As filed with the Securities and Exchange Commission on January 27, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GST TELECOMMUNICATIONS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Canada
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(State or other jurisdiction of
incorporation or organization)
N/A
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(IRS Employer
Identification Number)
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4001 Main Street
Vancouver, Washington 98663
(360) 906-7100
(Address and telephone number of
Registrant Offices)
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Daniel L. Trampush, Senior Vice President
GST Telecommunications, Inc.
4001 Main Street
Vancouver, Washington 98663
(360) 906-7100
(Name, Address and Telephone Number
of Agent for Service)
Copy to:
David J. Adler, Esq.
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. /X/
<PAGE>
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
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Proposed
Maximum
Title of Amount Aggregate Proposed Maximum Amount of
Shares to be to be Price Aggregate Registration
Registered Registered Per Share Offering Price Fee
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Common 352,072 $10.8125(1) $3,806,778.50 $1,123.00
Shares,
without par
value
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act, based upon $10.8125, the per
Share average of high and low sale prices of the Registrant's Common Shares as
reported by the American Stock Exchange for trading on January 23, 1998.
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The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
SUBJECT TO COMPLETION, DATED JANUARY 27, 1998
352,072 COMMON SHARES
GST TELECOMMUNICATIONS, INC.
This Prospectus relates to the reoffer and resale by certain selling
shareholders (the "Selling Shareholders") of Common Shares, without par value
(the "Common Shares"), of GST Telecommunications, Inc. (the "Company") (i)
issued by the Company to the Selling Shareholders in connection with the
acquisition by the Company of TotalNet Communications, Inc. ("TotalNet") and
(ii) issuable upon exercise of a warrant issued to Dillon, Read & Co. Inc. in
connection with services performed on behalf of the Company.
The Selling Shareholders have advised the Company that the resale of
their Common Shares may be effected from time to time in one or more
transactions solely on the American Stock Exchange (the "AMEX"), in negotiated
transactions or otherwise at market prices prevailing at the time of the sale or
at prices otherwise negotiated. The Selling Shareholders may effect such
transactions by selling the Common Shares to or through broker-dealers who may
receive compensation in the form of discounts, concessions or commissions from
the Selling Shareholders and/or the purchasers of the Common Shares for whom
such broker-dealers may act as agent or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer may be in excess of
customary commissions). Any broker-dealer acquiring the Common Shares from the
Selling Shareholders may sell such securities in its normal market making
activities, through other brokers on a principal or agency basis, in negotiated
transactions, to its customers or through a combination of such methods. See
"Plan of Distribution." The Company will bear all expenses in connection with
the preparation of this Prospectus.
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AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES
A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGE 4 HEREOF.
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The Common Shares are traded on the AMEX under the symbol "GST" and on
the Toronto Stock Exchange (the "TSE") and the Vancouver Stock Exchange (the
"VSE") under the symbol "GTE.U." On January 23, 1998, the last sale price for
the Common Shares on the AMEX was $10.8125.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other information
can be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material can
be obtained from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
material may also be accessed electronically by means of the Commission's home
page on the Internet at http://www.sec.gov. The Common Shares are listed on the
AMEX and such reports and other information may also be inspected at the offices
of the AMEX, 86 Trinity Place, New York, New York 10006.
TABLE OF CONTENTS
AVAILABLE INFORMATION.................................................. -2-
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................ -3-
RISK FACTORS........................................................... -4-
THE COMPANY............................................................ -17-
MATERIAL CHANGES....................................................... -17-
USE OF PROCEEDS........................................................ -18-
SELLING SHAREHOLDERS................................................... -18-
PLAN OF DISTRIBUTION................................................... -18-
LEGAL MATTERS.......................................................... -19-
EXPERTS .............................................................. -19-
ADDITIONAL INFORMATION................................................. -19-
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997, and the Company's Current Report on Form 8-K dated January
6, 1998 are incorporated by reference in this Prospectus and shall be deemed to
be a part hereof. All subsequent reports filed by the Company on Forms 10-K, 10-
Q, 8-K or otherwise, prior to the termination of this offering, are deemed to be
incorporated by reference in this prospectus and shall be deemed to be a part
hereof from the date of filing of such documents. All documents filed by the
Company pursuant to Sections 13(a), 13(c), 14 or 15 of the Exchange Act,
subsequently filed by the Company prior to the termination of this offering, are
deemed to be incorporated by reference in this Prospectus and shall be deemed to
be a part hereof from the date of filing of such documents.
The Company's Application for Registration of its Common Shares under
Section 12(b) of the Exchange Act filed on March 3, 1994 is incorporated by
reference in this Prospectus and shall be deemed to be a part hereof.
The Company hereby undertakes to provide without charge to each person
to whom a copy of this Prospectus has been delivered, on the written or oral
request of any such person, a copy of any or all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to such documents. Written requests for such copies should
be directed to GST Telecommunications, Inc. at 4001 Main Street, Vancouver,
Washington 98663, Attention: Chief Financial Officer. Oral requests should be
directed to such individual (telephone number (360) 906-7100).
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made hereby, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or the Selling Shareholders. This Prospectus does not constitute
an offer to sell, or a solicitation of an offer to buy, the securities offered
hereby to any person in any state or other jurisdiction in which such offer or
solicitation is unlawful. The delivery of this Prospectus at any time does not
imply that information contained herein is correct as of any time subsequent to
its date.
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<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
BEFORE MAKING AN INVESTMENT DECISION. CERTAIN MATTERS DISCUSSED IN THIS
PROSPECTUS OR WHICH ARE INCORPORATED BY REFERENCE ARE FORWARD-LOOKING STATEMENTS
THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE PROJECTED.
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 $113.3 million,
an operating loss of approximately $86.5 million and negative EBITDA of $51.9
million for the year ended September 30, 1997 ("Fiscal 1997") and a net loss of
approximately $60.4 million, an operating loss of approximately $42.6 million
and negative EBITDA of $33.9 million for the fiscal year ended September 30,
1996 ("Fiscal 1996"). There can be no assurance that the Company will achieve or
sustain profitability or generate positive EBITDA. On December 31, 1997, the
Company entered into an agreement with World Access, Inc. ("World Access") to
sell the Company's remaining interest in NACT Telecommunications, Inc. ("NACT")
for a purchase price of approximately $89.5 million, consisting of cash and
common stock of World Access (see "Material Changes"). Without NACT, the Company
would have had a net loss of $117.8 million and negative EBITDA of $59.0 million
for Fiscal 1997 and a net loss of $60.6 million and negative EBITDA of $35.0
million for Fiscal 1996. EBITDA consists of loss before interest, income taxes,
depreciation and amortization and other non-cash income and expenses. EBITDA is
provided because it is a measure commonly used in the telecommunications
industry. It is presented to enhance an understanding of the Company's operating
results and is not intended to represent cash flow or results of operations in
accordance with generally accepted accounting principles for the periods
indicated. At September 30, 1997, the Company had a U.S. net operating loss
carryforward of approximately $110.6 million and a Canadian net operating loss
carryforward of approximately Cdn. $9.2 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 U.S. net operating loss carryforwards against future
taxable income is subject to limitation if the Company experiences an "ownership
change" as defined in Section 382 of the Internal Revenue Code of 1986, as
amended (the "Code") and the analogous 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 incumbent local exchange telephone
companies ("ILECs") and achieve a sufficient customer base, and upon subsequent
developments in state and federal regulations. There can be no assurance that
any networks to be developed or further developed will be completed on schedule,
at a commercially reasonable cost or within the Company's specifications. In
addition, the expansion of the Company's business has involved and is expected
to continue to involve acquisitions, which could divert the resources and
management time of the Company and require integration with the Company's
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<PAGE>
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.
