As filed with the Securities and Exchange Commission on May 29, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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(I.R.S. employer identification no.)
4001 Main Street, Vancouver, Washington 98663
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(Address of principal executive offices) (Zip Code)
GST TELECOMMUNICATIONS, INC.
1996 STOCK OPTION PLAN
1996 SENIOR EXECUTIVE OFFICER STOCK OPTION PLAN
1996 SENIOR OPERATING OFFICER STOCK OPTION PLAN
1997 STOCK OPTION PLAN
(Full title of the plan)
Daniel L. Trampush, Senior Vice President
GST Telecommunications, Inc.
4001 Main Street
Vancouver, Washington 98663
Telephone: (360) 906-7100
Telecopier: (360) 906-7150
(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
Telephone: (212) 753-7200
Telecopier: (212) 755-1467
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of maximum maximum
securities Amount offering aggregate Amount of
to be to be price per offering registration
registered registered share price fee
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<S> <C> <C> <C> <C>
Common Shares, no
par value 2,788,746(1)(2) $11.52(2) $32,126,353.92 $ 9,477.27
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Common Shares, no
par value 311,254(1)(3) $12.15625(3) $ 3,783,681.44 $ 1,116.19
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Total 3,100,000 $35,910,035.36 $10,593.46
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(1) Pursuant to Rule 416 under the Securities Act of 1933, as amended (the
"Securities Act"), an indeterminate number of Common Shares that may
become issuable pursuant to
<PAGE>
antidilution provisions of the Registrant's 1996 Stock Option Plan (the
"1996 Plan"), 1996 Senior Executive Officer Stock Option Plan (the
"Senior Executive Officer Plan"), 1996 Senior Operating Officer Stock
Option Plan (the "Senior Operating Officer Plan") and 1997 Stock Option
Plan (the "1997 Plan" and, together with the 1996 Plan, the Senior
Executive Officer Plan and the Senior Operating Officer Plan, the
"Plans") are also being registered.
(2) Represents 2,788,746 shares with respect to which options have been
granted under the Plans at a weighted average exercise price of $11.52
per share.
(3) An aggregate of 311,254 shares is to be offered under the Plans at
prices not presently determined. Pursuant to Rule 457(h) under the
Securities Act, the offering price of these additional Common Shares is
estimated solely for the purpose of determining the registration fee
and is based on $12.15625, the per share average of high and low sale
prices of the Common Shares on the Nasdaq National Market on May 27,
1998.
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<PAGE>
PROSPECTUS
3,100,000 COMMON SHARES
GST TELECOMMUNICATIONS, INC.
Common Shares (no par value per share)
This Prospectus relates to the reoffer and resale by certain selling
shareholders (the "Selling Shareholders"), some of whom may be deemed to be
"affiliates" as defined in Rule 405 of the Securities Act of 1933, as amended
(the "Securities Act"), of GST Telecommunications, Inc. (the "Company") of
shares (the "Shares") constituting a portion of the Common Shares, no par value
per share (the "Common Shares"), of the Company that may be issued by the
Company to the Selling Shareholders upon the exercise of options granted or to
be granted under (i) the Company's 1996 Stock Option Plan (the "1996 Plan"),
(ii) the Company's 1996 Senior Executive Officer Plan (the "Senior Executive
Officer Plan"), (iii) the Company's 1996 Senior Operating Officer Stock Option
Plan (the "Senior Operating Officer Plan") or (iv) the Company's 1997 Stock
Option Plan (the "1997 Plan") (collectively, the "Plans"). This Prospectus also
relates to the reoffer and resale of Shares to be acquired by individuals who
may be deemed to be "affiliates" of the Company (collectively, the "Future
Selling Shareholders") upon exercise of stock options to be granted under the
Plans. If and when such options are granted to or such Shares are purchased by
the Future Selling Shareholders, the Company intends to distribute a Prospectus
Supplement as required by Rule 424(b) of the Securities Act. Such Prospectus
Supplement will specify the names of the Future Selling Shareholders and the
amount of Shares to be reoffered and sold by them.
The offer and sale of the Shares to the Selling Shareholders and the
Future Selling Shareholders were previously registered under the Securities Act.
The Shares are being reoffered and resold for the accounts of the Selling
Shareholders and the Future Selling Shareholders and the Company will not
receive any of the proceeds from the resale of the Shares.
