notes Due 2007 (the "Old Notes"). The offer and sale of
the New Notes have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to the Registration Statement (as defined
herein) of which this Prospectus constitutes a part. As of June 30, 1997,
$265,000,000 aggregate principal amount of the Old Notes was outstanding. The
Exchange Offer is being made pursuant to the terms of the registration rights
agreement (the "Registration Rights Agreement") dated May 13, 1997, by and among
GST Funding, GST USA, Inc. ("GST USA"), GST Telecommunications, Inc. ("GST"),
and Morgan Stanley & Co. Incorporated ("Morgan Stanley"), Dillon, Read & Co.
Inc. ("Dillon Read") and TD Securities (USA) Inc. ("TD Securities," and together
with Morgan Stanley and Dillon Read, the "Placement Agents") as Placement
Agents, pursuant to the terms of the Placement Agreement dated May 8, 1997, by
and among GST Funding, GST USA, GST and the Placement Agents. The New Notes and
the Old Notes are collectively referred to herein as the "Notes." As used
herein, the term "Holder" means a holder of the Notes.
THE NOTES ARE SENIOR, SECURED OBLIGATIONS OF GST FUNDING, AND WILL BE
UNCONDITIONALLY AND IRREVOCABLY ASSUMED BY GST USA AND GUARANTEED BY GST, ON MAY
13, 2000, OR EARLIER IF PERMITTED UNDER THE TERMS OF GST USA'S AND GST'S
OUTSTANDING INDEBTEDNESS. Neither GST USA nor GST will be liable on the Notes
until they are assumed by GST USA. Once the Notes are assumed by GST USA, the
Notes will be senior, secured indebtedness of GST USA and GST USA's obligations
under the Notes will be fully and unconditionally guaranteed on an
unsubordinated basis by GST (the "Note Guarantee"). The Note Guarantee will be
senior, unsecured indebtedness of GST. At June 30, 1997, GST Funding had no
outstanding borrowings other than the Notes. GST Funding is a special purpose
finance subsidiary of GST, and GST USA and GST are each holding companies.
GST Funding will accept for exchange any and all Old Notes that are
validly tendered and not withdrawn on or prior to 5:00 p.m., New York City time,
on the date the Exchange Offer expires, which will be __________ __, 1997 [20
BUSINESS DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER], unless the Exchange
Offer is extended (the "Expiration Date"). Tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any aggregate minimum principal amount of
Old Notes being tendered for exchange. However, the Exchange Offer is subject to
certain conditions, which may be waived by GST Funding, and to the terms and
provisions of the Registration Rights Agreement. Old Notes may be tendered only
in denominations of $1,000 aggregate principal amount and integral multiples
thereof. GST Funding has agreed to pay the expenses of the Exchange Offer. See
"The Exchange Offer."
Any waiver, extension or termination of the Exchange Offer will be
publicly announced by GST Funding through a release to the Dow Jones News
Service and as otherwise required by applicable law or regulations.
The Notes were issued in a private placement (the "May Offering") under
an indenture (the "Indenture"), dated as of May 13, 1997, by and among GST
Funding, GST, GST USA and United States Trust Company of New York (in such
capacity, the "Trustee"). The New Notes will be obligations of GST Funding
(until they are assumed by GST USA) and are entitled to the benefits of the
Indenture. The Indenture provides that GST Funding must use all of the net
proceeds of the May Offering (in addition to any cash on hand) not used to
refinance intercompany indebtedness on the closing date of the May Offering (the
"Closing Date") to purchase United States government securities (the "Pledged
Securities") and must pledge the Pledged Securities to the Trustee for the
benefit of the Holders. In addition, in consideration for GST Funding making the
financing through the May Offering available to GST USA and for GST Funding
facilitating the purchase of GST USA's equipment, GST USA has agreed to pay any
fees or expenses incurred by GST Funding in connection therewith, and in support
of such obligations GST USA has issued to GST Funding a promissory note
guaranteed by GST (the "Initial Note"). The Notes are secured by a first
priority security interest in the Pledged Securities and in the accounts
established therefor by the Trustee
<PAGE>
(the "Pledge Account") and by a first priority security interest in the Initial
Note. Upon written request from GST Funding to the Trustee, Pledged Securities
(other than Interest Collateral (as hereinafter defined)) will be released from
the Pledge Account to GST Funding in order to finance the cost (including,
without limitation, the cost of design, development, construction, acquisition,
installation or integration) (collectively, "Acquired Equipment Cost") of
telecommunications inventory or equipment purchased or leased by GST Funding
("Acquired Equipment"). The Notes are also secured by a first priority security
interest in all Acquired Equipment held by GST Funding and, upon the sale of
Acquired Equipment to GST USA or the refinancing of Acquired Equipment
indebtedness, all secured intercompany notes issued by GST USA and guaranteed by
GST (the "Intercompany Notes"), which will be secured by Acquired Equipment.
The form and terms of the New Notes are identical in all material
respects to the form and terms of the Old Notes, except that the offer and sale
of the New Notes have been registered under the Securities Act. Any Old Notes
not tendered and accepted in the Exchange Offer will remain outstanding and will
be entitled to all the rights and preferences and will be subject to the
limitations applicable thereto under the Indenture. Following consummation of
the Exchange Offer, the Holders of Old Notes will continue to be subject to the
existing restrictions upon transfer thereof and GST Funding will have no further
obligation to such Holders to provide for the registration under the Securities
Act of the offer and sale of the Old Notes held by them. Following the
completion of the Exchange Offer, none of the Notes will be entitled to the
contingent increase in interest rate provided pursuant to the Registration
Rights Agreement. See "The Exchange Offer."
The Notes will mature on May 13, 2007. Interest on the Notes will be
paid in cash at a rate of 13 1/4% per annum on each May 1 and November 1,
commencing November 1, 1997.
The Notes will be redeemable at the option of GST USA, in whole or in
part, at any time or from time to time, on or after May 1, 2002, initially at
106.625% of their principal amount, plus accrued and unpaid interest, declining
ratably to 100% of their principal amount, plus accrued and unpaid interest on
or after May 1, 2004. If on May 13, 2000 GST USA is prohibited by its
outstanding indebtedness from assuming all of the Notes, GST Funding will
redeem, upon not less than 10 nor more than 30 days' notice, the portion of the
Notes that cannot be assumed, at 101% of their principal amount plus accrued and
unpaid interest to the date of redemption. In addition, upon a Change of Control
(as hereinafter defined), GST Funding or GST USA, as the case may be, will be
required to make an offer to purchase the Notes at a purchase price equal to
101% of their principal amount plus accrued interest. See "Description the New
Notes -- Mandatory Redemption," "-- Optional Redemption," and "--Repurchase of
Notes Upon Change of Control."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, GST Funding believes
that New Notes issued pursuant to this Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by a Holder thereof
other than (i) a broker-dealer who purchased such Old Notes directly from GST
Funding to resell pursuant to Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an "affiliate" (within the meaning
of Rule 405 of the Securities Act) of GST Funding, GST USA or GST, without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that the Holder is acquiring the New Notes in the
ordinary course of its business and is not participating, and has no arrangement
or understanding with any person to participate, in the distribution of the New
Notes. Holders of Old Notes who tender in the Exchange Offer with the intention
to participate in a distribution of the New Notes may not rely upon the position
of the staff of the Commission enunciated in the above-referenced no-action
letters, and, in the absence of an exemption, must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. Holders of Old Notes wishing to participate in the
Exchange Offer must represent to GST Funding in the Letter of Transmittal that
such conditions have been met.
Each broker-dealer (other than an "affiliate" of GST Funding, GST USA
or GST) that receives New Notes for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes
<PAGE>
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. GST Funding has agreed that, for a period of 180 days
after the consummation of the Exchange Offer, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution." Any broker-dealer who is an affiliate of GST Funding,
GST or GST USA may not rely on such no-action letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
The New Notes constitute a new issue of securities with no established
trading market. GST Funding is seeking to list the Old Notes on the Luxembourg
Stock Exchange. GST Funding does not intend to list the New Notes on any United
States securities exchange or to seek approval for quotation through any
automated quotation system. GST Funding has been advised by the Placement Agents
that, following completion of the Exchange Offer, they currently intend to make
a market in the New Notes; however, the Placement Agents are not obligated to do
so and any market-making activities with respect to the New Notes may be
discontinued at any time. The Placement Agents may act as principal or agent in
such transactions. There can be no assurance that an active trading market for
the New Notes will develop. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, a Holder's ability to sell untendered Old Notes
could be adversely affected.
This Prospectus, together with the Letter of Transmittal, is being sent
to all registered Holders of Old Notes as of _____________ __, 1997.
GST Funding will not receive any proceeds from this Exchange Offer. No
dealer-manager is being used in connection with this Exchange Offer. See "Use of
Proceeds" and "Plan of Distribution."
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus and the Letter of Transmittal and, if given or made, such
information or representation must not be relied upon as having been authorized
by GST Funding, GST USA, GST or the Exchange Agent (as defined herein). This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy the New Notes in any jurisdiction to any person to whom it is unlawful to
make such offer or solicitation in such jurisdiction. The delivery of this
Prospectus shall not, under any circumstances, create any implication that the
information herein is correct at any time subsequent to its date.
---------------------------
TABLE OF CONTENTS
PAGE
AVAILABLE INFORMATION..............................2
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE...................................2
PROSPECTUS SUMMARY.................................4
RISK FACTORS......................................14
THE EXCHANGE OFFER................................26
USE OF PROCEEDS...................................32
SELECTED FINANCIAL DATA...........................33
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.................................36
PAGE
MATERIAL CHANGES..................................44
BUSINESS..........................................45
DESCRIPTION OF THE NEW NOTES......................57
DESCRIPTION OF INDEBTEDNESS AND
REDEEMABLE PREFERRED SHARES...................86
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS.....................91
PLAN OF DISTRIBUTION..............................95
LEGAL MATTERS.....................................96
EXPERTS...........................................96
INDEX TO FINANCIAL STATEMENTS....................F-1
<PAGE>
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AVAILABLE INFORMATION
GST Funding and GST have filed with the Commission a Registration
Statement on Form S-4 under the Securities Act with respect to the New Notes
offered in the Exchange Offer. For the purposes hereof, the term "Registration
Statement" means the original Registration Statement and any and all amendments
thereto. In accordance with the rules and regulations of the Commission, this
Prospectus does not contain all of the information set forth in the Registration
Statement and the schedules and exhibits thereto. Each statement made in this
Prospectus concerning a document filed as an exhibit to the Registration
Statement is qualified in its entirety by reference to such exhibit for a
complete statement of its provisions. For further information pertaining to GST
Funding, GST USA, GST and the New Notes offered in the Exchange Offer, reference
is made to such Registration Statement, including the exhibits and schedules
thereto and the financial statements, notes and schedules filed as a part
thereof. The Registration Statement (and the exhibits and schedules thereto) may
be inspected and copied at the public reference facilities maintained by the
Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, or at its regional offices at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and at Seven World Trade
Center, Suite 1300, New York, New York 10048. Any interested party may obtain
copies of all or any portion of the Registration Statement and the exhibits
thereto at prescribed rates from the Public Reference Section of the Commission
at its principal office at Judiciary Plaza, 450 Fifth Street, Room 1024,
Washington, D.C. 20549. In addition, registration statements and other filings
made with the Commission through its Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") system are publicly available through the Commission's site
on the Internet's World Wide Web, located at http://www.sec.gov.
GST and GST USA are, and upon effectiveness of this Registration
Statement GST Funding will be, subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports and other information with the Commission.]
Such reports and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549; 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material can be obtained from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. GST's common shares, without par
value (the "Common Shares") are listed on the American Stock Exchange, Inc. (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.
The Indenture requires GST Funding, or GST USA once the Notes are
assumed, and GST to file with the Commission the annual, quarterly and other
reports required by Sections 13(a) and 15(d) of the Exchange Act, regardless of
whether such Sections are applicable to GST Funding, GST USA or GST. GST Funding
or GST USA, as the case may be, and GST will supply without cost to each Holder
of Notes, and file with the Trustee under the Indenture, copies of the audited
financial statements, quarterly reports and other reports that GST Funding or
GST USA, as the case may be, and GST are required to file with the Commission
pursuant to Sections 13(a) and 15(d) of the Exchange Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
GST's Annual Report on Form 10-K for the fiscal year ended September
30, 1996 (the "Form 10-K") and Quarterly Reports on Form 10-Q for the quarters
ended December 31, 1996 (the "December 10-Q"), March 31, 1997, as amended (the
"March 10-Q") and June 30, 1997 (the "June 10-Q") and GST's Current Reports on
Form 8-K dated May 31, 1997, March 14, 1997 and October 31, 1996 are
incorporated by reference in this Prospectus and shall be deemed to be a part
hereof. All documents filed by GST pursuant to Sections 13(a), 13(c), 14 or 15
of the Exchange Act, subsequently filed by GST prior to the termination of this
Exchange Offer, 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.
GST 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
-2-
<PAGE>
to above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to such documents. Written requests for such copies should
be directed to GST Telecommunications, Inc. at 4317 N.E. Thurston Way,
Vancouver, Washington 98662, Attention: Chief Executive Officer. Oral requests
should be directed to such individual (telephone number (360) 254-4700).
-------------------------
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made hereby, and, if given or made, such
information or representations must not be relied upon as having been authorized
by GST Funding, GST USA or GST. 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.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL GST FUNDING ACCEPT SURRENDERS
FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST FROM GST TELECOMMUNICATIONS, INC. AT 4317 N.E. THURSTON WAY, VANCOUVER,
WA 98662, ATTENTION: CHIEF EXECUTIVE OFFICER, (360) 254-4700. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE ________, 1997
[FIVE BUSINESS DAYS PRIOR TO THE DATE ON WHICH THE FINAL INVESTMENT DECISION
MUST BE MADE].
-3-
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING PROSPECTUS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE
MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES,
THE TERM "COMPANY" MEANS THE CONSOLIDATED BUSINESS OPERATIONS OF GST AND ITS
SUBSIDIARIES, INCLUDING GST FUNDING AND GST USA; THE TERMS "FISCAL" AND "FISCAL
YEAR" REFER TO THE COMPANY'S FISCAL YEARS INCLUDING THE 13 MONTHS ENDED
SEPTEMBER 30, 1994 ("FISCAL 1994"), THE FISCAL YEAR ENDED SEPTEMBER 30,
1995("FISCAL 1995"), THE FISCAL YEAR ENDED SEPTEMBER 30, 1996 ("FISCAL 1996")
AND THE FISCAL YEAR ENDING SEPTEMBER 30, 1997 ("FISCAL 1997"); THE TERM "YEAR"
REFERS TO CALENDAR YEAR; AND, UNLESS OTHERWISE INDICATED, ALL DOLLAR AMOUNTS ARE
IN U.S. DOLLARS. INDUSTRY FIGURES WERE OBTAINED FROM REPORTS PUBLISHED BY THE
FEDERAL COMMUNICATIONS COMMISSION (THE "FCC"), THE U.S. DEPARTMENT OF COMMERCE
AND OTHER INDUSTRY SOURCES, ALL OF WHICH THE COMPANY HAS NOT INDEPENDENTLY
VERIFIED. AS USED IN THIS PROSPECTUS, THE TERM "ISSUER" MEANS GST FUNDING UNTIL
GST USA BECOMES THE OBLIGOR ON THE NOTES, AFTER WHICH THE TERM "ISSUER" MEANS
GST USA. CERTAIN INFORMATION CONTAINED IN THIS SUMMARY AND ELSEWHERE IN THIS
PROSPECTUS, INCLUDING INFORMATION UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND INFORMATION WITH REGARD TO
THE COMPANY'S PLANS AND STRATEGY FOR ITS BUSINESS AND RELATED FINANCING, ARE
FORWARD-LOOKING STATEMENTS. INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION
SET FORTH UNDER THE CAPTION "RISK FACTORS," INCLUDING THE RISKS RELATING TO
HISTORICAL AND ANTICIPATED OPERATING LOSSES AND NEGATIVE EBITDA.
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 competitive local exchange carrier ("CLEC"), the
Company operates state-of-the-art, digital telecommunications networks that
provide an alternative to incumbent local exchange carriers ("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
Telecommunications, Inc. ("NACT").
The Company's digital networks currently serve cities in Arizona,
California, Hawaii, New Mexico and Washington. In addition, the Company has
networks under construction which, when completed, will expand its regional
footprint to Idaho, Oregon, Utah and five Hawaiian Islands. Management believes
that the Company has an opportunity to leverage its network infrastructure and
service capabilities to provide customers with a complete solution to their
telecommunications requirements. The Telecommunications Act of 1996 (the
"Telecommunications Act") and state regulatory initiatives have substantially
changed the telecommunications regulatory environment in the United States. As a
result of these regulatory changes, the Company is permitted in certain states
to provide local dial tone in addition to its existing telecommunications
service offerings. In order to capitalize on these opportunities, the Company
has accelerated the development of additional networks within its region while
significantly expanding its product and service offerings, primarily with
respect to the provision of local services.
GST Funding is a special purpose finance subsidiary of the Company,
formed to issue the Old Notes, to purchase equipment with the proceeds of the
May Offering, GST Funding acts as a purchasing agent for GST USA and sells to
GST USA the equipment it purchases. Ultimately, such equipment is leased to the
operating subsidiaries of the Company by GST USA.
TELECOMMUNICATIONS NETWORK STRATEGY
The Company's network strategy is to continue to develop and expand its
network infrastructure to ultimately assemble, through a combination of owned
and leased facilities and joint ventures, an integrated regional network for the
on-net provision of CLEC services including local, long distance, Internet
access and data services. The Company will continue to focus on the western
United States in order to take advantage of its strategically advantageous
position in California and Hawaii and the substantial telecommunications traffic
that exists among the western United States, Mexico, the Pacific Rim and western
Canada.
-4-
<PAGE>
TELECOMMUNICATIONS SERVICES STRATEGY
In conjunction with its network expansion, the Company has developed a
strategy to leverage its existing infrastructure, customer base and experience
by providing a broad range of integrated telecommunications services to meet the
voice and data needs of its end-user customers. The Company's sales force
primarily focuses on business, government and academic end-users within its
region that have significant telecommunications requirements. To meet these
customers' needs, the Company offers a number of telecommunications services
including:
LOCAL SERVICES. The Company plans to continue to install switching
equipment in its operational networks, in markets where it is constructing
networks and in certain other cities where the Company will rely on ILEC
facilities for transmission, as demand warrants. Once a switch is operational,
where regulatory conditions permit, the Company intends to offer local dial
tone, in addition to enhanced services such as ISDN, Centrex, voice mail and
other custom calling features.
LONG DISTANCE SERVICES. The Company offers basic and enhanced long
distance services, such as toll free, calling card, prepaid calling card and
international call back services, targeting primarily business customers
purchasing between $200 and $15,000 of services per month as well as resellers
and other carriers. The Company has recently expanded its long distance products
and services through the acquisition of Action Telcom Co. ("Action Telcom"),
Call America Business Communications Corp. (subsequently renamed GST Call
America) and certain of its affiliated companies (collectively, "GST Call
America"), TotalNet Communications Inc. ("TotalNet") and the business of
Texas-Ohio Communications, Inc. and affiliated companies (collectively,
"Texas-Ohio"). These acquisitions provide additional sales distribution channels
in areas in and around the Company's existing and planned networks. The Company
intends to continue to pursue acquisitions of long distance carriers.
INTERNET SERVICES. In March 1996, the Company acquired the business of
Reservations, Inc. d/b/a Hawaii On Line ("Hawaii On Line"), the largest Internet
access provider in Hawaii. The Company is also presently providing Internet
services to customers in Portland and Vancouver (Washington). In addition to
providing Internet access, the Company presently offers Internet-related
services such as World Wide Web ("Web") site development and hosting, provides
electronic data interchange ("EDI") services and is in the process of developing
various Internet software applications. Management believes that these services
will become an important component of the Company's overall product offerings
and intends to continue to expand its Internet access and service business to
other markets.
DATA SERVICES. The Company offers national and international frame
relay services on its own frame relay network and through an interconnection
agreement with Intermedia Communications Inc. ("Intermedia"). Under this
agreement, the Company and Intermedia have agreed to link their data networks
and terminate one another's traffic. The Company plans to offer additional
services including asynchronous transfer mode ("ATM"), high speed LAN
connectivity, video conferencing, multimedia networking and other bandwidth
intensive applications.
The Company is expanding its telecommunications services business
through internal development and will continue to explore opportunities for
further expansion by acquisitions and joint ventures.
MANUFACTURING
The Company, through its equipment subsidiary, NACT, produces advanced
telecommunications switching platforms with integrated applications software and
network telemanagement capabilities. NACT's customers include long distance
carriers, prepaid debit (calling) card and prepaid cellular network operators,
international callback/reorigination providers and other specialty
telecommunications service providers. NACT's products and services include the
recently introduced STX application switching platform (the "STX"), the NTS
telemanagement and billing system (the "NTS") and facilities management
services. In March 1997, NACT completed an initial public offering of its common
stock (the "NACT Offering"), pursuant to which the Company and NACT sold one
million and two million shares, respectively, of NACT's common stock, resulting
in gross proceeds to the Company and NACT of $10 million and $20 million,
respectively. As a result of the NACT Offering, the Company's interest in NACT
has been reduced to approximately 63%.
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FINANCING PLAN
The Company has historically funded its capital expenditures,
acquisitions, working capital requirements and operating losses from public and
private offerings of its Common Shares, notes and warrants to purchase Common
Shares and from funds made available under agreements (the "Tomen Facility")
with Tomen America, Inc. ("Tomen America"), a subsidiary of Tomen Corporation
(and together with Tomen America and their affiliates, "Tomen"), an
international trading company. Under the Tomen Facility, Tomen agreed to make
available up to a total of $100.0 million of financing, on a project-by-project
basis, for the construction and development of networks. At June 30, 1997, Tomen
had provided or agreed to provide the Company with $34.5 million of financing
under the Tomen Facility and Tomen had purchased 1,449,074 Common Shares and
warrants to purchase 171,155 additional Common Shares. Tomen has agreed in
principle to provide the Company with an additional $41.0 million of financing
under the Tomen Facility for the Hawaiian inter-island network and terrestrial
fiber optic facilities and in connection with such financing will purchase
additional Common Shares and warrants to purchase Common Shares. See
"Description of Certain Indebtedness and Redeemable Preferred Shares -- Tomen
Facility."
In December 1995, the Company sold units consisting in the aggregate of
$312.4 million principal amount at maturity of 13 7/8% Senior Discount Notes due
2005 of GST USA (the "Senior Notes") guaranteed by GST and $39.1 million
principal amount at maturity of 13 7/8% Convertible Senior Subordinated Discount
Notes due 2005 of GST (the "Convertible Notes" and, together with the Senior
Notes, the "1995 Notes") guaranteed by GST USA, receiving gross proceeds of
approximately $180.0 million (the "1995 Notes Offering"). See "Description of
Certain Indebtedness and Redeemable Preferred Shares -- Senior Notes and
Convertible Notes."
In October 1996, the Company completed a private placement of 2,000,000
special warrants (the "Special Warrants") at a purchase price of $11.125 per
Special Warrant (the "Special Warrant Offering"). Each Special Warrant is
exercisable for one Common Share and one-half of one underlying warrant (each an
"Underlying Warrant"), and all of such Special Warrants have been exercised.
Each Underlying Warrant entitles the holder to purchase one additional Common
Share for a purchase price of $13.00 for one year from the date of issuance. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations -- Liquidity and Capital Resources."
In September 1996, the Company entered into a Switching Products Sales
Agreement (the "Siemens Sales Agreement") with Siemens Stromberg-Carlson
("Siemens"), pursuant to which the Company may purchase switching and related
equipment and software from Siemens. The Company also entered into a Loan and
Security Agreement with Siemens (the "Siemens Loan Agreement") that provides for
up to an aggregate of $226.0 million of loans to finance the purchase of Siemens
equipment and certain equipment from other suppliers, of which $116.0 million is
presently available to the Company. The Company may seek to increase the amount
available up to $226.0 million on an as-needed basis, subject to the negotiation
and execution of mutually satisfactory documentation. In August 1996, the
Company entered into a Network Products Purchase Agreement (the "Nortel Purchase
Agreement") with Northern Telecom Inc. ("Nortel"), pursuant to which the Company
has agreed to purchase switching and related equipment and software from Nortel.
In December 1996, the Company entered into a $50.0 million equipment loan and
security agreement (the "NTFC Loan Agreement") with NTFC Capital Corporation
("NTFC") to finance the purchase of Nortel equipment and products. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of Certain
Indebtedness and Redeemable Preferred Shares -- Equipment Financing."
In February 1997, the Company consummated a private placement (the
"Princes Gate Investment") of $50.0 million of Series A Preference Shares (the
"Redeemable Preferred Shares") with an affiliate of Princes Gate Investors II,
L.P. ("Princes Gate"). Princes Gate is a limited partnership consisting of an
affiliate of Morgan Stanley and certain private investors. The Redeemable
Preferred Shares, which are convertible into Common Shares at any time after
February 28, 2000 at an imputed conversion price of $11.375 per Common Share,
will not pay dividends, except to the extent cash dividends are paid on Common
Shares. In addition, the liquidation and redemption prices of the Redeemable
Preferred Shares will accrete at a semi-annual rate of 11 7/8%. On February 28,
2004 and under certain circumstances, the Redeemable Preferred Shares will also
be subject to mandatory conversion or redemption, provided that to the extent
the Company is prohibited from paying the redemption price in cash, holders of
Redeemable Preferred Shares may elect to convert such shares into Common Shares
and if such election is not
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made, the Company may extend the mandatory redemption date to August 28, 2007.
See "Description of Certain Indebtedness and Redeemable Preferred Shares --
Redeemable Preferred Shares."
The Company plans capital expenditures of $225.0 to $250.0 million for
Fiscal 1997 and $150.0 million for Fiscal 1998. The majority of these
expenditures is expected to be made for network construction and the purchase of
switches and related equipment to facilitate the offering of the Company's
services. The Company believes that the net proceeds of the May Offering, the
Special Warrant Offering, the NACT Offering and the Princes Gate Investment,
other securities offerings, if any, consummated in the future, together with
cash on hand and borrowings expected to be available under the Tomen Facility
and the equipment financing arranged with Siemens and NTFC, will provide
sufficient funds for the Company to expand its business as presently planned and
to fund its operating expenses through June 1998. Thereafter, the Company
expects to require additional financing. The extent of additional financing
required will depend upon the rate of the Company's expansion and the success of
the Company's businesses. There can be no assurance that additional financing
will be available to the Company or, if available, that it can be obtained on
acceptable terms or within the limitations contained in the Tomen Facility, the
indentures under which the 1995 Notes were issued (the "1995 Indentures"),
existing equipment financing facilities, the indenture under which the Notes are
to be issued or in any future financing arrangements. See "Risk Factors --
Significant Capital Requirements," "Use of Proceeds," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
RECENT DEVELOPMENTS
In May 1997, GST Funding sold $265,000,000 of the Old Notes pursuant to
the Indenture in the May Offering. Of the net proceeds of the May Offering,
approximately $41.5 million was used to refinance intercompany indebtedness,
approximately $93.8 million was used to purchase Pledged Securities to fund the
first six scheduled interest payments on the Notes, approximately $54.3 million
was used to purchase Acquired Equipment as of June 30, 1997, and the balance
will be used to finance the purchase and installation of Acquired Equipment such
as fiber optic cable, switches and other related equipment. See "Description of
the New Notes."
Effective May 31, 1997, the Company acquired Action Telcom by means of
a merger (the "Action Telcom Merger"), whereby Action Telcom was merged with and
into GST Action Telecom, Inc. ("GST Action Telecom"), a wholly-owned subsidiary
of the Company. On the date of the closing of the Action Telcom Merger (the
"Action Telcom Closing Date"), the Company delivered to the former shareholders
of Action Telcom (the "Action Telcom Shareholders") (i) an aggregate of 903,000
Common Shares, (ii) $1,290,000 in cash and (iii) promissory notes in the
aggregate principal amount of $2,580,000, bearing interest at a rate of 8.5% per
annum, payable as to one-half of the aggregate principal amount thereof on each
of the first and second anniversaries of the Action Telcom Closing Date.
Additional Common Shares will be issued to the Action Telcom Shareholders on
each of the first and second anniversaries of the Action Telcom Closing Date if
the average closing sale price of a Common Share on the AMEX (or the Company's
then principal trading market) does not exceed $10.00 for the 10 consecutive
trading days ending three trading days prior to each such anniversary. Action
Telcom is a facilities-based telecommunications company located in Abilene,
Texas that operates its own network and switching equipment, originating and
terminating its own traffic principally in Texas.
The Company's principal executive offices are located at 4317 N.E.
Thurston Way, Vancouver, Washington 98662 and its phone number is (360)
254-4700.
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SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
The Exchange Offer............... Pursuant to the Exchange Offer, New Notes
will be issued in exchange for outstanding
Old Notes validly tendered and not withdrawn.
The aggregate principal amount of the New
Notes will be equal to that of the Old Notes
and will be issued in denominations of $1,000
in principal amount and any integral multiple
of $1,000 in excess thereof. GST Funding will
issue New Notes to tendering Holders of Old
Notes as promptly as practicable after the
Expiration Date.
Resale ........................ Based on an interpretation by the staff of
the Commission set forth in no-action letters
issued to third parties, GST Funding believes
that the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may
be offered for resale, resold and otherwise
transferred by any Holder thereof (other than
broker-dealers, as set forth below, and any
such Holder that is an "affiliate" (within
the meaning of Rule 405 under the Securities
Act) of GST Funding, GST USA or GST) without
compliance with the registration and
prospectus delivery provisions of the
Securities Act, provided that such New Notes
are acquired in the ordinary course of such
Holder's business and that such Holder has no
arrangement or understanding with any person
to participate in the distribution of such
New Notes. Each broker-dealer (other than an
affiliate of GST Funding, GST USA or GST)
that receives New Notes for its own account
in exchange for Old Notes that were acquired
as a result of market-making or other trading
activity must acknowledge that it will
deliver a prospectus in connection with any
resale of such New Notes. The Letter of
Transmittal states that by so acknowledging
and delivering a prospectus, such
broker-dealer will not be deemed to admit
that it is an "underwriter" within the
meaning of the Securities Act. This
Prospectus, as it may be amended or
supplemented from time to time, may be used
by such broker-dealer in connection with
resales of New Notes received in exchange for
Old Notes where such New Notes were acquired
by such broker-dealer as a result of
market-making activities or other trading
activities. GST Funding has agreed that, for
a period of 180 days after the Expiration
Date, it will make this Prospectus available
to any such broker-dealer for use in
connection with any such resale. See "Plan of
Distribution." Any Holder who tenders in the
Exchange Offer with the intention to
participate, or for the purpose of
participating, in a distribution of the New
Notes or who is an affiliate of GST Funding,
GST USA or GST may not rely on the position
of the staff of the Commission enunciated in
EXXON CAPITAL HOLDINGS CORPORATION (available
May 13, 1988) or similar no-action letters
and, in the absence of an exemption
therefrom, must comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with a secondary
resale transaction. Failure to comply with
such requirements in such instance may result
in such Holder incurring liabilities under
the Securities Act for which the Holder is
not indemnified by GST Funding, GST USA or
GST.
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<PAGE>
The Exchange Offer is not being made to, nor
will GST Funding accept surrenders for
exchanges from, Holders of Old Notes in any
jurisdiction in which this Exchange Offer or
the acceptance thereof would not be in
compliance with the securities or blue sky
laws of such jurisdiction.
Expiration Date.................. 5:00 p.m., New York City time, on _______ __,
1997 [20 BUSINESS DAYS AFTER COMMENCEMENT OF
THE EXCHANGE OFFER], unless the Exchange
Offer is extended, in which case the term
"Expiration Date" means the latest date and
time to which the Exchange Offer is extended.
Any extension, if made, will be publicly
announced through a release to the Dow Jones
News Service and as otherwise required by
applicable law or regulations.
Conditions to the
Exchange Offer................. The Exchange Offer is subject to certain
conditions, which may be waived by GST
Funding. See "The Exchange Offer --
Conditions to the Exchange Offer." The
Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being
tendered.
Procedures for Tendering
Old Notes...................... Each Holder of Old Notes wishing to accept
the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver the Letter of
Transmittal, or a facsimile thereof, together
with the Old Notes to be exchanged and any
other required documentation to United States
Trust Company of New York, as Exchange Agent,
at the address set forth herein and therein.
By executing a Letter of Transmittal, each
Holder will represent to GST Funding, GST USA
and GST that, among other things, the New
Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of
business of the person receiving such New
Notes, whether or not such person is the
Holder, that neither the Holder nor any such
other person has any arrangement or
understanding with any person to participate
in the distribution of such New Notes and
that neither the Holder nor any such other
person is an "affiliate," as defined in Rule
405 under the Securities Act, of GST Funding,
GST USA or GST.
Special Procedures for
Beneficial Owners.............. Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender in the
Exchange Offer should contact such registered
Holder promptly and instruct such registered
Holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial
owner must, prior to completing and executing
the Letter of Transmittal and delivering his
Old Notes, either make appropriate
arrangements to register ownership of the Old
Notes in such owner's name or obtain a
properly completed bond power from the
registered Holder. The transfer of registered
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<PAGE>
ownership may take considerable time and may
not be able to be completed prior to the
Expiration Date.
Guaranteed Delivery Procedures... Holders of Old Notes who wish to tender such
Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes and a properly completed
Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date
may tender their Old Notes according to the
guaranteed delivery procedures set forth in
"The Exchange Offer --Procedures for
Tendering."
Acceptance of Old Notes and
Delivery of New Notes.......... Subject to certain conditions (as described
more fully in "The Exchange Offer --
Conditions to the Exchange Offer"), GST
Funding will accept for exchange any and all
Old Notes that are properly tendered in the
Exchange Offer and not withdrawn, prior to
5:00 p.m., New York City time, on the
Expiration Date. The New Notes issued
pursuant to the Exchange Offer will be
delivered as promptly as practicable
following the Expiration Date.
Withdrawal Rights................ Subject to the conditions set forth herein,
tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time,
on the Expiration Date. See "The Exchange
Offer -- Withdrawal of Tenders."
Certain United States Federal
Income Tax Considerations...... The exchange pursuant to the Exchange Offer
should not constitute a taxable exchange for
United States federal income tax purposes.
Each such New Note should be treated as
having been originally issued at the time the
Old Note exchanged therefor was originally
issued. See "Certain United States Federal
Income Tax Considerations."
Exchange Agent................... United States Trust Company of New York, the
Trustee under the Indenture, is serving as
exchange agent (the "Exchange Agent") in
connection with the Exchange Offer. For
information with respect to the Exchange
Offer, the telephone number for the Exchange
Agent is (800) 548-6565 and the facsimile
number for the Exchange Agent is (212)
420-6152.
SEE "THE EXCHANGE OFFER" FOR MORE DETAILED INFORMATION CONCERNING THE TERMS OF
THE EXCHANGE OFFER.
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<PAGE>
SUMMARY DESCRIPTION OF THE NEW NOTES
The Exchange Offer applies to $265,000,000 aggregate principal amount
of Old Notes. The form and terms of the New Notes will be the same in all
material respects as the form and terms of the Old Notes, except that the offer
and sale of the New Notes will be registered under the Securities Act and,
therefore, the New Notes will not bear legends restricting the transfer thereof.
Upon consummation of the Exchange Offer, none of the Notes will be entitled to
registration rights under the Registration Rights Agreement. The New Notes will
evidence the same debt as the Old Notes, will be entitled to the benefits of the
Indenture and will be treated as a single class thereunder with any Old Notes
that remain outstanding. See "Description of the New Notes."
Issuer ........................ GST Equipment Funding, Inc.
Maturity Date.................... May 13, 2007
Securities Offered............... $265,000,000 aggregate principal amount of 13
1/4% Senior Secured Exchange Notes Due 2007.
Interest ........................ Interest on the Notes is payable in cash at a
rate of 13 1/4% per annum on May 1 and
November 1 of each year, commencing November
1, 1997.
Security ........................ The New Notes will be identical in all
material respects to the forms and terms of
the corresponding Old Notes. The Notes are
secured by a first priority security interest
in the Pledged Securities and in the Pledge
Account and by a first priority security
interest in the Initial Note.
Upon written request from GST Funding to the
Trustee, Pledged Securities will be released
from the Pledge Account in order to finance
the cost (including, without limitation, the
cost of design, development, construction,
acquisition, installation or integration) of
Acquired Equipment (the "Acquired Equipment
Cost"); provided that the cost of design,
development, construction, installation and
integration of the Acquired Equipment shall
not exceed 50% of the aggregate Acquired
Equipment Cost. Immediately upon the
acquisition of any Acquired Equipment, GST
Funding must grant a first priority security
interest in such Acquired Equipment to the
Trustee for the benefit of the holders of the
Notes. GST USA will purchase the Acquired
Equipment from GST Funding for an amount
equal to the Acquired Equipment Cost and will
issue a senior secured promissory note
guaranteed by GST in an amount equal to the
Acquired Equipment Cost payable to GST
Funding (an "Intercompany Note"). Each
Intercompany Note will mature on May 13,
2000. GST Funding will grant a first priority
security interest in all Intercompany Notes
to the Trustee for the benefit of the holders
of the Notes. The Trustee and the holders of
the Notes will be entitled to foreclose upon
the Initial Note, the Intercompany Notes and
the Acquired Equipment upon the occurrence of
an Event of Default under the Notes. See
"Risk Factors -- Insufficiency of Acquired
Equipment to Satisfy the Notes upon
Liquidation."
Optional Redemption.............. The Notes will be redeemable at the option of
GST USA, in whole or in part, at any time or
from time to time, on or after May 1, 2002,
initially at 106.625% of their principal
amount, plus accrued and unpaid interest,
declining ratably to 100% of their principal
amount, plus accrued and unpaid interest on
or after May 1, 2004. See "Description of the
Notes -- Optional Redemption."
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<PAGE>
Mandatory Redemption............. If on May 13, 2000 GST USA is prohibited by
the 1995 Indentures from assuming all of the
Notes, GST Funding will redeem, upon not less
than 10 nor more than 30 days' notice, the
portion of the Notes that cannot be assumed,
at 101% of their principal amount plus
accrued and unpaid interest to the date of
redemption.
Additional Amounts............... Any payments in respect of the Initial Note,
the Intercompany Notes, or after May 13, 2000
the Notes, made by GST will be made without
withholding or deduction for Canadian taxes
except as required by law or the
interpretation or administration thereof, in
which case GST will pay such additional
amounts as may be necessary so that the net
amount received by GST Funding or the holders
of the Notes, as the case may be, after such
withholding or deduction will not be less
than the amount that would have been received
in the absence of such withholding or
deduction. See "Description of the New Notes
-- Additional Amounts."
Redemption for Changes in
Canadian Withholding Taxes..... After GST USA has become the obligor on the
Notes, in the event that, as a result of
certain changes affecting Canadian
withholding taxes, GST becomes obligated to
pay additional amounts in accordance with the
Indenture, the Notes will be redeemable, as a
whole but not in part, at the option of GST
at any time at 100% of their principal amount
plus accrued interest. See "Description of
the New Notes -- Optional Redemption."
Change of Control................ Upon a Change of Control, GST Funding or GST
USA, as the case may be, will be required to
make an offer to purchase the Notes at a
purchase price equal to 101% of their
principal amount plus accrued interest. See
"Description the New Notes -- Repurchase of
Notes Upon Change of Control."
Ranking ........................ The Notes are secured, senior indebtedness of
GST Funding and, once assumed by GST USA,
will be secured, senior indebtedness of GST
USA. The Note Guarantee will be senior
unsecured indebtedness of GST. As of June 30,
1997, GST had $587.2 million of indebtedness
outstanding, GST USA had $557.7 million of
indebtedness outstanding and GST Funding had
no indebtedness other than the Notes. After
GST USA assumes the Notes, the Notes and the
Note Guarantee will be effectively
subordinated to all liabilities of GST USA's
subsidiaries, including trade payables. As of
June 30, 1997, the subsidiaries of GST USA
other than GST Funding had approximately
$114.4 million of liabilities (excluding
intercompany payables), including $90.5
million of indebtedness. See "Risk Factors --
Substantial Indebtedness," "-- Possible
Inability to Service Indebtedness," "--
Structure of GST Funding, GST USA and GST;
Secured Indebtedness; Ranking of Notes," and
"Description of Certain Indebtedness and
Redeemable Preferred Shares."
Certain Covenants................ The Indenture contains certain covenants
which, among other things, prohibits GST
Funding from incurring any indebtedness other
than the Notes and from creating any liens
other than liens for the benefit of the
holders of the Notes. In addition, the
Indenture restricts the ability of GST and
its Restricted Subsidiaries (including GST
USA) to: incur additional indebtedness;
create liens; engage in sale-leaseback
transactions; pay dividends or make
distributions in respect of their
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<PAGE>
capital stock; make investments or make
certain other restricted payments; sell
assets; create restrictions on the ability of
Restricted Subsidiaries to make certain
payments; issue or sell capital stock of
Restricted Subsidiaries; enter into
transactions with shareholders or affiliates;
and consolidate, merge or sell all or
substantially all of their assets. See
"Description of the New Notes -- Covenants."
Settlement at DTC................ Transfers of Notes between participants in
The Depository Trust Company ("DTC") will be
effected in the ordinary way in accordance
with DTC rules and will be settled in
next-day funds.
RISK FACTORS
See "Risk Factors" beginning at page 14 for a discussion of certain
factors that should be considered in connection with the Exchange Offer and an
investment in the New Notes, including risks related to historical and
anticipated operating losses and negative EBITDA.
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<PAGE>
RISK FACTORS
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 Fiscal 1996 and a net loss of
approximately $67.3 million and negative EBITDA of $39.5 million for the nine
months ended June 30, 1997. There can be no assurance that the Company will
achieve or sustain profitability or generate positive EBITDA. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
At September 30, 1996, the Company had a U.S. net operating loss
carryforward of approximately $45.0 million and a Canadian net operating loss
carryforward of approximately Cdn.$6.8 million. While such loss carryforwards
are available to offset future taxable income of the Company, the Company does
not expect to generate sufficient taxable income so as to utilize all or a
substantial portion of such loss carryforwards prior to their expiration.
Further, the utilization of net operating loss carryforwards against future
taxable income is subject to limitation if the Company experiences an"ownership
change" as defined in Section 382 of the Internal Revenue Code of 1986, as
amended (the "Code") and the analagous provision of the Income Tax Act (Canada)
(the"Canada Act").
DEVELOPMENT AND EXPANSION RISK AND POSSIBLE INABILITY TO MANAGE GROWTH
The Company is in the early stages of its operations. Certain of its
networks have only recently become commercially operational and the Company has
only recently begun to deploy switches in its networks. The success of the
Company will depend, among other things, upon the Company's ability to assess
potential markets, design fiber backbone routes that provide ready access to a
substantial customer base, secure financing, obtain required rights-of-way,
building access and governmental permits, implement expanded interconnection and
collocation with facilities owned by ILECs and achieve a sufficient customer
base, and upon subsequent developments in state and federal regulations. There
can be no assurance that any networks to be developed or further developed will
be completed on schedule, at a commercially reasonable cost or within the
Company's specifications. In addition, the expansion of the Company's business
has involved and is expected to continue to involve acquisitions, which could
divert the resources and management time of the Company and require integration
with the Company's existing operations. There can be no assurance that any
acquired business will be successfully integrated into the Company's operations
or that any such business will meet the Company's expectations. The Company's
future performance will depend, in part, upon its ability to manage its growth
effectively, which will require it to continue to implement and improve its
operating, financial and accounting systems, to expand, train and manage its
employee base and to effectively manage the integration of acquired businesses.
These factors and others could adversely affect the expansion of the Company's
customer base and service offerings. The Company's inability either to expand in
accordance with its plans or to manage its growth could have a material adverse
effect on its business, financial condition and results of operations. See
"Business."
SIGNIFICANT CAPITAL REQUIREMENTS
The Company expects to make capital expenditures of $225.0 to $250.0
million during Fiscal 1997. The Company believes that the net proceeds of the
May Offering, the Special Warrant Offering, the NACT Offering and the Princes
Gate Investment, other securities offering, if any, consummated in the future,
together with cash on hand and borrowings expected to be available under both
the Tomen Facility and the equipment financing arranged with Siemens and NTFC,
will provide sufficient funds for the Company to expand its business as
presently planned and to fund its operating expenses through June 1998.