Significant Capital Requirements
The Company estimates that its capital expenditures will be
approximately $286.0 million from October 1, 1997 through December 31, 1998. The
Company believes that the net proceeds of the public offering consummated in
November 1997 (the "1997 Offering") of 12 3/4% Senior Subordinated Accrual Notes
due 2007 (the "Accrual Notes") and 6,440,000 Common Shares, together with cash
on hand, including the remaining proceeds from the private placement offering
consummated in May 1997 (the "Secured Notes Offering") of 13 1/4% Senior Secured
Notes due 2007 (the "Secured Notes") (which, other than the amount pledged to
fund the first six interest payments on the Secured Notes, will be used to
purchase equipment) and borrowings expected to be available under a credit
facility (the "Tomen Facility") with Tomen America, Inc. and its affiliates
(collectively, "Tomen") and equipment financing agreements with Siemens Telecom
Networks ("Siemens") and NTFC Capital Corp. ("NTFC"), will provide sufficient
funds for the Company to expand its business as presently planned and to fund
its operating expenses through March 2000. 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 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 (or seek additional capital sooner than currently anticipated). Sources
of financing may include public or private equity or debt financing by the
Company or its subsidiaries, sales of assets or other financing arrangements.
There can be no assurance that such additional financing would be available to
the Company or, if available, that it could be obtained on acceptable terms or
within the limitations contained in the 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, which would have a material adverse effect on the
value of the Common Shares. The Company has no material working capital or other
credit facility under which it may borrow for working capital and other general
corporate purposes. There can be no assurance that such a facility will be
available to the Company in the future or that if such a facility were
available, that it would be available on terms and conditions acceptable to the
Company.
Substantial Indebtedness
At September 30, 1997, the Company had outstanding on a consolidated
basis approximately $638.7 million of indebtedness. In addition, the accretion
of original issue discount will cause a $122.8 million increase in liabilities
by December 15, 2000 relating to the 13 7/8% Senior Discount Notes due 2005 of
GST USA (the "Senior Notes") and the 13 7/8% Convertible Senior Subordinated
Discount notes due 2005 of the Company (the "Convertible Notes" and together
with the Senior Notes, the "1995 Notes") sold in December 1995 and a $122.9
million increase in liabilities relating to the Accrual Notes by November 15,
2002. The Indentures relating to the 1995 Notes (the "1995 Indentures"), the
indenture relating to the Secured Notes (the "Secured Notes Indenture") and the
indenture relating to the Accrual Notes (the "Accrual Notes Indenture" and
together with the 1995 Indentures and the Secured Notes Indenture, the
"Indentures") limit, but do not prohibit, the incurrence of additional
indebtedness by the Company. At
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<PAGE>
September 30, 1997, the Company had $25.0 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. The Company expects to incur substantial additional indebtedness in
the future. The Company has entered into loan agreements with Siemens (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 (and of which $5.8 million has been provided at September 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 an agreement with NTFC
(the "NTFC Loan Agreement") for up to $50.0 million of additional equipment
financing (of which $44.6 million had been provided at September 30, 1997).
There can be no assurance that any additional financing will be available to the
Company on acceptable terms or at all.
The level of the Company's indebtedness could have important
consequences to its future prospects, including the following: (i) limiting the
ability of the Company to obtain any necessary financing in the future for
working capital, capital expenditures, debt service requirements or other
purposes; (ii) requiring that a substantial portion of the Company's cash flow
from operations, if any, be dedicated to the payment of principal of and
interest on its indebtedness and other obligations; (iii) limiting its
flexibility in planning for, or reacting to changes in, its business; (iv) the
Company will be more highly leveraged than some of its competitors, which may
place it at a competitive disadvantage; and (v) increasing its vulnerability in
the event of a downturn in its business.
Possible Inability To Service Debt
In connection with the buildout of its networks and expansion of
competitive local exchange telephone companies ("CLEC") services, the Company
has been experiencing increasing negative EBITDA. The Company's earnings before
fixed charges were insufficient to cover fixed charges for Fiscal 1997 and
Fiscal 1996 by $127.0 million and $62.9 million, respectively and the Company's
EBITDA minus capital expenditures and interest expense for Fiscal 1997 and
Fiscal 1996 was negative $315.3 million and negative $152.7 million,
respectively. There can be no assurance that the Company will be able to improve
its earnings before fixed charges or EBITDA or that the Company will be able to
meet its debt service obligations. As the Company does not currently have a
revolving credit facility, if a shortfall occurs, alternative financing would be
necessary in order for the Company to meet its liquidity requirements and there
can be no assurance that such financing would be available. In such event, the
Company could face substantial liquidity problems. In addition, the Company
anticipates that cash flow from operations may be insufficient to repay the 1995
Notes, Secured Notes and the Accrual Notes at maturity and that such
indebtedness will need to be refinanced. There can be no assurance that the
Company will be able to effect such refinancing. The ability of the Company to
meet its obligations and to effect such refinancings will be dependent upon,
among other things, the future performance of the Company, which will be subject
to prevailing economic conditions and to financial, business and other factors,
including factors beyond the control of the Company. Failure by the Company to
meet its obligations could result in a default on its indebtedness, which would
permit the holders of substantially all of the Company's indebtedness to
accelerate the maturity thereof.
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.
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Difficulties In Implementing Local And Enhanced Services
The Company has begun to deploy and plans to continue to deploy high
capacity digital switches in the cities in which it operates or plans to operate
networks, as well as in certain cities where the Company will rely on ILEC
facilities for transmission. This will enable the Company to offer a variety of
switched access services, enhanced services and local dial tone. The Company
expects negative EBITDA from its switched services during the 24 to 36 month
period after a switch is deployed. For switches operating in conjunction with
the Company's networks, the Company expects operating margins to improve as the
network is expanded and larger volumes of traffic are carried on the Company's
network. For switches operating in cities where the Company will rely on ILEC
facilities for transmission, the Company will experience lower or negative
operating margins, the ILECs will be required to unbundle local tariffs and
permit the Company to purchase only the origination and termination services it
needs, thereby decreasing operating expenses, there can be no assurance that
such unbundling will be effected in a timely manner and result in prices
favorable to the Company. In addition, the Company's ability to successfully
implement its switched and enhanced services will require the negotiation of
resale agreements with ILECs and other CLECs and the negotiation of
interconnection agreements with ILECs, which can take considerable time, effort
and expense.