The Selling Shareholders have advised the Company that the resale of
their Shares may be effected from time to time in one or more transactions on
the Nasdaq National Market in negotiated transactions or otherwise at market
prices prevailing at the time of the sale or at prices otherwise negotiated. The
Selling Shareholder may effect such transactions by selling the Shares to or
through broker-dealers who may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholder and/or the purchasers of
the 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 Shares from
the Selling Shareholder 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.
SEE "RISK FACTORS" BEGINNING ON PAGE 4
FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
The Company's Common Shares are traded on the Nasdaq National Market
under the symbol "GSTX." On May 28, 1998, the last sale price for the Common
Shares, as reported on the Nasdaq National Market, was $12.50.
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 May 29, 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.
TABLE OF CONTENTS
AVAILABLE INFORMATION.........................................................2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................3
RISK FACTORS..................................................................4
MATERIAL CHANGES.............................................................19
THE COMPANY..................................................................19
USE OF PROCEEDS..............................................................20
SELLING SHAREHOLDERS.........................................................20
PLAN OF DISTRIBUTION.........................................................21
LEGAL MATTERS................................................................21
EXPERTS ....................................................................21
ADDITIONAL INFORMATION.......................................................22
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Transition Report on Form 10-K for the three month period
ended December 31, 1997, Annual Report on Form 10-K for the fiscal year ended
September 30, 1997, Quarterly Report on Form 10-Q for the quarter ended March
31, 1998, and the Company's Current Reports on Form 8-K dated May 4, 1998,
February 27, 1998 and 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(g) of the Exchange Act filed on April 13, 1998 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 net income of approximately $19.5 million,
an operating loss of approximately $24.8 million and negative EBITDA of $14.8
million for the three months ended March 31, 1998, a net loss of approximately
$39.6 million, an operating loss of approximately $21.9 million and negative
EBITDA of $12.0 million for the three months ended December 31, 1997 and 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 fiscal year ended September
30, 1997 ("Fiscal 1997"). There can be no assurance that the Company will
achieve or sustain profitability or generate positive EBITDA. In February 1998,
the Company sold its remaining interest in NACT Telecommunications, Inc.
("NACT") to World Access, Inc. for net proceeds of approximately $85.0 million.
Without NACT, the Company would have had a net loss of $40.4 million and
negative EBITDA of $14.4 million for the three months ended December 31, 1997
and a net loss of $117.8 million and negative EBITDA of $59.0 million for Fiscal
1997. EBITDA consists of loss before interest, income taxes, depreciation and
amortization and other income and non-cash 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 December 31, 1997, the Company had a U.S. net operating loss
carryforward of approximately $130.4 million and a Canadian net operating loss
carryforward of approximately Cdn. $11.1 million. While such loss carryforwards
are available to offset future taxable income of the Company, the Company does
not expect to generate sufficient taxable income so as to utilize all or a
substantial portion of such loss carryforwards prior to their expiration.
Further, the utilization of net operating loss carryforwards against future
taxable income is subject to limitation if the Company experiences an "ownership
change" as defined in Section 382 of the Internal Revenue Code of 1986, as
amended, and the analogous provision of the Income Tax Act (Canada).
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. The Company has begun to target
Tier 1 cities and competition in such markets is expected to be significantly
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<PAGE>
greater than in the Tier 2 and Tier 3 cities in which the Company is currently
operating. There can be no assurance that any networks to be developed or
further developed will be completed on schedule, at a commercially reasonable
cost or within the Company's specifications. In addition, the expansion of the
Company's business has involved and is expected to continue to involve
acquisitions, which could divert the resources and management time of the
Company and require integration with the Company's existing operations. There
can be no assurance that any acquired business will be successfully integrated
into the Company's operations or that any such business will meet the Company's
expectations. The Company's future performance will depend, in part, upon its
ability to manage its growth effectively, which will require it to continue to
implement and improve its operating, financial and accounting systems, to
expand, train and manage its employee base and to effectively manage the
integration of acquired businesses. These factors and others could adversely
affect the expansion of the Company's customer base and service offerings. The
Company's inability either to expand in accordance with its plans or to manage
its growth could have a material adverse effect on its business, financial
condition and results of operations.