Thereafter, the Company expects to require additional
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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 debt or equity financing by the Company or its subsidiaries, sales of
assets or other financing arrangements. There can be no assurance that such
additional financing would be available to the Company or, if available, that it
could be obtained on acceptable terms or within the limitations contained in the
Company's financing arrangements. Failure to obtain such financing could result
in the delay or abandonment of some or all of the Company's development and
expansion plans and expenditures and could have a material adverse effect on the
Company. Such failure could also limit the ability of the Company to make
principal and interest payments on its outstanding indebtedness, including the
Notes. 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
SUBSTANTIAL INDEBTEDNESS
At June 30, 1997, the Company had outstanding on a consolidated basis
approximately $587.2 million of indebtedness. In addition, the accretion of
original issue discount will cause a $130.4 million increase in liabilities
relating to the 1995 Notes by December 15, 2000. The Indenture and the 1995
Indentures limit, but do not prohibit, the incurrence of additional indebtedness
by the Company. At June 30, 1997, the Company had $67.7 million of availability
under the Tomen Facility to finance the development and construction of
additional networks, if and to the extent that proposals for funding projects
are approved by Tomen. Tomen has agreed in principle to provide the Company with
an additional $41.0 million of financing under the Tomen Facility for the
Hawaiian inter-island network and terrestrial fiber optic facilities. The
Company expects to incur substantial additional indebtedness in the future. The
Company has entered into the Siemens Loan Agreement that provides for up to an
aggregate of $226.0 million in equipment financing, of which $116.0 million is
presently available to the Company ($4.5 million of which had been provided as
of June 30, 1997). The Company may seek to increase the amount available up to
$226.0 million on an as-needed basis, subject to the negotiation and execution
of mutually satisfactory documentation. The Company also entered into the NTFC
Loan Agreement for up to $50.0 million of additional equipment financing (of
which $44.6 million had been provided as of June 30, 1997). There can be no
assurance that any additional financing will be available to the Company on
acceptable terms or at all. See "Description of Certain Indebtedness and
Redeemable Preferred Shares."
The level of the Company's indebtedness could have important consequences
to its future prospects, including the following: (i) limiting the ability of
the Company to obtain any necessary financing in the future for working capital,
capital expenditures, debt service requirements or other purposes; (ii)
requiring that a substantial portion of the Company's cash flow from operations,
if any, be dedicated to the payment of principal of and interest on its
indebtedness and other obligations; (iii) limiting its flexibility in planning
for, or reacting to changes in, its business; (iv) the Company will be more
highly leveraged than some of its competitors, which may place it at a
competitive disadvantage; and (v) increasing its vulnerability in the event of a
downturn in its business. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
POSSIBLE INABILITY TO SERVICE DEBT
In connection with the buildout of its networks and expansion of CLEC
services, the Company has been experiencing increasing negative EBITDA and the
Company's earnings before fixed charges were insufficient to cover fixed charges
for the nine months ended June 30, 1997, Fiscal 1996 and Fiscal 1995 by $76.5
million, $62.9 million and $13.8 million, respectively. There can be no
assurance that the Company will be able to improve its earnings before fixed
charges or EBITDA or that it will be able to meet its debt service obligations.
As the Company does not currently have a revolving credit facility, if a
shortfall occurs, alternative financing would be necessary in order for the
Company to meet its liquidity requirements and there can be no assurance that
such
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financing would be available. In such event, the Company could face substantial
liquidity problems. In addition, the Company anticipates that cash flow from
operations will be insufficient to repay the 1995 Notes and the Notes at
maturity in full and that such indebtedness will need to be refinanced. All of
the Company's existing indebtedness matures prior to the Notes and any
additional indebtedness incurred in the future may mature prior to the Notes and
will need to be refinanced prior to the maturity of the Notes. There can be no
assurance that the Company will be able to effect such refinancings. The ability
of the Company to meet its obligations and to effect such refinancings will be
dependent upon, among other things, the future performance of the Company, which
will be subject to prevailing economic conditions and to financial,business and
other factors, including factors beyond the control of the Company. Failure by
the Company to meet its obligations could result in a default on its
indebtedness, including the 1995 Notes and the Notes, which would permit the
holders of substantially all of the Company's indebtedness to accelerate the
maturity thereof. In such event, the Company may not be able to meet its
obligations on the Notes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Description of Certain Indebtedness
and Redeemable Preferred Shares."
INSUFFICIENCY OF ACQUIRED EQUIPMENT TO SATISFY THE NOTES UPON LIQUIDATION
In the event that GST Funding (or upon the assumption of the Notes by GST
USA, GST USA) were to be unable to pay amounts due under the Notes and
(following the assumption of the Notes by GST USA) GST were to default under the
Note Guarantee, holders of the Notes would be entitled to foreclose on the
Pledged Securities or Acquired Equipment and the Initial Note and the
Intercompany Notes (collectively, the "Collateral") to satisfy indebtedness
under the Notes. A substantial portion of the value of the Acquired Equipment
will consist of the cost of designing, constructing, acquiring, installing and
integrating such equipment. In addition, because the telecommunications industry
is subject to rapidly changing technologies and frequent new product
introductions, the value of the Acquired Equipment may decline over time. The
value of the Acquired Equipment may also decline due to the availability and
price of competing products and technologies, evolving industry standards and
regulatory requirements and depreciation. Further, a foreclosure will not result
in the realization of the full fair market value of the Acquired Equipment
because such value may be affected by the removal from an integrated network of
the Acquired Equipment and because of costs associated with such foreclosure.
Therefore, in the event of foreclosure, the value of the Acquired Equipment will
not satisfy the Notes in full.
Further, the right of the Trustee to repossess and dispose of the
Collateral upon the occurrence of a default under the Notes is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy proceeding
were to be commenced by or against GST Funding or, after the sale of any
Acquired Equipment to GST USA, GST USA, prior to the Trustee's having disposed
of the Collateral. Under Title XI of the United States Code (the "Bankruptcy
Code"), a secured creditor such as the Trustee is prohibited from disposing of
security repossessed from a debtor in a bankruptcy case without bankruptcy court
approval. Moreover, the Bankruptcy Code prohibits a secured creditor from
disposing of collateral even though the debtor is in default under the
applicable debt instruments if the secured creditor is given "adequate
protection." The meaning of the term "adequate protection" may vary according to
circumstances, but it is intended in general to protect the value of the secured
creditor's interest in the collateral and may include cash payments or the
granting of additional security, if and at such times as the court in its
discretion determines, for any diminution of the value of the collateral as a
result of the stay of disposition during the pendency of the bankruptcy case. In
view of the lack of a precise definition of the term "adequate protection" and
the broad discretionary powers of a bankruptcy court, it is impossible to
predict how long payment under the Notes could be delayed following commencement
of a bankruptcy case, whether or when the Trustee could dispose of the
Collateral or whether or to what extent holders of Notes would be compensated
for any delay in payment or loss of value of the Collateral through the
requirement of "adequate protection."
In addition, notwithstanding anything to the contrary described above,
unless an event of default under the Indenture shall have occurred and be
continuing, GST Funding or GST USA, as the case may be, will have the right to
remain in possession and retain exclusive control of the Acquired Equipment,will
have the right to freely utilize the Acquired Equipment and will have the right
to collect, invest and dispose of any income thereon.
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MAINTENANCE OF SECURITY INTEREST IN COLLATERAL
Under the terms of a Collateral Pledge and Security Agreement made by GST
Funding to the Trustee for the benefit of the holders of the Notes, GST Funding
and, upon the sale of the Acquired Equipment to GST USA, GST USA are required to
secure the Notes and the Intercompany Notes, respectively, by granting liens on
the Acquired Equipment. GST Funding and GST USA will be required to file UCC-1
Financing Statements in each state in which Acquired Equipment will be located
and to maintain such security filings in effect under the relevant provisions of
the Uniform Commercial Code as in effect in each such state. Although failure to
do so may result in an event of default under the Notes, such failure may allow
other creditors of GST Funding or, after the sale of the Acquired Equipment to
GST USA, GST USA, or owners or mortgagees of property on which Acquired
Equipment is installed, to obtain rights in such Acquired Equipment that are
equal or superior to those of the holders of the Notes. This could result in
some or all of the value of the Acquired Equipment not being available to the
holders of the Notes to satisfy the Notes in the event of a default. Such
failure could arise, among other reasons, because of the failure to file
continuation statements prior to the expiration of each five-year period after
the initial filing.
POSSIBLE INABILITY OF GST USA TO ASSUME AND GST TO GUARANTEE THE NOTES
The Indenture provides that GST USA will assume and become a direct obligor
on the Notes and GST will guarantee the Notes on May 13, 2000, or earlier, if
permitted under the 1995 Indentures. The Indenture provisions requiring GST USA
to assume, and GST to guarantee, the Notes, unless consents are obtained,
require GST to repay all indebtedness then outstanding that by its terms would
prohibit such assumption or guarantee. The failure of GST USA to assume the
Notes, or of GST to guarantee the Notes, would result in a default under the
Notes. See "Description of the New Notes -- Events of Default."
A default under the Notes could result in a default under other
indebtedness of the Company, including the 1995 Notes, which would permit the
holders of substantially all of the Company's indebtedness to accelerate the
maturity thereof. In the event of a default on the Notes prior to the time GST
USA becomes a direct obligor on the Notes, and in the event the holders of the
Notes or the Trustee foreclose on the collateral securing the Notes and such
collateral is insufficient to pay all amounts due on the Notes, the holders will
not have a claim against GST USA or GST under the Notes or the Notes Guarantee,
other than under the Initial Note and the Intercompany Notes pledged to secure
the Notes. However, the obligations of GST USA under the Initial Note and the
Intercompany Notes, and of GST under the guarantee thereof, may be less than the
principal of and accrued interest on the Notes. To the extent there is a
shortfall, GST USA and GST will not be liable to holders of the Notes for
amounts due on the Notes prior to the time that GST USA becomes a direct
obligor. GST Funding will have no assets other than the collateral securing the
Notes, which, upon foreclosure after a default upon the Notes, may not be
sufficient to repay all amounts due on the Notes. See "-- Insufficiency of
Acquired Equipment to Satisfy the Notes upon Liquidation."
FINANCIAL AND OPERATING RESTRICTIONS IMPOSED BY EXISTING INDEBTEDNESS
The Company's financing arrangements impose significant operating and
financial restrictions on the Company. Such restrictions affect, and in certain
cases significantly limit or prohibit, among other things, the ability of the
Company to incur additional indebtedness or to create liens on its assets, sell
assets, engage in mergers or acquisitions or make investments. Failure to comply
with any such covenant could result in a default thereunder, which could result
in an acceleration of such indebtedness. See "Description of Certain
Indebtedness and Redeemable Preferred Shares."
STRUCTURE OF GST FUNDING, GST USA AND GST; SECURED INDEBTEDNESS; RANKING OF
NOTES
GST and GST USA are each holding companies and none of GST, GST USA or GST
Funding conducts any operations. The principal assets of GST consist of the
common stock of GST USA, GST Action Telecom, GST Call America and TotalNet, and
the principal asset of GST USA consists of the common stock of its subsidiaries.
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Neither GST USA nor GST will be liable on the Notes until they are assumed by
GST USA. GST USA must rely upon payments from its subsidiaries to generate the
funds necessary to meet its obligations, including the payment of principal of
and interest on the Initial Notes and the Intercompany Notes and, after its
assumption thereof, the Notes. GST must rely upon dividends and other payments
from GST Action Telecom, GST Call America, TotalNet and GST USA's subsidiaries
should it be required to make any payments under the Note Guarantee. The
subsidiaries, however, are legally distinct from GST and GST USA and such
subsidiaries will have no obligation, contingent or otherwise, to pay amounts
due pursuant to the Notes or the Note Guarantee or to make funds available for
such payment, although GST USA will be obligated to make payments on the Initial
Note and any Intercompany Notes. See "-- Possible Inability of GST USA to Assume
and GST to Guarantee the Notes." GST USA's subsidiaries will not guarantee the
Notes. The ability of GST USA's subsidiaries to make such payments to GST USA
will be subject to, among other things, the availability of funds, the terms of
such subsidiaries' indebtedness and applicable state laws. Pursuant to credit
agreements under the Tomen Facility, GST USA's subsidiaries that own and operate
the Southern California,Tucson and Albuquerque networks may not pay any
dividends or make any distributions on their capital stock. Subsequent network
financings under the Tomen Facility are expected to include similar
prohibitions.
Claims of creditors of GST USA's subsidiaries, including trade creditors,
will generally have priority as to the assets of such subsidiaries over the
claims of GST Funding, GST USA and the holders of GST Funding's and GST USA's
indebtedness, including the Notes, the Initial Note, the Intercompany Notes and
the Note Guarantee. Accordingly, after GST USA becomes the obligor on the Notes,
the Notes and the Note Guarantee will be effectively subordinated to the
liabilities (including trade payables) of the subsidiaries of GST USA, except
with respect to any Acquired Equipment. At June 30, 1997, the subsidiaries of
GST USA other than GST Funding had approximately $114.4 million of liabilities
(excluding intercompany payables), including $90.5 million of indebtedness, all
of which was secured. To the extent the Collateral is foreclosed upon and is
insufficient to repay all amounts due with respect to the Notes, the holders of
the Notes would have a general, unsecured, unsubordinated claim against the
Issuer for the shortfall. See "--Insufficiency of Acquired Equipment to Satisfy
the Notes upon Liquidation" and"-- Possible Inability of GST USA to Assume and
GST to Guarantee the Notes."
DIFFICULTIES IN IMPLEMENTING LOCAL AND ENHANCED SERVICES
The Company has begun, and plans to continue, to deploy high capacity
digital switches in the cities in which it operates or plans to operate
networks, as well as in certain cities where the Company will rely on ILEC
facilities for transmission. This will enable the Company to offer a variety of
switched access services, enhanced services and local dial tone. The Company
expects negative EBITDA from its switched services during the 24 to 36 month
period after a switch is deployed. For switches operating in conjunction with
the 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 ILECs 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
the ILECs will be required to unbundle local tariffs and to permit the Company
to purchase only the origination and termination services it needs, thereby
decreasing operating expenses, there can be no assurance that such unbundling
will be effected in a timely manner and result in prices favorable to the
Company. In addition, the Company's ability to successfully implement its
switched and enhanced services will require the negotiation of resale agreements
with ILECs and other CLECs and the negotiation of additional interconnection
agreements with ILECs, which can take considerable time, effort and expense.
In August 1996, the FCC released a decision implementing the
interconnection portions of the Telecommunications Act (the "Interconnection
Decision"). The Interconnection Decision establishes rules for negotiating
interconnection agreements and guidelines for review of such agreements by state
public utilities commissions. On July 18, 1997, the United States Court of
Appeals for the Eighth Circuit (the "Eighth Circuit") vacated certain portions
of the Interconnection Decision, including provisions establishing a pricing
methodology
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for unbundled elements and a procedure permitting new entrants to "pick and
choose" among various provisions of existing interconnection agreements between
ILECs and their competitors. The Company had negotiated a number of
interconnection agreements with ILECs prior to this Eighth Circuit decision. The
Eighth Circuit decision creates uncertainty about the rules governing pricing,
terms and conditions of interconnection decisions, and could make negotiating
and enforcing such agreements more difficult and protracted and may require
renegotiation of existing agreements. There can be no assurance that the Company
will be able to obtain interconnection agreements on terms acceptable to the
Company. The FCC has announced that it will seek a writ of certiorari from the
Supreme Court. See"-- Competition."
The Company is a recent entrant into the newly created competitive local
telecommunications services industry. The local dial tone services market in
most states was only recently opened to competition due to the passage of the
Telecommunications Act and related regulatory rulings. There are numerous
operating complexities associated with providing these services. The Company
will be required to develop new products, services and systems and will need to
develop new marketing initiatives to sell these services.
The Company's switched services may not be profitable due to, among other
factors, lack of customer demand, inability to secure access to ILEC facilities
at acceptable rates, competition from other CLECs and pricing pressure from the
ILECs. The Company has very limited experience providing switched access and
local dial tone services and there can be no assurance that the Company will be
able to successfully implement its switched and enhanced services strategy. See
"Business -- Telecommunications Services Strategy."
Implementation of the Company's switched and enhanced services is also
subject to the Company's ability to obtain equipment financing for switches and
upon equipment manufacturers' ability to meet the Company's switch deployment
schedule. Although the Company presently has $111.5 million of proceeds
available under the Siemens Loan Agreement and $5.4 million available under the
NTFC Loan Agreement, there can be no assurance that switches will be deployed on
the schedule contemplated by the Company or that, if deployed, such switches
will be utilized to the degree contemplated by the Company.
RECENT COMMENCEMENT OF INTEGRATED MARKETING EFFORT
The Company has only recently begun an integrated marketing effort of its
telecommunication service offerings. Historically, the Company has marketed its
access services primarily to long distance carriers and significant end-users of
telecommunications services, and its long distance services to small businesses
and consumers. Although the Company expects to market a variety of
telecommunications services to all of its customers, there can be no assurance
that the Company will be able to attract and retain new customers or retain and
sell additional services to existing customers.
DEPENDENCE ON KEY CUSTOMERS
The Company's five largest telecommunications services customers accounted
for approximately 22.0%, 46.9% and 26.8% of the Company's consolidated
telecommunications services revenues for the nine months ended June 30, 1997,
Fiscal 1996 and Fiscal 1995, respectively. During Fiscal 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 Company's manufacturing
operations accounted for 13.4% and 16.1% of the Company's consolidated product
revenues for Fiscal 1996 and Fiscal 1995 respectively. The loss of, or decrease
of business from, one or more significant customers could have a material
adverse effect on the business, financial condition and results of operations of
the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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RISKS RELATING TO LONG DISTANCE BUSINESS
For Fiscal 1996 and the nine months ended June 30, 1997, long distance
represented 56.0% and 60.0% of the Company's consolidated telecommunications
services revenues, respectively. The long distance business is extremely
competitive and prices have declined substantially in recent years and are
expected to continue to decline. In addition, the long distance industry has
historically had a high average churn rate, as customers frequently change long
distance providers in response to the offering of lower rates or promotional
incentives by competitors. See "--Competition." The Company relies on other
carriers to provide transmission and termination services for a majority of its
long distance traffic. The Company has resale agreements with long distance
carriers to provide it with transmission services. Such agreements typically
provide for the resale of long distance services on a per minute basis with
minimum volume commitments. Negotiation of these agreements involves estimates
of future supply and demand for transmission capacity as well as estimates of
the calling pattern and traffic levels of the Company's future customers. In the
event the Company fails to meet its minimum volume commitments, it may be
obligated to pay underutilization charges and in the event it underestimates its
need for transmission capacity, the Company may be required to obtain capacity
through more expensive means. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."
DEPENDENCE ON BILLING, CUSTOMER SERVICES AND INFORMATION SYSTEMS
Sophisticated information and processing systems are vital to the Company's
growth and its ability to monitor costs, bill customers, provision customer
orders and achieve operating efficiencies. Billing and information systems for
the Company's historical lines of business have been produced largely in-house
with partial reliance on third-party vendors. These systems have generally met
the Company's needs due in part to the low volume of customer billing. As the
Company transitions to the provisioning of local services and as its long
distance and Internet operations continue to expand,the need for sophisticated
billing and information systems will increase significantly. The Company's plans
for the development and implementation of its billing systems rely, for the most
part, on the delivery of products and services by third party vendors.
Similarly, the Company is developing customer call centers to provision service
orders. Information systems are vital to the success of the call centers, and
the information systems for these call centers are largely being developed by
third party vendors. Failure of these vendors to deliver proposed products and
services in a timely and effective manner and at acceptable costs, failure of
the Company to adequately identify all of its information and processing needs,
failure of the Company's related processing or information systems, or the
failure of the Company to upgrade systems as necessary could have a material
adverse effect on the ability of the Company to reach its objectives, its
financial condition and its results of operations.
COMPETITION
The telecommunications industry is highly competitive. In most markets,the
Company's principal competitor for local exchange services is the Regional Bell
Operating Company ("RBOC") or GTE Corporation and its affiliated companies
(collectively, the "GTE Companies"). Other competitors may include other CLECs,
microwave and satellite carriers, wireless telecommunications providers and
private networks built by large end-users. Potential competitors (using similar
or different technologies) include cable television companies, utilities and
RBOCs outside their current local service areas. In addition, the Company
anticipates future competition from large long distance carriers, such as AT&T
Corp. ("AT&T"), MCI Communications Corporation ("MCI") and Sprint Corporation
("Sprint"), which have begun to offer integrated local and long distance
telecommunications services. AT&T also has 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
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services with revenues from a variety of businesses and currently benefit from
certain existing regulations that favor the ILECs over the Company in certain
respects. While recent regulatory initiatives,which allow CLECs such as the
Company to interconnect with ILEC facilities, provide increased business
opportunities for the Company, such interconnection opportunities have been
accompanied by increased pricing flexibility for and relaxation of regulatory
oversight of the ILECs.
To the extent the Company interconnects with and uses ILEC networks to
service its customers, the Company will be dependent upon the technology and
capabilities of the ILECs to meet certain telecommunications needs of the
Company's customers and to maintain its service standards. The Company will
become increasingly dependent on interconnection with ILECs as switched services
become a greater percentage of the Company's business. The Telecommunications
Act imposes interconnection obligations on ILECs, but there can be no assurance
that the Company will be able to obtain the interconnection it requires at
rates, and on terms and conditions, that permit the Company to offer switched
services at rates that are simultaneously competitive and profitable. See
"--Difficulties in Implementing Local and Enhanced Services." In the event that
the Company experiences difficulties in obtaining high quality, reliable and
reasonably priced service from the ILECs, the attractiveness of the Company's
services to its customers could be impaired.
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, the RBOCs are expected to become competitors in the long
distance telecommunications industry both outside of their service territory and
upon the satisfaction of certain conditions, within their service territory. SBC
has challenged the constitutionality of the provisions conditioning RBOC entry
into in-region long distance service. See "Business -- Regulation." As a result
of the Company's acquisition of Action Telcom, GST Call America, TotalNet and
the business of Texas-Ohio, the Company's long distance operations will account
for a significant portion of the Company's revenues. See "-- Risks Relating to
Long Distance Business." The Company believes that the principal competitive
factors affecting its long distance operations are pricing, customer service,
accurate billing, clear pricing policies and, to a lesser extent, variety of
services. The ability of the Company to compete effectively will depend upon its
continued ability to maintain high quality, market driven services at prices
generally equal to or below those charged by its competitors. To maintain its
competitive posture,the Company believes that it must be in a position to reduce
its prices in order to meet reductions in rates, if any, by others. Any such
reductions could adversely affect the Company.
The Internet services market is highly competitive. There are no
substantial barriers to entry, and the Company expects that competition will
continue to intensify. The Company's competitors in this market include Internet
service providers, other telecommunications companies, online services providers
and Internet software providers. Many of these competitors have greater
financial, technological and marketing resources than those available to the
Company.
The market for telecommunications products is highly competitive and
subject to rapid technological change. NACT expects competition to increase in
the future from existing competitors in the distributed switching systems market
and from other companies that may enter NACT's existing or future markets,
including major central office switch vendors. NACT currently competes with a
number of lower capacity switch manufacturers such as Communications Product
Development, Inc. ("CPDI"), Integrated Telephony Products, Inc. ("ITP") and PCS
Telecom, Inc. ("PCS Telecom"). NACT also competes with providers of open
architecture (programmable) hardware switching platforms that are enhanced by
applications providers and value added resellers. Such competitors include
Excel, Inc. ("Excel"), which has agreements with software application providers.
As NACT's business develops and it seeks to market its switches to a broader
customer base, NACT's competitors may include larger switch and
telecommunications equipment manufacturers such as Lucent Technologies Inc.,
Siemens AG, Alcatel Alsthom Compagnie, Ericcson and Northern Telecom, Ltd. Many
of NACT's current and potential
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competitors have substantially greater financial, technical and marketing
resources than NACT. Increased competition could materially and adversely affect
NACT's business, financial condition and results of operations through price
reductions and loss of market share. There can be no assurance that NACT will be
able to continue to compete successfully with its existing competitors or that
it will be able to compete successfully with new competitors.
The recent World Trade Organization ("WTO") agreement on basic
telecommunications services could increase the Company's competition for
telecommunication services both domestically and internationally. Under this
agreement, the United States and other members of the WTO committed themselves
to opening their telecommunications markets to competition and foreign ownership
and to adopting regulatory measures to protect competitors against
anticompetitive behavior by dominant telephone companies, effective in some
cases as early as January 1, 1998. See "Business -- Competition" and "--
Regulation."
GOVERNMENT REGULATION
The Company's networks and the provision of switched and private line
services are subject to significant regulation at the federal, state and local
levels. Delays in receiving required regulatory approvals or the enactment of
new adverse regulation or regulatory requirements may have a material adverse
effect upon the Company. The FCC exercises jurisdiction over the Company with
respect to interstate and international services. Additionally, the Company 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. On February 13,
1997, the United States Court of Appeals for the District of Columbia Circuit
stayed the FCC order. In addition, the Company must obtain prior FCC
authorization for installation and operation of international facilities and
international long distance services. State regulatory commissions exercise
jurisdiction over the Company to the extent it provides intrastate services. As
such a provider, the Company is required to obtain regulatory authorization
and/or file tariffs at state agencies in most of the states in which it
operates. Local authorities regulate the Company's access to municipal
rights-of-way. The networks are also subject to numerous local regulations such
as building codes and licensing. Such regulations vary on a city by city and
county by county basis. See"Business -- Regulation." There can be no assurance
that the FCC or state commissions will grant required authority or refrain from
taking action against the Company if it is found to have provided services
without obtaining the necessary authorizations. If authority is not obtained or
if tariffs are not filed, or are not updated, or otherwise do not fully comply
with the tariff filing rules of the FCC or state regulatory agencies, third
parties or regulators could challenge these actions. Such challenges could cause
the Company to incur substantial legal and administrative expenses.
The Telecommunications Act provides for a significant deregulation of the
domestic telecommunications industry, including the local exchange, long
distance and cable television industries. The Telecommunications Act remains
subject to judicial review and additional FCC rulemaking, and thus it is
difficult to predict what effect the legislation will have on the Company and
its operations. There are currently many regulatory actions underway and being
contemplated by federal and state authorities regarding interconnection pricing
and other issues that could result in significant changes to the business
conditions in the telecommunications industry. There can be no assurance that
these changes will not have a material adverse effect upon the Company.
In addition to requirements placed on ILECs, the Telecommunications Act
subjects the Company to certain federal regulatory requirements upon the
Company's provision of local exchange service in a market. All ILECs and CLECs
must interconnect with other carriers, provide nondiscriminatory access to
rights-of-way, offer reciprocal compensation for termination of traffic and
provide dialing parity and telephone number portability. The Telecommunications
Act also requires all telecommunications carriers to ensure that their services
are accessible to and usable by persons with disabilities. Under recently
announced FCC rules, the Company and other CLECs will be required to contribute
to a universal service fund provided for in the Telecommunications Act. The
decision adopting these rules has been appealed. The FCC recently issued rules
that require ILECs to reduce access charges paid by long distance carriers. Some
of the changes may also result in increased costs to the Company for the
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"transport" component of access charges. Pricing flexibility for the ILECs with
respect to access charges is not yet resolved. No assurance can be given that
the changes to current regulations or the adoption of new regulations (pursuant
to the Telecommunications Act or otherwise) by the FCC or state commissions will
not have a material adverse 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 GST
that conducts the Company's business in Hawaii, use, among other transmission
facilities, microwave radio facilities operating pursuant to FCC licenses
granted to Pacwest Network, Inc. ("PNI"), an entity that is controlled by John
Warta, the Company's Chairman of the Board and Chief Executive Officer. The FCC
also has the authority, which it is not presently exercising, to impose
restrictions on foreign ownership of communications service providers not
utilizing radio frequencies (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. See "Business -- Regulation."
NEED TO ADAPT TO TECHNOLOGICAL CHANGE
The telecommunications industry is subject to rapid and significant changes
in technology, with the Company relying on third parties for the development of
and access to new technology. The effect of technological changes on the
business of the Company cannot be predicted. The Company believes its future
success will depend, in part, on its ability to anticipate or adapt to such
changes and to offer, on a timely basis, services that meet customer demands.
The future success of NACT will depend in part upon its ability to keep
pace with advancing technology, evolving industry standards within the
telecommunications industry and changing customer requirements in a
cost-effective manner. There can be no assurance that NACT's products will not
be rendered obsolete by other telecommunications products incorporating
technological advances designed by competitors that NACT is unable to
incorporate into its products in a timely manner.
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. See "Business -- Legal Proceedings."
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
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abandon its networks in place, such termination could have a material adverse
effect on the Company.See "Business -- Legal Proceedings" and "-- Regulation."
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.
RISK OF JOINT INVESTMENTS
The Company has invested in one joint venture and may enter into additional
joint ventures in the future. There are risks in participating in joint
ventures, including the risk that the other joint venture partners may at any
time have economic, business or legal interests or goals that are inconsistent
with those of the joint venture or the Company. The risk is also present that a
joint venture partner may be unable to meet its economic or other obligations to
the joint venture and that the Company may be required to fulfill some or all of
those obligations. In addition, to the extent that the Company participates in
international joint ventures, the operations of such ventures will be subject to
various additional risks not present in domestic joint ventures, such as
fluctuations in currency exchange rates,nationalization or expropriation of
assets, import/export controls, political instability, limitations on foreign
investment, restrictions on the ability to convert currencies and the additional
expenses and risks inherent in conducting operations in geographically distant
locations with customers speaking different languages and having different
cultural approaches to the conduct of business.
As of June 30, 1997, the Company had invested approximately $3.7 million in
a publicly-traded Canadian corporation (subsequently renamed GST Global
Telecommunications Inc., "Global") and holds approximately 3.6 million shares.
In addition, the Company has warrants to purchase 750,000 additional shares. On
June 30, 1997, Global had approximately 12.6 million shares outstanding. Global
will issue to the Company additional common shares of Global, 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 Cable
and Wireless, Inc. ("Cable and Wireless") an 80% interest in Vitacom Corporation
("Vitacom"). Vitacom provides voice, high speed data information and other
services and manufactures and sells VSATs (very small aperture satellite
terminals) and other equipment used to access the Internet. See "Business -- GST
Global Telecommunications Inc."
RISKS OF INVESTMENT IN A CANADIAN CORPORATION
The Company is a Canadian corporation. Certain directors and officers and
certain of the Company's professionals are residents of Canada. As a result, it
may be difficult for U.S. noteholders 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 radio frequency licenses in the United
States.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains forward-looking statements. These forward-looking
statements reflect the Company's views with respect to future events and
financial performance. Actual results could differ materially
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from those projected in the forward-looking statements as a result of the risk
factors set forth above. The words, "believe," "expect" and "anticipate" and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of their dates. The Company undertakes no obligations to publicly update
or revise any forward-looking statements, whether as a result of new
information,future events or otherwise.
EXCHANGE OF NOTES
No gain or loss will be recognized by an exchanging Holder upon an exchange
of the Old Notes for the New Notes. A Holder's basis in the New Notes will be
the same as the Holder's basis in the Old Notes, and the Holder's holding period
in the New Notes will include the period during which the Old Notes had been
held by the Holder. If the exchange of the Old Notes for the New Notes were
deemed by the Internal Revenue Service (the "Service") to constitute the
exchange of a debt instrument for a modified instrument that differed materially
either in kind or in extent, additional original issue discount could arise.
However, under the relevant regulations issued by the Service, the New Notes
should not be deemed to constitute a modification of the Old Notes, inasmuch as
the New Notes reflect all of the terms and conditions of the Old Notes in
registered form, which registration results from the original terms of the Old
Notes.
LACK OF A PUBLIC MARKET
The New Notes will constitute a new issue of securities with no established
trading market. GST Funding is seeking to list the Old Notes on the Luxembourg
Stock Exchange. GST Funding does not intend to list the New Notes on any United
States securities exchange or to seek approval for quotation through any
automated quotation system. GST Funding has been advised by the Placement Agents
that following completion of the Exchange Offer, the Placement Agents intend to
make a market in the New Notes. However, the Placement Agents are not obligated
to do so and any market-making activities with respect to the New Notes may be
discontinued at any time without notice. Accordingly, no assurance can be given
that an active public or other market will develop for the New Notes or as to
the liquidity of or the trading market for the New Notes. If a trading market
does not develop or is not maintained, Holders of the New Notes may experience
difficulty in reselling the New Notes or may be unable to sell them at all. If a
market for the New Notes develops, any such market may cease to continue at any
time. If a public trading market develops for the New Notes, future trading
prices of the New Notes will depend on many factors, including, among other
things, prevailing interest rates, the Company's results of operations and the
market for similar securities and other factors, including the financial
condition of the Company.
CONSEQUENCES OF THE EXCHANGE OFFER TO NON-TENDERING HOLDERS OF THE OLD NOTES
In the event the Exchange Offer is consummated, GST Funding will not be
required to register any Old Notes not tendered and accepted in the Exchange
Offer. In such event, Holders of Old Notes seeking liquidity in their investment
would have to rely on exemptions to the registration requirements under the
Securities Act. Following the Exchange Offer, none of the Notes will be entitled
to the contingent increase in interest rate provided for (in the event of a
failure to consummate the Exchange Offer in accordance with the terms of the
Registration Rights Agreement) pursuant to the Registration Rights Agreement.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by GST Funding on May 13, 1997 to the Placement
Agents, which placed the Old Notes with certain institutional investors in
reliance on Section 4(2) of, and Rule 144A under, the Securities Act. In
connection with the sale of the Old Notes, GST Funding entered into the
Registration Rights Agreement, pursuant to which GST Funding, GST USA and GST
agreed to use their best efforts to consummate an offer to exchange the Old
Notes for the New Notes pursuant to an effective registration statement on or
before November 13, 1997. A copy of the Registration Rights Agreement has been
filed as an exhibit to this Registration Statement. Unless the context requires
otherwise, the term "Holder" with respect to the Exchange Offer means any person
in whose name Old Notes are registered on the books of GST Funding or any other
person who has obtained a properly completed bond power from the registered
Holder, or any person whose Old Notes are held of record by DTC who desires to
deliver such Old Notes by book-entry transfer at DTC.
GST Funding has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for sale, resold or otherwise transferred by any Holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Based on interpretations by the staff of the Commission set
forth in no-action letters issued to third parties, GST Funding believes that
New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any Holder of such New
Notes (other than any such Holder that is an "affiliate" of GST Funding, GST USA
or GST within the meaning of Rule 405 under the Securities Act and except in the
case of broker-dealers, as set forth below) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such Holder's
business and such Holder has no arrangement or understanding with any person to
participate in the distribution of such New Notes. Any Holder who tenders in the
Exchange Offer for the purpose of participating in a distribution of the New
Notes or who is an affiliate of GST Funding, GST USA or GST may not rely on such
interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. See "Plan of
Distribution."
By tendering in the Exchange Offer, each Holder of Old Notes will represent
to GST Funding, GST USA and GST that, among other things, (i) the New Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such New Notes, whether or not such
person is such Holder, (ii) neither the Holder of Old Notes, nor any such other
person, has an arrangement or understanding with any person to participate in
the distribution of such New Notes, (iii) if the Holder is not a broker-dealer,
or is a broker-dealer but will not receive New Notes for its own account in
exchange for Old Notes, neither the Holder, nor any such other person, is
engaged in or intends to participate in the distribution of such New Notes and
(iv) neither the Holder nor any such other person is an "affiliate" of GST
Funding, GST USA or GST within the meaning of Rule 405 under the Securities Act
or, if such Holder is an "affiliate," that such Holder will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
Following the consummation of the Exchange Offer, Holders of Old Notes not
tendered will not have any further registration rights and the Old Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for the Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, GST Funding will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. Subject to the minimum denomination requirements of the New
Notes, GST Funding will issue $1,000 principal amount of New Notes in exchange
for each $1,000 principal amount of
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outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or
all of their Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in integral multiples of $1,000 principal amount.
The forms and terms of the New Notes will be identical in all material
respects to the forms and terms of the corresponding Old Notes, except that the
offer and sale of the New Notes will have been registered under the Securities
Act and, therefore, the New Notes will not bear legends restricting the transfer
thereof. The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered for exchange. As of June 30, 1997,
$265,000,000 aggregate principal amount of the Old Notes were outstanding. This
Prospectus, together with the Letter of Transmittal, is being sent to all
Holders as of ________, 1997. Holders of Old Notes do not have any appraisal or
dissenters' rights under the Indenture in connection with the Exchange Offer.
GST Funding intends to conduct the Exchange Offer in accordance with the
applicable requirements of the Exchange Act and the applicable rules and
regulations of the Commission thereunder.
GST Funding shall be deemed to have accepted validly tendered Old Notes
when, as and if GST Funding has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
for the purpose of receiving the New Notes from GST Funding. If any tendered Old
Notes are not accepted for exchange because of an invalid tender, the occurrence
of certain other events set forth herein or otherwise, such unaccepted Old Notes
will be returned, without expense, to the tendering Holder thereof as promptly
as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. GST Funding will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
" -- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
_____________, 1997, [20 BUSINESS DAYS AFTER THE COMMENCEMENT OF THE EXCHANGE
OFFER] unless GST Funding in its sole discretion, extends the Exchange Offer, in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended. Although GST Funding has no current
intention to extend the Exchange Offer, GST Funding reserves the right to extend
the Exchange Offer at any time and from time to time by giving oral or written
notice to the Exchange Agent and by timely public announcement communicated,
unless otherwise required by applicable law or regulation, by making a release
to the Dow Jones News Service. During any extension of the Exchange Offer, all
Old Notes previously tendered pursuant to the Exchange Offer and not withdrawn
will remain subject to the Exchange Offer. The date of the exchange of the New
Notes for Old Notes will be the first AMEX trading day following the Expiration
Date.
GST Funding expressly reserves the right to (i) terminate the Exchange
Offer and not accept for exchange any Old Notes if any of the events set forth
below under " -- Conditions to the Exchange Offer" shall have occurred and shall
not have been waived by GST Funding and (ii) amend the terms of the Exchange
Offer in any manner that, in its good faith judgment, is advantageous to the
Holders of the Old Notes, whether before or after any tender of the Old Notes.
PROCEDURES FOR TENDERING
The tender to GST Funding of Old Notes by a Holder thereof pursuant to one
of the procedures set forth below will constitute an agreement between such
Holder and GST Funding in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal signed by such
holder. A Holder of the Old Notes may tender such Old Notes by (i) properly
completing and signing a Letter of Transmittal or a facsimile thereof (all
references in this Prospectus to a Letter of Transmittal shall be deemed to
include a facsimile thereof) and delivering the same, together with any
corresponding certificate or certificates representing the Old Notes being
tendered (if in certificated form) and any required signature guarantees, to the
Exchange Agent at its address set forth in the Letter of Transmittal on or prior
to the Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.
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If tendered Old Notes are registered in the name of the signer of the
Letter of Transmittal and the New Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in DTC whose name appears on a security listing as the owner of
Old Notes), the signature of such signer need not be guaranteed. In any other
case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to GST Funding and duly executed by
the registered Holder and the signature on the endorsement or instrument of
transfer must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or an "eligible guarantor institution" as defined by Rule 17Ad-15 under
the Exchange Act (any of the foregoing hereinafter referred to as an "Eligible
Institution"). If the New Notes and/or the Old Notes not exchanged are to be
delivered to an address other than that of the registered Holder appearing on
the register for the Old Notes, the signature in the Letter of Transmittal must
be guaranteed by an Eligible Institution.
THE METHOD OF DELIVERY OF OLD NOTES, LETTER OF TRANSMITTAL AND ALL OTHER
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT
TO GST FUNDING.
GST Funding understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish an account with respect
to the Old Notes at DTC for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in DTC's system may make book-entry delivery of Old Notes by causing
DTC to transfer such Old Notes into the Exchange Agent's account with respect to
the Old Notes in accordance with DTC's procedure for such transfer. Although
delivery of the Old Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, an appropriate Letter of Transmittal with any
required signature guarantee and all other revised documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at the address
set forth in the Letter of Transmittal on or prior to the Expiration Date, or,
if the guaranteed delivery procedures described below are complied with, within
the time period provided under such procedures.
If the Holder desires to accept the Exchange Offer and time will not permit
a Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its office, on or prior to the Expiration Date, a letter, telegram or facsimile
transmission from an Eligible Institution setting forth the name and address of
the tendering Holder, the name(s) in which the Old Notes are registered and the
certificate number(s) of the Old Notes to be tendered, and stating that the
tender is being made thereby and guaranteeing that, within three AMEX trading
days after the date of execution of such letter, telegram or facsimile
transmission by the Eligible Institution, such Old Notes, in proper form for
transfer (or a confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC), will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal (and
any other required documents). Unless Old Notes being tendered by the
above-described method are deposited with the Exchange Agent within the time
period set forth above (accompanied or preceded by a properly completed Letter
of Transmittal and any other required documents), GST Funding may, at its
option, reject the tender. Copies of a Notice of Guaranteed Delivery, which may
be used by Eligible Institutions for the purposes described in this paragraph,
are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering Holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at DTC), is received by the Exchange
Agent or (ii) a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided above) from an Eligible Institution
is received by the Exchange Agent. Issuances of New Notes in exchange for Old
Notes tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram
or facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against submission of a duly signed Letter of
Transmittal (and any other required documents) and deposit of the tendered Old
Notes.
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All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by GST Funding, whose determination will be final and binding. GST
Funding reserves the absolute right to reject any or all tenders not in proper
form or the acceptance for exchange of which may, in the opinion of GST
Funding's counsel, be unlawful. GST Funding also reserves the absolute right to
waive any of the conditions of the Exchange Offer or any defect or irregularity
in the tender of any Old Notes. None of GST Funding, the Exchange Agent or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or will incur any liability for failure to give any
such notification. Any Old Notes received by the Exchange Agent that are not
validly tendered and as to which the defects or irregularities have not been
cured or waived, or if Old Notes are submitted in an aggregate principal amount
greater than the aggregate principal amount of Old Notes being tendered by such
tendering Holder, will be returned by the Exchange Agent to the tendering
holders, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
In addition, GST Funding reserves the right in its sole discretion to (a)
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date and (b) to the extent permitted by applicable law, purchase
Old Notes in the open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers will differ from the terms of the
Exchange Offer.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Old Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to GST Funding and irrevocably constitutes
and appoints the Exchange Agent as the Transferor's agent and attorney-in-fact
to cause the Old Notes to be assigned, transferred and exchanged. The Transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the Old Notes and to acquire New Notes issuable
upon the exchange of such tendered Old Notes, and that, when the same are
accepted for exchange, GST Funding will acquire good and unencumbered title to
the tendered Old Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also warrants
that it will, upon request, execute and deliver any additional documents deemed
by GST Funding to be necessary or desirable to complete the exchange, assignment
and transfer of tendered Old Notes or transfer ownership of such Old Notes on
the account books maintained by DTC. All authority conferred by the Transferor
will survive the death, bankruptcy or incapacity of the Transferor and every
obligation of the Transferor will be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
Transferor.
By executing a Letter of Transmittal, each Holder will make to GST Funding,
GST USA and GST the representations set forth above under the heading " --
Purpose and Effect of the Exchange Offer."
WITHDRAWAL OF TENDERS
Tenders of Old Notes pursuant to the Exchange Offer are irrevocable, except
that Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date.
To be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by the Exchange Agent at the address set
forth in the Letter of Transmittal prior to 5:00 p.m., New York City time on the
Expiration Date. Any such notice of withdrawal must specify the holder named in
the Letter of Transmittal as having tendered Old Notes to be withdrawn, the
certificate numbers and designation of Old Notes to be withdrawn, the principal
amount of Old Notes delivered for exchange, a statement that such Holder is
withdrawing his election to have such Old Notes exchanged, and the name of the
registered Holder of such Old Notes, and must be signed by the Holder in the
same manner as the original signature on the Letter of Transmittal (including
any required signature guarantees) or be accompanied by evidence satisfactory to
GST Funding that the person withdrawing the tender has succeeded to the
beneficial ownership of the Old Notes being withdrawn. The Exchange Agent will
return the properly withdrawn Old Notes promptly following receipt of notice of
withdrawal.
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If Old Notes have been tendered pursuant to the procedure for book-entry
transfer, any notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawn Old Notes or otherwise comply
with DTC procedure. All questions as to the validity of notices of withdrawal,
including time of receipt, will be determined by GST Funding, and such
determination will be final and binding on all parties.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, GST Funding will not be required to issue New Notes in
exchange for any properly tendered Old Notes not theretofore accepted and may
terminate the Exchange Offer, or, at its option, modify or otherwise amend the
Exchange Offer, if either of the following events occur:
(a) any statute, rule or regulation shall have been enacted, or any action
shall have been taken by any court or governmental authority which, in the
sole judgment of GST Funding, would prohibit, restrict or otherwise render
illegal consummation of the Exchange Offer, or
(b) there shall occur a change in the current interpretation by the staff
of the Commission which, in GST Funding's sole judgment, might materially
impair GST Funding's ability to proceed with the Exchange Offer.