In August 1996, the Federal Communications Commission (the "FCC")
released a decision implementing the interconnection portions of the
Telecommunications Act (the "Interconnection Decision"). The Interconnection
Decision establishes rules for negotiating interconnection agreements and
guidelines for review of such agreements by state public utilities commissions.
On July 18, 1997, the Court of Appeals for the Eighth Circuit (the "Eighth
Circuit") vacated certain portions of the Interconnection Decision, including
provisions establishing a pricing methodology 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. On
October 14, 1997 the Eighth Circuit issued a decision vacating additional FCC
rules that will likely have the effect of increasing the cost of obtaining the
use of combinations of an ILEC's unbundled network elements. The Eighth Circuit
decision creates uncertainty about the rules governing pricing, terms and
conditions of interconnection agreements, and could make negotiating and
enforcing such agreements more difficult and protracted and may require
renegotiation of existing agreements. The Company had negotiated a number of
interconnection agreements with ILECs prior to the Eighth Circuit decision.
There can be no assurance that the Company will be able to obtain
interconnection agreements on terms acceptable to the Company. The FCC has
sought a writ of certiorari from the Supreme Court for review of the Eighth
Circuit decision. See "-- Competition."
Many new carriers, including the Company, have experienced certain
difficulties with respect to provisioning, interconnection and the operational
support systems used by new carriers to order and receive network elements and
wholesale services from the ILECs. These systems are necessary for new carriers
such as the Company to provided local service to customers on a timely and
competitive basis. The FCC has recently created a task force to examine problems
that have slowed the development of local telephone competition. In addition,
the Telecommunications Act creates incentives for RBOCs to permit access to
their facilities by denying such carriers the ability to provide long distance
services until there is adequate competition at the local level. Certain of the
ILECs in the Company's markets are not yet permitted to offer long distance
services and there can be no assurance that these ILECs will be accommodating to
the Company once they are permitted to offer long distance service. Should the
Company be unable to obtain the cooperation of an ILEC in a region, whether or
not such ILEC has been authorized to offer long distance service, the Company's
ability to offer local services in such region on a timely and cost-effective
basis would be adversely affected.
The Company is a recent entrant into the newly created competitive
local telecommunications services industry. The local dial tone services market
was
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only recently opened to competition due to the passage of the Telecommunications
Act and related regulatory rulings. There are numerous operating complexities
associated with providing these services. The Company will be required to
develop new products, services and systems and will need to develop new
marketing initiatives to sell these services.
The Company's switched services may not be profitable due to, among
other factors, lack of customer demand, inability to secure access to facilities
of ILECs at acceptable rates, competition from other CLECs and pricing pressure
from the ILECs. The Company has 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.
Implementation of the Company's switched and enhanced services is
subject to the Company's ability to obtain equipment financing for switches and
upon equipment manufacturers' ability to meet the Company's switch deployment
schedule. Although as of September 30, 1997 the Company had $115.5 million of
proceeds available under its equipment financings, there can be no assurance
that switches will be deployed on the schedule contemplated by the Company or
that, if deployed, such switches will be utilized to the degree contemplated by
the Company.
Recent Commencement Of Integrated Marketing Effort
The Company has only recently begun an integrated marketing effort of
its telecommunication service offerings. Historically, the Company has marketed
its access services primarily to long distance carriers and significant
end-users of telecommunications services, and its long distance services to
small businesses and consumers. Although the Company expects to market a variety
of telecommunications services to all of its customers, there can be no
assurance that the Company will be able to attract 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 20.8% and 46.9% of the Company's consolidated
telecommunications services revenues for Fiscal 1997 and Fiscal 1996,
respectively. 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 28.5% and 13.4% of the Company's
consolidated product revenues for Fiscal 1997 and Fiscal 1996, 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.
Risks Relating To Long Distance Business
For Fiscal 1997 and Fiscal 1996, long distance represented 59.2% and
56.0% 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
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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.
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 competition from large long distance carriers, such as AT&T Corp.
("AT&T"), MCI Communications Corporation ("MCI"), Sprint Corporation ("Sprint")
and WorldCom Inc. ("WorldCom") 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. In addition, a
continuing trend toward business combinations and strategic alliances in the
telecommunications industry may further enhance competition. For example,
WorldCom acquired MFS Communications Company, Inc. ("MFS"), and recently
announced that it entered into agreements to acquire each of Brooks Fiber
Properties Inc. ("Brooks") and MCI, each of which compete with the Company in
several of the markets in which the Company operates. The Company cannot
determine what effect such acquisitions will have on the Company's business,
financial condition and results of operations.
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
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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. 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, Sprint, and WorldCom 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 their service
territory and, upon the satisfaction of certain conditions, within their service
territory. SBC Communications Corporation ("SBC") has challenged the
constitutionality of the provisions conditioning RBOC entry into in-region long
distance service. The district court has determined that the provision of the
Telecommunications Act that prohibit RBOC entry into long distance markets is
unconstitutional. A stay of that decision has been requested.
As a result of the Company's acquisitions of Action Telcom, Co., Call
America Business Communications Corp. and certain of its affiliated companies,
TotalNet and the business of Texas-Ohio Communications Inc. and affiliated
companies, the Company's long distance operations will account for a significant
portion of the Company's revenues. The Company believes that the principal
competitive factors affecting its long distance operations are pricing, customer
service, accurate billing, clear pricing policies and, to a lesser extent,
variety of services. The ability of the Company to compete effectively will
depend upon its continued ability to maintain high quality, market driven
services at prices generally equal to or below those charged by its competitors.
To maintain its competitive posture, the Company believes that it must be in a
position to reduce its prices in order to meet reductions in rates, if any, by
others. Any such reductions could adversely affect the Company.
The Internet services market is highly competitive. There are no
substantial barriers to entry, and the Company expects that competition will
continue to intensify. The Company's competitors in this market include Internet
service providers, other telecommunications companies, online services providers
and Internet software providers. Many of these competitors have greater
financial, technological and marketing resources than those available to the
Company.
The market for telecommunications products is highly competitive and
subject to rapid technological change. 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
-10-
<PAGE>
Development, Inc., Integrated Telephony Products, Inc. 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., 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., Harris Corporation, Siemens AG,
Alcatel Alsthom Telefonaktiebolaget, L.M. Ericcson and Northern Telecom, Ltd.
Many of NACT's, current and potential competitors have substantially greater
financial, technical and marketing resources than NACT. Increased competition
could materially and adversely affect NACT's business, financial condition and
results of operations through price reductions and loss of market share. There
can be no assurance that NACT will be able to continue to compete successfully
with its existing competitors or that it will be able to compete successfully
with new competitors.