SIGNIFICANT CAPITAL REQUIREMENTS
The Company estimates that its capital expenditures will be
approximately $325.0 million for the fiscal year ending December 31, 1998 and
$400.0 million for the fiscal year ending December 31, 1999. The Company
believes that the net proceeds from the private placement consummated in May
1998 (the "1998 Notes Offering") of $500.0 million principal amount at maturity
of 10 1/2% Senior Secured Discount Notes due 2008 (the "1998 Notes") and the
cash on hand, including the remaining proceeds from the sale of NACT, the public
offering consummated in November 1997 (the "1997 Public Offering") of $144.0
million principal amount of 12 3/4% Senior Subordinated Accrual Notes due 2007
(the "Accrual Notes") and 6,440,000 Common Shares at $12 per share and 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, is being used to purchase equipment) and borrowings expected
to be available under a credit facility (the "Tomen Facility") with Tomen and an
equipment financing agreement with Siemens Telecom Networks ("Siemens"), will
provide sufficient funds for the Company to expand its business as presently
planned and to fund its operating expenses through September 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 debt
or equity financing by the Company or its subsidiaries, sales of assets or other
financing arrangements. There can be no assurance that 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.
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<PAGE>
SUBSTANTIAL INDEBTEDNESS
At March 31, 1998, the Company had outstanding on a consolidated basis
approximately $796.9 million of indebtedness and $54.6 million of mandatorily
redeemable preference shares. In addition, the accretion of original issue
discount will cause a $106.9 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, a $116.2 million increase in
liabilities relating to the Accrual Notes by November 15, 2002 and a $200.0
million increase in liabilities relating to the 1998 Notes by May 1, 2003. The
indentures relating to the 1995 Notes (the "1995 Indentures"), the indenture
relating to the Secured Notes (the "Secured Notes Indenture"), the indenture
relating to the Accrual Notes (the "Accrual Notes Indenture") and the indenture
relating to the 1998 Notes (the "1998 Notes Indenture" and together with the
1995 Indentures, the Secured Notes Indenture and the Accrual Notes Indenture,
the "Indentures") limit, but do not prohibit, the incurrence of additional
indebtedness by the Company. At March 31, 1998, the Company had $30.5 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 an agreement
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 $7.9 million had been provided at March
31, 1998). 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
(the "NTFC Loan Agreement") with NTFC Capital Corp. for up to $50.0 million of
additional equipment financing (all of which had been provided to the Company at
March 31, 1998). 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)
possibly placing the Company at a competitive disadvantage, because it will be
more highly leveraged than some of its competitors; and (v) increasing the
Company's vulnerability in the event of a downturn in its business.
POSSIBLE INABILITY TO SERVICE DEBT; REFINANCING RISKS
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 the three months
ended March 31, 1998, the three months ended December 31, 1997, Fiscal 1997 and
the fiscal year ended September 30, 1996 ("Fiscal 1996") by $46.7 million, $42.0
million, $127.0 million and $62.9 million, respectively and the Company's EBITDA
minus capital expenditures and interest expense for the three months ended March
31, 1998, the three months ended December 31, 1997, Fiscal 1997 and Fiscal 1996
was negative $77.9 million, negative $77.6 million, 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
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<PAGE>
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 will be insufficient to pay interest in cash on both the 1995 Notes
when such interest becomes payable in June 2001 and on the Secured Notes
starting in November 2000 once the amount pledged to fund the first six interest
payments on the Secured Notes is utilized and to repay the 1995 Notes, Secured
Notes, the Accrual Notes and the 1998 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 refinancings. The ability of the Company to
meet its obligations and to effect such refinancings will be dependent upon,
among other things, the future performance of the Company, which will be subject
to prevailing economic conditions and to financial, business and other factors,
including factors beyond the control of the Company. Failure by the Company to
meet its obligations could result in a default on its indebtedness, 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.
DIFFICULTIES IN IMPLEMENTING LOCAL AND ENHANCED SERVICES
The Company has deployed 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 enables 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 relies 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 (the "Interconnection Decision") implementing the
interconnection portions of the Telecommunications Act of 1996 (the
"Telecommunications Act"). 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
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<PAGE>
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 Supreme Court
has accepted for review the Eighth Circuit decisions. See "-- Competition."