GST Funding expressly reserves the right to terminate the Exchange Offer
and not accept for exchange any Old Notes upon the occurrence of either of the
foregoing conditions (which represent all of the material conditions to the
acceptance by GST Funding of properly tendered Old Notes).
The foregoing conditions are for the sole benefit of GST Funding and may be
waived by GST Funding, in whole or in part, in its sole discretion. The
foregoing conditions must be either satisfied or waived prior to termination of
the Exchange Offer. Any determination made by GST Funding concerning an event,
development or circumstance described or referred to above will be final and
binding on all parties.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
BY MAIL (REGISTERED OR CERTIFIED MAIL RECOMMENDED):
United States Trust Company of New York
P.O. Box 844
Cooper Station
New York, New York 10276-0844
BY OVERNIGHT COURIER:
United States Trust Company of New York
770 Broadway, 13th Floor
Corporate Trust Operations Department
New York, New York 10003
BY HAND DELIVERY:
United States Trust Company of New York
111 Broadway
New York, New York 10006
Attn: Corporate Trust Services
BY FACSIMILE: (212) 852-1627 Confirm by Telephone: (800) 548-6565
(For Eligible Institutions Only)
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FEES AND EXPENSES
The expense of soliciting tenders will be borne by GST Funding. The
principal solicitation is being made by mail; however, additional solicitations
may be made by telegraph, telephone or in person by officers and regular
employees of GST Funding and its affiliates. No additional compensation will be
paid to any such officers and employees who engage in soliciting tenders.
GST Funding has not retained any dealer-manager or other soliciting agent
in connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptances of the Exchange Offer. GST Funding,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith. GST Funding may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, the Letter of
Transmittal and related documents to the beneficial owners of the Old Notes and
in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees of GST Funding, will be paid by GST Funding.
GST Funding will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, New Notes, or Old
Notes for principal amounts not tendered or accepted for exchange, are to be
delivered to, or are to be issued in the name of, any person other than the
registered Holder of the Old Notes tendered or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
Holder or any other persons) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes
as reflected in GST Funding's accounting records on the date of the exchange
because the exchange of the Old Notes for the New Notes is the completion of the
selling process contemplated in the issuance of the Old Notes. Accordingly, no
gain or loss for accounting purposes will be recognized. The expenses of the
Exchange Offer and the unamortized expenses related to the issuance of the Old
Notes will be amortized over the term of the New Notes.
OTHER
Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by GST Funding, GST USA or GST.
Neither the delivery of this Prospectus nor any exchange made hereunder shall,
under any circumstances, shall create any implication that there has been no
change in the affairs of GST Funding, GST USA or GST since the respective dates
as of which information is given herein. The Exchange Offer is not being made to
(nor will tenders be accepted from or on behalf of) Holders of Old Notes in any
jurisdiction in which the making of the Exchange Offer or the acceptance thereof
would not be in compliance with the laws of such jurisdiction. However, GST
Funding may, at its discretion, take such action as it may deem necessary to
make the Exchange Offer in any such jurisdiction and extend the Exchange Offer
to Holders of Old Notes in such jurisdiction.
As a result of the making of the Exchange Offer, GST Funding, GST USA and
GST will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of the Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights and
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limitations applicable thereto under the Indenture except for any such rights
under the Registration Rights Agreement and except that the Old Notes will not
be entitled to the contingent increase in interest rate provided for in the Old
Notes. All untendered Old Notes will continue to be subject to the restrictions
on transfer set forth in the Indenture and the Old Notes. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market, if
any, for untendered Old Notes could be adversely affected.
USE OF PROCEEDS
GST Funding will not receive any cash proceeds from the issuance of the New
Notes offered hereby. In consideration for issuing the New Notes as contemplated
in this Prospectus, GST Funding will receive in exchange Old Notes in like
principal amount, the terms of which are identical in all material respects to
the New Notes, except that the offer and sale of such New Notes will be
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof. Old Notes surrendered in exchange for New
Notes will be retired and canceled and cannot be reissued. Accordingly, issuance
of the New Notes will not result in a change in the indebtedness of the Company.
GST Funding received gross proceeds of approximately $265.0 million from
the May Offering. Of the net proceeds of the May Offering, approximately $41.5
million was utilized to refinance intercompany indebtedness, approximately $93.8
million was used to purchase Pledged Securities to fund the first six scheduled
interest payments on the Notes, approximately $54.3 million was used to purchase
Acquired Equipment as of June 30, 1997, and the balance will be used to finance
purchase and install telecommunications equipment such as fiber optic cable,
switches and other related equipment.
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SELECTED FINANCIAL DATA
GST FUNDING
The selected financial data set forth below for the period from March 5,
1997 (date of inception) to June 30, 1997 is derived from the audited financial
statements of GST Funding. The selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and the notes thereto
included elsewhere in this Prospectus.
Period from March 5, 1997 (date
of inception) to June 30, 1997
-------------------------------
STATEMENT OF OPERATIONS DATA:
Interest Income............................... $ 2,954
Interest expense.............................. (4,802)
Income tax expense............................ (1,004)
----------
Net loss...................................... (2,852)
=======
June 30, 1997
-------------------------------
BALANCE SHEET DATA:
Restricted cash and investments............... $204,761
Note receivable from parent (GST USA)......... 54,264
Total assets.................................. 269,409
Long term debt................................ 265,000
Common shares and additional paid-in-capital.. 1,000
Accumulated deficit........................... (2,852)
----------
Shareholder's deficit......................... (1,852)
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THE COMPANY
The selected financial data set forth below for the years ended August 31,
1992 and 1993, Fiscal 1994, Fiscal 1995 and Fiscal 1996 are derived from the
audited consolidated financial statements of the Company. The selected
consolidated financial data for the nine months ended June 30, 1996 and 1997 is
unaudited, but in the opinion of the management of the Company, reflects all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of results for interim periods. Operating results for interim
periods are not necessarily indicative of results to be expected for the full
fiscal year. The selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and the notes thereto
included elsewhere or incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
Year Thirteen Year Ended
Ended August 31, Months September 30, Nine Months Ended
------------------------ Ended ---------------------- -----------------------------
September
30, June 30, June 30,
1992(a) 1993 1994(b) 1995 1996 1996 1997
------------- ---------- ----------- ------------- -------- -------------- -------------
(in thousands)
STATEMENT OF OPERATIONS DATA:
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C>
Telecommunication services.. -- -- $ 111 $ 11,118 $ 31,726 $19,452 $ 58,738
Telecommunication products.. -- -- 5,890 7,563 9,573 5,772 16,186
-------- ------- ------- ------- --------- ------- --------
Total revenues............ -- -- 6,001 18,681 41,299 25,224 74,924
Operating loss income.......... $ (57) $ (418) (1,337) (11,631) (42,597) (25,278) (54,683)
Other expenses (income):
Interest income.............. (5) (35) (254) (303) (5,549) (4,209) (3,377)
Interest expense(c).......... -- -- 27 838 21,224 14,801 21,321
Other, net................... -- 439 1,878 1,347 2,360 1,534 (6,549)
Income tax expense............. -- $ -- 502(d) 166(d) 157 31 843
-------- ------ -------- --------- --------- --------- ---------
Net loss(e).................... $ (254)(f) 822 $(3,492) $(11,315) $(60,378) $(37,100) $(67,312)
====== ====== ======== ========= ========= ========= =========
Ratio of earnings to fixed -- -- -- -- -- -- --
charges(g).....................
OTHER DATA:
Capital expenditures........... -- $ 4 $ 1,431 $ 33,922 $ 97,569 44,018 168,441
EBITDA(h)...................... $ (57) (418) $ (779) $ (8,807) $(33,936) (19,620) (39,452)
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents...... $ 63 $4,746 $ 4,219 $ 6,024 $ 61,343 $ 123,526 $ 38,350
Restricted cash and investments $ -- $ -- $ -- $ -- $ 16,000 $ -- $ 209,174
Property and equipment......... -- 4 4,805 39,583 134,360 73,816 300,356
Accumulated depreciation....... -- -- 221 1,550 6,785 4,996 14,630
Investment in joint ventures(i) -- 4,616 3,552 2,859 1,364 1,873 0
Total assets................... 72 9,398 26,769 73,125 301,701 251,611 682,026
Current portion of long-term debt
and capital lease obligations -- -- -- 959 5,554 2,871 8,340
Long term debt and capital lease
obligations (excluding current
portion)..................... -- -- -- 19,746 234,127 223,229 578,832
Common Shares and commitment
to issue shares(j)........... 394 10,511 25,075 51,660 98,101 61,974 137,107
Accumulated deficit............ (327) (1,149) (4,640) (15,955) (76,333) (53,055) (143,645)
Shareholders' equity........... 67 9,362 20,435 35,705 21,768 8,919 (6,538)
</TABLE>
- ------------------
(a) The consolidated financial statements of the Company as at and for the
year ended August 31, 1992 have been prepared by the Company's
management in accordance with generally accepted accounting principles
in Canada. Such consolidated financial statements also conform, in all
material respects, with generally accepted accounting principles in the
United States ("U.S. GAAP").
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<PAGE>
(b) The Company changed its fiscal year end to September 30, effective in
1994. As a result, amounts reported for Fiscal 1994 are for the 13
months ended September 30, 1994. Results for Fiscal 1994 include the
acquisition of 60% of GST Telecom, the Company's subsidiary that owns
and operates each of the Company's networks, and, at various times
during fiscal 1994, an aggregate of 80% of NACT.
(c) Excludes capitalized interest of $291 for Fiscal 1995, $2,316 for
Fiscal 1996 and $1,706 for the nine months ended June 30, 1996 and
$10,387 for the nine months ended June 30, 1997. During the
construction of the Company's networks, the interest costs related to
construction expenditures are considered to be assets qualifying for
interest capitalization under FASB Statement No. 34 "Capitalization of
Interest Cost."
(d) During Fiscal 1994 and the first eight months of Fiscal 1995, the
Company owned less than 80% of GST Telecom and was therefore unable to
deduct for tax purposes the losses incurred by GST Telecom.
(e) Includes minority interest in (income) loss of subsidiaries of (i) ($2)
for Fiscal 1994, (ii) $2,364 for Fiscal 1995, (iii) $411 for Fiscal
1996, (iv) $335 for the nine months ended June 30, 1996 and (v) ($391)
for the nine months ended June 30, 1997.
(f) Includes $202 loss from discontinued operations.
(g) The ratio of earnings to fixed charges is computed by dividing pretax
income from continuing operations before fixed charges (other than
capitalized interest) by fixed charges. Fixed charges consist of
interest charges and amortization of debt expense and discount or
premium related to indebtedness, whether expensed or capitalized and
that portion of rental expense the Company believes to be
representative of interest. For Fiscal 1993, Fiscal 1994, Fiscal 1995,
Fiscal 1996, the nine months ended June 30, 1996 and the nine months
ended June 30, 1997, earnings were insufficient to cover fixed charges
by $.8 million, $3.0 million, $13.8 million, $62.9 million, $39.1
million and $76.5 million, respectively.
(h) EBITDA consists of loss before interest, income taxes, depreciation and
amortization and other income and expense. EBITDA is provided because
it is a measure commonly used in the industry. It is presented to
enhance an understanding of the Company's operating results and is not
intended to represent cash flow or results of operations in accordance
with generally accepted accounting principles for the periods
indicated. See the Company's consolidated financial statements and
notes thereto included elsewhere in this Prospectus.
(i) Represents principally the Company's then 50% ownership interest in
Phoenix Fiber, the owner and operator of the Phoenix network. The
Company acquired the remaining 50% interest in Phoenix Fiber effective
as of October 1, 1996.
(j) At June 30, 1997, the Company was committed to issue the following: (i)
a minimum of 174,906 Common Shares to the former shareholders of
TotalNet in October 1997 and (ii) a number of Common Shares with a
market value of $1.2 million, based on the then market value of the
Common Shares and payable at various times in Fiscal 1997 and Fiscal
1998, to the former shareholders of Tri-Star.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GST FUNDING
OVERVIEW
GST Funding was formed on March 5, 1997 for the purpose of issuing the
Old Notes and financing the purchase of Acquired Equipment. GST Funding acts as
purchasing agent for GST USA and sells to GST USA the equipment it purchases
with the proceeds from the May Offering. GST Funding has only a limited
operating history.
As of June 30, 1997, GST Funding has purchased approximately $54.3
million of equipment and holds restricted cash and investments of approximately
$204.8 million restricted for the acquisition of equipment and the payment of
interest. All of such equipment has been sold to GST USA in exchange for
Intercompany Notes. Ultimately, such equipment is leased by GST USA to the
various operating subsidiaries of the Company.
OPERATIONS
The operations of GST Funding are limited to (i) purchasing equipment,
(ii) selling equipment, (iii) receiving payments under Intercompany Notes, (iv)
making payments of interest and principal on the Notes, and (v) fulfilling its
obligations under the Indenture, the Pledge Agreement and the Registration
Rights Agreement.
LIQUIDITY AND CAPITAL RESOURCES
On May 13, 1997, GST Funding completed the May Offering, consisting of
$265.0 million in Notes. Of the $255.8 million of net proceeds from the issuance
of the Notes, as of June 30, 1997 approximately $41.5 million was used to
refinance intercompany indebtedness, approximately $93.8 million was used to
purchase Pledged Securities to fund the first six interest payments on the Notes
and approximately $54.3 million was used to purchase Acquired Equipment. The
Indenture governing the Notes includes restrictive covenants which, among other
items, limit or restrict additional indebtedness incurred by the Company,
investment in certain subsidiaries and the payment of dividends.
THE COMPANY
OVERVIEW
The Company provides a broad range of integrated telecommunications
products and services, primarily to customers located in the western continental
United States and Hawaii. The Company's digital networks currently serve cities
in Arizona, California, Hawaii, New Mexico and Washington. In addition, the
Company has networks under construction which, when completed, will serve
additional cities and expand its regional footprint to Idaho, Oregon, Utah and
five Hawaiian Islands. 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. In
addition, the Company produces advanced telecommunications switching platforms
with integrated applications software and network telemanagement capabilities.
The Company has invested significant capital and effort in developing
its telecommunications business. This capital has been invested in the
development of the Company's networks, for the hiring and development of an
experienced management team, the development and installation of operating
systems, the introduction of services, marketing and sales efforts and for
acquisitions. The Company expects to make increasing capital expenditures to
expand and interconnect its networks and broaden its service offerings and may
consummate additional acquisitions.
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<PAGE>
Proper management of the Company's growth will require the Company to maintain
quality control over its services and to expand the Company's internal
management, technical and accounting systems, all of which will require
substantial investment. See "Risk Factors -- Development and Expansion Risk and
Possible Inability to Manage Growth," "-- Significant Capital Requirements," "--
Dependence on Billing, Customer Services and Information Systems" and "--
Liquidity and Capital Resources."
Effective in 1994, the Company changed its fiscal year end to September
30, in order to conform more closely to the reporting periods of its
subsidiaries. As a result of the limited revenues and significant expenses
associated with the expansion and development of its networks and services, the
Company's operating results could vary significantly from period to period. See
"Risk Factors -- Variability of Quarterly Operating Results."
NETWORK OPERATIONS. The development, construction and expansion of the
Company's network business requires significant capital, a large portion of
which is invested before any revenue is generated. See "Risk Factors --
Significant Capital Requirements." The Company has experienced, and expects to
continue to experience, increasing negative EBITDA and losses while it expands
its network operations and builds its customer base. See "Risk Factors --
Historical and Anticipated Future Operating Losses and Negative EBITDA." None of
the Company's existing networks is generating EBITDA. Based on its experience to
date and that of its competitors, the Company estimates that a new network will
generate EBITDA within 30 to 36 months after commencement of commercial
operations. Construction periods and operating results will vary from network to
network. There can be no assurance that the Company will be able to establish a
sufficient revenue-generating customer base or achieve EBITDA in any particular
market or on a consolidated basis.
Management estimates that the total costs associated with the purchase
and installation of fiber optic cable and high-speed electronic transmission
equipment, including capitalized engineering costs, will range from $10.0
million to $25.0 million per network, depending upon the size of the market
served and the scope and complexity of the network. Actual costs may vary
significantly from this range. The amounts and timing of these expenditures are
subject to a variety of factors that may vary significantly by the geographic
and demographic characteristics of each market. In addition to capital
expenditure requirements, upon commencement of the construction phase of a
network, the Company begins to incur direct operating costs for such items as
salaries and rent. As network construction progresses, the Company incurs
rights-of-way costs and increased sales and marketing expenses. Certain direct
preoperating costs for new networks are capitalized until the network becomes
operational and are thereafter expensed as incurred.
The initial development of a network may take as long as six months,
depending upon the size and complexity of the network and a variety of factors,
including the time required to obtain rights-of-way and other governmental
approvals, such as franchise agreements. Once actual construction commences, it
may take from two to six months to complete the initial backbone segment of a
network. The time required during the construction phase is significantly
influenced by the number of route miles involved, the mix of aerial versus
underground fiber deployment, possible delays in receiving fiber optic cable,
electronic equipment and required permits and other factors.
LOCAL SERVICES. The Company plans to continue to install switching
equipment in its operational networks, in markets where it is constructing
networks and in certain other cities where the Company will rely on ILEC
facilities for transmission, as demand warrants. Once a switch is operational,
where regulatory conditions permit, the Company intends to offer local dial
tone, in addition to enhanced services such as ISDN, Centrex, voice mail and
other custom calling features.
The Company expects negative EBITDA from its switched services during
the 24 to 36 month period after a switch is deployed. For switches operating in
conjunction with the Company's networks, the Company expects operating margins
to improve as the network is expanded and larger volumes of traffic are carried
on the Company's network. Until such time, the Company will rely on the ILEC to
originate and terminate a significant portion of its
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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 the ILECs will be required to unbundle local tariffs,
permitting the Company to purchase only the origination and termination services
it needs, thereby decreasing operating expenses, there can be no assurance that
such unbundling will be effected in a timely manner and result in prices
favorable to the Company. See "Risk Factors -- Difficulties in Implementing
Local and Enhanced Services."
LONG DISTANCE SERVICES. The Company offers basic and enhanced long
distance services, such as toll free, calling card, prepaid calling card and
international call back services, targeting primarily business customers
purchasing between $200 and $15,000 of services per month as well as resellers
and other carriers. As part of the Company's strategy to become a provider of a
full range of telecommunications services and to offer total solutions to its
customer base, in May 1995, the Company acquired International Telemanagement
Group, Inc. ("ITG"), an international and domestic long distance carrier. During
Fiscal 1994, NACT began offering wholesale carrier and other services and
Wasatch International Network Services, Inc. ("WINS"), the Company's
wholly-owned subsidiary, began to offer enhanced long distance services. In the
second half of 1996, the Company expanded its long distance products and
services through the acquisitions of Action Telcom, GST Call America, TotalNet
and the business of Texas-Ohio. The Company provides services as a reseller
under agreements with certain major long distance carriers that provide the
Company with access to the carriers' networks at rates that are typically
discounted, varying with monthly traffic generated by the Company through each
carrier's network. The Company is obligated to satisfy certain minimum monthly
usage requirements through each network of $5.2 million per month over the next
three years. If such requirements are not satisfied, the Company is required to
pay an underutilization fee in addition to its monthly bill. See "Risk Factors
- -- Risks Relating to Long Distance Business."
INTERNET SERVICES. In March 1996, the Company acquired the business of
Hawaii On Line, the largest Internet access provider in Hawaii. The Company is
also presently providing Internet services to customers in Portland and
Vancouver (Washington). In addition to providing Internet access, the Company
presently offers Internet-related services such as Web site development and
hosting, provides EDI services and is in the process of developing various
Internet software applications. Management believes that these services will
become an important component of the Company's overall product offerings and
intends to continue to expand its Internet access and service business to other
markets.
DATA SERVICES. The Company offers national and international frame
relay services on its own frame relay network and through an interconnection
agreement with Intermedia. Under this agreement, the Company and Intermedia have
agreed to link their data networks and terminate one another's traffic. The
Company plans to offer additional services including ATM, high speed LAN
connectivity, video conferencing, multimedia networking and other bandwidth
intensive applications.
MANUFACTURING. In September 1993, the Company purchased a 52% interest
in NACT, which produces advanced telecommunications switching platforms with
integrated applications software and network telemanagement capabilities. During
Fiscal 1994, the Company acquired in a series of transactions an additional 28%
interest in NACT. The aggregate consideration paid for the Company's 80%
interest in NACT was $5.7 million, consisting of $3.1 million in cash and
451,536 Common Shares. On January 5, 1995, the Company purchased the remaining
20% interest in NACT for consideration consisting of $.8 million in cash and
notes payable and 504,747 Common Shares. In the third quarter of Fiscal 1996,
NACT introduced the STX, the first of a new generation of switches, which is
expected to be attractive to a broader group of customers. In the NACT Offering,
the Company and NACT sold one million and two million shares, respectively, of
NACT's common stock, resulting in gross proceeds to the Company and NACT of
$10.0 million and $20.0 million, respectively. As a result of the NACT Offering,
the Company's interest in NACT has been reduced to approximately 63%.
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RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1997 COMPARED
TO NINE MONTHS ENDED JUNE 30, 1996
REVENUES. Total revenues for the three and nine month periods ended
June 30, 1997 increased $16.7 million, or 160.7%, and $49.7 million, or 197.0%,
respectively, over the comparable three and nine month periods ended June 30,
1996. Telecommunications services revenues for the three and nine month periods
ended June 30, 1997 increased $12.8 million, or 161.2%, and $39.3 million, or
202.0%, respectively, over the comparable periods in the previous year. The
increase in telecommunications services revenues resulted from the inclusion of
revenues from strategic acquisitions, including GST Call America and TotalNet,
as well as increased CLEC service revenues generated by the Company's networks.
To a lesser extent, the increase in telecommunications services revenues
resulted from increased Internet, shared tenant and data services.
Telecommunications products revenues for the three and nine month periods ended
June 30, 1997 increased $3.9 million, or 159.1%, and $10.4 million, or 180.4%,
respectively, over the three and nine months ended June 30, 1996. The increase
in telecommunication products revenues resulted primarily from the introduction
in April 1996 of NACT's STX switch and subsequent increased unit sales. To a
lesser extent the increase in product revenues is due to the inclusion of newly
acquired Action Telcom's sales of network management and fraud protection
systems.
OPERATING EXPENSES. Total operating expenses for the three and nine
month periods ended June 30, 1997 increased $24.9 million, or 117.8%, and $79.1
million, or 156.6%, respectively, over the three and nine month periods ended
June 30, 1996. Network expenses, which include direct local and long distance
circuit costs, were 75.4% and 82.1%, respectively, of telecommunications
services revenues for the three and nine month periods ended June 30, 1997,
compared to 63.7% and 76.7% for the comparable periods in the previous year.
Facilities administration and maintenance expenses (consisting primarily of
costs related to personnel providing maintenance, monitoring and technical
assistance for the Company's networks) for the three and nine month periods
ended June 30, 1997 were 16.4% and 16.7%, respectively, of telecommunications
services revenues compared to 45.2% and 29.8% for the comparable periods ended
June 30, 1996. The primary reason for the increase in network expenses as a
percent of telecommunications services revenues and the decrease in facilities
administration and maintenance expenses as a percent of telecommunications
services revenues is the inclusion of revenue from 1996 strategic acquisitions,
a significant portion of which are generated from the resale of other carriers'
networks.
Cost of product revenues, which includes the costs associated with
product revenues of NACT and Action Telcom, were 29.6% and 34.3% of
telecommunications products revenues for the three and nine month periods ended
June 30, 1997, respectively, compared to 46.4% and 48.6% for the comparable
periods ended June 30, 1996. The decrease results primarily from economies of
scale related to increased unit sales of NACT's STX switch. Research and
development costs for the three and nine months ended June 30, 1997 increased
$.4 million and $.8 million, respectively, over the comparable periods in the
previous year. The increase is due to the addition of personnel to enhance the
current switch product line and to facilitate the development of new switching
products and applications.
Selling, general and administrative expenses for the three and nine
month periods ended June 30, 1997 increased $9.8 million, or 109.8%, and $28.7
million, or 138.8%, respectively, over the three and nine months ended June 30,
1996. The increase is due to the expansion of the Company's CLEC and enhanced
services operations, and to the acquisition of four companies over the past 12
months. The implementation of the Company's integrated services strategy has
resulted in additional marketing, management information and sales staff.
Depreciation and amortization for the three and nine month periods
ended June 30, 1997 increased $3.6 million and $9.5 million, respectively, over
the comparable periods in the previous year. The increase is attributable to
newly-constructed networks becoming operational and to the amortization of
intangible assets related
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to the Company's acquisitions. The Company expects that depreciation will
continue to increase as it expands its networks and increases switched services.
OTHER EXPENSES/INCOME. For the three and nine months ended June 30,
1997, the Company recorded net other expense of $8.8 million and $11.4 million,
respectively, compared to net other expense of $5.9 million and $12.1 million
for the comparable periods ended June 30, 1996. For the nine month period, the
reason for the improvement in net other expenses as compared to the previous
year was a $7.4 million gain recognized on the sale of one million of the
Company's shares of NACT in February 1997. If the gain had been excluded, other
expenses for the nine month period ended June 30, 1997 would have increased $6.7
million over the nine month period ended June 30, 1996. Such increase primarily
resulted from increased interest expense due to the issuance of $180 million of
1995 Notes in December 1995 and the issuance of $265 million of Old Notes in May
1997. For the three month period, the increase in other expenses as compared to
the same period of the previous year is primarily due to the interest related to
the May Offering.
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUES. Total revenues for Fiscal 1996 increased $22.6 million, or
121.0%, to $41.3 million from $18.7 million for Fiscal 1995. Telecommunications
services revenues for Fiscal 1996 increased $20.6 million, or 185%, to $31.7
million from $11.1 million for Fiscal 1995. The increase in telecommunications
services revenues resulted from the continuing growth of long distance
(including revenues associated with Fiscal 1995 and 1996 acquisitions), local,
Internet and data services. Acquisitions (primarily the acquisition of ITG but
also the acquisitions of GST Call America and the businesses of Hawaii On Line
and Texas-Ohio) accounted for $15.1 million of the increase in such revenues.
See "Business -- Telecommunications Services Strategy -- Long Distance
Services." Telecommunications products revenues for Fiscal 1996 increased $2.0
million, or 26.6% over Fiscal 1995. The increase in telecommunications products
revenues resulted from the introduction by NACT of the STX product line in the
third quarter of Fiscal 1996.
OPERATING EXPENSES. Total operating expenses for Fiscal 1996 increased
$53.6 million, or 176.8%, to $83.9 million from $30.3 million for Fiscal 1995.
Network expenses, which include direct local and long distance circuit costs,
increased $16.5 million to $26.6 million from $10.1 million for Fiscal 1995, due
to an expanded customer base and increased usage. As a percentage of
telecommunications services revenues, network expenses decreased from 90.9% for
Fiscal 1995 to 83.8% for Fiscal 1996. Facilities administration and maintenance
expenses for Fiscal 1996 increased $8.2 million to $10.3 million from $2.1
million for Fiscal 1995. As a percentage of telecommunications services
revenues, facilities administration and maintenance expenses increased from
18.9% for Fiscal 1995 to 32.5% for Fiscal 1996. The increase related to
additional personnel and facility costs required by continuing network
expansion, a substantial portion of which are incurred before the realization of
revenues.
Cost of product revenues at NACT for Fiscal 1996 increased $.9 million
to $4.0 million from $3.1 million for Fiscal 1995. As a percentage of
telecommunications products revenues for Fiscal 1996, cost of product revenues
increased nominally as compared to Fiscal 1995 due to initial lower margins
resulting from the discontinuance of NACT's former switch product line as it
began to offer the new STX to existing customers. Research and development costs
increased nominally for Fiscal 1996 relative to Fiscal 1995 as the Company moved
to more rapidly develop an improved billing system product and to maintain
ongoing research and development of the Company's existing hardware and software
product lines.
Selling, general and administrative expenses increased $22.0 million,
or 193.5%, to $33.4 million from $11.4 million for Fiscal 1995. The increase was
due to the expansion of the Company's CLEC and enhanced services operations, and
to a lesser extent, the acquisitions during Fiscal 1996 of GST Call America and
Tri-Star and the businesses of Hawaii On Line and Texas-Ohio. The implementation
of the Company's integrated services strategy has resulted in additional
marketing, management information and sales staff.
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Depreciation and amortization for Fiscal 1996 increased $5.9 million to
$8.3 million from $2.4 million for Fiscal 1995 due to increased depreciation
resulting from newly constructed networks becoming operational. To a lesser
extent, the increase in depreciation and amortization was also due to increased
amortization of intangible assets resulting from acquisitions.
OTHER EXPENSES. Other expenses for Fiscal 1996 increased $16.1 million
to $18.0 million from $1.9 million for Fiscal 1995. The increase was principally
the result of additional interest expense associated with the 1995 Notes, offset
by interest income resulting from the investment of the proceeds of the 1995
Notes Offering.
FISCAL 1995 COMPARED TO FISCAL 1994
REVENUES. Revenues for Fiscal 1995 increased $12.7 million, or 211.3%,
to $18.7 million from $6.0 million for Fiscal 1994. The increase resulted from a
$11.0 million increase in telecommunications services revenues and a $1.7
million, or 28.4%, increase in product revenues of NACT. Telecommunications
service revenues increased $10.6 million as a result of wholesale carrier
services revenues generated by WINS and NACT, which began to offer such services
during Fiscal 1995, and long distance and other service revenues of ITG, which
was acquired effective May 1, 1995. In addition, an increase of $.4 million was
the result of revenues generated by the Hawaiian digital microwave and the
Southern California networks. The Southern California networks became
operational in Fiscal 1995. The increase in manufacturing revenues was due to
increased unit sales of telecommunications switching and network management and
billing systems.
OPERATING EXPENSES. Total operating expenses for Fiscal 1995 increased
$23.0 million, or 315.0%, to $30.3 million from $7.3 million for Fiscal 1994.
Network expenses for Fiscal 1995 increased $10.0 million to $10.1 million from
$.1 million for Fiscal 1994 due to expansion of network operations, the
acquisition of ITG and the commencement of wholesale carrier services at WINS
and NACT. Facilities administration and maintenance expenses totaled $2.1
million for Fiscal 1995, compared to only $26,000 for Fiscal 1994. The increase
was due to significant network expansion in Fiscal 1995, whereas Fiscal 1994
results included only three months of engineering expenses at the Company's
Hawaiian network.
Cost of product revenues at NACT for Fiscal 1995 increased to $3.1
million, or 40.9% of product revenues, for Fiscal 1995 from $2.1 million, or
36.3% of product revenues, for Fiscal 1994. Research and development
expenditures of NACT increased by $.6 million, or 84.4% to $1.3 million for
Fiscal 1995 from $.7 million for Fiscal 1994 due to the continuing development
of the STX, which was introduced in Fiscal 1996.
Selling, general and administrative expenses increased $7.4 million to
$11.4 million for Fiscal 1995 from $4.0 million for Fiscal 1994. The increase
was principally the result of higher salary and benefit costs incurred in Fiscal
1995 as the Company added a significant number of sales, marketing and
management employees in connection with network expansion. Also contributing to
the increase in selling, general and administrative expenses were higher
professional fees and travel costs related to expansion of CLEC operations. In
addition, bad debt expense increased $1.3 million in Fiscal 1995 principally due
to a reserve for doubtful accounts for an ITG customer.
Depreciation and amortization increased $2.0 million to $2.4 million
for Fiscal 1995 from $0.4 million for Fiscal 1994 as a result of amortization of
intangible assets related to acquisitions and depreciation of newly-operational
networks.
OTHER EXPENSES. Other expenses increased $.2 million to $1.9 million
for Fiscal 1995 from $1.7 million for Fiscal 1994. Contributing to the increase
was an $.8 million increase in interest expense resulting from borrowings under
the Tomen Facility and a $.5 million write-off of investments. Offsetting these
increases was a $.4 million decrease in the loss on joint ventures due to
improved operating results at the Phoenix Fiber network.
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Additionally, in Fiscal 1994 the Company wrote-off $.7 million in pre-operating
costs at GST Telecom. No such losses were realized in Fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred significant operating and net losses as a
result of the development and operation of its networks. The Company expects
that such losses will continue as the Company emphasizes the development,
construction and expansion of its networks and builds its customer base, and
that cash provided by operations will not be sufficient to fund the expansion of
its networks and services.
Net cash provided by financing activities from borrowings and equity
issuances to fund capital expenditures, acquisitions and operating losses was
$276.9 million and $192.7 million for the nine month periods ended June 30, 1997
and 1996, respectively. The Company's net cash used in operating and investment
activities was $299.9 million and $75.2 million for the nine month periods ended
June 30, 1997 and 1996, respectively.
Capital expenditures for the nine months ended June 30, 1997 and 1996
were $168.4 million and $44.0 million, respectively. The Company estimates
capital expenditures of between $225 million and $250 million for Fiscal 1997
and $150 million for Fiscal 1998. The majority of these expenditures is expected
to be made for network construction and the purchase of switches and related
equipment to facilitate the offering of the Company's services. Continued
significant capital expenditures are expected to be made thereafter. In
addition, the Company expects to continue to incur operating losses while it
expands its business and builds its customer base. Actual capital expenditures
and operating losses will depend on numerous factors beyond the Company's
control, including economic conditions, competition, regulatory developments and
the availability of capital.
In October 1996, the Company completed the Special Warrant Offering,
consisting of two million Common Shares and warrants to purchase up to an
additional one million Common Shares at $13.00 per share for one year from the
date of issuance. The Company received $20.8 million in net proceeds conjunction
with the sale of the two million Common Shares.
In September 1996, the Company entered into the Siemens Loan Agreement
that provides for loans by Siemens of up to an aggregate of $226 million to
finance the purchase of Siemens equipment and certain equipment from other
suppliers. $116 million of such loan proceeds is presently available to the
Company. The Company may seek to obtain the balance of such proceeds on an as
needed basis, subject to the negotiation and execution of mutually satisfactory
documentation. In December 1996, the Company entered into the NTFC Loan
Agreement, which provides for $50 million of equipment financing to finance the
purchase of equipment and products from Nortel. As of June 30, 1997, the Company
has borrowed $4.5 million and $44.6 million from Siemens and NTFC, respectively,
pursuant to these agreements. See "Description of Certain Indebtedness and
Redeemable Preferred Shares -- Equipment Financing."
In February 1997, the Company consummated the Princes Gate Investment,
a private placement of $50 million of Redeemable Preferred Shares. The
Redeemable Preferred Shares, which are convertible at any time after February
28, 2000 at an imputed price of $11.375 per share, will not pay dividends in
cash, except to the extent cash dividends are paid on Common Shares. In
addition, the liquidation and redemption prices of the Redeemable Preferred
Shares will accrete at a semi-annual rate of 11 7/8%. On February 28, 2004, and
under certain circumstances, the Redeemable Preferred Shares will also be
subject to mandatory conversion or redemption, provided that to the extent the
Company is prohibited from paying the redemption price in cash, holders of the
Redeemable Preferred Shares may elect to convert such shares into Common Shares
and if such election is not made, the Company may extend the mandatory
redemption date to August 28, 2007. See "Description of Certain Indebtedness and
Redeemable Preferred Shares -- Redeemable Preferred Shares."
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In February 1997, NACT completed an initial public offering of its
common stock pursuant to which the Company and NACT sold one million and two
million shares, respectively, of NACT's common stock, resulting in net proceeds
to the Company and NACT of approximately $9.1 million and $18.2 million,
respectively.
In May 1997, GST Funding completed the May Offering of $265 million of
the Old Notes. Of the $255.8 million of net proceeds from the issuance of the
Notes, as of June 30, 1997 approximately $41.5 million was used to refinance
intercompany indebtedness, approximately $93.8 million was used to purchase
Pledged Securities to fund the first six interest payments on the Notes and
approximately $54.3 million was used to purchase Acquired Equipment. The
Indenture and the 1995 Indentures include restrictive covenants which, among
other items, limit or restrict additional indebtedness incurred by the Company,
investment in certain subsidiaries, the sale of assets and the payment of
dividends.
The Company proposes to incur significant additional indebtedness to
purchase telecommunications equipment such as switches and fiber optic cable and
to finance related design, development, construction, installation and
integration costs. The Company may make public and private offerings of its debt
and equity securities and may negotiate additional credit facilities.
At June 30, 1997, the Company had cash, cash equivalents, and
investments, including restricted cash and investments, of $249.8 million,
compared to $82.5 million at September 30, 1996. Management believes that the
cash on hand, borrowings expected to be available under the Tomen Facility, the
NTFC agreement and the Siemens agreement, and proceeds from securities
offerings, if any, will provide sufficient funds for the Company to expand its
business as presently planned and to fund its operating expenses through June
1998. Thereafter, the Company expects to require additional financing. In the
event that the Company's plans or assumptions change or prove to be inaccurate,
or its cash resources, together with borrowings under the current financing
arrangements prove to be insufficient to fund the Company's growth and
operations, or if the Company consummates additional acquisitions, the Company
may be required to seek additional sources of capital sooner than currently
anticipated. There can be no assurance that the Tomen Facility or other
financing will be available to the Company or, if available, that it can be
concluded on terms acceptable to the Company or within the limitations contained
within the Company's financing arrangements. Failure to obtain such financing
could result in the delay or abandonment of some or all of the Company's
development or expansion plans and could have material adverse effect on the
Company's business. Such failure could also limit the ability of the Company to
make principal and interest payments on its outstanding indebtedness. The
Company has no 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.
The Company's liquidity substantially improved as a result of the 1995
Notes Offering and the May Offering because the 1995 Notes do not require the
payment of cash interest prior to June 2001 and the 1995 Notes and Notes do not
require the payment of principal until maturity in 2005 and 2007, respectively.
However, a portion of the indebtedness under the Tomen Facility and a portion of
the equipment financing will mature prior to 2005. Accordingly, the Company may
need to refinance a substantial amount of indebtedness. In addition, the Company
anticipates that cash flow from operations will be insufficient to repay the
1995 Notes and Notes in full at maturity and that such notes will need to be
refinanced. The ability of the Company to effect such refinancings will be
dependent upon the future performance of the Company, which will be subject to
prevailing economic conditions and to financial, business and other factors,
including factors beyond the control of the Company. There can be no assurance
that the Company will be able to improve its earnings before fixed charges or
that the Company will be able to meet its debt service obligations, including
its obligations under the Tomen Facility, the 1995 Notes, the Notes or its
equipment financing.
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NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard No. 128. "Earnings per Share"
("SFAS 128"). This statement establishes a different method of computing net
income per share than is currently required under the provisions of Accounting
Principles Board Opinion No. 15. Under SFAS 128. the Company will be required to
present both basic net income per share and diluted net income per share. Basic
net income per share is expected to be comparable or slightly higher than the
currently presented net income per share as the effect of dilutive stock options
will not be considered in computing basic net income per share. Diluted net
income per share is expected to be comparable or slightly lower than the
currently presented net income per share since the diluted calculation will also
use the average market price instead of the higher of the average or ending
market price for its calculations. The Company expects to adopt SFAS 128 in the
first quarter of fiscal 1998 and, at that time, all historical net income per
share data presented will be restated to conform to the provisions of SFAS 128.
INCOME TAXES AND ADOPTION OF NEW ACCOUNTING STANDARDS
At September 30, 1996, the Company had a U.S. net operating loss
carryforward of approximately $45.0 million and a Canadian net operating loss
carryforward of approximately Cdn. $6.8 million. While such loss carryforwards
are available to offset future taxable income of the Company, the Company does
not expect to generate sufficient taxable income so as to utilize all or a
substantial portion of such loss carryforwards prior to their expiration.
Further, the utilization of net operating loss carryforwards against future
taxable income is subject to limitation if the Company experiences an "ownership
change" as defined in Section 382 of the Code and the analogous provision of the
Canada Act.
In March 1995, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets Disposed Of." SFAS No. 121 provides specific guidance
regarding when impairment of long-lived assets such as plant, equipment and
certain intangibles including goodwill should be recognized and how impairment
losses of such assets should be measured. SFAS No. 121 is effective for fiscal
years beginning after December 15, 1995. The Company is preparing to adopt SFAS
No. 121 in Fiscal 1997 and expects the impact on its statements of operations
will not be material.
In October 1995, the FASB issued Statement No. 123 "Accounting for
Stock-Based Compensation," which must be adopted by the Company. As permitted by
FASB Statement No. 123, the Company has elected not to implement the fair value
based accounting method for employee stock options and will disclose, commencing
in Fiscal 1997, the pro forma net income and earnings per share as if such
method had been used to account for stock-based compensation cost.
MATERIAL CHANGES
In May 1997, GST sold $265,000,000 of the Old Notes pursuant to the
Indenture in the May Offering. The proceeds were used as described in "Use of
Proceeds."
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BUSINESS
OVERVIEW
The Company provides a broad range of integrated telecommunications
products and services, primarily to customers located in the western continental
United States and Hawaii. As a CLEC, the Company operates state-of-the-art,
digital telecommunications networks that provide an alternative to ILECs. The
Company provides, through its established sales channels, telecommunications
services that include long distance, Internet and data transmission services and
recently introduced local dial tone services. The Company also produces advanced
telecommunications switching platforms with integrated applications software and
network telemanagement capabilities through its equipment subsidiary, NACT.
The Company's digital networks currently serve cities in Arizona,
California, Hawaii, New Mexico and Washington. In addition, the Company has
networks under construction which, when completed will serve 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 of additional networks within its region while
significantly expanding its product and service offerings, primarily with
respect to the provision of local services.
GST Funding is a special purpose finance subsidiary of the Company,
formed to issue the Old Notes, to purchase equipment with the proceeds of the
May Offering, GST Funding acts as a purchasing agent for GST USA and sells to
GST USA the equipment it purchases. Ultimately, such equipment is leased to the
operating subsidiaries of the Company by GST USA.
TELECOMMUNICATIONS SERVICES MARKET
As reported by the FCC, ILECs in the United States generated
approximately $96.8 billion in revenue in 1995 from the provision of local
exchange services. Local exchange services consist of a number of service
components and are defined by specific regulatory classifications. For 1995,
total revenue by service was (i) interstate dedicated access service (i.e.,
connecting a customer to a long distance carrier's facilities) revenues of $3.0
billion; (ii) interstate switched access service (i.e., originating and
terminating calls from a long distance carrier) revenues of $12.2 billion; (iii)
end-user fees (i.e., access charges paid by the consumer for the use of the
ILECs' networks) of $7.1 billion; (iv) basic local service (including dial tone,
local area charges, dedicated point-to-point intraLATA service and enhanced
calling features) revenues of $46.1 billion; (v) intraLATA toll call revenues of
$10.8 billion; (vi) intrastate switched access (i.e., local origination and
termination for long distance carriers for calls within a state) revenues of
$7.4 billion; and (vii) miscellaneous (including provisions of directories,
billing and collection services and corporate operations) revenues of $10.3
billion. In addition, the FCC reported that total toll service revenues in the
United States in 1995 were $83.8 billion.
Until recently, the competitive access provider ("CAP")/CLEC industry
has generally been limited to providing special access services and private line
services to corporations and government agencies physically located on the
network of the CAP/CLEC. The Telecommunications Act opens local service markets
to competition by preempting state and local laws, to the extent that they
prevent competitive entry with respect to the provision of any
telecommunications service, and imposes a variety of new duties on ILECs in
order to promote competition in local exchange and access services.
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TELECOMMUNICATIONS NETWORKS
The Company's networks comprise fiber optic cables, microwave or other
wireless facilities, integrated switching facilities, advanced electronics, data
switching equipment, transmission equipment and associated wiring and equipment.
The Company typically designs its networks with a ring architecture with
connectivity to the ILEC's central offices, points-of-presence ("POPs") of long
distance carriers and large concentrations of telecommunication intensive
end-users.
The Company's decision to construct a network in a particular locale is
preceded by a review of the area's demographic, economic and competitive
characteristics and telecommunications requirements. The characteristics
examined include location and concentration of potential business, governmental
and academic end-users, the locale's economic prospects, information regarding
demand for the various services offered by the Company and actual and potential
ILEC, CLEC and other competitors. Market demand is estimated using market
research conducted by the Company and from information such as demand sets
provided by interexchange carriers ("IXCs").
TELECOMMUNICATIONS NETWORK STRATEGY
The Company's network strategy is to continue to develop and expand its
network infrastructure to ultimately assemble, through a combination of owned
and leased facilities and joint ventures, an integrated regional network for the
on-net provision of CLEC services, including local, long distance, Internet
access and data services. The Company will continue to focus on the western
United States in order to take advantage of its strategically advantageous
position in California and Hawaii and the substantial telecommunications traffic
that exists among the western United States, Mexico, the Pacific Rim and western
Canada.