The recent World Trade Organization ("WTO") agreement on basic
telecommunications services could increase the Company's competition 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 as early as
January 1, 1998.
Government Regulation
The Company's networks and the provision of switched and private line
services are subject to significant regulation at the federal, state and local
levels. Delays in receiving required regulatory approvals or the enactment of
new adverse regulation or regulatory requirements may have a material adverse
effect upon the Company. The FCC exercises jurisdiction over the Company with
respect to interstate and international services. Additionally, the Company
files 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. 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
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telecommunications industry. There can be no assurance that these changes will
not have a material adverse effect upon the Company. See "--Competition."
In addition to requirements placed on ILECs, the Telecommunications Act
subjects the Company to certain federal regulatory requirements upon the
Company's provision of local exchange service in a market. All ILECs and CLECs
must interconnect with other carriers, provide nondiscriminatory access to
rights-of-way, offer reciprocal compensation for termination of traffic and
provide dialing parity and telephone number portability. The Telecommunications
Act also requires all telecommunications carriers to ensure that their services
are accessible to and usable by persons with disabilities.
On May 8, 1997, the FCC released an order establishing a significantly
expanded federal telecommunications subsidy regime. For example, the FCC
established new subsidies for services provided to qualifying schools and
libraries with an annual cap of $2.25 billion and for services provided to rural
health care providers with an annual cap of $400 million. The FCC also expanded
the federal subsidies to low-income consumers. Providers of interstate
telecommunications service, such as the Company, as well as certain other
entities, must pay for these programs. The Company's share of these federal
subsidy funds will be based on its share of certain defined telecommunications
end-user revenues. Although the FCC order describes a method for determining the
amount the Company must contribute to support these subsidies, the FCC has only
provided the contribution factors for the first quarter 1998 Universal Service
Fund contributions. The revised factors are 3.19% for the high cost and low
income fund and 0.72% for the schools, libraries and health care fund. The
amounts contributed may be billed to customers. The Company is currently unable
to predict the effect that these required payments will have on its financial
condition. In the May 8th order, the FCC also announced that it will soon revise
its rules for subsidizing service provided to consumers in high cost areas.
Several parties have appealed the May 8th order. Such appeals have been
consolidated and transferred to the United States Court of Appeals for the Fifth
Circuit where they are currently pending. In addition, on July 3, 1997, several
ILECs filed a petition for stay of the May 8th order with the FCC. That petition
is pending.
In a combined Report and Order and Notice of Proposed Rulemaking
released on December 24, 1996, the FCC made changes and proposed further changes
in the interstate access charge structure. In the Report and Order, the FCC
removed restrictions on ILECs' ability to lower access prices and relaxed the
regulation of new switched access services in those markets where there are
other providers of access services. If this increased pricing flexibility is not
effectively monitored by federal regulators, it could have a material adverse
effect on the Company's ability to compete in providing interstate access
services. On May 16, 1997, the FCC released an order revising its access charge
rate structure. The new rules substantially increase the costs that ILECs
subject to the FCC's price cap rules ("price cap LECs") recover through monthly,
non-traffic sensitive access charges and substantially decrease the costs that
price cap LECs recover through traffic sensitive access charges. In the May 16th
order, the FCC also announced its plan to bring interstate access rate levels
more in line with cost. The plan will include rules that grant price cap LECs
increased pricing flexibility upon demonstrations of increased competition (or
potential competition) in relevant markets. The manner in which the FCC
implements this approach to lowering access charge levels could have a material
effect on the Company's ability to compete in providing interstate access
services. Several parties have appealed the May 16th order. Those appeals have
been consolidated and transferred to the United States Court of Appeals for the
Eight Circuit where they are currently pending.
In addition, federal regulations impose restrictions on foreign
ownership of communications service providers utilizing radio frequencies,
including microwave radio facilities, and cellular and personal communication
service ("PCS") facilities. 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
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<PAGE>
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. In the event the FCC
exercises such authority, it could have a material adverse effect on the
Company's CLEC and other businesses.
Need To Adapt To Technological Change
The telecommunications industry is subject to rapid and significant
changes in technology, with the Company relying on third parties for the
development of and access to new technology. The effect of technological changes
on the business of the Company cannot be predicted. The Company believes its
future success will depend, in part, on its ability to anticipate or adapt to
such changes and to offer, on a timely basis, services that meet customer
demands.
The future success of NACT will depend in part upon its ability to keep
pace with advancing technology, evolving industry standards within the
telecommunications industry and changing customer requirements in a cost-
effective manner. There can be no assurance that NACT's products will not be
rendered obsolete by other telecommunications products incorporating
technological advances designed by competitors that NACT is unable to
incorporate into its products in a timely manner.
Litigation Risks
The Company is involved in various legal proceedings. An action was
commenced against NACT alleging that its telephone systems incorporating prepaid
debit card features infringe upon a patent issued in 1987. The Company and GST
USA were added as a defendant to such action in August 1997. An unfavorable
decision in such action could have a material adverse effect on the Company.
Other legal proceedings to which the Company is a party could have an adverse
effect on the Company.
Possible Inability To Recover Payments Made To Magnacom
Magnacom Wireless, L.L.C. ("Magnacom"), a company 99% owned by PNI,
controlled by John Warta, the Company's Chairman of the Board and Chief
Executive Officer, has acquired various PCS licenses. Magnacom holds 30 MHz (C
Block) PCS licenses for eleven markets in Arizona, Arkansas, New Mexico, Oregon
and Utah. Magnacom was the winning bidder for 10 MHz licenses in the FCC's F
Block in 13 markets in Hawaii, Idaho, Oregon and Washington in an FCC auction.
Pursuant to an FCC order dated January 14, 1998, Magnacom was awarded such
licenses, subject to the payment of a late fee of $69,356 in respect of
Magnacom's late submission of the second downpayment for such licenses.
Magnacom and the Company have entered into a 12-year reseller agreement
(the "Magnacom Reseller Agreement") pursuant to which (i) the Company has been
designated a non-exclusive reseller of PCS telephone services in the markets in
which Magnacom has obtained licenses, and (ii) Magnacom has agreed to use the
Company on an exclusive basis to provide switched local and long distance
services and other enhanced telecommunications services, to all of Magnacom's
resellers in markets where the Company has operational networks. Magnacom agreed
to sell PCS minutes to the Company at $.05 per minute, subject to downward
adjustment to equal the most favorable rates offered to Magnacom's other
resellers (but in no event less than Magnacom's cost). In connection with the
Magnacom Reseller Agreement, as of September 30, 1997, the Company had paid
Magnacom approximately $14.0 million as prepayments for future PCS services.
Magnacom and the Company are presently in negotiations with respect to modifying
the Magnacom Reseller Agreement to reflect certain regularly requirements and to
provide clarification as to the basis upon which the Company and Magnacom will
provide such services.