TELECOMMUNICATIONS SERVICES STRATEGY
In conjunction with its network expansion, the Company has developed a
strategy to leverage its existing infrastructure, customer base and experience
by providing a broad range of integrated telecommunications services to meet the
voice and data needs of its end-user customers. The Company's sales force
primarily focuses on business, government and academic end-users within its
region that have significant telecommunications requirements. To meet these
customers' needs, the Company offers a number of CLEC services including:
LOCAL SERVICES
Local services involve the transmission of voice, video or data to long
distance carrier-specified or end-user-specified termination sites. By contrast,
the special access services historically provided by the Company and other CLECs
involve a fixed communications link, usually between a specific end-user and a
specific long distance carrier's POP. With a switch, it is possible for the
Company to direct a long distance carrier's traffic to any end-user provided the
end-user is connected to the Company's network directly or indirectly through an
ILEC's network with which the Company has an interconnection agreement. Under
current federal regulations, the Company is permitted to provide a full range of
interstate switched access and enhanced services. In addition, a switch gives
the Company the technological capability to provide the full range of local
telephone services, although state authority is necessary for intrastate service
offerings. See "--Regulation."
The Company plans to continue to install switching equipment in its
operational networks, in markets where it is constructing networks and in
certain other cities where the Company will rely on ILEC facilities for
transmission, as demand warrants. Once a switch is operational, where regulatory
conditions and interconnection agreements permit, the Company intends to offer
local dial tone, in addition to enhanced services such as ISDN, Centrex, voice
mail and other custom calling features. See "Risk Factors -- Difficulties in
Implementing Local and Enhanced Services."
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LONG DISTANCE SERVICES
The Company offers basic and enhanced long distance services, such as
toll free, calling card, prepaid calling card and international call back
services, targeting primarily business customers purchasing between $200 and
$15,000 of service per month as well as resellers and other carriers. The
Company supplies long distance services pursuant to resale agreements that
enable it to utilize the network facilities of major long distance carriers such
as MCI and AT&T. The Company has recently expanded its long distance products
and services through the acquisition of Action Telcom, GST Call America,
TotalNet and the business of Texas-Ohio and intends to continue to pursue
acquisitions of long distance carriers. See "Risk Factors -- Risks Relating to
Long Distance Business."
INTERNET SERVICES
In March 1996, the Company acquired the business of Hawaii On Line, the
largest Internet access provider in Hawaii. The Company is also presently
providing Internet services to customers in Portland and Vancouver (Washington).
In addition to providing Internet access, the Company presently offers Web site
development and hosting, provides EDI services and is in the process of
developing various Internet software applications. Management believes that
these services will become an important component of the Company's overall
product offerings and will permit the Company to leverage its existing
infrastructure. The Company intends to continue to expand its Internet access
and service business to other markets.
DATA SERVICES
The Company is leveraging its infrastructure and network experience to
offer data networking services such as high speed LAN connectivity service,
video conferencing, multi-media networking, frame relay and high capacity access
to the Internet.
The Company offers national and international frame relay services on
its own frame relay network and through an interconnection agreement with
Intermedia. Under this agreement, the Company and Intermedia have agreed to link
their data networks and terminate one another's traffic. National and
international frame relay connectivity is achieved with individual
network-to-network interface ("NNI") agreements with Intermedia and other
telecommunications carriers. In addition to dedicated local loop access to the
Company's frame relay network, the Company has established frame relay NNIs with
Pacific Bell, U S WEST Communications, Inc. ("U S WEST"), SBC Communications
Corporation ("SBC") and the GTE Companies.
The Company offers its customers monthly network management reports
that allow users to track the performance of their virtual private network.
Customer network management support will permit customers to monitor and tailor
their virtual private network as desired with a communication link into the
Company's network management systems.
SHARED TENANT SERVICES
The Company offers shared tenant services to large apartment
communities in California, Idaho, New Mexico, Oregon, Utah and Washington.
Shared tenant services include local, long distance, Internet access, cable
television and home alarm service. The Company expanded its shared tenant
services business through the acquisition of Tri-Star, a Seattle-based shared
tenant services provider in September 1996 for a purchase price of approximately
$2.4 million, payable in Common Shares valued at their then market value, in
eight quarterly installments commencing in September 1996.
The Company provides local dial tone service to its shared tenant
customers through on-site PBX telephone systems located within each apartment
complex that are connected to the ILEC. As the Company expands its network and
central office switching facilities, PBXs will be replaced with central office
access nodes originating from the Company's own dial tone facilities, which the
Company expects to provide significant cost savings to the Company. In addition,
the Company is in the process of connecting apartment communities to its own
fiber network, thereby permitting the Company to realize additional cost
savings.
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MANUFACTURING
The Company, through its equipment subsidiary, NACT, produces advanced
telecommunications switching platforms with integrated applications software and
network telemanagement capabilities. As a single source provider, NACT believes
that it is the only company in its market that designs, develops and
manufactures all hardware and software elements necessary for a fully integrated
turnkey telecommunications switching solution. Because NACT provides an
integrated solution, its customers do not require the multiple suppliers of
hardware and value added resellers of software that would otherwise be necessary
to provide a wide range of end-user services and applications. NACT's customers
include long distance carriers, prepaid debit card and prepaid cellular network
operators, international call back/reorigination providers and other specialty
service providers.
The Company and NACT sold one million and two million shares,
respectively, of NACT's common stock in the NACT Offering, resulting in gross
proceeds to the Company and NACT of $10.0 million and $20.0 million,
respectively. As a result of the NACT Offering, the Company's interest in NACT
has been reduced to approximately 63%.
SALES AND MARKETING
Although the Company initially marketed its services to
telecommunications-intensive businesses and long distance carriers, it has
expanded its target market to include small to medium-sized businesses and
residential customers. The Company primarily markets its services through a
direct sales force, an inside sales and telemarketing group and a network of
independent agents. The Company intends to expand its sales force primarily
through the addition of representatives in its existing offices.
The Company's direct sales personnel offer the Company's full line of
products including long distance, Internet, local and data transmission
services. Teams of sales engineers and product experts are available to support
the sales force in complex or technical applications. The inside sales and
telemarketing group generates leads for the direct sales force and also focuses
on small customers that may use the full array of products but do not require
extensive technical or on-site support. Local customer service support is
supplemented by a centralized group of customer service representatives who
respond to customer inquiries and perform account maintenance.
COMPETITION
The telecommunications industry is highly competitive. In most markets,
the Company's principal competitor is the RBOC or the GTE Companies. Additional
competitors include other CAPs and CLECs, such as Brooks Fiber Properties Inc.
("Brooks"), Teleport Communications Group, Inc., MFS Communications Company,
Inc. ("MFS"), American Communications Services Inc. ("ACSI") and ICG, and may
include microwave and satellite carriers, wireless telecommunications providers
and private networks built by large end-users. Potential competitors (using
similar or different technologies) include cable television companies, utilities
and ILECs outside their current local service area. In addition, the Company
anticipates future competition from large long distance carriers, such as AT&T,
MCI and Sprint, which have begun to offer integrated local and long distance
telecommunications services as regulations allow. Consolidation of
telecommunications companies and the formation of strategic alliances within the
telecommunications industry as well as the development of new technologies could
give rise to significant new competitors to the Company.
As a recent entrant in the integrated telecommunications services
industry, the Company has not achieved and does not expect to achieve a
significant market share for any of its services. In particular, the RBOCs, the
GTE Companies and other local telephone companies have long-standing
relationships with their customers, have financial, technical and marketing
resources substantially greater than those of the Company, have the potential to
subsidize competitive services with revenues from a variety of businesses and
currently benefit from certain existing regulations that favor the ILECs over
the Company in certain respects. While recent regulatory and legislative
initiatives allow CLECs such as the Company to interconnect with ILEC facilities
and provide increased business
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opportunities for the Company, such interconnection opportunities have been
accompanied by increased pricing flexibility for, and relaxation of regulatory
oversight of, the ILECs. For example, the FCC granted ILECs additional
flexibility in pricing their interstate special and switched access services on
a central office specific basis. Under this pricing scheme, ILECs may establish
pricing zones based on access traffic density and charge different prices for
central offices in each zone. On February 8, 1997, new FCC rules became
effective allowing ILECs to file streamlined tariffs on 15 days' notice for rate
increases and 7 days' notice for rate decreases. Unless the FCC acts during the
notice period, such tariffs become effective at its end.
The long distance telecommunications industry has relatively
insignificant barriers to entry, numerous entities competing for the same
customers and a high average churn rate, as customers frequently change long
distance providers in response to the offering of lower rates or promotional
incentives by competitors. The Company competes with major carriers such as
AT&T, MCI and Sprint, as well as other national and regional long distance
carriers and resellers, many of whom are able to provide services at costs that
are lower than the Company's current costs. Local telephone companies may also
enter the long distance market, subject to certain conditions. As a result of
the Telecommunications Act, the Company believes that RBOCs also will become
competitors in the long distance telecommunications industry. The Company
believes that the principal competitive factors affecting its long distance
operations are pricing, customer service, accurate billing, clear pricing
policies and, to a lesser extent, variety of services. The ability of the
Company to compete effectively will depend upon its continued ability to
maintain high quality market driven services at prices generally equal to or
below those charged by its competitors. The FCC has, on several occasions since
1984, approved or required price reductions by AT&T and, in 1995, the FCC
announced that AT&T will no longer be regulated as a dominant long distance
carrier. This decision increased AT&T's flexibility in competing in the long
distance services market and eliminated the longer tariff notice requirements
previously applicable only to AT&T. Most recently, the FCC has adopted rules
that will eliminate the ability or need of long distance carriers to file
tariffs with the FCC. On February 13, 1997, the United States Court of Appeals
for the District of Columbia Circuit stayed the implementation of such rules. To
maintain its competitive posture, the Company believes that it must be in a
position to reduce its prices in order to meet reductions in rates, if any, by
others. Any such reductions could adversely affect the Company.
The Internet services market is highly competitive. There are no
substantial barriers to entry, and the Company expects that competition will
continue to intensify. The Company's competitors in this market include Internet
access providers, other telecommunications companies, online services providers
and Internet software providers.
The market for telecommunications equipment is highly competitive and
subject to rapid technological change. NACT expects competition to increase in
the future from existing competitors in the distributed switching systems market
and from other companies that may enter NACT's existing or future markets,
including major central office switch vendors. In its manufacturing operations,
the Company, through its subsidiary NACT, competes with a number of lower
capacity switch manufacturers such as CPDI, ITP and PCS Telecom. NACT also
competes with providers of open architecture (programmable) hardware switching
platforms that are enhanced by applications providers and value added resellers.
Such competitors include Excel, which has agreements with software applications
providers. As NACT's business develops and it seeks to market its switches to a
broader customer base, NACT's competitors may include larger switch and
telecommunications equipment manufacturers such as Lucent Technologies Inc.,
Harris Corporation, Siemens AG, Alcatel Alsthom Compagnie, Generale
D'Electricite, Telefonaktiebolaget, L.M. Ericcson and Northern Telecom, Ltd.
Most of the Company's actual and potential competitors in its local
services, long distance, Internet and data services and manufacturing businesses
have substantially greater financial, technical and marketing resources than the
Company. While the Company believes that it is well positioned to compete
effectively, there can be no assurance that it will be able to do so.
The recent WTO agreement on basic telecommunications services could
increase the Company's competition. Under this agreement, the United States and
other members of the WTO committed themselves to
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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.
REGULATION
The Company's telecommunications services business is subject to
varying degrees of federal, state and local regulation.
FEDERAL REGULATION
The FCC regulates interstate and international telecommunication
services. The allocation of jurisdiction between federal and state regulators
over dedicated circuits that carry both interstate and intrastate traffic
(including private line and special access services) creates difficult
definitional issues. The FCC, however, has noted that private line, non-switched
telecommunications services can be classified, at least for rate purposes, as
jurisdictionally interstate (subject to FCC jurisdiction) if at least 10% of the
traffic carried over a particular dedicated line is interstate in nature. The
FCC has not ruled specifically as to the jurisdictional nature of the traffic
carried over the Company's networks.
The Company provides service either on a private carrier basis or on a
common carrier basis. In the interstate market, the primary distinguishing
factor between private carriers and common carriers is that the former provide
customized services to select customers pursuant to individually negotiated
contracts. Common carriers, on the other hand, hold themselves out to serve the
public generally. The FCC imposes certain regulations on common carriers such as
the RBOCs that have some degree of market power. The FCC imposes less regulation
on common carriers without market power including, to date, CAPs/CLECs. The FCC
requires common carriers to receive an authorization to construct and operate
telecommunication facilities between the United States and international points.
In August 1996, the FCC released its Interconnection Decision. The
Interconnection Decision establishes rules implementing the Telecommunications
Act requirements that ILECs negotiate interconnection agreements and provides
guidelines for review of such agreements by state public utilities commissions.
On July 18, 1997, the Eighth Circuit vacated certain portions of the
Interconnection Decision, including provisions establishing a pricing
methodology and a procedure permitting new entrants to "pick and choose" among
various provisions of existing interconnection agreements between ILECs and
their competitors. The Company had negotiated a number of interconnection
agreements with ILECs prior to this Eighth Circuit decision. The Eighth Circuit
decision creates uncertainty about the rules governing pricing, terms and
conditions of interconnection decisions, and could make negotiating and
enforcing such agreements more difficult and protracted and may require
renegotiation of existing agreements. There can be no assurance that the Company
will be able to obtain or enforce interconnection agreements on terms acceptable
to the Company. The FCC has announced that it will seek a writ of certiorari
from the Supreme Court.
In October 1996, the FCC adopted an Order in which it eliminated the
requirement that non-dominant interstate carriers such as the Company maintain
tariffs on file with the FCC for domestic interstate services. This Order
applies to all non-dominant interstate carriers, including AT&T. The Order does
not apply to the RBOCs or other local exchange providers. The FCC's Order was
issued pursuant to authority granted to the FCC in the Telecommunications Act to
"forbear" from regulating any telecommunications services provider if the FCC
determines that the public interest will be served. After a nine-month
transition period, relationships between interstate carriers and their customers
will be set by contract. At that point long distance companies may no longer
file with the FCC tariffs for interstate, domestic, interexchange services.
Carriers have the option to immediately cease filing tariffs. Several parties
have filed notices for reconsideration of the FCC order and other parties
appealed the decision. On February 13, 1997, the United States Court of Appeals
for the District of Columbia Circuit stayed the implementation of the FCC Order.
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If the stay is lifted and the FCC Order becomes effective,
telecommunications carriers such as the Company, will no longer be able to rely
on the filing of tariffs with the FCC as a means of providing notice to
customers of prices, terms and conditions on which they offer their interstate
services. The obligation to provide non-discriminatory, just and reasonable
prices remains unchanged under the Communications Act of 1934, as amended (the
"Communications Act"). While tariffs provided a means of providing notice of
prices, terms and conditions, the Company has always relied primarily on its
sales force and direct marketing to provide such information to its customers
and expects to continue to do so in the future.
The Telecommunications Act is intended to increase competition. The
Telecommunications Act opens the local services market by requiring ILECs to
permit interconnection to their networks and establishing ILEC obligations with
respect to:
RECIPROCAL COMPENSATION. Requires all ILECs and CLECs to complete
Telecommunications calls originated by competing carriers under reciprocal
arrangements at prices based on a reasonable approximation of incremental cost
or through mutual exchange of traffic without explicit payment.
RESALE. Requires all ILECs and CLECs to permit resale of their
telecommunications services without unreasonable restrictions or conditions. In
addition, ILECs are required to offer wholesale versions of all retail services
to other telecommunications carriers for resale at discounted rates, based on
the costs avoided by the ILEC in the wholesale offering.
INTERCONNECTION. Requires all ILECs and CLECs to permit their
competitors to interconnect with their facilities. Requires all ILECs to permit
interconnection at any technically feasible point within their networks, on
nondiscriminatory terms, at prices based on cost (which may include a reasonable
profit). At the option of the carrier seeking interconnection, collocation of
the requesting carrier's equipment in the ILECs' premises must be offered,
except where the ILEC can demonstrate space limitations or other technical
impediments to collocation.
UNBUNDLED ACCESS. Requires all ILECs to provide nondiscriminatory
access to unbundled network elements (including, network facilities, equipment,
features, functions, and capabilities) at any technically feasible point within
their networks, on nondiscriminatory terms, at prices based on cost (which may
include a reasonable profit).
NUMBER PORTABILITY. Requires all ILECs and CLECs to permit users of
telecommunications services to retain existing telephone numbers without
impairment of quality, reliability or convenience when switching from one
telecommunications carrier to another.
DIALING PARITY. Requires all ILECs and CLECs to provide "1+" equal
access to competing providers of telephone exchange service and toll service,
and to provide nondiscriminatory access to telephone numbers, operator services,
directory assistance, and directory listing, with no unreasonable dialing
delays.
ACCESS TO RIGHTS-OF-WAY. Requires all ILECs and CLECs to permit
competing carriers access to poles, ducts, conduits and rights-of-way at
regulated prices.
ILECs are required to negotiate in good faith with carriers requesting
any or all of the above arrangements. If the negotiating carriers cannot reach
agreement within a prescribed time, either carrier may request binding
arbitration of the disputed issues by the state regulatory commission. Where an
agreement has not been reached, ILECs remain subject to interconnection
obligations established by the FCC and state telecommunication regulatory
commissions.
The Telecommunications Act also codifies the ILECs' equal access and
nondiscrimination obligations and preempts inconsistent state regulation. The
Telecommunications Act also contains special provisions that eliminate the AT&T
Antitrust Consent Decree (and similar antitrust restrictions on the GTE
Companies) restricting the
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RBOCs from providing long distance services and engaging in telecommunications
equipment manufacturing. These provisions permit a RBOC to enter the long
distance market in its traditional service area if it satisfies several
procedural and substantive requirements, including obtaining FCC approval upon a
showing that facilities-based competition is present in its market, that the
RBOC has entered into interconnection agreements in those states in which it
seeks long distance relief, the interconnection agreements satisfy a 14-point
"checklist" of competitive requirements, and the FCC is satisfied that the
RBOC's entry into long distance markets is in the public interest. SBC, the RBOC
serving some of the states served by the Company, applied to the FCC for such
authority. The FCC denied the SBC request. SBC has filed suit challenging the
constitutionality of the checklist provisions and separately appealed the FCC
denial of its application. The Telecommunications Act permits the RBOCs to enter
the out-of-region long distance market immediately upon its enactment.
Under the Telecommunications Act, any entity, including cable
television companies and electric and gas utilities, may enter any
telecommunications market, subject to reasonable state regulation of safety,
quality and consumer protection. Because implementation of the
Telecommunications Act is subject to numerous federal and state policy
rulemaking proceedings and judicial review there is still uncertainty as to what
impact such legislation will have on the Company.
GST Pacwest Telecom Hawaii Incorporated holds a submarine cable landing
license from the FCC, which authorizes the Company to construct, operate and
land an undersea cable between and among the Hawaiian Islands. GST Telecom also
holds a submarine cable landing license for an undersea cable between Guam and
the Commonwealth of the Northern Mariana Islands.
Pursuant to authority granted by the FCC, the Company resells the
international telecommunications services of other common carriers between the
United States and international points. In connection with such authority,
certain of the Company's subsidiaries have filed tariffs stating the rates,
terms and conditions for their international services. The FCC has determined
that call reorigination service using uncompleted call signaling does not
violate United States or international law, but has held that United States
companies providing such services must comply with the laws of the countries in
which they operate as a condition of such companies' Section 214 authorizations.
With respect to its domestic service offerings, various subsidiaries of
the Company have filed tariffs with the FCC stating the rates, terms and
conditions for their interstate services. To the extent that such subsidiaries
provide intrastate services, they may be required to obtain authority from state
regulatory authorities prior to providing such services. Such subsidiaries have
been granted authority in approximately 40 states and the Company is applying
for such authority in the remaining 10 states. There can be no assurance that
such state authorizations will be granted.
NACT is authorized by the FCC to provide international
telecommunications services. Any intrastate telecommunications services provided
by NACT may require authority from state regulatory agencies and tarrifing of
the services and any interstate services require NACT to file an FCC tariff.
There can be no assurance that such authorizations will be granted.
Except in certain designated geographically competitive zones, the
current policy of the FCC for most special access services dictates that ILECs
charge all customers the same price for the same service. Thus, the ILECs
generally cannot lower prices to those customers likely to contract for their
services without also lowering charges for the same service to all customers in
the same geographic area, including those whose telecommunications requirements
would not justify the use of such lower prices. The FCC may, however, alleviate
this constraint on the ILECs and permit them to offer special rate packages to
very large customers, as it has done in few cases, or permit other forms of rate
flexibility. The FCC has adopted proposals that significantly lessen the
regulation of ILECs that are subject to competition in their service areas and
provide such ILECs with additional flexibility in pricing their interstate
switched and special access on a central office specific basis. On May 7, 1997,
the FCC adopted rules which will require ILECs to substantially decrease the
prices they charge for switched and
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special access. At the same time, the FCC adopted rules that will change how
access charges are calculated. These changes will reduce access charges and will
shift certain charges currently based on minutes to flat-rate, monthly per-line
charges. The FCC has also requested comments on whether it should impose usage
sensitive charges on Internet service providers which are presently exempt from
access charges.
Under the Communications Act and other federal regulations, foreign
nationals may not own more than 20% of a company, or have more than a 20% voting
interest in a company, that directly holds a common carrier radio license. The
Communications Act also prohibits foreign nationals from owning 25% or more of a
company which, in turn, controls a company holding a radio license, if the FCC
finds that such alien participation would not serve the public interest. Under
the WTO agreement, the United States agreed to increase the foreign ownership up
to 100%, however while the FCC has proposed rules implementing the WTO policies
there can be no assurance as to when the FCC will change its policy. The
operations of GST Hawaii use among other facilities, microwave radio facilities
operating pursuant to FCC licenses granted to PNI, an entity controlled by John
Warta, the Chairman of the Board and Chief Executive Officer of the Company. The
FCC also has the authority, which it is not presently exercising, to impose
restrictions on foreign ownership of communications service providers not
utilizing radio frequencies, which if exercised could have a material adverse
effect on the Company's business. In addition, the networks may subsequently
need to obtain radio licenses to "fill in" certain customers in the networks
that are not practical to reach by wire. Should the Company require a common
carrier radio license in the future, it may be prohibited from obtaining such
license because of the foreign ownership restrictions of the Communications Act.
STATE REGULATION
The Telecommunications Act is intended to increase competition in the
telecommunications industry, especially in the local exchange market. With
respect to local services, ILECs are required to allow interconnection to their
networks and to provide unbundled access to network facilities, as well as a
number of other procompetitive measures. Because the implementation of the
Telecommunications Act is subject to numerous state rulemaking proceedings on
these issues. The Eighth Circuit's decision and the FCC Interconnection Decision
increases the role of the state commissions. It is difficult to predict how
quickly full competition for local services, including local dial tone, will be
introduced.
State regulatory agencies have regulatory jurisdiction when Company
facilities and services are used to provide intrastate services. A portion of
the Company's current traffic may be classified as intrastate and therefore
subject to state regulation. The Company expects that it will offer more
intrastate services (including intrastate switched services) as its business and
product lines expand and state regulations are modified to allow increased local
services competition. To provide intrastate services, the Company generally must
obtain a CPCN from the state regulatory agency and comply with state
requirements for telecommunications utilities.
LOCAL REGULATION
The networks are subject to numerous local regulations such as building
codes and licensing. Such regulations vary on a city by city and county by
county basis. The Company needs to obtain rights-of-way over private and
publicly owned land to permit the installation of the fiber optic
telecommunication equipment.
GST GLOBAL TELECOMMUNICATIONS INC.
As of June 30, 1997, the Company has invested approximately $3.7
million in Global and holds approximately 3.6 million shares. In addition, the
Company has warrants to purchase 750,000 additional shares. On June 30, 1997,
Global had approximately 12.6 million shares outstanding. Global will issue to
the Company additional common shares, subject to approval of the VSE, in
consideration for the transfer by the Company to Global of its rights in and to
the Bestel Project. In addition, certain executive officers and directors hold
in the aggregate 434,896 shares of Global and options and warrants to purchase
an additional 715,500 Global common shares. The Company intends to conduct
certain of its international activities through Global. Global will employ
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its own operating management and raise capital required for its proposed
activities. As of June 30, 1997, Global had raised approximately Cdn. $28
million through private placements of its common shares.
Global has acquired, through a subsidiary, GST Mextel, Inc., a Delaware
corporation, 49% of the outstanding shares of Bestel, S.A. de C.V. ("Bestel").
The total consideration is approximately $13.7 million, of which approximately
$8.9 million has been paid. The remaining 51% is held by Occidental
Telecommunicacion, S.A. de C.V. ("Occidental"). In addition, Global has agreed
to loan an aggregate of up to $36.0 million to Bestel, of which $20.0 million
has been advanced to date. Bestel plans to construct and operate a 2,350
kilometer fiber optic telecommunications network in Mexico to become a
facilities-based long distance carrier, of which approximately 700 kilometers
has been constructed to date.
Global has also acquired from Cable and Wireless an 80% interest in
Vitacom, for a purchase price of $1.5 million. The remaining 20% is held by
Cable and Wireless, which can require Global to purchase such interest in 1999.
Vitacom is engaged in the provision of voice, high speed data information and
other services and the manufacture and sale of VSAT (very small aperture
satellite terminal) and other equipment used to access the Internet.
EMPLOYEES
As of July 31, 1997, the Company and its subsidiaries had 1,074
full-time employees. None of such employees is covered by a collective
bargaining agreement. The Company considers its relationship with its employees
to be satisfactory.
FACILITIES
The Company owns a building comprising 60,000 square feet that contains
its principal executive offices located at 4317 N.E. Thurston Way, Vancouver,
Washington 98662. Its telephone number at that address is (360) 254-4700.
The Company recently purchased property comprising approximately 13,000
square feet in Molokai, Hawaii for a total purchase price of approximately
$127,000.
The Company also leases offices elsewhere in the United States, in
Vancouver, British Columbia and in Japan, pursuant to leases which expire on
various dates through March 24, 2007. The Company's current aggregate annual
rental expense is approximately $4.0 million.
LEGAL PROCEEDINGS
On August 24, 1995, Aerotel, Ltd. and Aerotel U.S.A., Inc.
(collectively, "Aerotel") commenced an action against NACT and a customer of
NACT in the United States District Court, Southern District of New York,
alleging that telephone systems manufactured and sold by NACT incorporating
prepaid debit card features infringe upon Aerotel's patent which was issued in
November 1987 (the "Aerotel Patent"). The complaint further alleges defamation
and unfair competition as a result of a Special Report disseminated by NACT to
its customers and tortious interference with prospective business relations,
alleging that NACT induced third parties to abandon licensing negotiations with
Aerotel. Aerotel seeks injunctive relief, damages in an unspecified amount,
damages of up to three times the damages found for willful infringement of the
Aerotel Patent and an order requiring NACT to publish a written apology to
Aerotel. An Answer and Counterclaim has been filed in which NACT denies
infringement of the Aerotel Patent and seeks judgment that the Aerotel Patent is
invalid and unenforceable and that Aerotel has misused its patent in violation
of antitrust laws. NACT also denies that it has committed defamation, unfair
competition and tortious interference with prospective business relations.
Pretrial discovery has commenced and is scheduled to be completed by the end of
1997. On May 3, 1996, NACT served its motion for summary judgment. The Court has
not yet ruled on NACT's motion. On January 24, 1997, Aerotel served its motion
to
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amend its complaint to include as defendants GST and GST USA as well as two
former employees of NACT. The case is still in the discovery phase. The case is
not expected to be tried until late 1997 at the earliest. NACT's patent counsel
believes that NACT has valid defenses to the Aerotel claims. An unfavorable
decision in this action could have a material adverse effect on the Company.
On July 5, 1994, the Tucson City Council (the "Council") awarded GST
Tucson a non-exclusive fiber optic communication license that permits GST
Tucson, for a period of 25 years, to conduct, maintain and operate in and across
designated portions of city-owned rights-of-way. On June 12, 1995, the Council
approved the City of Tucson Competitive Telecommunications Code (the "Tucson
Code"), which was subsequently amended on July 10, 1995. The Tucson Code now
provides, among other things, (i) that the City of Tucson grant licenses for a
period of 15 years, (ii) for an increase from 2% to 5 1/2% of gross revenues to
be paid by licensees and (iii) for cancellation of a license in certain events.
The Council subsequently refused to permit GST Tucson to modify the route plans
previously approved in order to construct connections between its customers and
the network, asserting that GST Tucson's existing license does not permit such
action and requiring GST Tucson to receive an amended license under the Tucson
Code to modify its route plans. After trying to negotiate a settlement with the
City of Tucson with respect to its license, GST Tucson commenced an action in
the Superior Court of Arizona, County of Pima, against the City of Tucson. The
Court ruled in favor of the City that the City Engineer does not have the
authority to grant modifications from the route map, that such route
modifications must be approved by the Council and that the City could condition
GST Tucson's application for a franchise for intrastate service on a
relinquishment of GST Tucson's existing license. GST Tucson appealed the
Superior Court's rulings and subsequently filed a petition for review in the
Arizona Supreme Court. On May 13, 1996, GST Tucson instituted an action in the
United States District Court for the District of Arizona against the City of
Tucson seeking a declaratory judgment and injunctive relief arising out of the
City of Tucson's failure to manage its public rights-of-way in a competitively
neutral and nondiscriminatory manner in violation of the Telecommunications Act.
The Court dismissed GST Tucson's action. GST Tucson filed a Notice of Appeal to
the United States Court of Appeals for the Ninth Circuit on January 16, 1997. On
August 5, 1997, the Tucson City Council approved a settlement agreement that
resolves the Tucson litigation. Under the terms of the settlement agreement, GST
Tucson agrees to pay the City the annual license fee called for by the Tucson
Code that amounts to 5 1/2% of gross revenues, and the City permits GST Tucson
to modify its current route map and serve customers throughout the City limits.
While dismissing the pending state court appeal, the parties agreed to allow the
United States Court of Appeals for the Ninth Circuit to decide the pending legal
issue relating to whether companies like GST Tucson enjoy a private right of
action to assert right-of-way claims under Section 253(c) of the
Telecommunications Act in the United States District Courts.
On or about February 25, 1997, U S WEST filed a declaratory judgment
action against members of the Arizona Corporation Commission (the "ACC"), the
ACC, ACSI, Brooks and the Company in the United States District Court in
Arizona. The Company understands that one or more substantially similar lawsuits
have been filed against other CLEC's, including MFS. U S WEST alleges that the
ACC has entered into an interconnection order that unlawfully requires U S WEST
to resell services below cost, imposes resale restrictions and denies U S WEST
recovery for construction and implementation costs, unlawfully treats the cost
recovery of access revenues for interim number portability, requires U S WEST to
obtain additional rights of way or build additional facilities solely to provide
access to the Company, and amounts to a taking of U S WEST's property without
just compensation. U S WEST seeks a declaratory judgment stating that the ACC
has violated the Telecommunications Act and that the ACC has taken U S WEST's
property without providing just compensation. U S WEST also seeks an injunction
prohibiting all defendants, including the Company, from taking any action to
enforce any of the order's allegedly unlawful provisions. The Company's time to
answer or move against the complaint has been extended indefinitely by U S WEST,
pending a decision with respect to a motion to dismiss the complaint against MFS
in the action filed by U S WEST against it. Should U S WEST prevail in its suit,
it would have an adverse impact on the Company's operations in Arizona; however,
the magnitude thereof is uncertain at this time.
On or about April 8, 1997, U S WEST filed a state court proceeding
against the ACC, individual members of the ACC, and GST Net (AZ), Inc. ("GST Net
(AZ)"), which holds a certificate of convenience and necessity (CCN) to provide
local exchange service in Arizona. In its complaint appealing the ACC's February
6, 1997
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decision and order granting GST Net (AZ) its CCN, U S WEST alleges that the
ACC's action violates certain requirements of the Arizona Constitution relating
to rate of return regulation, carrier of last resort obligations, and equal
protection. The appeal seeks to subject GST Net (AZ) and U S WEST to identical
forms of regulation, treating both carriers as either traditional monopoly
carriers or as co-equal competitive companies. GST Net (AZ) answered U S WEST's
complaint on August 6, 1997, alleging, among other things, that U S WEST's
complaint is preempted by the Telecommunications Act. Should U S WEST prevail in
its appeal, it could have an adverse impact on the Company's operations in
Arizona; however, the magnitude thereof is uncertain at this time.
The Company is not a party to any other material legal proceedings,
nor, to the knowledge of the Company, are any material legal proceedings
threatened against the Company. The Company is a party to various proceedings
before the public utilities commissions of the states in which it provides or
proposes to provide telecommunications services. These proceedings typically
relate to licensure of the Company or others and to the regulation of the
provision of telecommunications service.
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DESCRIPTION OF THE NEW NOTES
The Old Notes were issued under the Indenture among GST Funding, as
issuer, GST USA, GST and United States Trust Company of New York, as Trustee (in
such capacity, the "Trustee"). The New Notes will be issued under the Indenture,
which will be qualified under the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), upon the effectiveness of the Registration Statement of
which this Prospectus is a part. The form and terms of the New Notes are the
same in all material respects as the form and terms of the Old Notes, except
that the offer and sale of the New Notes will have been registered under the
Securities Act and, therefore, the New Notes will not bear legends restricting
transfer thereof. Upon the consummation of the Exchange Offer, Holders of Notes
will not be entitled to registration rights under, or the contingent increase in
interest rate provided pursuant to, the Registration Rights Agreement. The New
Notes will evidence the same debt as the Old Notes and will be treated as a
single class under the Indenture with any Old Notes that remain outstanding.
The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act as in effect
on the date of the Indenture. The Notes are subject to all such terms and
reference is made to the Indenture and the Trust Indenture Act for a statement
thereof. A copy of the Indenture has been filed with the Commission as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
following summary, which describes certain provisions of the Indenture and the
Notes, does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the Indenture and the Notes, including the
definitions therein of terms not defined herein and those terms made a part
thereof by the Trust Indenture Act. Whenever particular defined terms of the
Indenture not otherwise defined herein are referred to, such defined terms are
incorporated herein by reference.
GENERAL
The Notes are, or will be, secured unsubordinated obligations of the
Issuer, initially limited to $265.0 million aggregate principal amount, and will
mature on May 1, 2007. Each Note will bear interest at the rate of 13 1/4% from
the Closing Date or from the most recent Interest Payment Date to which interest
has been paid or provided for, payable semiannually (to Holders of record at the
close of business on the April 15 or October 15 immediately preceding the
Interest Payment Date) on May 1 and November 1 of each year, commencing November
1, 1997.
Principal of, premium, if any, and interest on the Notes will be
payable, and the Notes may be exchanged or transferred, at the office or agency
of the Issuer in the Borough of Manhattan, The City of New York (which initially
will be the corporate trust office of the Trustee at 114 West 47th Street, New
York, New York 10036-1532); provided that, at the option of the Issuer, payment
of interest may be made by check mailed to the respective addresses of the
Holders as each such address appears in the Security Register.
The Notes are issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount and any integral multiple thereof.
See "-- Book-Entry; Delivery and Form." No service charge will be made for any
registration of transfer or exchange of Notes, but the Issuer may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
The Issuer may, subject to the covenants described below under
"Covenants" and applicable law, issue additional Notes under the Indenture. The
Notes offered hereby and any additional Notes subsequently issued would be
treated as a single class for all purposes under the Indenture.
STRUCTURE AND SECURITY
The Indenture provided that on the Closing Date, GST Funding use all of
the net proceeds from the May Offering (in addition to any cash on hand) to
purchase Pledged Securities and pledge the Pledged Securities to the Trustee for
the benefit of the Holders of the Notes pursuant to a Collateral Pledge and
Security Agreement (the
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"Pledge Agreement") dated as of the Closing Date from GST Funding to United
States Trust Company of New York, as Trustee. GST Funding acted in accordance
with such provisions in the Indenture and Pledge Agreement. The Pledged
Securities were pledged pursuant to the Pledge Agreement and are held by the
Trustee in the Pledge Account. Interest earned on the Pledged Securities will be
added to the Pledge Account. In addition, on the Closing Date, in consideration
for GST Funding making the financing through the May Offering available to GST
USA and for GST Funding facilitating the purchase of GST USA's equipment, GST
USA has agreed to pay any fees or expenses incurred by GST Funding in connection
therewith and in support of such obligations GST USA issued to GST Funding a
$35.0 million principal amount promissory note (the "Initial Note") guaranteed
by GST. The Initial Note will mature on May 13, 2000 and there will not be any
payment of interest prior to maturity.
On the Closing Date, GST Funding used approximately $41.5 million of
the net proceeds of the May Offering to refinance intercompany indebtedness and
approximately $93.8 million of the net proceeds of the May Offering to purchase
Pledged Securities to fund the first six scheduled interest payments on the
Notes (the "Interest Collateral"). GST Funding used the remaining net proceeds
of the May Offering to purchase Pledged Securities which, upon written request
from GST Funding to the Trustee, pledged securities (other than Interest
Collateral) were or will be released from the Pledge Account to GST Funding in
order to finance the cost (including, without limitation, the cost of design,
development, construction, acquisition, installation or integration)
(collectively, "Acquired Equipment Cost") of telecommunications inventory or
equipment purchased or leased by GST Funding ("Acquired Equipment"). The
Acquired Equipment primarily will consist of fiber optic cable, digital switches
and digital automatic cross connect equipment. The release of amounts to GST
Funding in order to finance Acquired Equipment Costs will occur concurrently
with the expenditure of funds by GST Funding with respect to such costs and will
be in an amount equal to such costs. Immediately upon the acquisition of
Acquired Equipment, GST Funding must grant a first priority security interest in
such Acquired Equipment to the Trustee for the benefit of the Holders of the
Notes. GST USA must purchase all Acquired Equipment from GST Funding at a
purchase price equal to the Acquired Equipment Cost for such Acquired Equipment
and the purchase price shall be paid in the form of an unsubordinated, secured
promissory note (an "Intercompany Note") in a principal amount equal to the
Acquired Equipment Cost, issued by GST USA and fully and unconditionally
guaranteed by GST. Each Intercompany Note will mature on May 13, 2000. Interest
on each Intercompany Note will accrue at 15 1/4% compounded semiannually on each
May 1 and November 1, but will not be payable in cash until the maturity of the
Intercompany Note. Each Intercompany Note will be secured by a first priority
security interest in all Acquired Equipment purchased by GST USA. The
Intercompany Notes will be prepaid if the maturity of the Notes is accelerated
because an Event of Default has occurred with respect to the Notes or the
payment of principal, premium or interest on the Notes is otherwise due and
payable. GST Funding shall grant a first priority security interest in the
Pledged Securities, the Pledge Account, the Initial Note and all Intercompany
Notes to the Trustee for the benefit of the Holders of the Notes to secure
repayment of the principal of, premium and interest on the Notes. On May 13,
2000, or earlier if permitted under the 1995 Indentures, GST USA will assume and
become the direct obligor on the Notes, GST will fully and unconditionally
guarantee the Notes on an unsubordinated basis,GST USA will grant a first
priority security interest in all Acquired Equipment to the Trustee for the
benefit of the Holders of the Notes and GST Funding will be liquidated and its
assets distributed to GST USA.
MANDATORY REDEMPTION
If on May 13, 2000 GST USA is prohibited by the 1995 Indentures from
assuming all of the Notes, GST Funding will redeem, upon not less than 10 nor
more than 30 days' notice, the portion of the Notes that cannot be assumed at
101% of their principal amount plus accrued and unpaid interest to the date of
redemption.
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Issuer, in whole or
in part, at any time or from time to time, on or after May 1, 2002 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first-class mail to each Holder's last address as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest thereon to the
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Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is on or prior to the Redemption Date to receive
interest due on an Interest Payment Date), if redeemed during the 12-month
period commencing May 1 of the years set forth below:
YEAR REDEMPTION PRICE
2002.................................. 106.6250%
2003.................................. 103.3125%
2004 and thereafter................... 100.0000%
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate; provided that no Note of $1,000 in principal amount or less shall
be redeemed in part. If any Note is to be redeemed in part only, the notice of
redemption relating to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note.
The Notes will also be subject to redemption as a whole, but not in
part, at the option of GST, at any time after GST USA has become the obligor on
the Notes and GST has guaranteed the Notes, at 100% of their principal amount,
together with accrued interest thereon, to the Redemption Date, in the event GST
has become or would become obligated to pay, on the next date on which any
amount would be payable with respect to the Note Guarantee, any Additional
Amounts as a result of a change in the laws (including any regulations
promulgated thereunder) of Canada (or any political subdivision or taxing
authority thereof or therein), or any change in any official position regarding
the application or interpretation of such laws or regulations, which change is
announced or becomes effective on or after the date of this Prospectus.
GUARANTEE
GST USA's obligations under the Notes, the Initial Note and the
Intercompany Notes will be fully and unconditionally guaranteed on an
unsubordinated basis by GST (collectively, the "Note Guarantee"). However, the
Note Guarantee shall not be enforceable against GST in an amount in excess of
the net worth of GST at the time that determination of such net worth is, under
applicable law, relevant to the enforceability of such Note Guarantee. Such net
worth shall include any claim of GST against GST USA for reimbursement and any
claim against any other guarantor for contribution.
RANKING
The Notes are or will be secured, unsubordinated indebtedness of the
Issuer. The Note Guarantee will be unsecured, unsubordinated indebtedness of
GST, will rank pari passu in right of payment with all unsecured, unsubordinated
indebtedness, and will be senior in right of payment to all subordinated
indebtedness, of GST, including the Convertible Notes. After GST USA becomes a
direct obligor on the Notes on May 13, 2000, or earlier if permitted under the
1995 Indentures, the Notes and the Note Guarantee will be effectively
subordinated to all liabilities (including trade payables) of GST USA's
subsidiaries. At June 30, 1997, GST USA's subsidiaries other than GST Funding
had $114.4 million of liabilities (excluding intercompany payables), including
$90.5 million of indebtedness. After GST USA becomes a direct obligor on the
Notes in the event the holders of the Notes or the Trustee foreclose on the
collateral securing the Notes and such collateral is insufficient to pay all
amounts due with respect to the Notes, the holders of the Notes will have an
unsecured unsubordinated claim for the amount still owing with respect to the
Notes. See "Risk Factors -- Substantial Indebtedness," "-- Possible Inability to
Service Indebtedness," "--Insufficiency of Acquired Equipment to Satisfy the
Notes upon Liquidation," "-- Structure of
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GST Funding, GST USA and GST; Secured Indebtedness; Ranking of Notes," and
"Description of Certain Indebtedness and Redeemable Preferred Shares." Prior to
the time GST USA becomes a direct obligor on the Notes, in the event the holders
of the Notes or the Trustee foreclose on the collateral securing the Notes and
such collateral is insufficient to pay all amounts due on the Notes, the Holders
will not have a claim against GST USA or GST under the Notes or the Note
Guarantee. See "Risk Factors -- Possible Inability of GST USA to Assume and GST
to Guarantee the Notes."
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in
the covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
terms used herein for which no definition is provided.
"Adjusted Consolidated Net Income" means, for any period, the aggregate
net income (or loss) of GST and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income of any Person (other than net income attributable to a
Restricted Subsidiary) in which any Person (other than GST or any of its
Restricted Subsidiaries) has an interest and the net income of any Unrestricted
Subsidiary, except to the extent of the amount of dividends or other
distributions actually paid to GST or any of its Restricted Subsidiaries by such
other Person, or such Unrestricted Subsidiary, during such period; (ii) solely
for the purposes of calculating the amount of Restricted Payments that may be
made pursuant to clause (C) of the first paragraph of the "Limitation on
Restricted Payments" covenant described below (and in such case, except to the
extent includible pursuant to clause (i) above), the net income (or loss) of any
Person accrued prior to the date it becomes a Restricted Subsidiary or is merged
into or consolidated with GST or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are acquired by GST
or any of its Restricted Subsidiaries; (iii) the net income of any Restricted
Subsidiary to the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such net income is not at the
time permitted by the operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary; (iv) any gains or losses (on an
after-tax basis) attributable to Asset Sales; (v) except for purposes of
calculating the amount of Restricted Payments that may be pursuant to clause (C)
of the first paragraph of the "Limitation on Restricted Payments" covenant
described below, any amount paid or accrued as dividends on Preferred Stock of
GST or any Restricted Subsidiary owned by Persons other than GST and any of its
Restricted Subsidiaries; and (vi) all extraordinary gains and extraordinary
losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of GST and its Restricted Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), except to the extent resulting from
write-ups of capital assets (excluding write-ups in connection with accounting
for acquisitions in conformity with GAAP), after deducting therefrom (i) all
current liabilities of GST and its Restricted Subsidiaries (excluding
intercompany items) and (ii) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles, all as set
forth on the quarterly or annual consolidated balance sheet of GST and its
Restricted Subsidiaries, prepared in conformity with GAAP and most recently
filed with the Commission pursuant to the "Commission Reports and Reports to
Holders" covenant described below.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by GST or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary of GST or shall be merged into or
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consolidated with GST or any of its Restricted Subsidiaries; provided that such
Person's primary business is related, ancillary or complementary to the
businesses of GST and its Restricted Subsidiaries on the date of such investment
or (ii) an acquisition by GST or any of its Restricted Subsidiaries of the
property and assets of any Person other than GST or any of its Restricted
Subsidiaries that constitute substantially all of a division or line of business
of such Person; provided that the property and assets acquired are related,
ancillary or complementary to the businesses of GST and its Restricted
Subsidiaries on the date of such acquisition.