In addition, the Company has been granted a conditional option to
acquire up to PNI's entire interest in Magnacom (currently 99%), conditioned
upon Magnacom and the Company entering into an agreement for the construction
and/or operation of Magnacom's facilities. If and when the condition precedent
is met, the exercise of the option will be subject to compliance with all
applicable FCC
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<PAGE>
regulations relating to prior approval of any transfer of control of PCS
licenses, including those relating to foreign ownership or control and
requirements regarding the ownership of C and F block licenses and interests in
C and F block licenses. Accordingly, until such time as FCC regulations or
administrative action permit the Company to own in excess of 25% of Magnacom,
the option by its terms is limited to a 24% interest in Magnacom.
In February 1997, an affiliate of Magnacom, PCS Plus Pacific, Inc.
formerly known as Guam Net, Inc. ("PCS Plus Pacific"), acquired from Poka Lambro
Telephone Cooperative, Inc. a 30 MHz (A Block) PCS license from the FCC in the
market consisting of Guam and the Northern Mariana Islands. Concurrently, the
Company entered into a reseller agreement on terms substantially similar to the
Magnacom Reseller Agreement and paid PCS Plus Pacific approximately $0.4 million
as a prepayment for future PCS services.
In addition, the Company may issue a warrant to purchase up to 4% of
the then outstanding Common Shares in connection with financing for Magnacom. If
such warrant is issued, the Company will record a one-time noncash charge, in an
amount equal to the value of the warrant.
The provision of wireless telecommunications service by Magnacom and
PCS Plus Pacific will be dependent upon their ability to obtain the financing
necessary to make payments to the FCC under the terms of their licenses, to
obtain working capital and to build the required facilities, including the
purchase of telecommunications equipment. There can be no assurance that
Magnacom or PCS Plus Pacific will obtain such financing or be able to provide
PCS services. In such event, the Company would likely be unable to recover its
payments to Magnacom and PCS Plus Pacific.
Dependence On Key Personnel
The efforts of a small number of key management and operating personnel
will largely determine the Company's success and the loss of any of such persons
could adversely affect the Company. The success of the Company also depends in
part upon its ability to hire and retain highly skilled and qualified operating,
marketing, financial and technical personnel. The competition for qualified
personnel in the telecommunications industry is intense and, accordingly, there
can be no assurance that the Company will be able to hire or retain necessary
personnel.
Dependence On Rights-of-way And Other Third Party Agreements
The Company must obtain easements, rights-of-way, entry to premises,
franchises and licenses from various private parties, actual and potential
competitors and state and local governments in order to construct and operate
its networks. There can be no assurance that the Company will obtain
rights-of-way and franchise agreements on acceptable terms or that current or
potential competitors will not obtain similar rights-of-way and franchise
agreements that will allow them to compete against the Company. If any of the
existing franchise or license agreements were terminated or not renewed and the
Company were forced to remove its fiber optic cables or abandon its networks in
place, such termination could have a material adverse effect on the Company.
Variability Of Quarterly Operating Results
As a result of the limited revenues and significant expenses associated
with the expansion and development of its networks and services, the Company
anticipates that its operating results could vary significantly from period to
period. In addition, revenues relating to the Company's network businesses are
and may continue to be dependent upon a small number of customers and contracts,
revenues under which are likely to vary significantly from period to period.
Volatility Of Market Price Of Common Shares
Since the Common Shares have been publicly traded, their market price
has fluctuated over a wide range and may continue to do so in the future. The
market
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<PAGE>
price of the Common Shares could be subject to significant fluctuations in
response to various factors and events, including among other things, the depth
and liquidity of the trading market of the Common Shares, variations in the
Company's operating results and the difference between actual results and the
results expected by investors and analysts. In addition, from time to time the
stock market has experienced broad price and volume fluctuations that have often
been unrelated to the operating performance of companies. These broad market
fluctuations also may adversely affect the market price of the Common Shares.
Risk Of Joint Investments
The Company has invested in one joint venture and may enter into
additional joint ventures in the future. There are risks in participating in
joint ventures, including the risk that the other joint venture partners may at
any time have economic, business or legal interests or goals that are
inconsistent with those of the joint venture or the Company. The risk is also
present that a joint venture partner may be unable to meet its economic or other
obligations to the venture and that the Company may be required to fulfill some
or all of those obligations. In addition, to the extent that the Company
participates in international joint ventures, the operations of such ventures
will be subject to various additional risks not present in the Company's
domestic joint ventures, such as fluctuations in currency exchange rates,
nationalization or expropriation of assets, import/export controls, political
instability, limitations on foreign investment, restrictions on the ability to
convert currency and the additional expenses and risks inherent in conducting
operations in geographically distant locations with customers speaking different
languages and having different cultural approaches to the conduct of business.
At September 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. On September 30, 1997, Global had approximately 14.1 million shares
outstanding. Global is to issue to the Company additional common shares of
Global, subject to approval of the VSE, in consideration for the transfer by the
Company to Global of its rights in and to a telecommunications project in
Mexico. Global has also acquired from Cable & Wireless, Inc. 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.
Risks Of Investment In A Canadian Corporation
The Company is a Canadian corporation. Certain of its directors and
officers and certain of its professionals are residents of Canada. As a result,
it may be difficult to effect service of process within the United States 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. It is uncertain 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.
Shares Eligible For Future Sale
At September 30, 1997, the Company had outstanding 27,627,442 Common
Shares. Of these shares, 22,083,030 Common Shares were freely tradeable, except
for any Common Shares held by "affiliates" of the Company within the meeting of
Rule 144 under the Securities Act, which shares will be subject to the resale
limitation of Rule 144. The remaining 5,544,412 Common Shares were "restricted
securities," as that term is defined in Rule 144 and may only be sold pursuant
to a registration statement under the Securities Act or an applicable exemption
from registration thereunder, including pursuant to Rule 144. In addition, at
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September 30, 1997, (i) 3,824,534 Common Shares were reserved for issuance upon
exercise of outstanding stock options at prices ranging from $3.55 to $10.00 per
share, (ii) 1,596,155 Common Shares were reserved for issuance upon exercise of
outstanding warrants at exercise prices ranging from $6.75 to 13.00 per share,
(iii) 3,359,782 Common Shares were reserved for issuance upon conversion of the
Convertible Notes (based on the aggregate accreted value of Convertible Notes on
September 30, 1997) and (iv) 4,656,587 Common Shares were reserved for issuance
upon conversion of the Company's Series A Preference Shares sold in a private
placement in February 1997 (the "Redeemable Preferred Shares") (based on the
aggregate accreted value of the Redeemable Preferred Shares on September 30,
1997). The Company has registered the resale of the Common Shares issuable upon
exercise of the options and warrants (other than those Common Shares issuable to
Dillon Read, which are being registered hereby) and the Common Shares issuable
upon conversion of the Convertible Notes. The future sale or the expectation of
future sales of Common Shares in the public market could adversely affect the
prevailing market prices for the Common Shares and could impair the Company's
ability to raise capital through the sale of Common Shares.
Potential Anti-takeover Provisions
The Company's Board of Directors has the authority, without any further
vote or action by the Company's shareholders, to issue up to 9,999,500
Preference Shares, without par value (the "Preference Shares"), in one or more
series and to determine the designations, powers, preferences and relative,
participating, optional or other rights thereof, including without limitation,
the dividend rate (and whether dividends are cumulative), conversion rights,
voting rights, rights and terms of redemption, redemption price and liquidation
preference. Although the Company has no current plans to issue any Preference
Shares, the rights of the holders of Common Shares would be subject to, and may
be adversely affected by, the rights of the holders of any Preference Shares
that may be issued in the future. Issuance of Preference Shares could have the
effect of delaying, deterring or preventing a change in control of the Company,
including the imposition of various procedural and other requirements that could
make it more difficult for holders of Common Shares to effect certain corporate
actions, including the ability to replace incumbent directors and to accomplish
transactions opposed by the incumbent Board of Directors.
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THE COMPANY
The Company provides a broad range of integrated telecommunications
products and services, primarily to business customers located in the western
continental United States and Hawaii. As a facilities-based CLEC, the Company
operates state-of-the-art, digital telecommunications networks that provide an
alternative to ILECs. The Company's full line of products, which offer a "one-
stop" solution to customers' telecommunications services requirements, include
long distance, Internet, data transmission and private line services and local
dial tone services, which were recently introduced.
The Company's digital networks currently serve 39 markets in Arizona,
California, Hawaii, Idaho, New Mexico, Texas and Washington. In addition, the
Company has networks under construction which, when completed, will serve three
additional markets and expand its regional footprint to Oregon. The Company also
constructs, markets and manages longhaul fiber optic facilities, principally in
Arizona, California and Hawaii. The Company's longhaul fiber optic facilities
currently extend approximately 600 route miles and an additional 1,100 route
miles are expected to become operational over the next 12 months.
Management believes that the Company has an opportunity to leverage its
existing network infrastructure and service capabilities to provide customers
with an integrated telecommunications package. The Telecommunications Act of
1996 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 and longhaul fiber optic
facilities within its region while significantly expanding its product and
service offerings, primarily with respect to the provision of local services. To
facilitate entry into local services the Company has in service five high
capacity digital switches, has installed and is currently testing four
additional high capacity digital switches and is planning to deploy an
additional five such switches through early 1998.
MATERIAL CHANGES
In November 1997, the Company completed the 1997 Offering of 6,440,000
Common Shares at $12.00 per share and $144.0 million of Accrual Notes. The
Accrual Notes bear interest at a rate of 12 3/4% per annum, however no interest
wiLL be paid thereon prior to May 15, 2003. Until November 15, 2002, interest
will accrue and be compounded semi-annually on each May 15 and November 15,
commencing May 15, 1998, but will not be payable in cash. From and after
November 15, 2002, interest on the principal amount and the final accumulated
interest amount of the Accrual Notes will be payable semi-annually. The Accrual
Notes are redeemable at the option of the Company, in whole or in part, at any
time on or after November 15, 2002. In addition, at any time prior to November
15, 2000, up to 33 1/3% of the aggregate principal amount of the Accrual Notes
may be redeemed by the Company from the proceeds of one or more sales of its
capital stock (other than redeemable stock); provided that after any such
redemption at least $83.3 million aggregate principal amount of Notes remains
outstanding. The Company intends to use the net proceeds from the 1997 Offering,
aggregating approximately $211.2 million, to fund the expansion of its
infrastructure, the expansion of its products and service offerings and for
working capital and general corporate purposes.
On December 31, 1997, the Company entered into an agreement with World
Access to sell the Company's remaining interest in NACT for a purchase price of
approximately $89.5 million, consisting of cash of approximately $59.6 million
and common stock of World Access with a fair market value of approximately $29.9
million. The closing of the sale will take place as soon as possible after
satisfaction of certain conditions thereto, which include, but are not limited
to: (i) the expiration or termination of the required waiting period after the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (ii) the truth
and validity of certain representations and warranties of the Company and World
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Access as of the closing date; and (iii) the delivery of certain ancillary
documents and agreements contemplated by the agreement. The parties expect the
sale to close in the first quarter of 1998.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the reoffer and
resale of the Common Shares by the Selling Shareholders.
SELLING SHAREHOLDERS
The following table sets forth (i) the number of Common Shares
beneficially owned by each Selling Shareholder as of November 30, 1997, (ii) the
number of Common Shares to be offered for resale by each Selling Shareholder and
(iii) the number and percentage of Common Shares to be held by each Selling
Shareholder after completion of the offering.
<TABLE>
<CAPTION>
Number of
Common Shares
/Percentage
Number of of Class to
Common Shares Number of be Owned
Owned at Common Shares to be After
November 30, Offered for Completion of
Name and Address(1) 1997(2) Resale the Offering
- --------------------------------------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
George Kelly 68,812 68,812 0
Fred Lummis II 39,002 39,002 0
Armand Shapiro 28,692 28,692 0
Marcie Zlotnik 58,124 41,080 17,044/*
Rodney Margolis 21,059 21,059 0
James D. Woods 29,523 18,521 11,002/*
Mansel M. Rubenstein 14,950 14,950 0
Franklin Myers 13,261 13,261 0
Jack E. Lewis 13,171 13,171 0
Stephen B. Kelly 10,633 10,633 0
Schuyler M. Tilney 9,880 9,880 0
Kenneth Margolis 1,061 1,061 0
Sam Shapiro 970 970 0
Harold Weiser 970 970 0
Tom D. Johnson 1,518 873 645/*
Nicole D. Zarr 2,825 638 2,187/*
Jack H. Carpenter 1,688 638 1,063/*
Johanna L. Nadler 1,025 638 387/*
Marlene A. Roosth 604 392 212/*
Jennie Strozier 269 269 0
Summit Capital Inc. 3,143 3,143 0
Congregation Beth Israel 518 518 0
Jewish Federation of Greater Houston 3,449 3,449 0
United Way of Greater Houston 1,380 1,380 0
Camp For All Foundation 1,725 1,725 0
Houston Jewish Geriatric Foundation 1,725 1,725 0
Fidelity Investments Charitable Gift 4,622 4,622 0
Fund
Dillon, Read & Co. Inc. 50,000 50,000 0
</TABLE>
- ------------------------
* Less than 1%.
(1) The address for each selling shareholder, with the exception of Dillon,
Read & Co. Inc., is c/o Summit Capital Group, LLC, Eight Greenway
Plaza, Suite 714, Houston, TX 77046. The address for Dillon, Read & Co.
Inc. is 535 Madison Avenue, New York, NY 10022.