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale-leaseback transactions) in one
transaction or a series of related transactions by GST or any of its Restricted
Subsidiaries to any Person other than GST or any of its Restricted Subsidiaries
of (i) all or any of the Capital Stock of any Restricted Subsidiary, (ii) all or
substantially all of the property and assets of an operating unit or business of
GST or any of its Restricted Subsidiaries or (iii) any other property or assets
of GST or any of its Restricted Subsidiaries outside the ordinary course of
business of GST or such Restricted Subsidiary and, in each case, that is not
governed by the provisions of the Indenture applicable to mergers,
consolidations and sales of assets of GST; provided that "Asset Sale" shall not
include (A) sales or other dispositions of inventory, receivables and other
current assets or (B) sales or other dispositions of assets with a fair market
value (as certified in an Officers' Certificate) not in excess of $1 million; or
(C) sales of Acquired Equipment by GST Funding to GST USA in accordance with the
terms of the Indenture; or (D) sales or other dispositions of assets to the
extent GST or a Restricted Subsidiary receives consideration at least equal to
the fair market value of the assets sold or disposed of, provided that the
consideration received consists of property or assets (other than current
assets) of a nature or type or that are used in a business (or a company having
property or assets of a nature or type, or engaged in a business) similar or
related to the nature or type of the property and assets of, or business of, GST
and its Restricted Subsidiaries existing on the date of such sale or other
disposition.
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether now outstanding or
issued after the date of the Indenture, including, without limitation, all
Common Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; and "Capitalized
Lease Obligations" means the discounted present value of the rental obligations
under such lease.
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes
the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act) of Voting Stock representing more than 30% of the total voting power of the
Voting Stock of GST on a fully diluted basis; (ii) individuals who on the
Closing Date constitute the Board of Directors (together with any new directors
whose election by the Board of Directors or whose nomination for election by
GST's shareholders was approved by a vote of at least two-thirds of the members
of the Board of Directors then in office who either were members of the Board of
Directors on the Closing Date or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
members of the Board of Directors then in office; or (iii) all of the Common
Stock of GST USA or GST Funding is not beneficially owned by GST.
"Closing Date" means May 13, 1997, the date on which the Notes were
originally issued under the Indenture.
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"Consolidated EBITDA" means, for any period, the sum of the amounts for
such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated Interest
Expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (iii) income taxes, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income (other than income
taxes (either positive or negative) attributable to either extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation expense, to
the extent such amount was deducted in calculating Adjusted Consolidated Net
Income, (v) amortization expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, and (vi) all other non-cash items
reducing Adjusted Consolidated Net Income (other than items that will require
cash payments and for which an accrual or reserve is, or is required by GAAP to
be, made), less all non-cash items increasing Adjusted Consolidated Net Income,
all as determined on a consolidated basis for GST and its Restricted
Subsidiaries in conformity with GAAP; provided that, if any Restricted
Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA
shall be reduced (to the extent not otherwise reduced in accordance with GAAP)
by an amount equal to (A) the amount of the Adjusted Consolidated Net Income
attributable to such Restricted Subsidiary multiplied by (B) the quotient of (1)
the number of shares of outstanding Common Stock of such Restricted Subsidiary
not owned on the last day of such period by GST or any of its Restricted
Subsidiaries divided by (2) the total number of shares of outstanding Common
Stock of such Restricted Subsidiary on the last day of such period.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including amortization of
original issue discount on any Indebtedness and the interest portion of any
deferred payment obligation, calculated in accordance with the effective
interest method of accounting; all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by GST or any of its Restricted
Subsidiaries) and all but the principal component of rentals in respect of
Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be
accrued by GST and its Restricted Subsidiaries during such period; excluding,
however, (i) any amount of such interest of any Restricted Subsidiary if the net
income of such Restricted Subsidiary is excluded in the calculation of Adjusted
Consolidated Net Income pursuant to clause (iii) of the definition thereof (but
only in the same proportion as the net income of such Restricted Subsidiary is
excluded from the calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) of the definition thereof) and (ii) any premiums, fees and expenses
(and any amortization thereof) payable in connection with the offering of the
Notes, all as determined on a consolidated basis (without taking into account
Unrestricted Subsidiaries) in conformity with GAAP.
"Consolidated Net Worth" means, at any date of determination,
shareholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of GST and its Restricted Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Redeemable Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of
Capital Stock of GST or any of its Restricted Subsidiaries, each item to be
determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Convertible Notes" means the 137/8% Convertible Senior Subordinated
Discount Notes due 2005 of GST issued pursuant to the Convertible Notes
Indenture.
"Convertible Notes Indenture" means the convertible notes indenture
dated December 19, 1995 among GST, as issuer, GST USA, as guarantor, and United
States Trust Company of New York.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Development Company" means a Restricted Subsidiary whose primary
business is the development, ownership and operation of alternative access
telecommunications networks.
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"fair market value" means the price that would be paid in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to buy,
as determined in good faith by the Board of Directors of GST (whose
determination shall be conclusive) and evidenced by a Board Resolution.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Closing Date, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations contained in the
Indenture shall be computed in conformity with GAAP applied on a consistent
basis, except that calculations made for purposes of determining compliance with
the terms of the covenants and with other provisions of the Indenture shall be
made without giving effect to (i) the amortization of any expenses incurred in
connection with the offering of the Notes and (ii) except as otherwise provided,
the amortization of any amounts required or permitted by Accounting Principles
Board Opinion Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, guarantee or otherwise become liable for or with respect to, or
become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an "incurrence" of Indebtedness by reason of a Person
becoming a Restricted Subsidiary; provided that neither the accrual of interest
nor the accretion of original issue discount shall be considered an Incurrence
of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
which purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services, except Trade Payables, (v) all obligations of such Person as
lessee under Capitalized Leases, (vi) all Indebtedness of other Persons secured
by a Lien on any asset of such Person, whether or not such Indebtedness is
assumed by such Person; provided that the amount of such Indebtedness shall be
the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness, (vii) all Indebtedness of
other Persons Guaranteed by such Person to the extent such Indebtedness is
Guaranteed by such Person and (viii) to the extent not otherwise included in
this definition, obligations under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation, provided (A)
that the amount outstanding at any time of any Indebtedness issued with original
issue discount is the face amount of such Indebtedness less the unamortized
portion of the original issue discount of such Indebtedness at the time of its
issuance as determined in conformity with GAAP, (B) money borrowed and set aside
at the time of the Incurrence of any Indebtedness in
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order to pre-fund the payment of interest as such Indebtedness shall be deemed
not to be "Indebtedness" and (C) that Indebtedness shall not include any
liability for federal, state, local or other taxes.
"Indebtedness to EBITDA Ratio" means, as at any date of determination,
the ratio of (i) the aggregate amount of Indebtedness of GST and its Restricted
Subsidiaries on a consolidated basis as at the date of determination (the
"Transaction Date") to (ii) the Consolidated EBITDA of GST for the then most
recent four full fiscal quarters for which reports have been filed pursuant to
the "Commission Reports and Report to Holders" covenant described below (such
four full fiscal quarter period being referred to herein as the "Four Quarter
Period"); provided that (x) pro forma effect shall be given to any Indebtedness
Incurred from the beginning of the Four Quarter Period through the Transaction
Date (including any Indebtedness Incurred on the Transaction Date), to the
extent outstanding on the Transaction Date, (y) if during the period commencing
on the first day of such Four Quarter Period through the Transaction Date (the
"Reference Period"), GST or any of its Restricted Subsidiaries shall have
engaged in any Asset Sale, Consolidated EBITDA for such period shall be reduced
by an amount equal to the EBITDA (if positive), or increased by an amount equal
to the EBITDA (if negative), directly attributable to the assets which are the
subject of such Asset Sale as if such Asset Sale had occurred on the first day
of such Reference Period or (z) if during such Reference Period GST or any of
the Restricted Subsidiaries shall have made any Asset Acquisition, Consolidated
EBITDA of GST shall be calculated on a pro forma basis as if such Asset
Acquisition and any Incurrence of Indebtedness to finance such Asset Acquisition
had taken place on the first day of such Reference Period.
"Initial Note" means the $35 million principal amount intercompany note
due May 13, 2000 issued to GST Funding by GST USA and guaranteed by GST;
provided that the principal amount shall be reduced to the extent the principal
amount exceeds the principal amount of the Notes less (x) the principal amount
of Pledged Securities and cash then held in the Pledge Account (other than the
Interest Collateral), together with accrued interest thereon and (y) the
principal amount of all Intercompany Notes then held as security for the Notes
plus the amount of interest that will accrue on such Intercompany Notes by May
13, 2000.
"Intercompany Notes" means the promissory notes due May 13, 2000 issued
to GST Funding by GST USA and guaranteed by GST.
"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including, without limitation, by way of Guarantee
or similar arrangement; but excluding advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on the balance sheet of the Issuer or its Restricted Subsidiaries) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by, such Person and shall include
(i) the designation of a Restricted Subsidiary as an Unrestricted Subsidiary and
(ii) the fair market value of the Capital Stock (or any other Investment) held
by GST and its Restricted Subsidiaries of any Person that has ceased to be a
Restricted Subsidiary by reason of any transaction permitted by clause (iii) of
the "Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries" covenant. For purposes of the definition of "Unrestricted
Subsidiary" and the "Limitation on Restricted Payments" covenant described
below, (i) "Investment" shall include the fair market value of the assets (net
of liabilities to GST or any of its Restricted Subsidiaries) of any Restricted
Subsidiary of GST at the time that such Restricted Subsidiary of GST is
designated an Unrestricted Subsidiary and shall exclude the fair market value of
the assets (net of liabilities) of any Unrestricted Subsidiary at the time that
such Unrestricted Subsidiary is designated a Restricted Subsidiary of GST and
(ii) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each case as
determined by the Board of Directors in good faith.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof, any sale with
recourse against the seller or any Affiliate of the seller, or any agreement to
give any security interest).
"NACT" means NACT Telecommunications, Inc., a Delaware corporation.
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"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to GST or any Restricted Subsidiary) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of GST and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by GST or
any Restricted Subsidiary as a reserve against any liabilities associated with
such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with GAAP and (b) with respect
to any issuance or sale of Capital Stock, the proceeds of such issuance or sale
in the form of cash or cash equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to the Issuer or any Restricted Subsidiary) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"1995 Indentures" means, collectively the Convertible Notes Indenture
and the Senior Notes Indenture.
"Offer to Purchase" means an offer to purchase Notes by the Issuer from
the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that all
Notes validly tendered will be accepted for payment on a pro rata basis; (ii)
the purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the "Payment Date"); (iii) that any Note not tendered will continue to accrue
interest pursuant to its terms; (iv) that, unless the Issuer defaults in the
payment of the purchase price, any Note accepted for payment pursuant to the
Offer to Purchase shall cease to accrue interest on and after the Payment Date;
(v) that Holders electing to have a Note purchased pursuant to the Offer to
Purchase will be required to surrender such Note, together with the form
entitled "Option of the Holder to Elect Purchase" on the reverse side thereof
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day immediately preceding the Payment
Date; (vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion thereof; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. On the Payment Date, the Issuer shall (i) accept for
payment on a pro rata basis Notes or portions thereof tendered pursuant to an
Offer to Purchase; (ii) deposit with the Paying Agent money sufficient to pay
the purchase price of all Notes or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee all Notes or portions thereof
so accepted together with an Officers' Certificate specifying the Notes or
portions thereof accepted for payment by the Issuer. The Paying Agent shall
promptly mail to the Holders of Notes so accepted payment in an amount equal to
the purchase price, and the Trustee shall promptly authenticate and mail to such
Holders a new Note equal in principal amount to any unpurchased portion of the
Note surrendered; provided that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or integral multiples thereof. The
Issuer will publicly announce the results of an Offer to Purchase as soon as
practicable after the Payment Date. The Trustee shall act as the Paying Agent
for an Offer to Purchase. The Issuer will comply with Rule 14e-1 under the
Exchange Act and any other securities laws
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and regulations thereunder to the extent such laws and regulations are
applicable, in the event that the Issuer is required to repurchase Notes
pursuant to an Offer to Purchase.
"Permitted Investment" means (i) an Investment in a Restricted
Subsidiary or a Person which will, upon the making of such Investment, become a
Restricted Subsidiary or be merged or consolidated with or into or transfer or
convey all or substantially all its assets to, GST or a Restricted Subsidiary;
provided that such person's primary business is related, ancillary or
complementary to the businesses of GST and its Restricted Subsidiaries on the
date of such Investment; (ii) a Temporary Cash Investment; (iii) payroll, travel
and similar advances to cover matters that are expected at the time of such
advances ultimately to be treated as expenses in accordance with GAAP; (iv)
loans or advances to employees made in the ordinary course of business that do
not exceed $1 million in the aggregate at any time outstanding; and (v) stock,
obligations or securities received in satisfaction of judgments.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other similar
Liens arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money); (v) easements, rights-of-way,
municipal and zoning ordinances and similar charges, encumbrances, title defects
or other irregularities that do not materially interfere with the ordinary
course of business of GST or any of its Restricted Subsidiaries; (vi) Liens
(including extensions and renewals thereof) upon real or personal property
acquired after the Closing Date; provided that (a) such Lien is created solely
for the purpose of securing Indebtedness Incurred, in accordance with the
"Limitation on Indebtedness" covenant described below, (1) to finance the cost
(including, without limitation, the cost of design, development, construction,
acquisition, installation or integration) of the item of property or assets
subject thereto and such Lien is created prior to, at the time of or within six
months after the later of the acquisition, the completion of construction or the
commencement of full operation of such property or (2) to refinance any
Indebtedness previously so secured, (b) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of such cost and (c) any such Lien
shall not extend to or cover any property or assets other than such item of
property or assets and any improvements on such item; (vii) leases or subleases
granted to others that do not materially interfere with the ordinary course of
business of GST and its Restricted Subsidiaries, taken as a whole; (viii) Liens
encumbering property or assets under construction arising from progress or
partial payments by a customer of GST or its Restricted Subsidiaries relating to
such property or assets; (ix) any interest or title of a lessor in the property
subject to any Capitalized Lease or operating lease; (x) Liens arising from
filing Uniform Commercial Code financing statements regarding leases; (xi) Liens
on property of, or on shares of stock or Indebtedness of, any corporation
existing at the time such corporation becomes, or becomes a part of, any
Restricted Subsidiary; provided that such Liens do not extend to or cover any
property or assets of GST or any Restricted Subsidiary other than the property
or assets acquired; (xii) Liens in favor of GST or any Restricted Subsidiary;
(xiii) Liens arising from the rendering of a final judgment or order against GST
or any Restricted Subsidiary that does not give rise to an Event of Default;
(xiv) Liens securing reimbursement obligations with respect to letters of credit
that encumber documents and other property relating to such letters of credit
and the products and proceeds thereof; (xv) Liens in favor of customs and
revenue authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; (xvi) Liens encumbering
customary initial deposits and margin deposits, and other Liens that are either
within the general parameters customary in the industry and incurred in the
ordinary course of business, in each case, securing Indebtedness under Interest
Rate Agreements and Currency Agreements and forward contracts, options, future
contracts, futures options or similar agreements or arrangements designed to
protect GST or any of its Restricted
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Subsidiaries from fluctuations in interest rates or the price of commodities;
(xvii) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by GST or any of its
Restricted Subsidiaries in the ordinary course of business in accordance with
the past practices of GST and its Restricted Subsidiaries prior to the Closing
Date; and (xviii) Liens on or sales of receivables.
"Pledge Account" means the accounts established with the Trustee
pursuant to the terms of the Pledge Agreement for the deposit of the Pledged
Securities purchased by GST Funding with the net proceeds from the sale of the
Notes.
"Pledge Agreement" means the Collateral Pledge and Security Agreement,
dated as of the Closing Date, made by GST Funding in favor of the Trustee, as
such agreement may be amended, restated, supplemented or otherwise modified from
time to time.
"Pledged Securities" means the securities which shall consist of U.S.
Government Obligations, purchased by GST Funding with the proceeds from the sale
of the Notes or the proceeds from such securities, to be held in the Pledge
Account, all in accordance with the terms of the Pledge Agreement.
"Redeemable Preferred Shares" means the Series A Convertible Preference
Shares of GST outstanding on the Closing Date.
"Redeemable Stock" means any class or series of Capital Stock of any
Person that by its term or otherwise is (i) required to be redeemed prior to the
Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Redeemable Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in "Limitation on Asset Sales" and
"Repurchase of Notes upon a Change of Control" covenants described below and
such Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Issuer's
repurchase of such Notes as are required to be repurchased pursuant to the
"Limitation on Asset Sales" and "Repurchase of Notes upon a Change of Control"
covenants described below.
"Restricted Subsidiary" means any Subsidiary of GST other than an
Unrestricted Subsidiary.
"Senior Notes" means the 13 7/8% Senior Discount Notes due 2005 of GST
USA issued pursuant to the Senior Notes Indenture.
"Senior Notes Indenture" means the senior notes indenture dated
December 19, 1995 among GST USA, as issuer, GST, as guarantor, and United States
Trust Company of New York.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of GST, accounted for more than 10% of the consolidated
revenues of GST and its Restricted Subsidiaries or (ii) as of the end of such
fiscal year, was the owner of more than 10% of the consolidated assets of GST
and its Restricted Subsidiaries, all as set forth on the most recently available
consolidated financial statements of GST for such fiscal year.
"Stated Maturity" means, (i) with respect to any debt security, the
date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
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"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50 million (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker-dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above, (iv)
commercial paper, maturing not more than 90 days after the date of acquisition,
issued by a corporation (other than an Affiliate of the Issuer) organized and in
existence under the laws of the United States of America, any state thereof or
any foreign country recognized by the United States of America with a rating at
the time as of which any investment therein is made of "P-1" (or higher)
according to Moody's Investors Service, Inc. or "A-1" (or higher) according to
Standard & Poor's Ratings Service, and (v) securities with maturities of six
months or less from the date of acquisition issued or fully and unconditionally
guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least "A" by Standard & Poor's Ratings Service or Moody's Investors Service,
Inc.
"Tomen" means Tomen Corporation or its Affiliates.
"Tomen Facility" means, collectively, the Tomen Master Agreement
together with all other agreements (including credit agreements), instruments
and documents executed or delivered pursuant thereto or in connection therewith,
in each case as such agreements, instruments or documents may be amended,
supplemented, extended, renewed, replaced or otherwise modified from time to
time.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by GST or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) NACT or any other Subsidiary of GST
that at the time of determination shall be designated an Unrestricted Subsidiary
by the Board of Directors in the manner provided below and (ii) any Subsidiary
of an Unrestricted Subsidiary; provided that NACT shall be deemed to be a
Restricted Subsidiary for purposes of the "Limitation on Restricted Payments"
covenant (except that NACT shall be an Unrestricted Subsidiary for purposes of
the limitation on Investments by GST and its Restricted Subsidiaries) and the
definition of "Asset Sale." The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary), other than
GST USA or a Subsidiary Guarantor, to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, GST or any Restricted Subsidiary; provided that (A) any Guarantee by GST or
any Restricted Subsidiary of any Indebtedness of the Subsidiary being so
designated shall be deemed an Incurrence of such Indebtedness and an Investment
by GST or such Restricted Subsidiary at the time of such designation; (B) either
(I) the Subsidiary to be so designated has total assets of $1,000 or less or
(II) if such Subsidiary has assets greater than $1,000, that such designation
would be permitted under the "Limitation on Restricted Payments" covenant
described below and (C) if applicable, the Incurrence of Indebtedness and the
Investment referred to in clause (A) above would be permitted under the
"Limitation on Indebtedness" and "Limitation on Restricted Payments" covenants
described below. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary of GST; provided that immediately after
giving effect to such designation (x) the Liens and Indebtedness of such
Unrestricted Subsidiary
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outstanding immediately after such designation is permitted to be Incurred for
all purposes of the Indenture and (y) no Default or Event of Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the Trustee by promptly filing with the Trustee a copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person,
such Subsidiary if all of the outstanding Capital Stock in such Subsidiary
(other than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned by such Person or one or more Wholly Owned
Subsidiaries of such Person.
COVENANTS
LIMITATION ON INDEBTEDNESS
(a) GST will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes and Indebtedness
existing on the Closing Date); provided that GST and GST USA may Incur
Indebtedness if, after giving effect to the Incurrence of such Indebtedness and
the receipt and application of the proceeds therefrom, the Indebtedness to
EBITDA Ratio would be greater than zero and less than 5:1. GST Funding may not
Incur any Indebtedness other than the Notes.
Notwithstanding the foregoing, GST and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following: (i)
Indebtedness outstanding at any time (including, but not limited to,
Indebtedness under the Tomen Facility) in an aggregate principal amount not to
exceed $320 million, less any amount of Indebtedness permanently repaid as
provided under the "Limitation on Asset Sales" covenant described below; (ii)
Indebtedness (A) to GST evidenced by a promissory note or (B) to any of its
Restricted Subsidiaries; provided that any subsequent event which results in any
such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of such Indebtedness (other than to GST or another
Restricted Subsidiary) shall be deemed, in each case, to constitute an
Incurrence of such Indebtedness not permitted by this clause (ii); (iii)
Indebtedness issued in exchange for, or the net proceeds of which are used to
refinance or refund, then outstanding Indebtedness, other than Indebtedness
Incurred under clause (i), (ii), (iv), (v), (vii) or (viii) of this paragraph,
and any refinancings thereof in an amount not to exceed the amount so refinanced
or refunded (plus premiums, accrued interest, fees and expenses); provided that
Indebtedness the proceeds of which are used to refinance or refund the Notes and
Note Guarantee or Indebtedness that is pari passu with, or subordinated in right
of payment to, the Notes and Note Guarantee shall only be permitted under this
clause (iii) if (A) in case the Notes and Note Guarantee are refinanced in part,
or the Indebtedness to be refinanced is pari passu with the Notes or Note
Guarantee, such new Indebtedness, by its terms or by the terms of any agreement
or instrument pursuant to which such new Indebtedness is outstanding, is
expressly made pari passu with, or subordinate in right of payment to, the
remaining Notes or Note Guarantee, (B) in case the Indebtedness to be refinanced
is subordinated in right of payment to the Notes or Note Guarantee, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding, is expressly made
subordinate in right of payment to the Notes or Note Guarantee at least to the
extent that the Indebtedness to be refinanced is subordinated to the Notes or
Note Guarantee and (C) such new Indebtedness, determined as of the date of
Incurrence of such new Indebtedness, does not mature prior to the Stated
Maturity of the Indebtedness to be refinanced or refunded, and the Average Life
of such new Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded; and provided further that in no event
may Indebtedness of GST or GST USA be refinanced by means of any Indebtedness of
any Restricted Subsidiary of GST USA pursuant to this clause (iii); (iv)
Indebtedness (A) in respect of performance, surety or appeal bonds provided in
the ordinary course of business, (B) under Currency Agreements
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and Interest Rate Agreements; provided that such agreements do not increase the
Indebtedness of the obligor outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by reason
of fees, indemnities and compensation payable thereunder; and (C) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of GST or any of the Restricted
Subsidiaries pursuant to such agreements, in any case Incurred in connection
with the disposition of any business, assets or Restricted Subsidiary of GST
(other than Guarantees of Indebtedness Incurred by any Person acquiring all or
any portion of such business, assets or Restricted Subsidiary for the purpose of
financing such acquisition), in a principal amount not to exceed the gross
proceeds actually received by GST or any Restricted Subsidiary in connection
with such disposition; (v) Indebtedness of GST not to exceed, at any one time
outstanding, two times the Net Cash Proceeds received by GST after the Closing
Date from the issuance and sale of its Capital Stock (other than Redeemable
Stock) to a Person other than a Subsidiary of GST to the extent such Net Cash
Proceeds have not been used pursuant to clause (C)(2) of the first paragraph or
clauses (iii), (iv) or (vi) of the second paragraph of the "Limitation on
Restricted Payments" covenant described below to make a Restricted Payment;
provided that such Indebtedness does not mature prior to the Stated Maturity of
the Notes and has an Average Life longer than the Notes; (vi) Indebtedness
Incurred to finance the cost (including, without limitation, the cost of design,
development, construction, acquisition, installation or integration) of network
assets (including, without limitation, equipment and real property and leasehold
improvements that are necessary to install or operate network assets; provided
that in no event shall the cost of any such real property and leasehold
improvements financed hereby exceed 20% of the total cost of the related network
assets) or inventory purchased or leased by GST or any of its Restricted
Subsidiaries after the Closing Date; (vii) Indebtedness of GST or GST USA under
one or more revolving credit or working capital facilities in an aggregate
principal amount outstanding at any time not to exceed the lesser of (A) $50
million and (B) 75% of the consolidated book value of the accounts receivable of
GST and its Restricted Subsidiaries; and (viii) Indebtedness of GST or GST USA
to the extent the proceeds thereof are promptly (a) used to purchase Notes
tendered in an Offer to Purchase made as a result of a Change of Control or (b)
deposited to defease the Notes as described below under "Defeasance."
(b) For purposes of determining any particular amount of Indebtedness
under this "Limitation on Indebtedness" covenant, (1) Indebtedness Incurred
under the Tomen Facility on or prior to the Closing Date shall be treated as
Incurred pursuant to clause (i) of the second paragraph of this "Limitation on
Indebtedness" covenant and (2) Guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included. For purposes of
determining compliance with this "Limitation on Indebtedness" covenant, in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described in the above clauses, GST, in its sole
discretion, shall classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such clauses.
LIMITATION ON RESTRICTED PAYMENTS
GST will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any distribution
on its Capital Stock (other than dividends or distributions payable solely in
shares of its or such Restricted Subsidiary's Capital Stock (other than
Redeemable Stock) of the same class held by such holders or in options, warrants
or other rights to acquire such shares of Capital Stock) held by Persons other
than GST or any of its Restricted Subsidiaries (and other than pro rata
dividends or distributions on Common Stock of Restricted Subsidiaries), (ii)
purchase, redeem, retire or otherwise acquire for value any shares of Capital
Stock of GST (including options, warrants or other rights to acquire such shares
of Capital Stock) held by Persons other than any Wholly Owned Restricted
Subsidiaries of GST, (iii) make any voluntary or optional principal payment, or
voluntary or optional redemption, repurchase, defeasance, or other acquisition
or retirement for value, of Indebtedness of GST USA or GST that is subordinated
in right of payment to the Notes or the Note Guarantee, as the case may be, or
(iv) make any Investment, other than a Permitted Investment, in any Person (such
payments or any other actions described in clauses (i) through (iv) being
collectively "Restricted Payments") if, at the time of, and after giving effect
to, the proposed Restricted Payment: (A) a Default or Event of Default shall
have occurred and be continuing, (B) GST could not Incur at least $1.00 of
Indebtedness under the first paragraph of the
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"Limitation on Indebtedness" covenant or (C) the aggregate amount of all
Restricted Payments (the amount, if other than in cash, to be determined in good
faith by the Board of Directors, whose determination shall be conclusive and
evidenced by a Board Resolution) made after the Closing Date shall exceed the
sum of (1) 50% of the aggregate amount of the Adjusted Consolidated Net Income
(or, if the Adjusted Consolidated Net Income is a loss, minus 100% of such
amount) (determined by excluding income resulting from transfers of assets by
GST or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a
cumulative basis during the period (taken as one accounting period) beginning on
the first day of the fiscal quarter immediately following the Closing Date and
ending on the last day of the last fiscal quarter preceding the Transaction Date
for which reports have been filed pursuant to the "Commission Reports and
Reports to Holders" covenant plus (2) the aggregate Net Cash Proceeds received
by GST after the Closing Date from the issuance and sale permitted by the
Indenture of its Capital Stock (other than Redeemable Stock) to a Person who is
not a Subsidiary of GST, or from the issuance to a Person who is not a
Subsidiary of GST of any options, warrants or other rights to acquire Capital
Stock of GST (in each case, exclusive of any Redeemable Stock or any options,
warrants or other rights that are redeemable at the option of the holder, or are
required to be redeemed, prior to the Stated Maturity of the Notes), in each
case except to the extent such Net Cash Proceeds are used to Incur Indebtedness
pursuant to clause (v) of the second paragraph of the "Limitation on
Indebtedness" covenant, plus (3) an amount equal to the net reduction in
Investments (other than reductions in Permitted Investments and reductions in
Investments made pursuant to clause (vi) of the second paragraph of this
"Limitation on Restricted Payments" covenant) in any Person resulting from
payments of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to GST or any Restricted
Subsidiary (except to the extent any such payment is included in the calculation
of Adjusted Consolidated Net Income), or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the
definition of "Investments"), not to exceed the amount of Investments previously
made by GST and its Restricted Subsidiaries in such Person.
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration thereof if,
at said date of declaration, such payment would comply with the foregoing
paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of payment to
the Intercompany Notes or, after GST USA assumes the Notes, the Notes or Note
Guarantee, including premium, if any, and accrued and unpaid interest, with the
proceeds of, or in exchange for, Indebtedness Incurred under clause (iii) of the
second paragraph of the "Limitation on Indebtedness" covenant; (iii) the
repurchase, redemption or other acquisition of Capital Stock of GST in exchange
for, or out of the proceeds of a substantially concurrent offering of, shares of
Capital Stock (other than Redeemable Stock) of GST; (iv) the acquisition of
Indebtedness of GST USA or GST which is subordinated in right of payment to the
Intercompany Notes or, after GST USA assumes the Notes, the Notes or Note
Guarantee, in exchange for, or out of the proceeds of, a substantially
concurrent offering of, shares of the Capital Stock of GST (other than
Redeemable Stock); (v) payments or distributions, in the nature of satisfaction
of dissenters' rights, pursuant to or in connection with a consolidation, merger
or transfer of assets that complies with the provisions of the Indenture
applicable to mergers, consolidations and transfers of all or substantially all
of the property and assets of GST USA or GST; (vi) Investments in any Person or
Persons (other than an Affiliate (other than a Subsidiary) of the Company), the
primary business of which is related, ancillary or complementary to the business
of GST and its Restricted Subsidiaries on the date of such Investments, in an
aggregate amount not to exceed $50 million plus, (a) in any fiscal year, an
amount not to exceed 10% of GST's Consolidated EBITDA (if positive) for the
immediately preceding fiscal year, (b) an amount not to exceed the Net Cash
Proceeds received by GST after the Closing Date from the issuance and sale
permitted by the Indenture of its Capital Stock (other than Redeemable Stock) to
a Person that is not a Subsidiary of GST, except to the extent such Net Cash
Proceeds are used to Incur Indebtedness pursuant to clause (v) under the
"Limitation on Indebtedness" covenant or to make Restricted Payments pursuant to
clause (C)(2) of the first paragraph or clause (iii) or (iv) of this paragraph
of this "Limitation on Restricted Payments" covenant and (c) the net reduction
in Investments in any Person made pursuant to this clause (vi), except to the
extent such reduction is included in the calculation of Adjusted Consolidated
Net Income; provided that the net reduction in any such Investment shall not
exceed the amount of Investments previously made in such Person; (vii)
Investments by GST or a Restricted Subsidiary made pursuant to the second
paragraph of the "Limitation on Investments" covenant, in an aggregate amount
not to exceed $25 million; and (viii) cash payments in lieu of the
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issuance of fractional Common Shares upon conversion (including mandatory
conversion) of the Convertible Notes provided for in the Convertible Notes
Indenture or the Redeemable Preferred Shares; provided that, except in the case
of clauses (i) and (iii), no Default or Event of Default shall have occurred and
be continuing or occur as a consequence of the actions or payments set forth
herein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof and an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof), and the Net Cash Proceeds from any issuance of
Capital Stock referred to in clauses (iii), (iv) and (vi) shall be included in
calculating whether the conditions of clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant have been met with respect to any
subsequent Restricted Payments. In the event the proceeds of an issuance of
Capital Stock of GST are used for the redemption, repurchase or other
acquisition of the Notes or Indebtedness that is pari passu with the Notes or
Note Guarantee, then the Net Cash Proceeds of such issuance shall be included in
clause (C) of the first paragraph of this "Limitation on Restricted Payments"
covenant only to the extent such proceeds are not used for such redemption,
repurchase or other acquisition of Indebtedness.
GST Funding will not, and will not permit any Subsidiary to, directly
or indirectly, make any Restricted Payment other than Investments in Pledged
Securities, cash, the Initial Note and Intercompany Notes, in each case pledged
to secure the Notes.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES.
GST will not, and will not permit any Restricted Subsidiary to, create
or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by GST
or any other Restricted Subsidiary, (ii) pay any Indebtedness owed to GST or any
other Restricted Subsidiary, (iii) make loans or advances to GST or any other
Restricted Subsidiary or (iv) transfer any of its property or assets to GST or
any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Indenture or any other
agreement in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; provided that the encumbrances and
restrictions in any such extensions, refinancings, renewals or replacements are
no less favorable in any material respect to the Holders than those encumbrances
or restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced; (ii) existing under or by reason of applicable law; (iii)
existing with respect to any Person or the property or assets of such Person
acquired by GST or any Restricted Subsidiary, existing at the time of such
acquisition and not incurred in contemplation thereof, which encumbrances or
restrictions are not applicable to any Person or the property or assets of any
Person other than such Person or the property or assets of such Person so
acquired; (iv) in the case of clause (iv) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of GST or any Restricted Subsidiary not otherwise
prohibited by the Indenture or (C) arising or agreed to in the ordinary course
of business, not relating to any Indebtedness, and that do not, individually or
in the aggregate, detract from the value of property or assets of GST or any
Restricted Subsidiary in any manner material to GST or any Restricted
Subsidiary; (v) with respect to a Restricted Subsidiary and imposed pursuant to
an agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of, such
Restricted Subsidiary; (vi) with respect to any Development Company, imposed
pursuant to or in connection with any Indebtedness Incurred by such Development
Company to finance at least 50% of the total financing required for the
development and construction of all of such Development Company's alternative
access networks or any Indebtedness Incurred to refinance or replace such
Indebtedness; provided that
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(a) such Indebtedness (including such refinancing Indebtedness) is permitted to
be Incurred under the "Limitation on Indebtedness" covenant described above, (b)
such encumbrances and restrictions are no more restrictive in any material
respect than those encumbrances and restrictions existing under the Tomen
Facility as in effect on the Closing Date and (c) such encumbrances and
restrictions shall only apply to such Development Company for so long as such
Indebtedness (or such refinancing Indebtedness) remains outstanding; or (vii)
with respect to any Development Company (a "Restricted Development Company"),
imposed pursuant to or in connection with any Indebtedness Incurred by another
Development Company to finance at least 50% of the total financing required for
the development and construction of all of such other Development Company's
alternative access networks or any Indebtedness Incurred to refinance or replace
such Indebtedness; provided that (a) such encumbrances and restrictions shall
not apply to such Restricted Development Company prior to the occurrence of an
event of default under such Indebtedness (or refinancing Indebtedness), (b) such
Indebtedness (including such refinancing Indebtedness) is permitted to be
Incurred under the "Limitation on Indebtedness" covenant, (c) such encumbrances
and restrictions are no more restrictive in any material respect than those
contemplated by the Tomen Facility as in effect on the Closing Date and (d) at
least 50% of the total financing required for the development and construction
of all of such Restricted Development Company's alternative access networks was
provided by the holder of the Indebtedness of such other Development Company.
GST Funding will not, and will not permit any Subsidiary to, create or
otherwise cause or suffer to exist or become effective any of the matters
referred to in the first paragraph of this section.
Nothing contained in this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant shall prevent GST or
any Restricted Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in the "Limitation on Liens" covenant or (2)
restricting the sale or other disposition of property or assets of GST or any of
its Restricted Subsidiaries that secure Indebtedness of GST or any of its
Restricted Subsidiaries.
LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
GST will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to GST or a Wholly Owned Restricted
Subsidiary; (ii) issuances or sales to foreign nationals of shares of Capital
Stock of foreign Restricted Subsidiaries, to the extent required by applicable
law; (iii) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary; or
(iv) a sale of Common Stock of Phoenix Fiber, and in connection and concurrently
with such sale, a sale of Common Stock of GST Tucson Lightwave, Inc. provided
that the proceeds of any such sale under this clause (v) shall be applied in
accordance with clause (A) or (B) of the first paragraph of the "Limitation on
Asset Sales" covenant described below.
GST Funding will not sell, and will not permit any Subsidiary, directly
or indirectly, to issue or sell any shares of Capital Stock of a Subsidiary
(including options, warrants or other rights to purchase shares of such Capital
Stock).
LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED SUBSIDIARIES
Under the terms of the Indenture, GST will not permit any Restricted
Subsidiary, directly or indirectly, to Guarantee any Indebtedness of GST or any
Indebtedness of GST USA ("Guaranteed Indebtedness"), unless (i) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to the
Indenture providing for a Guarantee (a "Subsidiary Guarantee") of payment of the
Notes by such Restricted Subsidiary and (ii) such Restricted Subsidiary waives
and will not in any manner whatsoever claim or take the benefit or advantage of,
any rights of reimbursement, indemnity or subrogation or any other rights
against GST Funding, GST or GST USA as a result of any payment by such
Restricted Subsidiary under its Subsidiary Guarantee; provided that this
paragraph shall not be applicable to any Guarantee of any Restricted Subsidiary
that (x) existed at the time such Person became
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a Restricted Subsidiary and (y) was not Incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary. If the
Guaranteed Indebtedness is (A) pari passu with the Intercompany Notes, the Notes
or the Note Guarantee, then the Guarantee of such Guaranteed Indebtedness shall
be pari passu with, or subordinated to, the Subsidiary Guarantee or (B)
subordinated to the Intercompany Notes, the Notes or the Note Guarantee, then
the Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the Intercompany Notes, the Notes or Note Guarantee, as the case
may be.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of GST of all of GST's and each Restricted
Subsidiary's Capital Stock in, or all or substantially all the assets of, such
Restricted Subsidiary (which sale, exchange or transfer is not prohibited by the
Indenture) or (ii) the release or discharge of the Guarantee which resulted in
the creation of such Subsidiary Guarantee, except a discharge or release by or
as a result of payment under such Guarantee.
Under the terms of the Indenture, GST Funding will not permit any
Subsidiary to, directly or indirectly, Guarantee any Indebtedness.
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
GST will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any holder (or any Affiliate of such
holder) of 5% or more of any class of Capital Stock of GST or any Restricted
Subsidiary or with any Affiliate of GST or any Restricted Subsidiary, except
upon fair and reasonable terms no less favorable to GST or such Restricted
Subsidiary than could be obtained, at the time of such transaction or, if such
transaction is pursuant to a written agreement, at the time of the execution of
the agreement providing therefor, in a comparable arm's-length transaction with
a Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which GST or a Restricted Subsidiary delivers to
the Trustee a written opinion of a nationally recognized investment banking firm
stating that the transaction is fair to GST or such Restricted Subsidiary from a
financial point of view; (ii) any transaction solely between GST and any of its
Wholly Owned Restricted Subsidiaries or solely between Wholly Owned Restricted
Subsidiaries; (iii) the payment of reasonable and customary regular fees
(including through the issuance of shares of Common Stock of GST or options,
warrants or other rights to acquire such shares) to directors of GST who are not
employees of GST or any of its subsidiaries; (iv) any payments or other
transactions pursuant to any tax-sharing agreement between GST and any other
Person with which GST files a consolidated tax return or with which GST is part
of a consolidated group for tax purposes; or (v) any Restricted Payments not
prohibited by the "Limitation on Restricted Payments" covenant. Notwithstanding
the foregoing, any transaction or series of transactions covered by the first
paragraph of this "Limitation on Transactions with Shareholders and Affiliates"
covenant and not covered by clauses (ii) through (vi) of this paragraph, the
aggregate amount of which exceeds $500,000 in value, must be approved or
determined to be fair in the manner provided for in clause (i)(A) or (B) above.
GST Funding will not, and will not permit any Subsidiary to, directly
or indirectly, enter into, renew or extend any of the transactions described in
the first paragraph of this section other than any transaction between GST
Funding and GST or any of its Restricted Subsidiaries required or permitted by
the Indenture and Pledge Agreement.
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LIMITATION ON LIENS
GST will not, and will not permit any Restricted Subsidiary to, create,
incur, assume or suffer to exist any Lien on any of its assets or properties of
any character, or any shares of Capital Stock or Indebtedness of any Restricted
Subsidiary (collectively, "Protected Property"), without making effective
provision for all of the Notes (or in the case of a Lien on Protected Property
of GST, the Note Guarantee) and all other amounts due under the Indenture to be
directly secured equally and ratably with (or, if the obligation or liability to
be secured by such Lien is subordinated in right of payment to the Notes or the
Note Guarantee, prior to) the obligation or liability secured by such Lien;
provided that neither GST nor any Restricted Subsidiary will create, Incur,
assume or suffer to exist any Lien on the Pledged Securities, the Pledge Account
or any Acquired Equipment, except Liens securing the Notes and the Intercompany
Notes.
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or Capital
Stock of GST or its Restricted Subsidiaries securing the Initial Note, the
Intercompany Notes or created in favor of GST Funding, the Trustee or the
Holders of the Notes; (iii) Liens with respect to the assets of a Restricted
Subsidiary granted by such Restricted Subsidiary to GST or a Wholly Owned
Restricted Subsidiary to secure Indebtedness owing to GST or such other
Restricted Subsidiary; (iv) Liens securing Indebtedness which is Incurred to
refinance secured Indebtedness which is permitted to be Incurred under clause
(iii) of the second paragraph of the "Limitation on Indebtedness" covenant;
provided that such Liens do not extend to or cover any property or assets of GST
or any Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced; (v) Liens upon or Capital Leases with respect to
inventory, property or equipment acquired or held by GST or any of its
Restricted Subsidiaries to secure all or a part of the purchase price therefor
or GST's or such Restricted Subsidiary's obligations under such lease; provided
that such Liens do not extend to or cover any property or assets of GST or any
Restricted Subsidiary other than the inventory, property or equipment acquired;
(vi) Liens on assets or property of, or the Capital Stock of, a Development
Company securing Indebtedness Incurred under clause (i) of the second paragraph
of the "Limitation on Indebtedness" covenant to finance at least 50% of the
total financing for the development and construction of the alternative access
networks owned by such Development Company; provided such Liens do not extend to
or cover any other property or assets of GST or any of its Restricted
Subsidiaries; or (vii) Permitted Liens.
GST Funding will not, and will not permit any Subsidiary to, create,
incur, assume or suffer to exist any Lien on any of its assets or properties of
any character other than Liens granted in favor of the Trustee or the Holders of
the Notes.
LIMITATION ON SALE-LEASEBACK TRANSACTIONS
GST will not, and will not permit any Restricted Subsidiary to, enter
into any sale-leaseback transaction involving any of its assets or properties
whether now owned or hereafter acquired, whereby GST or a Restricted Subsidiary
sells or transfers such assets or properties and then or thereafter leases such
assets or properties or any part thereof or any other assets or properties which
GST or such Restricted Subsidiary, as the case may be, intends to use for
substantially the same purpose or purposes as the assets or properties sold or
transferred.
The foregoing restriction does not apply to any sale-leaseback
transaction if (i) the lease is for a period, including renewal rights, of not
in excess of three years; (ii) the lease secures or relates to industrial
revenue or pollution control bonds; (iii) the transaction is solely between GST
and any Wholly Owned Restricted Subsidiary or solely between Wholly Owned
Restricted Subsidiaries; or (iv) GST or such Restricted Subsidiary, within 12
months after the sale or transfer of any assets or properties is completed,
applies an amount not less than the net proceeds received from such sale in
accordance with clause (A) or (B) of the first paragraph of the "Limitation on
Asset Sales" covenant described below.
GST Funding will not, and will not permit any Subsidiary to, enter into
any sale-leaseback transaction.