(2) The persons named in the table, to the Company's knowledge, have sole
voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws where
applicable and the footnotes to this table. The calculation of Common
Shares beneficially owned was determined in accordance with Rule 13d-3
of the Exchange Act.
PLAN OF DISTRIBUTION
This offering is self-underwritten; neither the Company nor the Selling
Shareholders have employed an underwriter for the sale of Common Shares by the
-18-
<PAGE>
Selling Shareholders. The Company will bear all expenses in connection with the
preparation of this Prospectus. The Selling Shareholders will bear all expenses
associated with the sale of the Common Shares.
The Common Shares may be sold from time to time by the Selling
Shareholders, or by pledgees, donees, transferees or other successors in
interest on the AMEX, at fixed prices that may be changed or at negotiated
prices. The Selling Shareholders may effect such transactions by selling shares
to or through broker-dealers, and all such broker-dealers may receive
compensation in the form of discounts, concessions, or commissions from the
Selling Shareholders and/or the purchasers of Common Shares for whom such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
Any broker-dealer acquiring Common Shares from the Selling Shareholders
may sell the shares either directly, in its normal market-making activities,
through or to other brokers on a principal or agency basis or to its customers.
Any such sales may be at prices then prevailing on the AMEX or at prices related
to such prevailing market prices or at negotiated prices to its customers or a
combination of such methods. The Selling Shareholders and any broker-dealers
that act in connection with the sale of the Common Shares hereunder might be
deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act; any commissions received by them and any profit on the resale of
shares as principal might be deemed to be underwriting discounts and commissions
under the Securities Act. Any such commissions, as well as other expenses
incurred by the Selling Shareholders and applicable transfer taxes, are payable
by the Selling Shareholders.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Common
Shares offered hereby have been passed upon for the Company by Messrs. Olshan
Grundman Frome & Rosenzweig LLP, 505 Park Avenue, New York, New York 10022.
Stephen Irwin, counsel to Olshan Grundman Frome & Rosenzweig LLP, is an officer
and director of the Company and holds 76,345 Common Shares and has been granted
options and warrants to purchase an additional 600,000 Common Shares. In
addition, other attorneys affiliated with such firm hold Common Shares and/or
options to purchase Common Shares.
EXPERTS
The consolidated balance sheets of GST Telecommunications, Inc. and its
subsidiaries as of September 30, 1997 and 1996 and the consolidated statements
of operations, shareholders' equity (deficit) and cash flows for each of the
years in the three year period ended September 30, 1997, have been 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.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act with respect to the Common Shares offered
hereby. For further information with respect to the Company and the securities
offered hereby, reference is made to the Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance, reference is made
to the copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
-19-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses Of Issuance And Distribution.
- -------- --------------------------------------------
The expenses in connection with the issuance and distribution of the
securities being registered, all of which will be paid by the Registrant, are as
follows:
SEC Registration Fee.......................................... $1,123.00
Accounting Fees and Expenses.................................. 10,000.00
Legal Fees and Expenses....................................... 12,500.00
Blue Sky Fees and Expenses.................................... 550.00
Miscellaneous Expenses........................................ 827.00
------
Total......................................................... $25,000.00
==========
Item 15. Indemnification Of Directors And Officers
- -------- -----------------------------------------
Except as hereinafter set forth, there is no statute, charter
provision, by-law, contract or other arrangement under which any controlling
person, director or officer of the Company is insured or indemnified in any
manner against liability which he may incur in his capacity as such.
The Company's authority to indemnify its directors and officers is
governed by the provisions of Section 124 of the Canada Business Corporations
Act, as follows:
(1) Indemnification. Except in respect of an action by or on behalf of
the corporation or body corporate to procure a judgment in its favor, a
corporation may indemnify a director or officer of the corporation, a former
director or officer of the corporation or a person who acts or acted at the
corporation's request as a director or officer of a body corporate of which the
corporation is or was a shareholder or creditor, and his heirs and legal
representatives, against all costs, charges and expenses, including an amount
paid to settle an action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal or administrative action or proceeding to which
he is made a party by reason of being or having been a director or officer of
such corporation or body corporate, if
(a) he acted honestly and in good faith with a view to the best
interests of the corporation; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he had reasonable grounds
for believing that his conduct was lawful.
(2) Indemnification In Derivative Actions. A corporation may with the
approval of a court indemnify a person referred to in subsection (1) in respect
of an action by or on behalf of the corporation or body corporate to procure a
judgment in its favor, to which he is made a party by reason of being or having
been a director or an officer of the corporation or body corporate, against all
costs, charges and expenses reasonably incurred by him in connection with such
action if he fulfills the conditions set out in paragraphs (1)(a) and (b).
(3) Indemnity As Of Right. Notwithstanding anything in this section, a
person referred to in subsection (1) is entitled to indemnity from the
corporation in respect of all costs, charges and expenses reasonably incurred by
him in connection with the defense of any civil, criminal or administrative
action or proceeding to which he is made a party by reason of being or having
been a director or officer of the corporation or body corporate, if the person
seeking indemnity
II-1
<PAGE>
(a) was substantially successful on the merits in his defense of the
action or proceeding, and
(b) fulfills the conditions set out in paragraphs (1)(a) and (b).
(4) Directors' And Officers' Insurance. A corporation may purchase and
maintain insurance for the benefit of any person referred to subsection (1)
against any liability incurred by him
(a) in his capacity as a director or officer of the corporation, except
where the liability relates to his failure to act honestly and in
good faith with a view to the best interests of the corporation; or
(b) in his capacity as a director or officer of another body corporate
where he acts or acted in that capacity at the corporation's
request, except where the liability relates to his failure to act
honestly and in good faith with a view to the best interests of the
body corporate.
(5) Application To Court. A corporation or a person referred to in
subsection (1) may apply to a court for an order approving an indemnity under
this section and the court may so order and make any further order it thinks
fit.
(6) Notice To Director. An applicant under subsection (5) shall give
the Director notice of the application and the Director is entitled to appear
and be heard in person or by counsel.
(7) Other Notice. On an application under subsection (5), the
court may order notice to be given to any interested person and such person is
entitled to appear and be heard in person or by counsel.
The Company's by-laws provide that every director and officer of the
Company and his heirs, executors, administrators and other legal personal
representatives shall be indemnified and held harmless from and against (a) any
liability and all costs, charges and expenses that he sanctions or incurs in
respect of any action, suit or proceeding that is proposed or commenced against
him for or in respect of anything done or permitted by him in respect of the
execution of the duties of his office and (b) all other costs, charges and
expenses that he sustains or incurs in respect of the affairs of the Company.
The Company maintains a $25,000,000 directors and officers liability
insurance policy.
Item 16. Exhibits.
- -------- ---------
Exhibit Index
-------------
Exhibit
- -------
*5 Opinion of Olshan Grundman Frome & Rosenzweig LLP with respect
to the securities registered hereunder.
*23(a) Consent of KPMG Peat Marwick LLP.