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LIMITATION ON INVESTMENTS
GST will not, and will not permit any Restricted Subsidiary to, (i)
make any Investment in any Person (including an Unrestricted Subsidiary) that
during its most recent fiscal year derived or in its current fiscal year is
expected by the Board of Directors of GST to derive more than $250,000 in
revenues from, or in its most recent fiscal year spent or in its current fiscal
year is expected by the Board of Directors of GST to spend more than $250,000
on, operations or activities located outside the continental United States
(other than in the State of Hawaii or between the continental United States and
the State of Hawaii) (an "International Business") or (ii) acquire or own
(directly or indirectly), other than through an Unrestricted Subsidiary, any
entity, business or asset that is primarily located outside the continental
United States (other than in the State of Hawaii) or any right with respect to
any of the foregoing (an "International Asset").
Notwithstanding the foregoing, and subject to the "Limitation on
Restricted Payments" covenant, GST and its Restricted Subsidiaries may make an
Investment in an Unrestricted Subsidiary which owns, intends to acquire or has
rights with respect to an International Business or International Asset provided
that the aggregate amount of such Investments does not exceed (i) $25 million
plus, (A) in any fiscal year, an amount not to exceed 10% of GST's Consolidated
EBITDA (if positive) for the immediately preceding fiscal year and (B) an amount
not to exceed the Net Cash Proceeds received by GST after the Closing Date from
the issuance and sale permitted by the Indenture of its Capital Stock (other
than Redeemable Stock) to a Person who is not a Subsidiary of GST, less (ii) the
amount of any Investments made pursuant to the first paragraph, or the amount of
any Restricted Payment made pursuant to clause (iii), (iv) or (vi) of the second
paragraph, of the "Limitation on Restricted Payments" covenant; provided that
the International Business or International Assets are related, ancillary or
complementary to the primary business of GST and its Restricted Subsidiaries on
the date of such Investment.
LIMITATION ON ASSET SALES
GST will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless (i) the consideration received by GST or such
Restricted Subsidiary is at least equal to the fair market value of the assets
sold or disposed of and (ii) at least 85% of the consideration received consists
of cash or Temporary Cash Investments; provided, however, that clause (ii) shall
not apply to long-term assignments of capacity in a network. In the event and to
the extent that the Net Cash Proceeds received by GST or its Restricted
Subsidiaries from one or more Asset Sales occurring on or after the Closing Date
in any period of 12 consecutive months exceed 10% of Adjusted Consolidated Net
Tangible Assets (determined as of the date closest to the commencement of such
12-month period for which a consolidated balance sheet of the Issuer and its
Subsidiaries has been prepared), then GST shall or shall cause the relevant
Restricted Subsidiary to (i) within 12 months after the date Net Cash Proceeds
so received exceed 10% of Adjusted Consolidated Net Tangible Assets (A) apply an
amount equal to such excess Net Cash Proceeds to permanently repay
unsubordinated Indebtedness of GST or GST USA or Indebtedness of any Restricted
Subsidiary (other than GST USA), in each case owing to a Person other than GST
or any of its Restricted Subsidiaries or (B) invest an equal amount, or the
amount not so applied pursuant to clause (A) (or enter into a definitive
agreement committing to so invest within 12 months after the date of such
agreement), in property or assets of a nature or type or that are used in a
business (or in a company having property and assets of a nature or type, or
engaged in a business) similar or related to the nature or type of the property
and assets of, or the business of, GST and its Restricted Subsidiaries existing
on the date of such investment (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) and (ii) apply (no later than the end of the 12-month period
referred to in clause (i)) such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (i)) as provided in the following paragraph of this
"Limitation on Asset Sales" covenant. The amount of such excess Net Cash
Proceeds required to be applied (or to be committed to be applied) during such
12-month period as set forth in clause (i) of the preceding sentence and not
applied as so required by the end of such period shall constitute "Excess
Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $5.0 million,
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the Issuer must commence, not later than the fifteenth Business Day of such
month, and consummate an Offer to Purchase from the Holders on a pro rata basis
an aggregate principal amount of Notes equal to the Excess Proceeds on such
date, at a purchase price equal to 101% of the principal amount of the Notes,
plus, in each case, accrued interest to the Payment Date.
GST Funding will not, and will not permit any Subsidiary to, consummate
any Asset Sale except as permitted under the Pledge Agreement.
IMPAIRMENT OF SECURITY INTERESTS OR ABILITY TO ASSUME THE NOTES
The Indenture provides that none of GST, GST USA nor GST Funding shall,
nor shall they permit any Subsidiary to, take or knowingly omit to take any
action which (i) might or would have the result of materially impairing the
security interest with respect to the Pledged Securities, any Acquired
Equipment, the Initial Note or Intercompany Notes for the benefit of the Trustee
and the Holders of the Notes, (ii) grant to any Person other than the Trustee or
the Holders of the Notes, any interest whatsoever in the Pledged Securities,
other amounts in the Pledge Account, any Acquired Equipment, the Initial Note or
any Intercompany Note or (iii) would prevent, or restrict GST USA from assuming,
or GST from guaranteeing, the Notes on May 13, 2000 or earlier if permitted by
the 1995 Indentures.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
The Issuer must commence, within 30 days of the occurrence of a Change
of Control, and consummate an Offer to Purchase for all Notes then outstanding,
at a purchase price equal to 101% of the principal amount thereof, plus accrued
interest to the Payment Date. Prior to the mailing of the notice to Holders
commencing such Offer to Purchase, but in any event within 30 days following any
Change of Control, the Issuer covenants to (i) repay in full all indebtedness of
the Issuer that would prohibit the repurchase of the Notes pursuant to such
Offer to Purchase or (ii) obtain any requisite consents under instruments
governing any such indebtedness of the Issuer to permit the repurchase of the
Notes. The Issuer shall first comply with the covenant in the preceding sentence
before it shall repurchase Notes pursuant to this "Repurchase of Notes upon a
Change of Control" covenant.
Under the terms of the Indenture, if the Issuer is unable to repay all
of its indebtedness that would prohibit repurchase of the Notes or is unable to
obtain the consents of the holders of indebtedness, if any, of the Issuer
outstanding at the time of a Change of Control whose consent would be so
required to permit the repurchase of Notes or otherwise fails to purchase any
Notes, then the Issuer will have breached such covenant. This breach will
constitute an Event of Default under the Indenture if it continues for a period
of 30 consecutive days after written notice is given to the Issuer by the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes outstanding. In addition, the failure by the Issuer to repurchase Notes at
the conclusion of an Offer to Purchase will constitute an Event of Default
without any waiting period or notice requirements.
There can be no assurance that the Issuer will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Issuer which might be outstanding at
the time). The above covenant requiring the Issuer to repurchase the Notes will,
unless the consents referred to above are obtained, require the Issuer to repay
all indebtedness then outstanding which by its terms would prohibit such Note
repurchase, either prior to or concurrently with such Note repurchase.
COMMISSION REPORTS AND REPORTS TO HOLDERS
At all times from and after the earlier of (i) the date of the
commencement of an Exchange Offer or the effectiveness of the Shelf Registration
Statement (the "Registration") and (ii) six months after the Closing Date, in
either case, whether or not GST Funding is then required to file reports with
the Commission, GST Funding shall file with the Commission all such reports and
other information as it would be required to file with the Commission
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by Sections 13(a) or 15(d) under the Exchange Act if it were subject thereto. In
addition, at all times prior to the earlier of the date of the Registration and
six months after the Closing Date, GST Funding shall, at cost, deliver to each
Holder of the Notes quarterly and annual reports substantially equivalent to
those which would be required by the Exchange Act. In addition, at all times
prior to the Registration, upon the request of any Holder or any prospective
purchaser of the Notes designated by a Holder, GST Funding shall supply to such
Holder or such prospective purchaser the information required under Rule 144A
under the Securities Act. Whether or not GST is required to file reports with
the Commission, if any Notes are outstanding, GST shall file with the Commission
all such reports and other information as it would be required to file with the
Commission by Sections 13(a) or 15(d) under the Exchange Act. GST Funding and
GST shall supply the Trustee and each Holder of Notes or shall supply to the
Trustee for forwarding to each Holder, without cost to such Holder, copies of
such reports or other information.
EVENTS OF DEFAULT
The following events are defined as "Events of Default": (a) default in
the payment of principal of (or premium, if any, on) any Note when the same
becomes due and payable at maturity, upon acceleration, redemption or otherwise;
(b) default in the payment of interest on any Note when the same becomes due and
payable, and such default continues for a period of 30 days; provided that a
failure to make any of the first six scheduled interest payments on the Notes on
the applicable Interest Payment Date will constitute an Event of Default with no
grace or cure period; (c) GST, GST USA or GST Funding defaults in the
performance of or breaches any other covenant or agreement in the Indenture or
under the Notes, the Note Guarantee, the Initial Note or the Intercompany Notes
and such default or breach continues for a period of 30 consecutive days after
written notice by the Trustee or the Holders of 25% or more in aggregate
principal amount of Notes; (d) there occurs with respect to any issue or issues
of Indebtedness of GST or any Significant Subsidiary having an outstanding
principal amount of $5 million or more in the aggregate for all such issues of
all such Persons, whether such Indebtedness now exists or shall hereafter be
created, (I) an event of default that has caused the holder thereof to declare
such Indebtedness to be due and payable prior to its Stated Maturity and such
Indebtedness has not been discharged in full or such acceleration has not been
rescinded or annulled within 30 days of such acceleration and/or (II) the
failure to make a principal payment at the final (but not any interim) fixed
maturity and such defaulted payment shall not have been made, waived or extended
within 30 days of such payment default; (e) any final judgment or order (not
covered by insurance) for the payment of money in excess of $5 million in the
aggregate for all such final judgments or orders against all such Persons
(treating any deductibles, self-insurance or retention as not so covered) shall
be rendered against GST, GST USA, GST Funding or any Significant Subsidiary and
shall not be paid or discharged, and there shall be any period of 30 consecutive
days following entry of the final judgment or order that causes the aggregate
amount for all such final judgments or orders outstanding and not paid or
discharged against all such Persons to exceed $5 million during which a stay of
enforcement of such final judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; (f) a court having jurisdiction in the
premises enters a decree or order for (A) relief in respect of GST, GST USA, GST
Funding or any Significant Subsidiary in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of GST, GST USA, GST Funding or any Significant
Subsidiary (other than a liquidation of GST Funding into GST USA in connection
with the assumption of the Notes) or for all or substantially all of the
property and assets of GST, GST USA, GST Funding or any Significant Subsidiary
or (C) the winding up or liquidation of the affairs of GST, GST USA, GST Funding
or any Significant Subsidiary (other than a liquidation of GST Funding into GST
USA in connection with the assumption of the Notes) and, in each case, such
decree or order shall remain unstayed and in effect for a period of 30
consecutive days; (g) GST, GST USA, GST Funding or any Significant Subsidiary
(A) commences a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of GST, GST USA, GST
Funding or any Significant Subsidiary (other than a liquidation of GST Funding
into GST USA in connection with the assumption of the Notes) or for all or
substantially all of the property and assets of GST, GST USA, GST Funding or any
Significant Subsidiary or (C) effects any general assignment for the benefit of
creditors; (h) the Trustee or GST
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Funding does not have at all times a first priority perfected security interest
in all Pledged Securities, the Pledge Account, all Acquired Equipment, the
Initial Note and Intercompany Notes or GST, GST USA or GST Funding asserts in
writing that the security arrangements under the Indenture, the Pledge Account,
the Initial Note and the Intercompany Notes are not in full force and effect; or
(i) GST USA shall not have become a direct obligor on the Notes (other than
Notes to be redeemed as described under "Mandatory Redemption" for which GST
Funding shall have deposited the redemption price) and GST shall not have become
a guarantor of the Notes by May 13, 2000.
If an Event of Default (other than an Event of Default specified in
clause (f) or (g) above that occurs with respect to GST USA, GST or GST Funding
or clause (h) above) occurs and is continuing under the Indenture, the Trustee
or the Holders of at least 25% in aggregate principal amount of the outstanding
Notes, by written notice to the Issuer (and to the Trustee if such notice is
given by the Holders), may, and the Trustee at the request of such Holders
shall, declare the principal of, premium, if any, and accrued interest, on the
Notes to be immediately due and payable. Upon a declaration of acceleration,
such principal, premium, if any, and accrued interest shall be immediately due
and payable. In the event of a declaration of acceleration because an Event of
Default set forth in clause (d) above has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if the
event of default triggering such Event of Default pursuant to clause (d) shall
be remedied or cured by GST or the relevant Significant Subsidiary or waived by
the holders of the relevant Indebtedness within 60 days after the declaration of
acceleration with respect thereto. If an Event of Default specified in clause
(f) or (g) above occurs with respect to GST USA, GST, or GST Funding or an Event
of Default specified in clause (h) occurs, the principal of, premium, if any,
and accrued interest, on the Notes then outstanding shall ipso facto become and
be immediately due and payable without any declaration or other act on the part
of the Trustee or any Holder. The Holders of at least a majority in principal
amount of the outstanding Notes by written notice to the Issuer and to the
Trustee, may waive all past Defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the principal of, premium, if any, and interest on the
Notes that have become due solely by such declaration of acceleration, have been
cured or waived and (ii) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction.
For information as to the waiver of defaults, see "--Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture or the Notes unless: (i)
the Holder gives the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of outstanding
Notes make a written request to the Trustee to pursue the remedy; (iii) such
Holder or Holders offer and, if requested provide, the Trustee indemnity
satisfactory to the Trustee against any costs, liability or expense; (iv) the
Trustee does not comply with the request within 60 days after receipt of the
request and the offer of indemnity; and (v) during such 60-day period, the
Holders of a majority in aggregate principal amount of the outstanding Notes do
not give the Trustee a direction that is inconsistent with the request. However,
such limitations do not apply to the right of any Holder of a Note to receive
payment of the principal of, premium, if any, or interest on, such Note or to
bring suit for the enforcement of any such payment, on or after the due date
expressed in the Notes, which right shall not be impaired or affected without
the consent of the Holder.
The Indenture requires certain officers of the Issuer to certify, on or
before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of GST Funding, GST and GST USA
under the Indenture and that GST Funding, GST and GST USA have fulfilled all
obligations thereunder, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default and the nature and status
thereof. The Issuer will also be obligated to notify the Trustee of any default
or defaults in the performance of any covenants or agreements under the
Indenture.
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CONSOLIDATION, MERGER AND SALE OF ASSETS
Under the terms of the Indenture, neither GST nor GST USA shall
consolidate with, merge with or into, or sell, convey, transfer, lease or
otherwise dispose of all or substantially all of its property and assets (as an
entirety or substantially an entirety in one transaction or a series of related
transactions) to, any Person (other than a consolidation or merger with or into
a Wholly Owned Restricted Subsidiary with a positive net worth; provided that,
in connection with any such merger or consolidation, no consideration (other
than Common Stock in the surviving Person, GST or GST USA) shall be issued or
distributed to the stockholders of GST or GST USA) or permit any Person to merge
with or into GST or GST USA unless: (i) GST or GST USA shall be the continuing
Person, or the Person (if other than GST or GST USA) formed by such
consolidation or into which GST or GST USA is merged or that acquired or leased
such property and assets of GST or GST USA shall be a corporation organized and
validly existing under the laws of the United States of America or any
jurisdiction thereof and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, all of the obligations of GST or GST USA,
on all of the Notes, the Intercompany Notes and the Note Guarantee and under the
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; (iii) immediately
after giving effect to such transaction on a pro forma basis, GST or GST USA or
any Person becoming the successor obligor of the Notes or the Note Guarantee, as
the case may be, shall have a Consolidated Net Worth equal to or greater than
the Consolidated Net Worth of GST or GST USA, as the case may be, immediately
prior to such transaction; (iv) immediately after giving effect to such
transaction on a pro forma basis GST or GST USA, as the case may be, or any
Person becoming the successor obligor of the Notes or the Note Guarantee, as the
case may be, could Incur at least $1.00 of Indebtedness under the first
paragraph of the "Limitation on Indebtedness" covenant; and (v) GST or GST USA,
as the case may be, delivers to the Trustee an Officers' Certificate (attaching
the arithmetic computations to demonstrate compliance with clauses (iii) and
(iv)) and Opinion of Counsel, in each case stating that such consolidation,
merger or transfer and such supplemental indenture complies with this provision
and all conditions precedent provided for herein relating to such transaction
have been complied with; provided, however, that clauses (iii) and (iv) above do
not apply if, in the good faith determination of the Board of Directors of GST
or GST USA, as the case may be, whose determination shall be evidenced by a
Board Resolution, the principal purpose of such transaction is to change the
jurisdiction of incorporation of GST to a state of the United States or of GST
USA to another state of the United States; and provided further that any such
transaction shall not have as one of its purposes the evasion of the foregoing
limitations.
The restrictions and conditions described in the preceding paragraph
also apply to GST Funding except that clauses (iii) and (iv) do not apply to a
merger or consolidation of GST USA and GST Funding or the sale, conveyance or
other disposition of all or substantially all of the assets of GST Funding to
GST USA.
DEFEASANCE
Defeasance and Discharge. The Indenture provides that the Issuer will
be deemed to have paid and GST, GST USA and GST Funding will be discharged from
any and all obligations in respect of the Notes on the 123rd day after the
deposit referred to below, and the provisions of the Indenture will no longer be
in effect with respect to the Notes (except for, among other matters, certain
obligations to register the transfer or exchange of the Notes to replace stolen,
lost or mutilated Notes, to maintain paying agencies and to hold monies for
payment in trust) if, among other things, (A) the Issuer has deposited with the
Trustee, in trust, money and/or U.S. Government Obligations that through the
payment of interest and principal in respect thereof in accordance with their
terms will provide money in an amount sufficient to pay the principal of,
premium, if any, and accrued interest on the Notes on the Stated Maturity of
such payments in accordance with the terms of the Indenture and the Notes, (B)
the Issuer has delivered to the Trustee (i) either (x) an Opinion of Counsel to
the effect that Holders will not recognize income, gain or loss for United
States federal income tax purposes as a result of the Issuer's exercise of its
option under this "Defeasance" provision and will be subject to United States
federal income tax on the same amount and in the same manner as would have been
the case if such deposit, defeasance and discharge had not occurred, which
Opinion of Counsel must be based upon (and accompanied by a copy of) a ruling of
the Service to the same effect unless there
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has been a change in applicable United States federal income tax law after the
Closing Date such that a ruling is no longer required or (y) a ruling directed
to the Trustee received from the Service to the same effect as the
aforementioned Opinion of Counsel; (ii) an Opinion of Counsel or a ruling from
Revenue Canada, Customs, Excise & Taxation to the effect that Holders will not
recognize income, gain or loss for Canadian federal, provincial or territorial
income tax or other tax purposes as a result of such deposit and defeasance and
will be subject to Canadian federal or provincial income tax and other tax on
the same amounts, in the same manner and at the same times as would have been
the case had such deposit and defeasance not occurred (and for purposes of such
opinion, such Canadian counsel shall assume that Holders of the Notes include
Holders who are not resident in Canada); and (iii) an Opinion of Counsel to the
effect that the creation of the defeasance trust does not violate the Investment
Company Act of 1940 and after the passage of 123 days following the deposit, the
trust fund will not be subject to the effect of Section 547 of the United States
Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law, (C)
immediately after giving effect to such deposit on a pro forma basis, no Event
of Default, or event that after the giving of notice or lapse of time or both
would become an Event of Default, shall have occurred and be continuing on the
date of such deposit or during the period ending on the 123rd day after the date
of such deposit, and such deposit shall not result in a breach or violation of,
or constitute a default under, any other agreement or instrument to which the
Issuer or any of its Subsidiaries is a party or by which the Issuer or any of
its Subsidiaries is bound and (D) if at such time the Notes are listed on a
national securities exchange, the Issuer has delivered to the Trustee an Opinion
of Counsel to the effect that the Notes will not be delisted as a result of such
deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further provides that its provisions will no longer be in effect with
respect to clauses (iii) and (iv) under "Consolidation, Merger and Sale of
Assets" and all the covenants described herein under "Covenants," clause (c)
under "Events of Default" with respect to such covenants and clauses (iii) and
(iv) under "Consolidation, Merger and Sale of Assets," and clauses (d), (e) and
(h) under "Events of Default" shall be deemed not to be Events of Default upon,
among other things, the deposit with the Trustee, in trust, of money and/or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Notes on the Stated Maturity of such payments in accordance with the terms of
the Indenture and the Notes, the satisfaction of the provisions described in
clauses B(iii), (C) and (D) of the preceding paragraph and the delivery by the
Issuer to the Trustee of an Opinion of Counsel to the effect that, among other
things, the Holders will not recognize income, gain or loss for United States
federal income tax purposes or Canadian federal, provincial or territorial
income tax or other tax purposes as a result of such deposit and defeasance of
certain covenants and Events of Default and will be subject to United States
federal income tax and Canadian federal or provincial income tax on the same
amount and in the same manner and at the same times as would have been the case
if such deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event the Issuer
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated Maturity
but may not be sufficient to pay amounts due on the Notes at the time of the
acceleration resulting from such Event of Default. However, the Issuer will
remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by GST, GST
USA and GST Funding and the Trustee with the consent of the Holders of not less
than a majority in aggregate principal amount of the outstanding Notes;
provided, however, that no such modification or amendment may, without the
consent of each Holder affected thereby, (i) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, (ii) reduce the
principal of, or premium, if any, or interest on, any Note, (iii) change the
place or currency of payment of principal of, or premium, if any, or interest
on, any Note, (iv) impair the right to institute suit for
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the enforcement of any payment on or after the Stated Maturity (or, in the case
of a redemption, on or after the Redemption Date) of any Note, (v) reduce the
above-stated percentage of outstanding Notes the consent of whose Holders is
necessary to modify or amend the Indenture, (vi) waive a default in the payment
of principal of, premium, if any, or interest on the Notes, or (vii) reduce the
percentage or aggregate principal amount of outstanding Notes the consent of
whose Holders is necessary for waiver of compliance with certain provisions of
the Indenture or for waiver of certain defaults.
None of GST, GST USA or GST Funding shall amend, modify, alter or
supplement or permit or consent to any amendment, modification or supplement of,
the Pledge Agreement, the Initial Note or any Intercompany Notes in any way that
would be adverse to the Holders of the Notes.
ADDITIONAL AMOUNTS
Any payments made by GST under or with respect to the Notes pursuant to
the Note Guarantee will be made free and clear of and without withholding or
deduction for or on account of any present or future tax, duty, levy, impost,
assessment or other governmental charge (including penalties, interest and other
liabilities related thereto) imposed or levied by or on behalf of the Government
of Canada or of any province or territory thereof or by any authority or agency
therein or thereof having power to tax (hereinafter, "Taxes"), unless GST is
required to withhold or deduct Taxes by law or by the interpretation or
administration thereof. If GST is required to withhold or deduct any amount for
or on account of Taxes from any payment made under or with respect to the Notes,
GST will pay such additional amounts ("Additional Amounts") as may be necessary,
so that the net amount received by each Holder of Notes (including Additional
Amounts) after such withholding or deduction will not be less than the amount
such Holder would have received if such Taxes had not been withheld or deducted;
provided, however, that no Additional Amounts will be payable with respect to a
payment made to a Holder (an "Excluded Holder") (i) with which GST does not deal
at arm's length (within the meaning of the Income Tax Act (Canada)) at the time
of making such payment, or (ii) which is subject to such Taxes by reason of its
being connected with Canada or any province or territory thereof otherwise than
solely by reason of the Holder's activity in connection with purchasing the
Notes, by the mere holding of Notes or by reason of the receipt of payments
thereunder. GST will, upon written request of any Holder (other than an Excluded
Holder), reimburse such Holder, for the amount of (i) any Taxes so levied or
imposed and paid by such Holder as a result of payments made under or with
respect to the Notes and (ii) any Taxes so levied or imposed with respect to any
reimbursement under the foregoing clause (i), but excluding any such Taxes on
such Holder's net income so that the net amount received by such Holder after
such reimbursement will not be less than the net amount the Holder would have
received if Taxes on such reimbursement had not been imposed.
At least 30 days prior to each date on which any payment under or with
respect to the Notes is due and payable, if GST will be obligated to pay
Additional Amounts with respect to such payment, GST will deliver to the Trustee
an Officers' Certificate stating the fact that such Additional Amounts will be
payable and the amounts so payable and will set forth such other information
necessary to enable the Trustee to pay such Additional Amounts to Holders on the
payment date. Whenever either in the Indenture or in this Prospectus there is
mentioned, in any context, the payment of principal (or premium, if any),
Redemption Price, interest or any other amount payable under or with respect to
the Notes, such mention shall be deemed to include mention of the payment of
Additional Amounts to the extent that, in such context, Additional Amounts are,
were or would be payable in respect thereof.
In the event that GST has become or would become obligated to pay, on
the next date on which any amount would be payable under or with respect to the
Notes any Additional Amounts as a result of certain changes affecting Canadian
withholding tax laws, GST may redeem all, but not less than all, the Notes at
any time at 100% of their principal amount, together with accrued interest
thereon to the redemption date. See "-- Optional Redemption."
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CONSENT TO JURISDICTION AND SERVICE
GST Funding, GST and GST USA have appointed Olshan Grundman Frome &
Rosenzweig LLP, 505 Park Avenue, New York, New York 10022 as their agent for
service of process in any suit, action or proceeding with respect to the
Indenture or the Notes and for the actions brought under federal or state
securities laws brought in any federal or state court located in The City of New
York and will agree to submit to the jurisdiction of such courts.
ENFORCEABILITY OF JUDGMENTS
GST is incorporated in Canada. Certain directors and officers, and
certain experts named herein, are residents of Canada. As a result, it may be
difficult or impossible for United States holders of Notes to effect service of
process within the United States upon GST or such directors, officers and
experts or to collect judgments of United States courts predicated upon civil
liability under the United States federal securities and other laws. GST
believes that there is substantial doubt as to whether Canadian courts would (i)
enforce judgments of United States courts obtained against GST or such
directors, officers and experts predicated upon the civil liability provisions
of United States laws or (ii) impose liabilities in original actions against GST
or its directors, officers and experts predicated solely upon United States
securities laws.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Notes are issued in fully registered
form without interest coupons. Notes sold in offshore transactions in reliance
on Regulation S under the Securities Act will initially be represented by one or
more temporary global Notes in definitive, fully registered form without
interest coupons (each a "Temporary Regulation S Global Note") and will be
deposited with the Trustee as custodian for, and registered in the name of a
nominee of, DTC for the accounts of Euroclear and Cedel Bank. The Temporary
Regulation S Global Note will be exchangeable for one or more permanent global
Notes (each a "Permanent Regulation S Global Note"; and together with the
Temporary Regulation S Global Notes, the "Regulation S Global Note") on or after
the 40th day following the Closing Date upon certification that the beneficial
interests in such global Note are owned by non-U.S. persons. Prior to the 40th
day after the Closing Date, beneficial interests in the Temporary Regulation S
Global Note may be held only through Euroclear or Cedel Bank and any resale or
other transfer of such interests to U.S. persons shall not be permitted during
such period unless such resale or transfer is made pursuant to Rule 144A or
Regulation S and in accordance with the requirements described below.
Notes sold in reliance on Rule 144A will be represented by one or more
permanent global Notes in definitive, fully registered form without interest
coupons (each a "Restricted Global Note"; and together with the Regulation S
Global Note, the "Global Notes") and will be deposited with the Trustee as
custodian for, and registered in the name of a nominee of, DTC.
Each Global Note (and any Notes issued for exchange therefor) will be
subject to certain restrictions on transfer set forth therein as described under
"Transfer Restrictions."
Notes originally purchased by or transferred to Institutional
Accredited Investors who are not qualified institutional buyers ("Non-Global
Purchasers") will be issued Notes in registered form without interest coupons
("Certificated Notes"). Upon the transfer of Certificated Notes initially issued
to a Non-Global Purchaser to a qualified institutional buyer or in accordance
with Regulation S, such Certificated Notes will, unless the relevant Global Note
has previously been exchanged in whole for Certificated Notes, be exchanged for
an interest in a Global Note. For a description of the restrictions on the
transfer of Certificated Notes, see "Transfer Restrictions."
The Global Notes. Ownership of beneficial interests in a Global Note
will be limited to persons who have accounts with DTC ("participants") or
persons who hold interests through participants. Ownership of beneficial
interests in a Global Note will be shown on, and the transfer of that ownership
will be effected only through, records maintained by DTC or its nominee (with
respect to interests of participants) and the records of participants (with
respect to interests of persons other than participants). Qualified
institutional buyers may hold their interests
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in a Restricted Global Note directly through DTC if they are participants in
such system, or indirectly through organizations which are participants in such
system.
Investors may hold their interests in a Regulation S Global Note
directly through Cedel Bank or Euroclear, if they are participants in such
systems, or indirectly through organizations that are participants in such
system. Cedel Bank and Euroclear will hold interests in the Regulation S Global
Notes on behalf of their participants through DTC.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with the applicable procedures of DTC, in addition to those provided for under
the Indenture and, if applicable, those of Euroclear and Cedel Bank.
Payments of the principal of, and interest on, a Global Note will be
made to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Issuer, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Issuer expects that DTC or its nominee, upon receipt of any payment
of principal or interest in respect of a Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
DTC or its nominee. The Issuer also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary
way in accordance with DTC rules and will be settled in same-day funds.
Transfers between participants in Euroclear and Cedel Bank will be effected in
the ordinary way in accordance with their respective rules and operating
procedures.
The Issuer expects that DTC will take any action permitted to be taken
by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in a Global Note is credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Notes, DTC will exchange the applicable Global
Note for Certificated Notes, which it will distribute to its participants and
which may be legended as set forth under the heading "Transfer Restrictions."
The Issuer understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A under the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates and certain other organizations. Indirect access to the DTC
system is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
Although DTC, Euroclear and Cedel Bank are expected to follow the
foregoing procedures in order to facilitate transfers of interests in a Global
Note among participants of DTC, Euroclear and Cedel Bank, they are
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under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Issuer nor the Trustee
will have any responsibility for the performance by DTC, Euroclear or Cedel Bank
or their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary
for the Global Notes and a successor depositary is not appointed by the Issuer
within 90 days, the Issuer will issue Certificated Notes, which may bear the
legend referred to under "Transfer Restrictions," in exchange for the Global
Notes. Holders of an interest in a Global Note may receive Certificated Notes,
which may bear the legend referred to under "Transfer Restrictions," in
accordance with the DTC's rules and procedures in addition to those provided for
under the Indenture.
NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the
principal of, premium, if any, or interest on any of the Notes or for any claim
based thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of GST, GST USA or GST Funding in the
Indenture, or in any of the Notes or because of the creation of any Indebtedness
represented thereby, shall be had against any incorporator, shareholder,
officer, director, employee or controlling person of GST, GST USA or GST Funding
or of any successor Person thereof. Each Holder by accepting the Notes, waives
and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a
Default, the Trustee will not be liable, except for the performance of such
duties as are specifically set forth in such Indenture. If an Event of Default
has occurred and is continuing, the Trustee will use the same degree of care and
skill in its exercise as a prudent person would exercise under the circumstances
in the conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act, incorporated
by reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Issuer, to obtain payment of claims in certain cases or
to realize on certain property received by it in respect of any such claims, as
security or otherwise. The Trustee is permitted to engage in other transactions;
provided, however, that if the Trustee acquires any conflicting interest, it
must eliminate such conflict or resign.
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DESCRIPTION OF CERTAIN INDEBTEDNESS AND REDEEMABLE PREFERRED SHARES
TOMEN FACILITY
The following summary of the material provisions of the documents
comprising the Tomen Facility does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all the provisions of such
documents, including the definitions of certain terms therein. Terms used and
not defined herein have the meanings given to them in the documents described
herein.
GENERAL
The Company, GST Telecom and Pacwest are parties to a Master Agreement
dated October 24, 1994 and amended May 24, 1996 (the "Tomen Master Agreement")
with Tomen pursuant to which Tomen agreed, in its sole discretion on a
project-by-project basis, to make available up to a total of $100.0 million of
financing for telecommunications network projects developed and constructed by
the Company. Under the terms of the Tomen Master Agreement, Tomen has the
exclusive right to review the Company's proposed network projects until Tomen
has extended $100.0 million in debt financing or has refused three projects that
the Company subsequently finances. If Tomen approves a project it would enter
into a credit agreement (in substantially the form of the Credit Agreement
hereinafter described) with the subsidiary of the Company developing the project
(a "Development Company") to provide financing for 75% of the project's costs (a
"Project Loan"). The first 25% of such costs would be contributed as equity by
the Company prior to or at the same time as the receipt of the debt financing.
In connection with each project it finances, Tomen has the right to act as
procurement agent for the network project.
Until amended in May 1996, the Tomen Master Agreement had provided that
Tomen could purchase up to 10% (on a fully diluted basis) of the capital stock
of a Development Company to which it agreed to provide financing and Tomen had
purchased 10% of the equity of GST Pacific for the sum of $615,000. In May 1996,
the Company entered into a series of transactions pursuant to which GST Telecom
purchased the shares of GST Pacific held by Tomen for $1,250,000 and the parties
amended the Tomen Master Agreement to eliminate Tomen's right to purchase 10% of
the shares in Development Companies to which it provides a Project Loan and to
grant to Tomen in connection with each Project Loan the right to purchase a
number of Common Shares the aggregate value of which based on their market price
would equal 10% of the total equity contribution by the Company to the
Development Company. In addition, the parties agreed that in connection with
certain Project Loans, Tomen's purchase of Common Shares would include, for no
additional consideration, a specified number of warrants to purchase additional
Common Shares.
The Tomen Master Agreement provides that each Project Loan will bear
interest at LIBOR plus 3% and will amortize in 24 quarterly installments
beginning after the project's construction period (which may not exceed three
years). An upfront fee of 1.50% of the aggregate principal amount of each
Project Loan and a commitment fee of 0.50% per annum on the unused portion of
each Project Loan is payable to Tomen. In addition, Pacwest, an entity
controlled by Mr. Warta, Chairman of the Board and Chief Executive Officer of
the Company, is entitled to receive a fee equal to 1% of the total debt and
equity financing received by the Company under the Tomen Facility. A Project
Loan may be repaid or refinanced at any time; however, Tomen has a right of
first refusal on any such refinancing and Tomen would be entitled to receive
one-third of the net present value of any interest rate savings that would be
realized by the Development Company in connection with any such refinancing.
Each Project Loan is to be secured by all of the Development Company's
assets and a pledge of all capital stock of the Development Company. In
addition, the Tomen Master Agreement requires that the net cash flow of each
project financed under the Tomen Facility be assigned to secure the repayment of
each other Project Loan. Any management fees payable by the Development Company
are subordinated in right of payment to the repayment of Project Loans.
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Pursuant to a stock purchase agreement (the "Tomen Stock Purchase
Agreement") entered into in connection with the Tomen Master Agreement, Tomen
purchased, (i) for an aggregate purchase price of $2.3 million, 500,000 Common
Shares and warrants to purchase 250,000 Common Shares which have been exercised
(ii) for an aggregate of $1.2 million, 250,000 Common Shares and warrants to
purchase 125,000 Common Shares which have been exercised, and (iii) for an
aggregate of $2.7 million, 250,000 Common Shares and warrants to purchase
125,000 Common Shares exercisable until May 23, 1998 at an exercise price of
$12.96 per share and (iv) pursuant to an amendment to the Tomen Master Agreement
and the Tomen Stock Purchase Agreement for an aggregate of $800,000, 74,074
Common Shares and 46,155 Warrants to purchase Common Shares at an exercise price
of $12.96 per share. The Company has registered the resale of an aggregate of
1,620,229 Common Shares that have been issued or are issuable to Tomen upon
exercise of warrants.
FINANCED PROJECTS
The first two projects financed under the Tomen Master Agreement were
the San Bernardino portion of the Southern California network ("Phase I") and
the Ontario portion of the Southern California network ("Phase II"). Pursuant to
the credit agreement between GST Pacific and Tomen America (the "Credit
Agreement"), Tomen agreed to provide $9.0 million of debt financing to develop
Phase I and $9.5 million of debt financing to develop Phase II. The terms of the
Credit Agreement are substantially the terms contemplated by the Tomen Master
Agreement. In addition, the Credit Agreement contains covenants which, among
other things, restrict or prohibit GST Pacific's ability to incur debt, create
liens, sell assets, make investments, enter into transactions with affiliates,
merge or consolidate, transfer GST Pacific's capital stock and pay dividends to
the Company. Failure to satisfy any of the covenants constitutes an event of
default under the Credit Agreement. The Credit Agreement also contains customary
events of default for project financing, including a cross default to other
indebtedness of GST Pacific. An event of default under the Credit Agreement
would allow Tomen to accelerate the maturity of the Project Loan, foreclose on
the collateral or take possession of and complete the project.
In May 1996, Tomen provided financing with respect to the Tucson and
Albuquerque networks, in the amount of up to $8.0 million each. The terms of the
respective credit agreements between Tomen and GST Tucson and GST New Mexico are
substantially similar to the terms of the Credit Agreement.
PROPOSED PROJECTS
Tomen has agreed in principle to provide the Company with $41.0 million
of debt financing for the upgrade of its Hawaii network and the construction of
the Hawaiian inter-island network. The Company expects that GST Hawaii will
enter into a credit agreement with Tomen containing substantially similar terms
as the Credit Agreement, except that the loan will amortize in 22 quarterly
installments beginning two and one half years after the closing date for such
agreement.
EQUIPMENT FINANCING
SIEMENS SWITCHING EQUIPMENT PURCHASE AGREEMENT AND LOAN AGREEMENT
The Company, through its indirect subsidiary, GST SwitchCo, Inc. ("GST
SwitchCo"), entered into the Siemens Sales Agreement pursuant to which GST
SwitchCo may purchase switching and related equipment from Siemens. The Siemens
Sales Agreement provides price protection for 10 years for several categories of
Siemens switching equipment and related software. In addition, on the same date,
GST SwitchCo entered into the Siemens Loan Agreement that provides for up to an
aggregate of $226.0 million of loans to finance the purchase of Siemens
equipment and equipment from other suppliers, of which $116.0 million is
presently available to the Company. The Company may seek to increase the amount
available up to $226.0 million on an as-needed basis, subject to the negotiation
and execution of mutually satisfactory documentation. Each loan made under the
Siemens Loan Agreement initially bears interest at an interim loan rate of LIBOR
plus 4.5% on the outstanding balance of the loan until the beginning of the
calendar quarter following the original loan advance date, at which time the
outstanding
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balance of the loan converts to a term loan and begins accruing interest at a
term loan rate of LIBOR plus 3.5%. Repayment of the outstanding principal amount
of each loan is required in quarterly installments commencing on the last day of
the fifth quarter following the original loan advance date with the remaining
balance of each outstanding loan being payable in full on the last day of the
24th quarter following such original loan advance date. GST SwitchCo's
obligations under the Siemens Loan Agreement are secured by the grant to Siemens
of a first priority security interest in all products purchased by GST SwitchCo
with the proceeds of loans by Siemens and are guaranteed in part by GST USA.
NORTEL SWITCHING EQUIPMENT AND RELATED FINANCING
The Company, through its wholly-owned subsidiary, GST EquipCo, Inc.
("GST EquipCo"), entered into the Nortel Purchase Agreement pursuant to which
GST EquipCo may purchase switching and related equipment and software from
Nortel. The Nortel Purchase Agreement provides price protection for 10 years for
several categories of Nortel switching equipment and related products and
software and requires GST EquipCo to purchase at least $50.0 million of
equipment, product and software prior to November 18, 1999.
The Company has entered into the NTFC Loan Agreement that provides for
up to $50.0 million to finance the purchase by GST EquipCo of Nortel equipment
and products. Borrowings under the NTFC Loan Agreement may be made through
December 31, 1998. Loans under the NTFC Loan Agreement will bear interest at a
floating interest rate equal to 90 day LIBOR plus 3.5%. GST EquipCo is required
to pay interest only until December 31, 1998 under the NTFC Loan Agreement and
the principal amounts outstanding thereunder will become due and payable in 20
consecutive quarterly installments following such interest only period. GST
EquipCo's obligations under the NTFC Loan Agreement are secured by the grant to
NTFC of a first priority security interest in all Nortel products purchased by
GST EquipCo with the proceeds of such financing and are guaranteed by GST USA.
SENIOR NOTES AND CONVERTIBLE NOTES
GST USA issued $312.4 million principal amount at maturity of Senior
Notes guaranteed by GST, under a senior notes indenture dated December 19, 1995,
among GST USA, as issuer, GST, as guarantor, and United States Trust Company of
New York, as trustee, and GST issued $39.1 million principal amount at maturity
of the Convertible Notes guaranteed by GST USA, under a convertible notes
indenture dated December 19, 1995, among GST, as issuer, GST USA, as guarantor,
and United States Trust Company of New York, as trustee. The 1995 Notes were
issued in units, with each unit consisting of eight Senior Notes and one
Convertible Note. Cash interest does not accrue on the 1995 Notes prior to
December 15, 2000 at which time the 1995 Notes will have fully accreted to their
principal amount at maturity. From and after December 15, 2000, the 1995 Notes
will accrue interest, payable semiannually in cash, at a rate of 13-7/8% per
annum.
The Senior Notes and the Senior Notes guarantee are senior, unsecured
obligations of GST USA and GST, respectively, ranking pari passu in right of
payment with all unsubordinated obligations of GST USA and GST, respectively.
The Convertible Notes and the Convertible Notes guarantee are senior
subordinated, unsecured obligations of GST and GST USA, respectively, ranking
junior in right of payment to all senior obligations of GST and GST USA,
respectively, pari passu with all senior subordinated indebtedness of GST and
GST USA, respectively.
The 1995 Notes may be redeemed at any time on or after December 15,
2000, in whole or in part, at 106.938% of their principal amount at maturity
plus accrued interest, declining to 100% of their principal amount at maturity
plus accrued interest on and after December 15, 2002. In addition, the 1995
Notes are redeemable under certain circumstances in the event of certain changes
affecting Canadian withholding taxes.
The Convertible Notes are convertible, at the option of the holders,
into Common Shares at any time after December 19, 1996. The number of Common
Shares issuable upon conversion of Convertible Notes is determined by dividing
the accreted value on the date of conversion of the Convertible Notes being
converted by the conversion
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price of $7.563, subject to adjustment. In addition, the Convertible Notes will
automatically convert under certain circumstances, if the closing price of the
Common Shares on the AMEX during any period described below exceeds the price
for such period for at least 30 consecutive trading days:
12 MONTHS BEGINNING CLOSING PRICE
- ------------------- -------------
December 15, 1996........................... $16.77
December 15, 1997........................... $19.80
December 15, 1998........................... $22.82
December 15, 1999........................... $25.84
The 1995 Indentures contain certain covenants that affect and in some
cases significantly restrict or prohibit, among other things, the ability of GST
and its restricted subsidiaries (including GST USA) to incur additional
indebtedness, create liens, engage in sale-leaseback transactions, pay dividends
or make distributions in respect of its capital stock, make investments or
certain other restricted payments, sell assets, create restrictions on the
ability of restricted subsidiaries to make certain payments, issue or sell stock
of restricted subsidiaries, enter into transactions with stockholders or
affiliates and consolidate, merge or sell all or substantially all of their
assets.
Upon the occurrence of a Change of Control (as hereinafter defined),
GST USA will be required to make an offer to purchase the Senior Notes and GST
will be required to make an offer to purchase the Convertible Notes, in each
case at a purchase price equal to 101% of their accreted value on the date of
purchase plus accrued interest, if any. A "Change of Control" is defined to mean
such time as (i) a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) of voting stock representing more than 30% of the total voting
power of the voting stock of GST on a fully diluted basis; (ii) individuals who
on December 19, 1995 constituted the Board of Directors (together with any new
directors whose election by the Board of Directors or whose nomination for
election by GST's shareholders was approved by a vote of at least two-thirds of
the members of the Board of Directors then in office who either were members of
the Board of Directors on December 19, 1995 or whose election or nomination for
election was previously approved) cease for any reason to constitute a majority
of the members of the Board of Directors then in office; or (iii) all of the
common stock of GST USA is not beneficially owned by GST.
REDEEMABLE PREFERRED SHARES
In the Princes Gate Investment, GST issued 500 Redeemable Preferred
Shares. The Redeemable Preferred Shares will not pay dividends, except to the
extent that cash dividends are paid on the Common Shares. The liquidation and
redemption prices of the Redeemable Preferred Shares will accrete at a
semi-annual rate of 117/8%.
GST is required to redeem the Redeemable Preferred Shares on February
28, 2004 (the "Mandatory Redemption Date") in cash at a redemption price of
approximately $224,231 per share (the "Mandatory Redemption Price"); provided
that to the extent GST is prohibited from paying such redemption price in cash,
the holders of Redeemable Preferred Shares have the option to convert each
Redeemable Preferred Share into a number of Common Shares equal to the Mandatory
Redemption Price divided by 95% of the then market price for Common Shares. In
the event GST is prevented from paying the redemption price for Redeemable
Preferred Shares in cash and any holder of Redeemable Preferred Shares does not
exercise such conversion option, GST has the option of extending the Mandatory
Redemption Date to August 28, 2007. GST has the option of redeeming the
Redeemable Preferred Shares at any time after February 28, 2000 in cash at a
redemption price per Redeemable Preferred Share equal to the number of Common
Shares into which such Redeemable Preferred Share is then convertible multiplied
by the price at which such Redeemable Preferred Share would become subject to
mandatory conversion. Under the terms of the Redeemable Preferred Shares, the
holders thereof are entitled to designate for election one person to
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the Board of Directors of GST. In June 1997, Joseph G. Fogg III, designee of the
holders of the Redeemable Preferred Shares, was appointed to the Board of
Directors of GST.
Redeemable Preferred Shares are convertible at the option of the
holders into Common Shares at any time after February 28, 2000 or earlier upon a
change of control of GST. The holders of Redeemable Preferred Shares have the
right to require GST to repurchase their shares upon a change of control of GST
after February 28, 2002; prior to that time, holders have a right to convert
their shares into Common Shares upon a change in control. Further, the
Redeemable Preferred Shares are subject to mandatory conversion into Common
Shares if the market price of Common Shares exceeds $15.925 per share (subject
to adjustment) for a specified period after February 28, 2000.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Olshan Grundman Frome & Rosenzweig LLP, the United
States tax counsel to the Company, subject to the limitations set forth herein,
the following is an accurate summary of the material United States federal
income tax consequences of the purchase, ownership and disposition of the Notes.
This summary is based on current provisions of the Code, applicable final,
temporary and proposed Treasury Regulations ("Treasury Regulations"), judicial
authority, and current administrative rulings and pronouncements of the Service
and upon the facts concerning the Company as of the date hereof. There can be no
assurance that the Service will not take a contrary view, and no ruling from the
Service has been or will be sought by the Company. Legislative, judicial, or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders.
This summary and the above referenced opinion do not purport to deal
with all aspects of taxation that may be relevant to particular holders of the
Notes in light of their personal investment or tax circumstances, or to certain
types of investors (including insurance companies, financial institutions,
broker-dealers or tax-exempt organizations) subject to special treatment under
the United States federal income tax laws. This discussion does not deal with
special tax situations, such as the holding of the Notes as part of a straddle
with other investments, or situations in which the functional currency of a
holder who is a U.S. Holder (as defined below) is not the United States dollar.
In addition, this discussion deals only with Notes held as capital assets within
the meaning of Section 1221 of the Code.
As used in the discussion which follows, the term "U.S. Holder" means
an initial beneficial owner of the Notes that for United States federal income
tax purposes is (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or of any political subdivision thereof, or (iii) an
estate or trust the income of which is subject to United States federal income
taxation regardless of its source. The term "Non-U.S. Holder" means an initial
holder of Notes that is, for United States federal income tax purposes, not a
U.S. Holder.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
GENERAL
Under applicable authorities, the Notes should be treated as
indebtedness for United States federal income tax purposes. In the unlikely
event the Notes are treated as equity, the amount of any actual or constructive
distributions on any such Note would first be taxable to the holder as dividend
income to the extent of the issuer's current and accumulated earnings and
profits, and next would be treated as a return of capital to the extent of the
holder's tax basis in the Note, with any remaining amount treated as gain from
the sale of a Note. As a result, until such time as the issuer has earnings and
profits as determined for United States federal income tax purposes,
distributions on any Note treated as equity will be a nontaxable return of
capital and will be applied against and in the case of actual distributions
reduce the adjusted tax basis of such Note in the hands of its holder (but not
below zero). Further, payments on the Notes treated as equity to Non-U.S.
Holders would not be eligible for the portfolio interest exception from United
States withholding tax, and dividends thereon would be subject to United States
withholding tax at a flat rate of 30% (or lower applicable treaty rate) and gain
from their sale or other taxable disposition might also be subject to United
States tax. In addition, in the event of equity treatment, neither GST Funding
nor GST USA, as the case may be, would ever be entitled to deduct interest on
the Notes for United States federal income tax purposes. The remainder of this
discussion assumes that the Notes will constitute indebtedness of either GST
Funding or GST USA, as appropriate, for such tax purposes.
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TAX CONSEQUENCES TO U.S. HOLDERS
Subject to the discussion below, stated interest payable on to the
Notes will be taxable to a U.S. Holder as ordinary income when received or
accrued in accordance with such holder's regular method of tax accounting.
The interest rate on the Notes will be increased by .5% per annum if,
prior to the date that is six months after the Closing Date, GST Funding, GST
USA and GST fails to either consummate the Exchange Offer or cause resales of
the Notes to be registered under the Securities Act. See "Description of the
Notes -- Registration Rights." According to the Treasury Regulations, the
possibility of a change in the interest rate will not affect the yield of the
Notes (and, accordingly, will not affect the inclusion of interest in income)
unless, based on all the facts and circumstances as of the issue date, it is
significantly more likely than not that such a change will occur. GST Funding,
GST USA and GST do not intend to treat the possibility of a change in the
interest rate as affecting the yield to maturity of any Note. If, however, the
interest was increased because of such a failure, a U.S. Holder would be
required to include in gross income any increased amount of interest over the
remaining term of the Notes, possibly in advance of the receipt of cash relating
thereto.
Market Discount. If a U.S. Holder purchases a Note for an amount that
is less than its stated principal amount, the amount of such difference will be
treated as "market discount" for U.S. federal income tax purposes, unless such
difference is less than a specified de minimis amount. Under the market discount
rules, a U.S. Holder will be required to treat any principal payment on, or any
gain on the sale, exchange, retirement or other disposition of, a Note as
ordinary income to the extent of the market discount which has not previously
been included in income and is treated as having accrued on such Note at the
time of such payment or disposition. If a U.S. Holder makes a gift of a Note,
accrued market discount, if any, will be recognized as if such U.S. Holder had
sold such Note for a price equal to its fair market value. In addition, the U.S.
Holder may be required to defer, until the maturity of the Note or, in certain
circumstances, the earlier disposition of the Note in a taxable transaction, the
deduction of a portion of the interest expense on any indebtedness incurred or
continued to purchase or carry such Note.
Any market discount will be considered to accrue on a straight-line
basis during the period from the date of acquisition to the maturity date of the
Note, unless the U.S. Holder elects to accrue market discount on a constant
interest method. A U.S. Holder of a Note may elect to include market discount in
income currently as it accrues (on either a straight-line basis or constant
interest method), in which case the rules described above regarding the deferral
of interest deductions will not apply. This election to include market discount
in income currently, once made, is irrevocable and applies to all market
discount obligations acquired on or after the first day of the first taxable
year to which the election applies and may not be revoked without the consent of
the Service.
Amortizable Bond Premium. A U.S. Holder that purchases a Note for an
amount in excess of the sum of all amounts payable on the Note after the
purchase date other than stated interest will be considered to have purchased
the Note at a "premium." A U.S. Holder may generally elect to amortize the
premium over the remaining term of the Note on a constant yield method. The
amount amortized in any year will be treated as a reduction of the U.S. Holder's
interest income from the Note. A U.S. Holder who elects to amortize bond premium
must reduce its tax basis in the related obligation by the amount of premium
amortized during its holding period. Bond premium on a Note held by a U.S.
Holder that does not make such an election will decrease the gain or increase
the loss otherwise recognized on disposition of the Note. The election to
amortize premium on a constant yield method once made applies to all debt
obligations held or subsequently acquired by the electing U.S. Holder on or
after the first day of the first taxable year to which the election applies and
may not be revoked without the consent of the IRS.
Proposed regulations have been issued that, if finalized in their
current form, would require that a U.S. Holder that purchases a Note at a
premium, and elects to amortize such premium, must amortize such premium under a
constant yield method. As proposed, these rules will be applicable to debt
instruments issued on or after 60 days after the regulations are published in
final form. However, a U.S. Holder may elect to apply the
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new rules to all Notes held on or after the first day of the taxable year that
contains the day which is 60 days after the regulations are published in final
form.
Sale or Other Disposition. In general, a U.S. Holder of Notes will
recognize gain or loss upon the sale, exchange, redemption, or other taxable
disposition of such Notes measured by the difference between (i) the amount of
cash and the fair market value of property received (except to the extent
attributable to accrued interest on the Notes previously taken into account) and
(ii) the U.S. Holder's tax basis in the Notes, and market discount previously
included in income by the U.S. Holder and decreased by amortizable bond premium,
if any, deducted over the term of the Notes. Subject to the market discount
rules discussed above, any such gain or loss will generally be long-term capital
gain or loss, provided the Notes have been held for more than one year. The
excess of net long-term capital gains over net short-term capital losses is
taxed at a lower rate than ordinary income for certain non-corporate taxpayers.
The distinction between capital gain or loss and ordinary income or loss is also
relevant for purposes of, among other things, limitations on the deductibility
of capital losses.
An exchange of Notes pursuant to the Exchange Offer and the assumption
of the Notes by GST USA should not be considered a taxable event.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
A Non-U.S. Holder will generally, under the portfolio interest
exemption of the Code, not be subject to United States federal income taxes
and/or United States withholding tax, on interest paid on the Notes, provided
that (i) the Non-U.S. Holder does not actually or constructively own 10% or more
of the total combined voting power of all classes of stock of either GST Funding
or GST USA entitled to vote, (ii) the Non-U.S. Holder is not (a) a bank
receiving interest pursuant to a loan agreement entered into in the ordinary
course of its trade or business or (b) a controlled foreign corporation that is
related to either GST Funding or GST USA (actually or constructively) through
stock ownership, (iii) such interest is not effectively connected with a United
States trade or business and (iv) either (a) the beneficial owner of the Notes
certifies to the Issuer (GST Funding or GST USA, as the case may be) or its
agent, under penalties of perjury, that it is not a U.S. Holder and provides a
completed IRS Form W-8 ("Certificate of Foreign Status") or (b) a securities
clearing organization, bank or other financial institution which holds
customers' securities in the ordinary course of its trade or business (a
"financial institution") and holds the Notes, certifies to the Issuer or its
agent, under penalties of perjury, that it has received Form W-8 from the
beneficial owner or that it has received from another financial institution a
Form W-8 and furnishes the payor with a copy thereof. The certification may be
made on an IRS Form W-8 or substantially similar substitute form, and a non-U.S.
Holder must inform GST Funding, GST USA or any agent thereof of any change in
the information or the statement within 30 days of the change. A non-U.S. Holder
of a Note who does not meet the requirements of the second preceding sentence,
would generally be subject to U.S. federal withholding at a flat rate of 30% (or
a lower applicable treaty rate) on payments of interest on the Notes. The
Service has proposed regulations that if finalized would modify certain of the
certification requirements described above.
If a Non-U.S. Holder of a Note is engaged in a trade or business in the
United States and interest on the Note is effectively connected with the conduct
of such trade or business, or, if a tax treaty applies, such interest is
attributable to a U.S. permanent establishment maintained by such holder, such
Non-U.S. Holder, although exempt from U.S. federal withholding tax (by reason of
the delivery of a properly completed IRS Form 4224) will be subject to U.S.
federal income tax on such interest in essentially the same manner as a U.S.
Holder. In addition, if such Non-U.S. Holder is a foreign corporation, it may
also be subject to a U.S. foreign branch profits tax equal to 30% of its
effectively connected earnings and profits (subject to adjustment) for that
taxable year, unless it qualifies for a lower rate under an applicable income
tax treaty.
In the unlikely event the Notes were treated as equity, the periodic
distributions received by a Non-U.S. Holder on the Notes would not qualify for
the portfolio interest exemption from United States federal income tax described
above. Rather, the periodic distributions would be subject to a 30% United
States withholding tax in the case where income on the Note was not effectively
connected with a U.S. trade or business of such
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Non-U.S. Holder. Under Treasury Regulations, the withholding agent will be
required to withhold tax from all distributions paid on the stock regardless of
the company's earnings and profits, but holders may apply for refunds if such
stock's share of the company's earnings and profits is less than the amount of
the distributions. The rate of withholding may be reduced to the extent provided
by a tax treaty between the United States and the country of which the Non-U.S.
Holder is a tax resident.
Subject to the discussion of backup withholding below, a Non-U.S.
Holder will generally not be subject to United States federal income tax on any
gain realized in connection with the sale, exchange or redemption of Notes,
unless (i) the gain is effectively connected with a trade or business carried on
by the Non-U.S. Holder within the United States (by reason of the delivery of a
properly completed IRS Form 4224) or, if a treaty applies, the gain is generally
attributable to the United States permanent establishment maintained by the
Non-U.S. Holder, or (ii) the Non-U.S. Holder is an individual who is present in
the United States for 183 days or more in the taxable year of disposition and
certain other conditions are satisfied.
Notes held by an individual who is neither a citizen nor a resident of
the United States for U.S. federal income tax purposes at the time of such
individual's death will not be subject to U.S. federal estate tax, provided that
the income from the Notes was not or would not have been effectively connected
with a U.S. trade or business of such individual and that such individual
qualified for the exemption from U.S. federal withholding tax (without regard to
the certification requirements) that is described above.
Non-U.S. Holders should consult with their tax advisers regarding U.S.
and foreign tax consequences with respect to the Notes.
EARNING STRIPPING RULES
Under Section 163(j) of the Code, no deduction is allowed for
"disqualified interest" paid or accrued by a corporation during a taxable year
if (i) such corporation has "excess interest expense" (as defined by the Code
generally to mean the excess, if any, of the corporation's net interest expense
over 50% of the "adjusted taxable income" of the corporation) for the taxable
year, and (ii) the ratio of debt to equity of such corporation exceeds 1.5 to 1.
"Disqualified interest" includes any interest paid or accrued by a corporation
with respect to debt that is guaranteed by a foreign person that is related to
such corporation to the extent that no gross basis United States tax is imposed
with respect to such interest. GST Funding expects that Section 163(j) of the
Code may apply to limit the deductibility of interest by GST Funding with
respect to the Notes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
"Backup" withholding and information reporting requirements may apply
to certain payments of principal and interest on a Note and to certain payments
of proceeds of the sale or retirement of a Note. GST Funding, GST USA, GST, any
agent thereof, a broker, the Trustee or any paying agent, as the case may be,
will be required to withhold tax from any payment that is subject to backup
withholding at a rate of 31% of such payment if the U.S. Holder fails to furnish
his taxpayer identification number (social security number or employer
identification number), to certify that such U.S. Holder is not subject to
backup withholding, or to otherwise comply with the applicable requirements of
the backup withholding rules. Certain U.S. Holders (including, among others, all
corporations) are not subject to the backup withholding and reporting
requirements.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments made by GST Funding, GST USA or GST or any
agent thereof (in its capacity as such) to a Holder of a Note who has provided
the required certification under penalties of perjury that it is not a U.S.
Holder as set forth in clause (iv) in the first paragraph under "Tax
Consequences to Non-U.S. Holders" or has otherwise established an exemption
(provided that neither the company nor such agent has actual knowledge that the
Holder is a U.S. Holder or that the conditions of any other exemption are not in
fact satisfied).
-94-
<PAGE>
Payment of the proceeds from the sale by a non-U.S. Holder of a Note
made to or through a foreign office of a broker will not be subject to U.S.
information reporting or backup withholding, except that if the broker is a U.S.
person, a controlled foreign corporation for U.S. federal income tax purposes or
a foreign person 50% or more of whose gross income is effectively connected with
a United States trade or business for a specified three-year period, U.S.
information reporting, but not backup withholding, may apply to such payments.
Payments of the proceeds from the sale of a Note to or through the United States
office of a broker is subject to U.S. information reporting and backup
withholding unless the Holder certifies as to its non-U.S. status or otherwise
establishes an exemption from U.S. information reporting and backup withholding.
Any amounts withheld under the backup withholding rules from a payment
to a Holder may be claimed as a credit against such Holder's U.S. federal income
tax liability, provided that the required information is provided to the
Service.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF UNITED STATES
FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF NOTES IN
LIGHT OF ITS PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. HOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM FROM
THE PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES, INCLUDING THE APPLICATION AND
EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF
CHANGES IN UNITED STATES OR OTHER TAX LAWS.
PLAN OF DISTRIBUTION
Except as described below, (i) a broker-dealer may not participate in
the Exchange Offer in connection with a distribution of the New Notes, (ii) such
broker-dealer would be deemed an underwriter in connection with such
distribution and (iii) such broker-dealer would be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transactions. A broker-dealer may, however,
receive New Notes for its own account pursuant to the Exchange Offer in exchange
for Old Notes when such Old Notes were acquired as a result of market-making
activities or other trading activities. Each such broker-dealer must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer (other than an "affiliate" of the Company) in
connection with resales of such New Notes. GST Funding has agreed that for a
period of 180 days after the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any such broker-dealer for use in
connection with any such resale.
GST Funding will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, GST Funding will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
-95-
<PAGE>
documents in a Letter of Transmittal. GST Funding has agreed to pay all expenses
incident to the Exchange Offer other than commissions or concessions of any
brokers or dealers and transfer taxes and will indemnify the Holders of the Old
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
The Placement Agents have indicated to GST Funding that they intend to
effect offers and sales of the New Notes in market-making transactions at
negotiated prices related to prevailing market prices at the time of sale, but
is not obligated to do so and such market-making activities may be discontinued
at any time. The Placement Agents may act as principal or agent in such
transactions. There can be no assurance that an active market for the New Notes
will develop.
LEGAL MATTERS
Certain legal matters in connection with the Notes are being passed
upon for the Company by Olshan Grundman Frome & Rosenzweig LLP, New York, New
York, counsel to the Company. Stephen Irwin, Esq. is of counsel to Olshan
Grundman Frome & Rosenzweig LLP. Mr. Irwin, Vice Chairman of the Board and
Secretary of GST and Senior Vice President and Secretary of GST Funding, owns
76,345 Common Shares, and options and warrants to purchase 600,000 Common
Shares. Certain regulatory matters are being passed upon for the Company by
Swidler & Berlin, Chartered, Washington D.C. In addition, other attorneys at
Olshan Grundman Frome & Rosenzweig LLP hold Common Shares and/or options to
purchase Common Shares. Certain Canadian legal matters are being passed upon for
the Company by O'Neill & Company, Vancouver, British Columbia.
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, are incorporated herein by reference 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 are incorporated herein by reference 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. The balance sheet
of GST Equipment Funding, Inc. as of June 30, 1997 and the statements of
operations, shareholder's equity and cash flows from the period from March 5,
1997 (date of inception) to June 30, 1997 have been included herein 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.
-96-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
GST EQUIPMENT FUNDING, INC.
<S> <C>
Independent Auditors' Report of KPMG Peat Marwick LLP..........................................................F-2
Balance Sheet at June 30, 1997.................................................................................F-3
Statement of Operations for the period from March 5, 1997 (date of inception) to June 30, 1997.................F-4
Statement of Shareholder's Deficit for the period from March 5, 1997 (date of inception) to June 30, 1997......F-5
Statement of Cash Flows for the period from March 5, 1997 (date of inception) to June 30, 1997.................F-6
Notes to Financial Statements..................................................................................F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
GST Equipment Funding, Inc.:
We have audited the accompanying balance sheet of GST Equipment Funding, Inc.
(the Company) as of June 30, 1997, and the related statement of operations,
shareholder's deficit, and cash flows for the period of March 5, 1997 (date of
inception) to June 30, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GST Equipment Funding, Inc. as
of June 30, 1997, and the results of its operations and cash flows for the
period of March 5, 1997 (date of inception) to June 30, 1997 in conformity with
generally accepted accounting principles.
Portland, Oregon
August 11, 1997
F - 2
<PAGE>
GST EQUIPMENT FUNDING, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, 1997
ASSETS
------
<TABLE>
<CAPTION>
Current assets:
<S> <C>
Restricted cash and investments................................................................ $ 124,066
----------
124,066
----------
Restricted investments.............................................................................. 80,695
Notes receivable from parent........................................................................ 54,264
Interest receivable from parent..................................................................... 1,316
Deferred financing costs, less accumulated amortization of $120..................................... 9,068
----------
145,343
----------
$ 269,409
===========
LIABILITIES AND SHAREHOLDER'S DEFICIT
-------------------------------------
Current liabilities:
Accrued interest payable....................................................................... 4,682
Accrued income taxes payable to parent......................................................... 1,004
Other payable to parent........................................................................ 575
----------
6,261
----------
Long-term debt...................................................................................... 265,000
Shareholder's deficit:
Common stock:
Authorized - 1,000 of $.01 par common shares;
issued and outstanding - 100 shares...................................................... -
Additional paid-in capital..................................................................... 1,000
Accumulated deficit............................................................................ (2,852)
----------
(1,852)
$ 269,409
===========
</TABLE>
See accompanying notes to financial statements.
F - 3
<PAGE>
GST EQUIPMENT FUNDING, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
FOR THE PERIOD FROM MARCH 5, 1997
(DATE OF INCEPTION) TO JUNE 30, 1997
Revenues:
Interest income.......................................... $ 2,954
--------
Total revenues................................ 2,954
--------
Operating costs and expenses:
Interest expense......................................... (4,802)
-----
Loss before income taxes...................... (1,848)
-----
Income taxes.................................................. (1,004)
-----
Net loss...................................... $ (2,852)
=====
See accompanying notes to financial statements.
F - 4
<PAGE>
GST EQUIPMENT FUNDING, INC.
STATEMENT OF SHAREHOLDER'S DEFICIT
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
FOR THE PERIOD FROM MARCH 5, 1997
(DATE OF INCEPTION) TO JUNE 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------ PAID-IN ACCUMULATED SHAREHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance, at date of inception 100 $-- 1 -- 1
Capital investment by parent -- -- 999 -- 999
Net loss -- -- -- (2,852) (2,852)
------ ----- ------ ------ ------
Balance, June 30, 1997 100 $-- 1,000 (2,852) (1,852)
====== ===== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F - 5
<PAGE>
GST EQUIPMENT FUNDING, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
FOR THE PERIOD FROM MARCH 5, 1997
(DATE OF INCEPTION) TO JUNE 30, 1997
<TABLE>
<CAPTION>
Operations:
<S> <C>
Net loss....................................................................................... $ (2,852)
Items not involving cash:
Amortization of deferred financing costs.................................................... 120
Changes in non-cash operating working capital:
Interest receivable from parent................................................................ (1,316)
Accrued interest payable....................................................................... 4,682
Accrued income taxes payable to parent......................................................... 1,004
Other payable to parent........................................................................ 575
----------
Cash provided by operations......................................................... 2,213
----------
Investing:
Cash and investments restricted for fixed asset purchases (110,214)
Notes receivable from parent................................................................... (54,264)
----------
Cash used in investing activities................................................... (164,478)
-------
Financing:
Proceeds from issuance of long-term debt....................................................... 265,000
Investments restricted for interest payments................................................... (94,547)
Deferred debt financing costs.................................................................. (9,188)
Proceeds from investment by parent............................................................. 999
----------
Cash provided by financing activities............................................... 162,264
----------
Decrease in cash and cash equivalents............................................... (1)
Cash and cash equivalents, beginning of period...................................................... 1
----------
Cash and cash equivalents, end of period............................................................ $ -
========--
</TABLE>
See accompanying notes to financial statements.
F - 6
<PAGE>
GST EQUIPMENT FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
JUNE 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE COMPANY
GST Equipment Funding, Inc. (the Company) was formed on March 5, 1997.
The Company is a wholly-owned subsidiary of GST USA, which is a
wholly-owned subsidiary of GST Telecommunications, Inc.
The Company's operations are limited to (i) purchasing equipment, (ii)
selling equipment to parent, (iii) receiving payments under Intercompany
Notes, and (iv) making payments of interest and principal on senior
secured notes.
RESTRICTED CASH AND INVESTMENTS
Pursuant to the terms of the senior secured notes issued on May 13, 1997,
the Company's use of the net proceeds are restricted for the acquisition
of equipment and payment of interest.
INVESTMENTS
The Company classifies its investments, consisting exclusively of U.S.
Treasury securities, as available-for-sale and held-to-maturity.
Held-to-maturity investments, totaling $94,547 and maturing between one
and three years, are restricted for interest payments. Available-for-sale
investments, totaling $110,214 and maturing between one month and two
years, are restricted for equipment purchases. Amortized cost
approximates the market value of investment securities at June 30, 1997.
DEFERRED FINANCING COSTS
Deferred financing costs consisting of legal, accounting and underwriting
fees related to the May 13, 1997 debt offering have been deferred and are
being amortized to interest expense over the life of the Note.
(Continued)
F - 7
<PAGE>
GST EQUIPMENT FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
INCOME TAXES
The Company accounts for income taxes under the asset and liability
method. Under the asset and liability method, deferred income taxes
reflect the future tax consequences of differences between the tax bases
of assets and liabilities and their financial reporting amounts at each
year-end. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in the tax rates is
recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized.
FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash and cash
equivalents, short-term borrowings, accounts payable and accrued
liabilities approximate fair values due to the short maturity of those
instruments.
The carrying amount of the Company's long-term debt approximates its fair
value. The fair value of the Company's long-term debt was determined
based on quoted market prices for similar issues or on current rates
available to the Company for debt of the same remaining maturities and
similar terms.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(Continued)
F - 8
<PAGE>
GST EQUIPMENT FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
(2) FINANCING ARRANGEMENTS
LONG-TERM DEBT
The Company's long-term debt consists of the following at June 30, 1997:
Senior secured notes, interest at 13.25%
with semi-annual interest payments due
commencing November 1, 1997,
principal due May 13, 2007 ..................... $ 265,000
=======
ISSUANCE OF SENIOR SECURED NOTES
The Company completed a private placement (the May Offering) under an
indenture (the Indenture) dated May 13, 1997, of $265,000 of senior
secured notes (the Notes). The Notes bear interest at 13.25% payable in
semi-annual installments commencing November 1, 1997. Net proceeds from
the May Offering totaled approximately $255,800, and are to be used to
refinance approximately $41,500 of intercompany indebtedness, and fund
the purchase of equipment and the first six scheduled interest payments
on the Notes. Pursuant to the Indenture, all purchased equipment will be
sold to GST USA for use in its telecommunications operations (see note
3). The Notes are secured by a first priority security interest in the
equipment and the restricted investment securities held for the payment
of interest. The Notes are subject to certain debt covenants.
The Indenture provides the GST USA will assume and become a direct
obligor on the Notes and GST will guarantee the Notes on May 13, 2000, or
earlier if permitted by the terms of their existing debt. Once assumed
the Notes will be secured senior indebtedness of GST USA. The Note
Guarantee will be senior unsecured indebtedness of GST.
The Notes are redeemable at the option of GST USA, in whole or in part,
at any time, on or after May 1, 2002, initially at 106.625% of their
principal amount, plus accrued and unpaid interest, declining ratably to
100% on or after May 1, 2004. If on May 13, 2000, GST USA is prohibited
from assuming all of the Notes, the Company will redeem the portion of
the Notes that cannot be assumed at 101% of their principal amount plus
accrued interest at the date of redemption.
(Continued)
F - 9
<PAGE>
GST EQUIPMENT FUNDING, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
(3) RELATED PARTY TRANSACTIONS
The Company acts as a purchasing agent for GST USA and sells to GST USA
the equipment it purchases with the proceeds from the May Offering. At
June 30, 1997, the Company's cumulative purchases for GST USA totaled
$54,264, represented by the note receivable from parent. The note
receivable bears interest at 15.25%, compounded semiannually on May and
November 1, and is payable in full on May 13, 2000.
(4) INCOME TAXES
Income tax expense for the period from March 5, 1997 (date of inception)
to June 30, 1997, consists of:
CURRENT DEFERRED TOTAL
------- -------- -----
Federal $ 1,004 - 1,004
State - - -
-------- --------- -------
$ 1,004 - 1,004
======== ========= =======
The actual expense differs from the "expected" expense computed by
applying the U.S. federal corporate rate as follows:
Computed "expected" income tax expense $ (628)
Increase resulting from:
Change in valuation allowance 1,632
--------
Actual tax expense $ 1,004
=======
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at June 30, 1997, are derived
primarily from interest expense not currently deductible for tax
purposes. Gross deferred tax assets and liabilities amount to $1,632 and
$-0-, respectively, at June 30, 1997.
The valuation allowance for deferred tax assets as of June 30, 1997, was
$1,632. The net change in the total valuation allowance for the period
from March 5, 1997 (date of inception) ended June 30, 1997, was an
increase of $1,632.
F - 10
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
GST FUNDING
The General Corporation Law of the State of Delaware (the "Delaware
Law") permits indemnification of directors, employees and agents of corporations
under certain conditions and subject to certain limitations. Pursuant to the
Delaware Law, GST Funding has included in its Certificate of Incorporation and
bylaws a provision to eliminate the personal liability of its directors for
monetary damages for breach or alleged breach of their duty of care to the
fullest extent permitted by the Delaware Law and to provide that GST Funding
shall indemnify its directors and officers to the fullest extent permitted by
the Delaware Law.
GST
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 GST is insured or indemnified in any manner
against liability which he may incur in his capacity as such.
GST'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).
II-1
<PAGE>
(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.
GST's by-laws provide that every director and officer of GST 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 GST.
GST maintains a $15,000,000 directors and officers liability
insurance policy.
GST has also agreed to indemnify each director and executive officer
pursuant to an indemnification agreement with each such director and executive
officer from and against any and all expenses, losses, claims, damages and
liability incurred by such director or executive officer for or as a result of
action taken or not taken while such director or executive officer was acting in
his capacity as a director, officer, employee or agent of the Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following is a complete list of Exhibits filed as a part of this
Registration Statement, which are incorporated herein:
1 Placement Agreement dated May 8, 1997, by and among GST
Funding, GST, GST USA, and the Placement Agents (incorporated
by reference to Exhibit 10.1 to GST's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997 (the "June 10-Q").
3.1 Certificate of Incorporation of GST Funding.
3.2 By-laws of GST Funding.
4.1 Indenture dated as of May 13, 1997, by and among GST Funding,
GST USA, GST and United States Trust Company of New York
(incorporated by reference to Exhibit 10.2 to the June 10-Q).
*5 Opinion of Olshan Grundman Frome & Rosenzweig LLP.
*8 Opinion of Olshan Grundman Frome & Rosenzweig LLP (included in
Exhibit 5 to this Registration Statement).
II-2
<PAGE>
23.1 Consent by KPMG Peat Marwick LLP.
23.2 Consent of KPMG Peat Marwick Thorne.
23.3 Consent of KPMG Peat Marwick LLP.
*23.4 Consent of Olshan Grundman Frome & Rosenzweig LLP (included in
Exhibit 5 to this Registration Statement).
25 Statement of eligibility of trustee.
99.1 Registration Rights Agreement dated May 13, 1997, by and among
GST Funding, GST USA, GST and the Placement Agents
(incorporated by reference to Exhibit 10.3 to the June 10-Q.)
99.2 Collateral Pledge and Security Agreement dated May 13, 1997,
from GST Funding to United States Trust Company of New York
(incorporated by reference to Exhibit 10.4 to the June 10-Q).
99.3 Form of Letter of Transmittal for Tender of all outstanding 13
1/4% Senior Secured Notes Due 2007 in exchange for 13 1/4%
Senior Secured Exchange Notes Due 2007 of GST Equipment
Funding, Inc.
99.4 Form of Tender for all outstanding 13 1/4% Senior Secured
Notes Due 2007 in exchange for 13 1/4% Senior Secured Exchange
Notes Due 2007 of GST Equipment Funding, Inc.
99.5 Form of Instruction to Registered Holder from Beneficial Owner
of 13 1/4% Senior Secured Notes due 2007 of GST Equipment
Funding, Inc.
99.6 Form of Notice of Guaranteed Delivery for outstanding 13 1/4%
Senior Secured Notes Due 2007 in exchange for 13 1/4% Senior
Secured Exchange Notes Due 2007 of GST Equipment Funding, Inc.
- ----------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
(1) That prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) under the Securities Act of 1933, as amended (the
"Securities Act"), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to Rule 415 under the Securities Act, will be filed as a part
of an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, 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.
(b) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrants pursuant to the foregoing provisions, or otherwise, the registrants
II-3
<PAGE>
have been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
enforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrants of expenses incurred or
paid by a director, officer or controlling person of the registrants in the
successful defense of any action, suit or proceedings) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants 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 indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(c) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(e) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act, each filing of the
registrants' 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
GST Equipment Funding, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Vancouver, State of Washington, on August 14, 1997.
GST EQUIPMENT FUNDING, INC.
By: /S/ JOHN WARTA
-------------------------------------
John Warta,
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints John
Warta, Clifford Sander and Stephen Irwin, and each of them singly, as his true
and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him, and his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective amendments)
and supplements to this Registration Statement, and to file the same, with all
exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as full 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.
Pursuant to the requirements of the Securities Act, as amended, this
Registration Statement has been signed by the following persons in the
capacities on August 14, 1997.
SIGNATURE TITLE
--------- -----
<TABLE>
<CAPTION>
<S> <C>
/S/ JOHN WARTA President, Chief Executive Officer
- ------------------------------------ (Principal Executive Officer) and Director
(John Warta)
/S/ DANIEL L. TRAMPUSH Vice President and Chief Financial Officer
- ------------------------------------ (Principal Financial Officer)
(Daniel L. Trampush)
/S/CLIFFORD V. SANDER Vice President, Treasurer and Assistant Secretary
- ------------------------------------ (Principal Accounting Officer) and Director
(Clifford V. Sander)
/S/ STEPHEN IRWIN Senior Vice President, Secretary and Director
- ------------------------------------
(Stephen Irwin)
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
GST Telecommunications, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Vancouver, State of Washington, on August 14, 1997.
GST TELECOMMUNICATIONS, INC.
By: /S/ JOHN WARTA
-------------------------
John Warta,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints John
Warta, Stephen Irwin, Daniel Trampush and Robert Hanson, and each of them
singly, as his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him, and his name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) and supplements to this Registration Statement, and to file the
same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as full 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.
Pursuant to the requirements of the Securities Act, as amended, this
Registration Statement has been signed by the following persons in the
capacities on August 14, 1997.
<TABLE>
<CAPTION>
<S> <C>
/S/ JOHN WARTA Chairman of the Board, Chief Executive Officer
- ------------------------------------ (Principal Executive Officer) and Director
(John Warta)
/S/CLIFFORD V. SANDER Senior Vice President, Treasurer and Chief Accounting Officer
- ------------------------------------ (Principal Accounting Officer)
(Clifford V. Sander)
/S/ DANIEL L. TRAMPUSH Senior Vice President and Chief Financial Officer
- ------------------------------------ (Principal Financial Officer)
(Daniel L. Trampush)
Vice Chairman of the Board and Director
- ------------------------------------
(W. Gordon Blankstein)
/S/ STEPHEN IRWIN Vice Chairman of the Board, Secretary and Director
- ------------------------------------
(Stephen Irwin)
</TABLE>
/S/ ROBERT HANSON Director
- ------------------------------------
(Robert Hanson)
/S/ IAN WATSON Director
- ------------------------------------
(Ian Watson)
/S/ PETER E. LEGAULT Director
- ------------------------------------
(Peter E. Legault)
/S/ JACK G. ARMSTRONG Director
- ------------------------------------
(Jack G. Armstrong)
/S/ MITSUHIRO NAOE Director
- ------------------------------------
(Mitsuhiro Naoe)
/S/ JOSEPH G. FOGG, III Director
- ------------------------------------
(Joseph G. Fogg, III)
The Company's Authorized
Representative in the United States
/S/ ROBERT H. HANSON
- ------------------------------------
Robert H. Hanson
II-6
<PAGE>
EXHIBIT INDEX
1 Placement Agreement dated May 8, 1997, by and among GST
Funding, GST, GST USA, and the Placement Agents (incorporated
by reference to Exhibit 10.1 to GST's Annual Report on Form
10-Q for the fiscal quarter ended June 30, 1997 (the "June
10-Q")).
3.1 Certificate of Incorporation of GST Funding.
3.2 By-laws of GST Funding.
4.1 Indenture dated as of May 13, 1997, by and among GST Funding,
GST USA, GST and United States Trust Company of New York
(incorporated by reference to Exhibit 10.2 to the June 10-Q).
*5 Opinion of Olshan Grundman Frome & Rosenzweig LLP.
*8 Opinion of Olshan Grundman Frome & Rosenzweig LLP (included in
Exhibit 5 to this Registration Statement).
23.1 Consent by KPMG Peat Marwick LLP.
23.2 Consent of KPMG Peat Marwick Thorne.
23.3 Consent of KPMG Peat Marwick LLP.
*23.4 Consent of Olshan Grundman Frome & Rosenzweig LLP (included in
Exhibit 5 to this Registration Statement).
25 Statement of eligibility of trustee.
99.1 Registration Rights Agreement dated May 13, 1997, by and among
GST Funding, GST USA, GST and the Placement Agents
(incorporated by reference to Exhibit 10.3 to the June 10-Q).
99.2 Collateral Pledge and Security Agreement dated May 13, 1997,
from GST Funding to United States Trust Company of New York
(incorporated by reference to Exhibit 10.4 to the June 10-Q).
99.3 Form of Letter of Transmittal for Tender of all outstanding 13
1/4% Senior Secured Notes Due 2007 in exchange for 13 1/4%
Senior Secured Exchange Notes Due 2007 of GST Equipment
Funding, Inc.
99.4 Form of Tender for all outstanding 13 1/4% Senior Secured
Notes Due 2007 in exchange for 13 1/4% Senior Secured Exchange
Notes Due 2007 of GST Equipment Funding, Inc.
99.5 Form of Instruction to Registered Holder from Beneficial Owner
of 13 1/4% Senior Secured Notes due 2007 of GST Equipment
Funding, Inc.
99.6 Form of Notice of Guaranteed Delivery for outstanding 13 1/4%
Senior Secured Notes Due 2007 in exchange for 13 1/4% Senior
Secured Exchange Notes Due 2007 of GST Equipment Funding, Inc.
- ----------------
* To be filed by amendment.
II-7
CERTIFICATE OF INCORPORATION
OF
GST EQUIPMENT FUNDING, INC.
FIRST: The name of the Corporation is: GST Equipment Funding,
Inc. (the "Corporation").
SECOND: The registered office of the corporation and
registered agent in the State of Delaware is to be located at 1013 Centre Road,
Wilmington, DE 19805, County of New Castle. The name of its registered agent is
The Prentice-Hall Corporation System, Inc.
THIRD: The nature of the business, and the objects and
purposes proposed to be transacted, promoted and carried on, are to do any
lawful act or thing for which a corporation may be organized under the General
Corporation Law of the State of Delaware (the "GCL").
FOURTH: The aggregate number of shares of stock which the
Corporation shall have authority to issue is One Thousand (1,000) with a par
value of one cent ($.01) per share, all of which shall be designated "Common
Stock".
FIFTH: The name and mailing address of the Incorporator is:
Adam K. Levine
c/o Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
SIXTH: A. A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the directors' duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the GCL, or
(iv) for any transaction from which the director derived an improper personal
benefit. If the GCL is amended to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the GCL, as so amended. Any repeal or modification of this
Paragraph A by the stockholders of the Corporation shall not adversely affect
any right or protection of a director of the Corporation with respect to events
occurring prior to the time of such repeal or modification.
<PAGE>
B. (1) Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit, or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she or a person
of whom he or she is the legal representative is or was a director, officer,
employee or agent of the Corporation or is or was serving at the request of the
Corporation, as a director, officer or employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the GCL as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that except as provided in
paragraph (2) of this Paragraph B with respect to proceedings seeking to enforce
rights to indemnification, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Paragraph B shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that if the GCL requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity) in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the Corporation of an undertaking by or on behalf of such
director or officer to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Paragraph B or otherwise.
(2) If a claim under paragraph (1) of this
Paragraph B is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation,
-2-
<PAGE>
the claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the GCL for the Corporation to indemnify
the claimant for the amount claimed but the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel or stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the GCL, nor an actual determination
by the Corporation (including its Board of Directors, independent legal counsel
or stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
(3) The right to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Paragraph B shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the certificate of incorporation, By-Laws, agreement, vote of
stockholders or disinterested directors or otherwise.
(4) The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the GCL.
(5) The Corporation may, to the extent authorized
from time to time by the Board of Directors, grant rights to indemnification,
and rights to be paid by the Corporation for the expenses incurred in defending
any proceeding in advance of its final disposition, to any agent of the
Corporation to the fullest extent of the provisions of this Paragraph B with
respect to the indemnification and advancement of expenses of directors,
officers and employees of the Corporation.
SEVENTH: In furtherance and not in limitation of the powers
conferred by law or in this Certificate of Incorporation, the Board of Directors
(and any committee of the Board of
-3-
<PAGE>
Directors) is expressly authorized, to the extent permitted by law, to take such
action or actions as the Board or such committee may determine to be reasonably
necessary or desirable to (A) encourage any person to enter into negotiations
with the Board of Directors and management of the Corporation with respect to
any transaction which may result in a change in control of the Corporation which
is proposed or initiated by such person or (B) contest or oppose any such
transaction which the Board of Directors or such committee determines to be
unfair, abusive or otherwise undesirable with respect to the Corporation and its
business, assets or properties or the stockholders of the Corporation,
including, without limitation, the adoption of plans or the issuance of rights,
options, capital stock, notes, debentures or other evidences of indebtedness or
other securities of the Corporation, which rights, options, capital stock,
notes, evidences of indebtedness and other securities (i) may be exchangeable
for or convertible into cash or other securities on such terms and conditions as
may be determined by the Board or such committee and (ii) may provide for the
treatment of any holder or class of holders thereof designated by the Board of
Directors or any such committee in respect of the terms, conditions, provisions
and rights of such securities which is different from, and unequal to, the
terms, conditions, provisions and rights applicable to all other holders
thereof.
EIGHTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
and any other provisions authorized by the laws of the State of Delaware at the
time in force may be added or inserted, subject to the limitations set forth in
this Certificate of Incorporation and in the manner now or hereafter provided
herein by statute, and all rights, preferences and privileges of whatsoever
nature conferred upon stockholders, directors or any other persons whomsoever by
and pursuant to this Certificate of Incorporation in its present form or as
amended are granted subject to the rights reserved in this Article EIGHTH.
IN WITNESS WHEREOF, I have hereunto set my hand this 5th day
of March, 1997.
/s/ Adam K. Levine
-------------------
Adam K. Levine
Sole Incorporator
-4-
----------------------------------
BY-LAWS
OF
GST EQUIPMENT FUNDING, INC.
AS ADOPTED ON
MARCH 5, 1997
---------------------------------
ARTICLE I
STOCKHOLDERS
SECTION 1.1. ANNUAL MEETINGS. An annual meeting of
stockholders to elect directors and transact such other business as may properly
be presented to the meeting shall be held at such place as the Board of
Directors may from time to time fix, if that day shall be a legal holiday in the
jurisdiction in which the meeting is to be held, then on the next day not a
legal holiday or as soon thereafter as may be practical, determined by the Board
of Directors.
SECTION 1.2. SPECIAL MEETINGS. A special meeting of
stockholders may be called at any time by two or more directors or the Chairman
of the Board or the President and shall be called by any of them or by the
Secretary upon receipt of a written request to do so specifying the matter or
matters, appropriate for action at such a meeting, proposed to be presented at
the meeting and signed by holders of record of a majority of the shares of stock
that would be entitled to be voted on such matter or matters if the meeting were
held on the day such request is received and the record date for such meeting
were the close of business on the preceding day. Any such meeting shall be held
at such time and at such place, within or without the State of Delaware, as
shall be determined by the body or person calling such meeting and as shall be
stated in the notice of such meeting.
SECTION 1.3. NOTICE OF MEETING. For each meeting of
stockholders written notice shall be given stating the place, date and hour and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Except as otherwise provided by Delaware law, the written notice of
any meeting shall be given not less than 10 or more than 60 days before the date
of the meeting to each stockholder entitled to vote at such meeting. If mailed,
notice shall be deemed to be given when deposited in the
<PAGE>
United States mail, postage prepaid, directed to the stockholder at his address
as it appears on the records of the Corporation.
SECTION 1.4. QUORUM. Except as otherwise required by Delaware
law or the Certificate of Incorporation, the holders of record of a majority of
the shares of stock entitled to be voted present in person or represented by
proxy at a meeting shall constitute a quorum for the transaction of business at
the meeting, but in the absence of a quorum the holders of record present or
represented by proxy at such meeting may vote to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is obtained. At any such adjourned session of the meeting at which there shall
be present or represented the holders of record of the requisite number of
shares, any business may be transacted that might have been transacted at the
meeting as originally called.
SECTION 1.5. CHAIRMAN AND SECRETARY AT MEETING. At each
meeting of stockholders the Chairman of the Board, or in his absence the person
designated in writing by the Chairman of the Board, or if no person is so
designated, then a person designated by the Board of Directors, shall preside as
chairman of the meeting; if no person is so designated, then the meeting shall
choose a chairman by plurality vote. The Secretary, or in his absence a person
designated by the chairman of the meeting, shall act as secretary of the
meeting.