*23(b) Consent of Olshan Grundman Frome & Rosenzweig LLP (included
within Exhibit 5).
24(a) Powers of Attorney (included on Page II-5).
- -----------------------
*Filed herewith
II-2
<PAGE>
Item 17. Undertakings
- -------- ------------
The undersigned registrant hereby undertakes:
a) To file, during any period in which offers
or sales are being made, a post-effective amendment to this registration
statement to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
b) That, for the purpose of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
c) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against each such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Vancouver, State of Washington, on this 26th day of
January, 1998.
GST TELECOMMUNICATIONS, INC.
---------------------------------------
(Registrant)
By: /s/ John Warta
-----------------------------------
John Warta, Chairman of the Board
POWERS OF ATTORNEY AND SIGNATORIES
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated. Each of the undersigned officers and
directors of GST Telecommunications, Inc. hereby constitutes and appoints John
Warta, Stephen Irwin, Daniel L. Trampush and Clifford V. Sander and each of them
singly, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him in his name in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
Registration Statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission and to prepare any and all exhibits thereto, and other documents in
connection therewith, and to make any applicable state securities law or blue
sky filings, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done to enable GST Telecommunications, Inc. to comply with the provisions
of the Securities Act of 1933, as amended, and all requirements of the
Securities and Exchange Commission, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John Warta Chairman of the Board, Chief January 26, 1998
- ----------------------------------- Executive Officer (Principal
(John Warta) Executive Officer) and Director
/s/ Daniel Trampush Senior Vice President and Chief January 26, 1998
- ----------------------------------- Financial Officer (Principal
(Daniel Trampush) Financial Officer)
/s/ Clifford V. Sander Senior Vice President, January 26, 1998
- ----------------------------------- Treasurer and Chief Accounting
(Clifford V. Sander) Officer (Principal Accounting
Officer)
/s/ Stephen Irwin Vice Chairman of the Board, January 26, 1998
- ----------------------------------- Secretary and Director
(Stephen Irwin)
/s/Joseph A. Basile, Jr. President, Chief Operating January 26, 1998
- ----------------------------------- Officer and Director
(Joseph A. Basile, Jr.)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert H. Hanson Director January 26, 1998
- -----------------------------------
(Robert H. Hanson)
Director
- -----------------------------------
(W. Gordon Blankstein)
/s/ Ian Watson Director January 26, 1998
- -----------------------------------
(Ian Watson)
/s/ Peter E. Legault Director January 26, 1998
- -----------------------------------
(Peter E. Legault)
/s/ Jack G. Armstrong Director January 26, 1998
- -----------------------------------
(Jack G. Armstrong)
/s/ Mitsuhiro Naoe Director January 26, 1998
- -----------------------------------
(Mitsuhiro Naoe)
/s/ Joseph G. Fogg, III Director January 26, 1998
- -----------------------------------
(Joseph G. Fogg, III)
Director
- -----------------------------------
(A. Roy Megarry)
/s/ Thomas E. Sawyer Director January 26, 1998
- -----------------------------------
(Thomas Sawyer)
The Company's Authorized Representative
in the United States
/s/ Daniel Trampush January 26, 1998
- -----------------------------------
Daniel L. Trampush
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT
*5 Opinion of Olshan Grundman Frome & Rosenzweig LLP with respect
to the securities registered hereunder.
*23(a) Consent of KPMG Peat Marwick LLP.
*23(b) Consent of Olshan Grundman Frome & Rosenzweig LLP (included
within Exhibit 5).
24(a) Powers of Attorney (included on Page II-5).
- -----------------------
*Filed herewith
II-6
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
212 753 7200
January 27, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: GST Telecommunications, Inc. -
Registration Statement On Form S-3
----------------------------------
Gentlemen:
Reference is made to the Registration Statement on Form S-3
dated the date hereof (the "Registration Statement"), filed with the Securities
and Exchange Commission by GST Telecommunications, Inc., a federally chartered
Canadian corporation (the "Company"). The Registration Statement relates to the
issuance of an aggregate of 352,072 common shares (the "Shares"), without par
value, of the Company (the "Common Shares") issued or to be issued by the
Company, which consist of (i) 302,702 Common Shares (the "TotalNet Shares")
issued in connection with the acquisition by the Company of TotalNet
Communications, Inc. ("TotalNet") and (ii) 50,000 Common Shares (the "Dillon
Shares" and together with the TotalNet Shares, the "Shares") issuable upon
exercise of a warrant issued to Dillon, Read & Co. Inc. ("Dillon Read") in
connection with services performed on behalf of the Company.
The TotalNet Shares were issued in accordance with that
certain Agreement and Plan of Merger by and among TotalNet, GST Newco of Texas,
Inc. and the Company dated September 27, 1996 (the "Merger Agreement") and the
Dillon Shares are issuable upon exercise of that certain warrant issued by the
Company to Dillon Read dated as of April 30, 1996 (the "Warrant").
We advise you that we have examined originals or copies
certified or otherwise identified to our satisfaction of the Articles of
Incorporation and By-laws of the Company, the Merger
<PAGE>
Securities and Exchange Commission
January 27, 1998
Page -2-
Agreement, the Warrant, minutes of meetings of the Board of Directors and
shareholders of the Company, and such other documents, instruments and
certificates of officers and representatives of the Company and public
officials, and we have made such examination of law, as we have deemed
appropriate as the basis for the opinion hereinafter expressed. In making such
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals, and the conformity to original
documents of documents submitted to us as certified or photostatic copies.
Based upon the foregoing, we are of the opinion that, when
issued and paid for in accordance with the terms of the Merger Agreement and the
Warrant, as the case may be, the Shares have been or will be duly and validly
issued, fully paid and non-assessable.
We are members of the Bar of the State of New York and, except
as stated below, we express no opinion as to the laws of any jurisdiction other
than the State of New York and the federal laws of the United States of America.
With respect to the opinion set forth above, we have relied exclusively upon the
opinion of O'Neill & Company, an association of independent law corporations,
Vancouver, British Columbia.
We advise you that Stephen Irwin, the Vice Chairman of the
Board and Secretary of the Company, is of counsel to this firm. Mr. Irwin owns
76,345 Common Shares and holds options and warrants to purchase an aggregate of
600,000 Common Shares. In addition, other attorneys affiliated with this firm
hold Common Shares and/or options to purchase Common Shares.
We consent to the reference to this firm under the caption
"Legal Matters" in the Prospectus.
Very truly yours,
/s/ OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
------------------------------------------
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
Exhibit 23(a)
Independent Auditors' Consent
-----------------------------
The Board of Directors
GST Telecommunications, Inc.:
We consent to the use of our report, dated November 26, 1997, incorporated by
reference in the Registration Statement on Form S-3, dated January 27, 1998, of
GST Telecommunications, Inc. and to the reference to our firm under the heading
"Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
------------------------------
KPMG Peat Marwick LLP
Portland, Oregon
January 27, 1998