SECTION 1.6. VOTING; PROXIES. Except as otherwise provided by
Delaware law or the Certificate of Incorporation, and subject to the provisions
of Section 1.10:
(a) Each stockholder shall at every meeting of the
stockholders be entitled to one vote for each share of capital stock held by
him.
(b) Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
(c) Directors shall be elected by a plurality vote.
(d) Each matter, other than election of directors,
properly presented to any meeting shall be decided by a majority of the votes
cast on the matter.
(e) Election of directors and the vote on any other
matter presented to a meeting shall be by written ballot only if so ordered by
the chairman of the meeting or if so requested by any stockholder present or
represented by proxy at the meeting entitled to vote in such election or on such
matter, as the case may be.
-2-
<PAGE>
SECTION 1.7. ADJOURNED MEETINGS. A meeting of stockholders may
be adjourned to another time or place as provided in Section 1.4. Unless the
Board of Directors fixes a new record date, stockholders of record for an
adjourned meeting shall be as originally determined for the meeting from which
the adjournment was taken. If the adjournment is for more than 30 days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote. At the adjourned meeting any business may be transacted that
might have been transacted at the meeting as originally called.
SECTION 1.8. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Any
action that may be taken at any annual or special meeting of stockholders may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Notice of the taking of such
action shall be given promptly to each stockholder that would have been entitled
to vote thereon at a meeting of stockholders and that did not consent thereto in
writing.
SECTION 1.9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. At least
10 days before every meeting of stockholders a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder, shall be prepared and shall be open to the examination of any
stockholder for any purpose germane to the meeting, during ordinary business
hours, for a period of at least 10 days prior to the meeting, at a place within
the city where the meeting is to be held. Such list shall be produced and kept
at the time and place of the meeting during the whole time thereof and may be
inspected by any stockholder who is present.
SECTION 1.10. FIXING OF RECORD DATE. In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than 60 or less than 10 days
before the date of such meeting, nor more than 60 days prior to any other
action. If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held; the record date for determining stockholders
entitled to express
-3-
<PAGE>
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is expressed; and the record date for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
ARTICLE II
DIRECTORS
SECTION 2.1. NUMBER; TERM OF OFFICE; QUALIFICATIONS;
VACANCIES. The number of the directors constituting the entire Board of
Directors shall be the number, not less than two nor more than 15, fixed from
time to time by a majority of the total number of directors which the
Corporation would have, prior to any increase or decrease, if there were no
vacancies, provided, however, that no decrease shall shorten the term of an
incumbent director. Until otherwise fixed by the directors, the number of
directors constituting the entire Board shall be three. Directors shall be
elected at the annual meeting of stockholders to hold office, subject to
Sections 2.2 and 2.3, until the next annual meeting of stockholders and until
their respective successors are elected and qualified. Vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or by the sole remaining director, and the directors so
chosen shall hold office, subject to Sections 2.2 and 2.3, until the next annual
meeting of stockholders and until their respective successors are elected and
qualified.
SECTION 2.2. RESIGNATION. Any director of the Corporation may
resign at any time by giving written notice of such resignation to the Board of
Directors or the Secretary of the Corporation. Any such resignation shall take
effect at the time specified therein or, if no time be specified, upon receipt
thereof by the Board of Directors or one of the above-named officers; and,
unless specified therein, the acceptance of such resignation shall not be
necessary to make it effective. When one or more directors shall resign from the
Board of Directors effective at a future date, a majority of the directors then
in office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided in these By-Laws in the filling of other vacancies.
SECTION 2.3. REMOVAL. Any one or more directors may be
removed, with or without cause, by the vote or written consent of the holders of
a majority of the shares entitled to vote at an election of directors.
SECTION 2.4. REGULAR AND ANNUAL MEETINGS; NOTICE. Regular
meetings of the Board of Directors shall be held at such
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<PAGE>
time and at such place, within or without the State of Delaware, as the Board of
Directors may from time to time prescribe. No notice need be given of any
regular meeting, and a notice, if given, need not specify the purposes thereof.
A meeting of the Board of Directors may be held without notice immediately after
an annual meeting of stockholders at the same place as that at which such
meeting was held.
SECTION 2.5. SPECIAL MEETINGS; NOTICE. A special meeting of
the Board of Directors may be called at any time by the Board of Directors, the
Chairman of the Board or the President and shall be called by any one of them or
by the Secretary upon receipt of a written request to do so specifying the
matter or matters, appropriate for action at such a meeting, proposed to be
presented at the meeting and signed by at least two directors. Any such meeting
shall be held at such time and at such place, within or without the State of
Delaware, as shall be determined by the body or person calling such meeting.
Notice of such meeting stating the time and place thereof shall be given (a) by
deposit of the notice in the United States mail, first class, postage prepaid,
at least seven days before the day fixed for the meeting addressed to each
director at his address as it appears on the Corporation's records or at such
other address as the director may have furnished the Corporation for that
purpose, or (b) by delivery of the notice similarly addressed for dispatch by
telegraph, cable or radio or by delivery of the notice by telephone or in
person, in each case at least 24 hours before the time fixed for the meeting.
SECTION 2.6. PRESIDING OFFICER AND SECRETARY AT MEETINGS. Each
meeting of the Board of Directors shall be presided over by the Chairman of the
Board or in his absence by such member of the Board of Directors as shall be
chosen at the meeting. The Secretary, or in his absence an Assistant Secretary,
shall act as secretary of the meeting, or if no such officer is present, a
secretary of the meeting shall be designated by the person presiding over the
meeting.
SECTION 2.7. QUORUM. Three directors shall constitute a quorum
for the transaction of business, but in the absence of a quorum a majority of
those present (or if only one be present, then that one) may adjourn the
meeting, without notice other than announcement at the meeting, until such time
as a quorum is present. The vote of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors.
SECTION 2.8. MEETING BY TELEPHONE. Members of the Board of
Directors or of any committee thereof may participate in meetings of the Board
of Directors or of such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting.
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<PAGE>
SECTION 2.9. ACTION WITHOUT MEETING. Unless otherwise
restricted by the Certificate of Incorporation, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board of Directors or of
such committee, as the case may be, consent thereto in writing and the writing
or writings are filed with the minutes of proceedings of the Board of Directors
or of such committee.
SECTION 2.10. COMMITTEES OF THE BOARD. The Board of Directors
may, by resolution passed by the whole Board of Directors, designate one or more
other committees, each such committee to consist of one or more directors as the
Board of Directors may from time to time determine. Any such committee, to the
extent provided in such resolution or resolutions, shall have and may exercise
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, but no such committee shall have such
power of authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
By-Laws; and unless the resolution shall expressly so provide, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Each such
committee shall have such name as may be determined from time to time by the
Board of Directors.
SECTION 2.11. COMPENSATION. No director shall receive any
stated salary for his services as a director or as a member of a committee but
shall receive such sum, if any, as may from time to time be fixed by the action
of a majority of the stockholders.
ARTICLE III
OFFICERS
SECTION 3.1. ELECTION; QUALIFICATION. The officers of the
Corporation shall be a Chairman of the Board, a President, one or more Vice
Presidents, a Secretary and a Treasurer, each of whom shall be selected by the
Board of Directors. The Board of Directors may elect a Controller, one or more
Assistant Secretaries, one or more Assistant Treasurers, one or more Assistant
Controllers and such other officers as it may from time to time determine. Two
or more offices may be held by the same person.
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<PAGE>
SECTION 3.2. TERM OF OFFICE. Each officer shall hold office
from the time of his election and qualification to the time at which his
successor is elected and qualified, unless he shall die or resign or shall be
removed pursuant to Section 3.4 at any time sooner.
SECTION 3.3. RESIGNATION. Any officer of the Corporation may
resign at any time by giving written notice of such resignation to the Board of
Directors, the Chairman of the Board, the President or the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein or, if no time be specified, upon receipt thereof by the Board of
Directors or one of the above-named officers; and, unless specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 3.4. REMOVAL. Any officer may be removed at any time,
with or without cause, by the vote of two directors if there are three directors
or less, or the vote of a majority of the whole Board of Directors if there are
more than three directors.
SECTION 3.5. VACANCIES. Any vacancy however caused in any
office of the Corporation may be filled by the Board of Directors.
SECTION 3.6. COMPENSATION. The compensation of each officer
shall be such as the Board of Directors may from time to time determine.
SECTION 3.7. CHAIRMAN OF THE BOARD. The Chairman of the Board
shall preside at all meetings of the Board of Directors and of the shareholders,
and shall have such powers and duties as generally pertain to the office of
Chairman of the Board, subject to the direction of the Board of Directors.
SECTION 3.8. PRESIDENT. The President shall be the chief
executive officer of the Corporation and shall have general charge of the
business and affairs of the Corporation, subject however to the right of the
Board of Directors to confer specified powers on officers and subject generally
to the direction of the Board of Directors.
SECTION 3.9. VICE PRESIDENT. Each Vice President shall have
such powers and duties as generally pertain to the office of Vice President and
as the Board of Directors or the President may from time to time prescribe.
During the absence of the president or his inability to act, the Vice President,
or if there shall be more than one Vice President, then that one designated by
the Board of Directors, shall exercise the powers and shall perform the duties
of the President, subject to the direction of the Board of Directors and the
Executive Committee, if any.
SECTION 3.10. SECRETARY. The Secretary shall keep the minutes
of all meetings of stockholders and of the Board of Directors. He shall be
custodian of the corporate seal and shall
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<PAGE>
affix it or cause it to be affixed to such instruments as require such seal and
attest the same and shall exercise the powers and shall perform the duties
incident to the office of Secretary, subject to the direction of the Board of
Directors and the Executive Committee, if any.
SECTION 3.11. OTHER OFFICERS. Each other officer of the
Corporation shall exercise the powers and shall perform the duties incident to
his office, subject to the direction of the Board of Directors and the Executive
Committee, if any.
ARTICLE IV
CAPITAL STOCK
SECTION 4.1. STOCK CERTIFICATES. The interest of each holder
of stock of the Corporation shall be evidenced by a certificate or certificates
in such form as the Board of Directors may from time to time prescribe. Each
certificate shall be signed by or in the name of the Corporation by the Chairman
of the Board, the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary. Any of or all
the signatures appearing on such certificate or certificates may be a facsimile.
If any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
SECTION 4.2. TRANSFER OF STOCK. Shares of stock shall be
transferable on the books of the Corporation pursuant to applicable law and such
rules and regulations as the Board of Directors shall from time to time
prescribe.
SECTION 4.3. HOLDERS OF RECORD. Prior to due presentment for
registration of transfer the Corporation may treat the holder of record of a
share of its stock as the complete owner thereof exclusively entitled to vote,
to receive notifications and otherwise entitled to all the rights and powers of
a complete owner thereof, notwithstanding notice to the contrary.
SECTION 4.4. LOST, STOLEN, DESTROYED OR MUTILATED
CERTIFICATES. The Corporation shall issue a new certificate of stock to replace
a certificate theretofore issued by it alleged to have been lost, destroyed or
wrongfully taken, if the owner or his legal representative (i) requests
replacement, before the Corporation has notice that the stock certificate has
been acquired by a bona fide purchaser; (ii) files with the Corporation a bond
sufficient to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss or destruction of any such stock
certificate or the issuance of any such new stock certificate; and (iii)
satisfies such other terms and conditions as the Board of Directors may from
time to time prescribe.
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<PAGE>
ARTICLE V
MISCELLANEOUS
SECTION 5.1. INDEMNITY. (a) The Corporation shall indemnify,
subject to the requirements of subsection (d) of this Section, any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation),
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify, subject to the
requirements of subsection (d) of this Section, any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery of the State of Delaware or such other court shall deem
proper.
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<PAGE>
(c) To the extent that a director, officer, employee
or agent of the Corporation, or a person serving in any other enterprise at the
request of the Corporation, has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in subsection (a) and (b)
of this Section, or in defense of any claim, issue or matter therein, the
Corporation shall indemnify him against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b)
of this Section (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of this Section. Such determination shall be made (1) by
a majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (3) by the Stockholders.
(e) Expenses incurred by a director, officer, employee
or agent in defending a civil or criminal action, suit or proceeding may be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Section.
(f) The indemnification and advancement of expenses
provided by or granted pursuant to, the other subsections of this Section shall
not limit the Corporation from providing any other indemnification or
advancement of expenses permitted by law nor shall it be deemed exclusive of any
other rights to which those seeking indemnification may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
(g) The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or who is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Section.
(h) The indemnification and advancement of expenses
provided by, or granted pursuant to this section shall, unless
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otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
(i) For the purposes of this Section, references to
"the Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents, so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Section with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(j) This Section 5.1 shall be construed to give the
Corporation the broadest power permissible by the Delaware General Corporation
Law, as it now stands and as heretofore amended.
SECTION 5.2. WAIVER OF NOTICE. Whenever notice is required by
the Certificate of Incorporation, the By-Laws or any provision of the General
Corporation Law of the State of Delaware, a written waiver thereof, signed by
the person entitled to notice, whether before or after the time required for
such notice, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders, directors or
members of a committee of directors need be specified in any written waiver of
notice.
SECTION 5.3. FISCAL YEAR. The fiscal year of the Corporation
shall start on such date as the Board of Directors shall from time to time
prescribe.
SECTION 5.4. CORPORATE SEAL. The corporate seal shall be in
such form as the Board of Directors may from time to time prescribe, and the
same may be used by causing it or a facsimile thereof to be impressed or affixed
or in any other manner reproduced.
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<PAGE>
ARTICLE VI
AMENDMENT OF BY-LAWS
SECTION 6.1. AMENDMENT. The By-Laws may be altered, amended or
repealed by the stockholders or by the Board of Directors by a majority vote.
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
GST Equipment Funding, Inc.:
We consent to the use of our report, dated August 11, 1997, included in the
Registration Statement on Form S-4, dated August 14, 1997, of GST
Telecommunications, Inc. and GST Equipment Funding, Inc. and to the reference to
our firm under the heading "Experts" in the Registration Statement.
/s/ KPMG Peat Marwick LLP
-------------------------
Portland, Oregon
August 14, 1997
Exhibit 23.2
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
August 14, 1997 on Form S-4 of GST Telecommunications, Inc. (formerly Greenstar
Telecommunications Inc.) and GST Equipment Funding, 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.
/s/ KPMG
Chartered Accountants
Vancouver, Canada
August 14, 1997
EXHIBIT 23.3
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-4, dated August 14,
1997, of GST Telecommunications, Inc. and GST Equipment Funding, Inc. and to the
reference to our firm under the heading "Experts" in the registration statement.
/s/ KPMG PEAT MARWICK LLP
-------------------------
Portland, Oregon
August 14, 1997
FORM T-1
==============================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
------------------
GST EQUIPMENT FUNDING, INC.
(Exact name of obligor as specified in its charter)
Delaware 91-1785734
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
4317 N. E. Thurston Way
Vancouver, WA 98662
(Address of principal executive offices) (Zip Code)
------------------
13-1/4% Senior Secured Exchange Notes due 2007
(Title of the indenture securities)
==============================================
<PAGE>
- 2 -
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C. New York
State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
GST Equipment Funding, Inc. currently is not in default under any of its
outstanding securities for which United States Trust Company of New York
is Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11,
12, 13, 14 and 15 of Form T-1 are not required under General Instruction
B.
16. LIST OF EXHIBITS
T-1.1 -- Organization Certificate, as amended, issued by the State
of New York Banking Department to transact business as a
Trust Company, is incorporated by reference to Exhibit
T-1.1 to Form T-1 filed on September 15, 1995 with the
Commission pursuant to the Trust Indenture Act of 1939, as
amended by the Trust Indenture Reform Act of 1990
(Registration No. 33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 3 -
16. LIST OF EXHIBITS
(CONT'D)
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of
the Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
As of August 11, 1997, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States Trust
Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 11th day
of August, 1997.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ Cynthia Chaney
------------------------
Cynthia Chaney
Assistant Vice President
<PAGE>
EXHIBIT T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
January 7, 1997
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
/s/ GERARD F. GANEY
- ------------------------------
By: Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
JUNE 30, 1997
(IN THOUSANDS)
ASSETS
Cash and Due from Banks 83,529
Short-Term Investments 259,746
Securities, Available for Sale 924,165
Loans 1,437,342
Less: Allowance for Credit Losses 13,779
----------
Net Loans 1,423,563
Premises and Equipment 61,515
Other Assets 122,696
----------
TOTAL ASSETS $2,875,214
==========
LIABILITIES
Deposits:
Non-Interest Bearing $ 763,075
Interest Bearing 1,409,017
----------
Total Deposits 2,172,092
Short-Term Credit Facilities 404,212
Accounts Payable and Accrued Liabilities 132,213
----------
TOTAL LIABILITIES $2,708,517
==========
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 100,930
Unrealized Gains (Losses) on Securities
Available for Sale, Net of Taxes (1,231)
-----------
TOTAL STOCKHOLDER'S EQUITY 166,697
-----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $2,875,214
==========
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
/s/ Richard E. Brinkmann, SVP & Controller
- ------------------------------------------
August 7, 1997
LETTER OF TRANSMITTAL
FOR
TENDER OF ALL OUTSTANDING
13 1/4% SENIOR SECURED NOTES DUE 2007
IN EXCHANGE FOR
13 1/4% SENIOR SECURED EXCHANGE NOTES DUE 2007
OF
GST EQUIPMENT FUNDING, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON ___________, 1997 (THE "EXPIRATION DATE"),
UNLESS EXTENDED BY GST EQUIPMENT FUNDING, INC.
EXCHANGE AGENT:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BY MAIL: BY OVERNIGHT COURIER: BY HAND: BY FACSIMILE:
United States Trust United States Trust United States Trust fax no. (212) 420-6152
Company of New York Company of New York Company of New York (For Eligible Institutions
P.O. Box 844 770 Broadway - 13th Floor 111 Broadway Only)
Cooper Station Corporate Trust Operations Lower Level
New York, NY 10276-0844 Department New York, NY 10006 CONFIRM BY TELEPHONE:
New York, NY 10003 Attn: Corporate Trust Services telephone no. (800) 548-6565
</TABLE>
(registered or certified mail
recommended)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated _________,
1997 (the "Prospectus") of GST Equipment Funding, Inc. ("GST Funding") and GST
Telecommunications, Inc. ("GST") which, together with this Letter of Transmittal
(the "Letter of Transmittal"), constitute GST Funding's offer (the "Exchange
Offer") to exchange $1,000 in principal amount of a new series of 13 1/4% Senior
Secured Exchange Notes Due 2007 (the "New Notes") of GST Funding, which, under
certain circumstances, may be guaranteed by GST for each $1,000 in principal
amount of outstanding 13 1/4% Senior Secured Notes Due 2007 (the "Old Notes") of
GST Funding, which, under certain circumstances, may be guaranteed by GST. The
terms of the New Notes are identical in all material respects to the terms of
the Old Notes for which they may be exchanged pursuant to the Exchange Offer,
except that the offer and sale of the New Notes will have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and, therefore,
the New Notes will not bear legends restricting the transfer thereof.
<PAGE>
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE
FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Old Notes to which this Letter of Transmittal relates.
If the space provided below is inadequate, the Certificate Numbers and Principal
Amounts should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
=============================================================================================================================
DESCRIPTION OF OLD NOTES TENDERED HEREWITH
=============================================================================================================================
<S> <C> <C> <C>
Name(s) and address(es) of Certificate Aggregate Principal Amount
Registered Holder(s) Number(s) Principal Amount Tendered*
(Please fill in) Represented by
Notes
----------------------------------------------------------
----------------------------------------------------------
Total $ $
======================================================================================
- -----------------------------------------------------------------------------------------------------------------------------
* Unless otherwise indicated, the holder will be deemed to have tendered the full
aggregate principal amount represented by Old Notes. See Instruction 2.
=============================================================================================================================
</TABLE>
This Letter of Transmittal is to be used if certificates for Old Notes
are to be forwarded herewith.
Unless the context requires otherwise, the term "Holder" for purposes
of this Letter of Transmittal means any person in whose name Old Notes are
registered or any other person who has obtained a properly completed bond power
from the registered holder.
-2-
<PAGE>
Holders whose Old Notes are not immediately available or who cannot
deliver their Old Notes and all other documents required hereby to the Exchange
Agent on or prior to the Expiration Date may tender their Old Notes according to
the guaranteed delivery procedure set forth in the Prospectus under the caption
"The Exchange Offer--Procedures for Tendering."
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY AND COMPLETE
THE FOLLOWING:
Name of Registered Holder(s):__________________________________________
Name of Eligible Institution that Guaranteed Delivery:_________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:__________________________________________________________________
Address:_______________________________________________________________
-3-
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to GST Funding the above-described principal amount
of Old Notes. Subject to, and effective upon, the acceptance for exchange of the
Old Notes tendered herewith, the undersigned hereby exchanges, assigns and
transfers to, or upon the order of, GST Funding right, title and interest in and
to such Old Notes. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as the true and lawful agent and attorney-in-fact of the
undersigned (with full knowledge that said Exchange Agent acts as the agent of
the undersigned in connection with the Exchange Offer) to cause the Old Notes to
be assigned, transferred and exchanged. The undersigned represents and warrants
that it has full power and authority to tender, exchange, assign and transfer
the Old Notes and to acquire New Notes issuable upon the exchange of such
tendered Old Notes, and that, when the same are accepted for exchange, GST
Funding will acquire good and unencumbered title to the tendered Old Notes, free
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claim. The undersigned also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Exchange Agent or GST
Funding to be necessary or desirable to complete the exchange, assignment and
transfer of tendered Old Notes.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "Exchange Offer -- Conditions to the Exchange
Offer." The undersigned recognizes that as a result of these conditions (which
may be waived, in whole or in part, by GST Funding) as more particularly set
forth in the Prospectus, GST Funding may not be required to exchange any of the
Old Notes tendered hereby and, in such event, the Old Notes not exchanged will
be returned to the undersigned at the address shown below the signature of the
undersigned.
By tendering, each Holder of Old Notes represents to GST Funding and
GST that (i) the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is such Holder, (ii) neither the Holder of Old
Notes nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such New Notes, (iii) if the Holder
is not a broker-dealer or is a broker-dealer but will not receive New Notes for
its own account in exchange for Old Notes, neither the Holder nor any such other
person is engaged in or intends to participate in a distribution of the New
Notes and (iv) neither the Holder nor any such other person is an "affiliate" of
GST Funding or GST within the meaning of Rule 405 under the Securities Act or,
if such Holder is such an "affiliate," that such Holder will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable. If the tendering Holder is a broker-dealer (whether or not it
is also an "affiliate" of GST Funding or GST within the meaning of Rule 405
under the Securities Act) that will receive New Notes for its own account in
exchange for Old Notes, it represents that the Old Notes to be exchanged for the
New Notes were acquired by it as a result of market-making activities or other
trading activities, and acknowledges that it will deliver a prospectus meeting
the
-4-
<PAGE>
requirements of the Securities Act in connection with any resale of such New
Notes. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes, the undersigned is not deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
All authority herein conferred or agreed to be conferred shall survive
the death, bankruptcy or incapacity of the undersigned and every obligation of
the undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned. Tendered Old Notes
may be withdrawn at any time prior to 5:00 p.m., New York City time on the
business day prior to the Expiration Date.
Certificates for all New Notes delivered in exchange for tendered Old
Notes and any Old Notes delivered herewith but not exchanged, in each case
registered in the name of the undersigned, shall be delivered to the undersigned
at the address shown below the signature of the undersigned.
(SIGNATURE(S) ON FOLLOWING PAGE)
-5-
<PAGE>
TENDERING HOLDER(S) SIGN HERE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature(s) of Holder(s)
Dated: , 1997
(Must be signed by registered Holder(s) exactly as name(s) appear(s) on
certificate(s) for Old Notes or by any person(s) authorized to become registered
Holder(s) by endorsements and documents transmitted herewith. If signature by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
please set forth the full title of such person.) See Instruction 3.
Name(s):________________________________________________________________________
- --------------------------------------------------------------------------------
(Please Print)
Capacity (full title):__________________________________________________________
Address:________________________________________________________________________
- --------------------------------------------------------------------------------
(Including Zip Code)
Area Code and Telephone No.: ___________________________________________________
- --------------------------------------------------------------------------------
Tax Identification No.
-6-
<PAGE>
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTION 3)
Authorized
Signature:______________________________________________________________________
Name:___________________________________________________________________________
Title:__________________________________________________________________________
Address:________________________________________________________________________
Name of Firm:___________________________________________________________________
Area Code and Telephone No.:____________________________________________________
Dated: __________________, 1996
-7-
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
Certificates for all physically delivered Old Notes, as well as a properly
completed and duly executed copy of this Letter of Transmittal or facsimile
thereof, and any other documents required by this Letter of Transmittal, must be
received by the Exchange Agent at any of its addresses set forth herein on or
prior to the Expiration Date.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OLD NOTES AND
ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER AND,
EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED BY THE EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE.
Holders whose Old Notes are not immediately available or who cannot
deliver their Old Notes and all other required documents to the Exchange Agent
on or prior to the Expiration Date may tender their Old Notes pursuant to the
guaranteed delivery procedure set forth in the Prospectus under "Exchange
Offer--Procedures for Tendering." Pursuant to such procedure: (i) such tender
must be made by or through an Eligible Institution (as defined in the
Prospectus); (ii) on or prior to the Expiration Date, the Exchange Agent must
have received from such Eligible Institution a letter, telegram or facsimile
transmission setting forth the name and address of the tendering Holder, the
names in which such Old Notes are registered, and, if possible, the certificate
numbers of the Old Notes to be tendered; and (iii) all tendered Old Notes as
well as this Letter of Transmittal and all other documents required by this
Letter of Transmittal must be received by the Exchange Agent within three
American Stock Exchange trading days after the date of execution of such letter,
telex, telegram or facsimile transmission, all as provided in the Prospectus
under the caption "Exchange Offer -- Procedures for Tendering."
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Old Notes for exchange.
2. PARTIAL TENDERS; WITHDRAWALS. Tenders of Old Notes will be accepted
in denominations of $1,000 principal amount and integral multiples in excess
thereof. If less than the entire principal amount of Old Notes evidenced by a
submitted certificate is tendered, the tendering Holder must fill in the
principal amount tendered in the box entitled "Principal Amount Tendered." A
newly issued certificate for the principal amount of Old Notes submitted but not
tendered will be sent to such Holder as soon as practicable after the Expiration
Date. All Old Notes delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
-8-
<PAGE>
Tenders of Old Notes pursuant to the Exchange Offer are irrevocable,
except that Old Notes tendered pursuant to the Exchange Offer may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the business day prior to
the Expiration Date. To be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the Exchange Agent.
Any such notice of withdrawal must specify the person named in the Letter of
Transmittal as having tendered Old Notes to be withdrawn, the certificate
numbers and designation of the Old Notes to be withdrawn, the principal amount
of Old Notes delivered for exchange, a statement that such a Holder is
withdrawing its election to have such Old Notes exchanged, and the name of the
registered Holder of such Old Notes, and must be signed by the Holder in the
same manner as the original signature on the Letter of Transmittal (including
any required signature guarantees) or be accompanied by evidence satisfactory to
GST Funding that the person withdrawing the tender has succeeded to the
beneficial ownership of the Old Notes being withdrawn. The Exchange Agent will
return the properly withdrawn Old Notes promptly following receipt of notice of
withdrawal.
3. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed
by the registered Holder(s) of the Old Notes tendered hereby, the signature must
correspond with the name(s) as written on the face of certificates without
alteration, enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If a number of Old Notes registered in different names are tendered, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Old Notes.
When this Letter of Transmittal is signed by the registered Holder or
Holders of Old Notes listed and tendered hereby, no endorsements of certificates
or separate written instruments of transfer or exchange are required.
If this Letter of Transmittal is signed by a person other than the
registered Holder or Holders of the Old Notes listed, such Old Notes must be
endorsed or accompanied by separate written instruments of transfer or exchange
in form satisfactory to GST Funding and duly executed by the registered Holder
or Holders, in either case signed exactly as the name or names of the registered
Holder or Holders appear(s) on the Old Notes.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by GST Funding, proper evidence
satisfactory to GST Funding of their authority to so act must be submitted.
-9-
<PAGE>
Endorsements on certificates or signatures on separate written
instruments of transfer or exchange required by this Instruction 3 must be
guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the Old Notes are tendered: (i) by a registered
Holder of such Old Notes; or (ii) for the account of any Eligible Institution.
4. TRANSFER TAXES. GST Funding will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing New Notes, or Old Notes for principal amounts
not tendered or accepted for exchange, are to be delivered to, or are to be
issued in the name of, any person other than the registered Holder of the Old
Notes tendered hereby, or if a transfer tax is imposed for any reason other than
the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered Holder or any other
person) will be payable by the tendering Holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted herewith, the
amount of such transfer taxes will be billed directly to such tendering Holder.
Except as provided in this Instruction 4, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
5. WAIVER OF CONDITIONS. GST Funding reserves the absolute right to
waive, in whole or in part, any of the conditions to the Exchange Offer set
forth in the Prospectus.
6. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any Holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
7. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent
at the address and telephone number set forth above. In addition, all questions
relating to the Exchange Offer, as well as requests for assistance or additional
copies of the Prospectus and this Letter of Transmittal, may be directed to the
Exchange Agent at the address specified in the Prospectus.
8. IRREGULARITIES. All questions as to the validity, form, eligibility
(including time of receipt), and acceptance of Letters of Transmittal or Old
Notes will be resolved by GST Funding, whose determination will be final and
binding. GST Funding reserves the absolute right to reject any or all Letters of
Transmittal or tenders that are not in proper form or the acceptance of which
would, in the opinion of GST Funding's counsel, be unlawful. GST Funding also
reserves the right to waive any irregularities or conditions of tender as to the
particular Old Notes covered by any Letter of Transmittal or tendered pursuant
to such Letter of Transmittal. None of GST Funding, the Exchange Agent or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for
-10-
<PAGE>
failure to give any such notification. GST Funding's interpretation of the terms
and conditions of the Exchange Offer shall be final and binding.
9. DEFINITIONS. Capitalized terms used in this Letter of Transmittal
and not otherwise defined have the meanings given in the Prospectus.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER
WITH CERTIFICATES FOR OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
-11-
TENDER FOR ALL OUTSTANDING
13 1/4% SENIOR SECURED NOTES DUE 2007
IN EXCHANGE FOR
13 1/4% SENIOR SECURED EXCHANGE NOTES DUE 2007
OF
GST EQUIPMENT FUNDING, INC.
To Registered Holders:
We are enclosing herewith the material listed below relating
to the offer (the "Exchange Offer") by GST Equipment Funding, Inc., a Delaware
corporation ("GST Funding"), to exchange its 13 1/4% Senior Secured Exchange
Notes Due 2007 (the "New Notes"), which, under certain circumstances, may be
guaranteed by GST Telecommunications, Inc., a federally chartered Canadian
corporation ("GST"), the offer and sale of which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), for a like principal
amount of GST Funding's issued and outstanding 13 1/4% Senior Secured Notes Due
2007 (the "Old Notes"), which, under certain circumstances, may be guaranteed by
GST, upon the terms and subject to the conditions set forth in the Prospectus of
GST Funding and GST, dated ________________, 1997, and the related Letter of
Transmittal.
Enclosed herewith are copies of the following documents:
1. Prospectus dated ____________, 1997;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Registered Holder from Beneficial Owner; and
5. Letter that may be sent to your clients for whose account you
hold Old Notes in your name or in the name of your nominee, to
accompany the instruction form referred to above, for
obtaining such client's instruction with regard to the
Exchange Offer.
WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
________________, 1997, UNLESS EXTENDED.
The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered.
<PAGE>
Pursuant to the Letter of Transmittal, each holder of Old
Notes will represent to GST Funding and GST that (i) the New Notes acquired
pursuant to the Exchange Offer are being obtained in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
such holder, (ii) neither the holder of the Old Notes nor any such other person
has an arrangement or understanding with any person to participate in the
distribution of such New Notes, (iii) if the holder is not a broker-dealer, or
is a broker-dealer but will not receive New Notes for its own account in
exchange for Old Notes, neither the holder nor any such other person is engaged
in or intends to participate in a distribution of the New Notes and (iv) neither
the holder nor any such other person is an "affiliate" of GST Funding or GST
within the meaning of Rule 405 under the Securities Act or, if such person is an
"affiliate," that such holder will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable. If the
tendering holder is a broker-dealer that will receive New Notes for its own
account in exchange for Old Notes, you will represent on behalf of such
broker-dealer that the Old Notes to be exchanged for the New Notes were acquired
by it as a result of market-making activities or other trading activities, and
acknowledge on behalf of such broker-dealer that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes. By acknowledging that it will deliver and by delivering a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Notes, such broker-dealer is not deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The enclosed Instruction to Registered Holder from Beneficial
Owner contains an authorization by the beneficial owners of the Old Notes for
you to make the foregoing representations on their behalf.
Neither GST Funding nor GST will pay any fee or commission to
any broker or dealer or to any other persons (other than the exchange agent for
the Exchange Offer) in connection with the solicitation of tenders of Old Notes
pursuant to the Exchange Offer. GST Funding will pay or cause to be paid any
transfer taxes payable on the transfer of Old Notes to it, except as otherwise
provided in Instruction 4 of the enclosed Letter of Transmittal.
Additional copies of the enclosed material may be obtained
from the undersigned.
Very truly yours,
UNITED STATES TRUST COMPANY OF NEW YORK
Exchange Agent
-2-
<PAGE>
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE
AGENT OF GST FUNDING, GST OR UNITED STATES TRUST COMPANY OF NEW YORK, OR
AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN
CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH
AND THE STATEMENTS CONTAINED THEREIN.
-3-
INSTRUCTION TO REGISTERED HOLDER FROM BENEFICIAL OWNER
OF
13 1/4% SENIOR SECURED NOTES DUE 2007
OF
GST EQUIPMENT FUNDING, INC.
To Registered Holder:
The undersigned hereby acknowledges receipt of the Prospectus
dated _________, 1997 (the "Prospectus") of GST Equipment Funding, Inc., a
Delaware corporation ("GST Funding"), and GST Telecommunications, Inc., a
federally chartered Canadian corporation ("GST"), and accompanying Letter of
Transmittal (the "Letter of Transmittal"), that together constitute GST
Funding's offer (the "Exchange Offer") to exchange $1,000 in principal amount of
a new series of 13 1/4% Senior Secured Exchange Notes Due 2007 (the "New Notes")
of GST Funding, which, under certain circumstances, may be guaranteed by GST for
each $1,000 in principal amount of outstanding 13 1/4% Senior Secured Notes Due
2007 (the "Old Notes") of GST Funding, which, under certain circumstances, may
be guaranteed by GST. Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder, as to the
action to be taken by you relating to the Exchange Offer with respect to the Old
Notes held by you for the account of the undersigned.
The aggregate face amount of the Old Notes held by you for the
account of the undersigned is (fill in amount):
$__________ of 13 1/4% Senior Secured Notes Due 2007.
With respect to the Exchange Offer, the undersigned hereby
instructs you (check appropriate box):
/ / To TENDER the following Old Notes held by you for the
account of the undersigned (insert principal amount of Old
Notes to be tendered (if any)):
$__________ of 13 1/4% Senior Secured Notes Due 2007.
/ / NOT to TENDER any Old Notes held by you for the account of
the undersigned.
If the undersigned instructs you to tender Old Notes held by
you for the account of the undersigned, it is understood that you are authorized
to make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in the
Letter of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations,
<PAGE>
that (i) the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the undersigned, (ii) neither the
undersigned nor the person receiving such New Notes (of other than the
undersigned) has an arrangement or understanding with any person to participate
in the distribution of such New Notes, (iii) if the undersigned is not a
broker-dealer, or is a broker-dealer but will not receive New Notes for its own
account in exchange for Old Notes, neither the undersigned nor any such other
person is engaged in or intends to participate in the distribution of such New
Notes and (iv) neither the undersigned nor any such other person is an
"affiliate" of GST Funding or GST within the meaning of Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), or, if the
undersigned is an "affiliate," that the undersigned will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable. If the undersigned is a broker-dealer (whether or not it is
also an "affiliate") that will receive New Notes for its own account in exchange
for Old Notes, it represents that such Old Notes were acquired as a result of
market-making activities or other trading activities, and it acknowledges that
it will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. By acknowledging that it will
deliver and by delivering a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes, the undersigned
is not deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
SIGN HERE
Name of beneficial owner(s) (please print):_____________________________________
Signature(s):___________________________________________________________________
Address:________________________________________________________________________
- --------------------------------------------------------------------------------
Telephone Number:_______________________________________________________________
Taxpayer identification or Social Security Number:______________________________
- --------------------------------------------------------------------------------
Date:___________________________________________________________________________
-2-
<PAGE>
TENDER FOR ALL OUTSTANDING
13 1/4% SENIOR SECURED NOTES DUE 2007
IN EXCHANGE FOR
13 1/4% SENIOR SECURED EXCHANGE NOTES DUE 2007
OF
GST EQUIPMENT FUNDING, INC.
To Our Clients:
We are enclosing herewith a Prospectus, dated ____________, of
GST Equipment Funding, Inc., a Delaware corporation ("GST Funding"), and GST
Telecommunications, Inc., a federally chartered Canadian corporation ("GST"),
and a related Letter of Transmittal (which together constitute the "Exchange
Offer") relating to the offer by GST Funding to exchange its 13 1/4% Senior
Secured Exchange Notes Due 2007 (the "New Notes"), which under certain
circumstances, may be guaranteed by GST the offer and sale of which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for a like principal amount of its issued and outstanding 13 1/4% Senior Secured
Notes Due 2007 (the "Old Notes"), which under certain circumstances, may be
guaranteed by GST upon the terms and subject to the conditions set forth in the
Exchange Offer.
PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON ________________, 1997 UNLESS EXTENDED.
The Exchange Offer is not conditioned upon any minimum number
of Old Notes being tendered.
We are the holder of record of Old Notes held by us for your
account. A tender of such Old Notes can be made only by us as the record holder
and pursuant to your instructions. The Letter of Transmittal is furnished to you
for your information only and cannot be used by you to tender Old Notes held by
us for your account.
We request instructions as to whether you wish to tender any
or all of the Old Notes held by us for your account pursuant to the terms and
conditions of the Exchange Offer. We also request that you confirm that we may
on your behalf make the representations contained in the Letter of Transmittal.
Pursuant to the Letter of Transmittal, each holder of Old
Notes will represent to GST Funding and GST that (i) the New Notes acquired in
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such New Notes, whether or not such person is such holder, (ii)
neither the holder of the Old Notes nor any such other person has an arrangement
or understanding with any person to participate in the distribution of such New
Notes, (iii) if the holder is not a broker-dealer or is a broker-dealer but will
not receive New Notes for its own account in exchange for Old Notes, neither the
holder nor any such other
<PAGE>
person is engaged in or intends to participate in a distribution of the New
Notes and (iv) neither the holder nor any such other person is an "affiliate" of
GST Funding or GST within the meaning of Rule 405 under the Securities Act or,
if such holder is an "affiliate," that such holder will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable. If the tendering holder is a broker-dealer (whether or not it
is also an "affiliate") that will receive New Notes for its own account in
exchange for Old Notes, we will represent on behalf of such broker-dealer that
the Old Notes to be exchanged for the New Notes were acquired by it as a result
of market-making activities or other trading activities, and acknowledge on
behalf of such broker-dealer that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
Very truly yours,
-2-
NOTICE OF GUARANTEED DELIVERY
for
Tender of all Outstanding
13 1/4% Senior Secured Notes Due 2007
in Exchange for
13 1/4% Senior Secured Exchange Notes Due 2007
of
GST Equipment Funding, Inc.
Registered holders of outstanding 13 1/4% Senior Secured Notes Due 2007
(the "Old Notes") of GST Equipment Funding, Inc. ("GST Funding"), which, under
certain circumstances, may be guaranteed by GST Telecommunications, Inc.
("GST"), who wish to tender their Old Notes in exchange for a like principal
amount of 13 1/4% Senior Secured Exchange Notes Due 2007 (the "New Notes") of
GST Funding, which, under certain circumstances, may be guaranteed by GST and
whose Old Notes are not immediately available or who cannot deliver their Old
Notes and Letter of Transmittal (and any other documents required by the Letter
of Transmittal) to United States Trust Company of New York (the "Exchange
Agent"), prior to the Expiration Date, may use this Notice of Guaranteed
Delivery or one substantially equivalent hereto. This Notice of Guaranteed
Delivery may be delivered by hand or sent by facsimile transmission (receipt
confirmed by telephone and an original delivered by guaranteed overnight
delivery) or mail to the Exchange Agent. See "The Exchange Offer -- Procedures
for Tendering" in the Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
UNITED STATES TRUST COMPANY OF NEW YORK
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<S> <C> <C> <C>
BY MAIL: BY OVERNIGHT COURIER: BY HAND: BY FACSIMILE:
United States Trust United States Trust United States Trust fax no. (212) 420-6152
Company of New York Company of New York Company of New York (For Eligible Institutions
P.O. Box 844 770 Broadway - 13th Floor 111 Broadway Only)
Cooper Station Corporate Trust Operations Lower Level
New York, NY 10276-0844 Department New York, NY 10006 CONFIRM BY TELEPHONE:
New York, NY 10003 Attn: Corporate Trust Services telephone no. (800) 548-6565
</TABLE>
(registered or certified mail
recommended)
<PAGE>
Delivery of this Notice of Guaranteed Delivery to an address other than as set
forth above or transmission of instructions via a facsimile transmission to a
number other than as set forth above will not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If
a signature on a Letter of Transmittal is required to be guaranteed by an
Eligible Institution, such signature guarantee must appear in the applicable
space provided on the Letter of Transmittal for Guarantee of Signatures.
(SIGNATURE(S) ON FOLLOWING PAGE)
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<PAGE>
Ladies & Gentlemen:
The undersigned hereby tender(s) to GST Funding, upon the terms and
subject to the conditions set forth in the Exchange Offer and the Letter of
Transmittal, receipt of which is hereby acknowledged, the aggregate principal
amount of Old Notes set forth below pursuant to the guaranteed delivery
procedures set forth in the Prospectus.
The undersigned understands that tenders of Old Notes will be accepted
only in principal amounts equal to $1,000 or integral multiples thereof. The
undersigned understands that tenders of Old Notes pursuant to the Exchange Offer
may not be withdrawn after 5:00 p.m., New York City time on the business day
prior to the Expiration Date. Tenders of Old Notes may also be withdrawn if the
Exchange Offer is terminated without any such Old Notes being purchased
thereunder or as otherwise provided in the Prospectus.
All authority herein conferred or agreed to be conferred by this Notice
of Guaranteed Delivery shall survive the death or incapacity of the undersigned
and every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
PLEASE SIGN AND COMPLETE
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<S> <C>
Signature(s) of Registered Owner(s) or Authorized Name(s) of Registered Holder(s):
Signatory:_______________________________________________
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Principal Amount of Old Notes
Tendered:________________________________________________ Address:___________________________________
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Certificate No(s). of Old Notes (if available)___________
Area Code and Telephone No.:_______________
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Date:______________________________________
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</TABLE>
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<PAGE>
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This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Old Notes exactly as its (their) name(s) appear(s) on certificates
for Old Notes or on a security position listing it (them) as the owner of Old
Notes, or by person(s) authorized to become registered Holder(s) by endorsements
and documents transmitted with this Notice of Guaranteed Delivery. If signature
is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person must
provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): ______________________________________________________________
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Capacity: ______________________________________________________________
Address(es): ______________________________________________________________
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DO NOT SEND OLD NOTES WITH THIS FORM. OLD NOTES SHOULD BE SENT TO THE EXCHANGE
AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL.
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GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial bank
or trust company having an office or a correspondent in the United States or an
"eligible guarantor institution" as defined by Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), hereby (a) represents
that each holder of Old Notes on whose behalf this tender is being made "own(s)"
the Old Notes covered hereby within the meaning of Rule 14e-4 under the Exchange
Act, (b) represents that such tender of Old Notes complies with such Rule 14e-4,
and (c) guarantees that, within three American Stock Exchange trading days after
the date of this Notice of Guaranteed Delivery, a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof), together with
certificates representing the Old Notes covered hereby in proper form for
transfer and required documents will be deposited by the undersigned with the
Exchange Agent.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL
AND OLD NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE TIME SET FORTH
ABOVE AND THAT FAILURE TO DO SO COULD RESULT IN FINANCIAL LOSS TO THE
UNDERSIGNED.
Name of Firm:____________________________ Authorized Signature
Address:_________________________________
_________________________________________ Name:______________________________
Area Code and Telephone No.:_____________ Title:_____________________________
_________________________________________ Date:______________________________
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