The Company will generally be dependent on ILECs for provision of local
telephone service through access to local loops, termination service and, in
some markets, central office switches of such carriers. In addition, in certain
markets the Company intends to obtain the local telephone services of the ILEC
on a wholesale basis and resell that service to end users. Any successful effort
by the ILEC to deny or substantially limit the Company's access to the ILEC's
network elements or wholesale services could have a material adverse effect on
the Company's ability to provide local telephone services. Although the
Telecommunications Act imposes interconnection obligations on ILECs, there can
be no assurance that the Company will be able to obtain access to such network
elements or services at rates, and on terms and conditions, that permit the
Company to offer local services at rates that are both profitable and
competitive. As discussed above, the Eighth Circuit recently struck down certain
FCC rules intended to govern such rates, terms and conditions.
Many new carriers, including the Company, have experienced 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 provide 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 Regional Bell Operating Companies
("RBOCs") to permit access to their facilities by denying such carriers the
ability to provide long distance services in their regions until they have met
specified conditions opening their markets to competition at the local level.
The U.S. District Court for the Northern District of Texas has found these
provisions unconstitutional, but this order has been stayed pending appeal. The
RBOCs in the Company's markets have indicated their intent to seek authority to
provide in-region long distance services, but are not yet permitted to do so.
There can be no assurance that the RBOCs will be accommodating to the Company
once they are permitted to offer in-region 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 in-region 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 opened to competition due to the passage of the Telecommunications Act and
related state and federal regulatory rulings. There are numerous operating
complexities associated with providing these services. The Company is required
to develop new products, services and systems and 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.
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<PAGE>
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 20.5%, 16.8%, 20.8% and 46.9% of the Company's
consolidated telecommunications services revenues for the three months ended
March 31, 1998, the three months ended December 31, 1997, 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 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 the three months ended March 31, 1998, the three months ended
December 31, 1997, Fiscal 1997 and Fiscal 1996, long distance represented 53.0%,
49.4%, 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 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.
Charges for access service for the origination and termination of long
distance traffic have made up a significant portion of the Company's overall
cost of providing long distance service. In May 1997, the FCC adopted changes to
its interstate access rules that among other things reduce per-minute access
charges and substitute new per-line flat rate monthly charges. The FCC also
approved reductions in overall access rates, and established new rules to
recover subsidies to support universal service and other public policies. The
impact on these changes on the Company or its competitors is not yet clear. The
Company could be adversely affected if it does not experience access cost
reductions proportionally equivalent to those of its competitors. Insofar as
Internet-based competitors continue to be exempt from these charges, they could
enjoy a significant cost advantage in this area.
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PRICING PRESSURES AND RISKS OF INDUSTRY OVER-CAPACITY
The long distance transmission industry has generally been
characterized by over-capacity and declining prices since shortly after the AT&T
Corp. ("AT&T") divestiture in 1984. The Company believes that, in the last
several years, increasing demand has ameliorated the over-capacity and that
pricing pressure has been reduced. However, the Company anticipates that prices
for its wholesale longhaul services will continue to decline over the next
several years. While demand continues to increase, the Company is aware that
certain long distance carriers are expanding their capacity and believes that
other long distance carriers, as well as potential new entrants to the industry,
are constructing new fiber optic and other long distance transmission networks
in the United States. Because the cost of the actual fiber (as opposed to
construction costs) is a relatively small portion of the cost of building new
transmission lines, persons building such lines are likely to install fiber that
provides substantially more transmission capacity than will be needed over the
short or medium term. Further, recent technological advances may greatly expand
the capacity of existing and new fiber optic cable. Although such technological
advances may enable the Company to increase its capacity, an increase in the
capacity of the Company's competitors could adversely affect the Company's
business. If industry capacity expansion results in capacity that exceeds
overall demand along any of the Company's routes, severe additional pricing
pressure could develop. In addition, strategic alliances or similar
transactions, such as the long distance capacity purchasing alliance among
certain RBOCs announced in the spring of 1996, could result in additional
pricing pressure on long distance carriers. Furthermore, the marginal cost of
carrying an additional call over existing fiber optic cable is extremely low. As
a result, within a few years, there may be dramatic and substantial price
reductions.
DEPENDENCE ON BILLING, CUSTOMER SERVICES AND INFORMATION SYSTEMS; YEAR 2000
ISSUES
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 continue to increase. 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.
Many computer systems will experience difficulty processing dates
beyond the year 1999 and will need to be modified prior to the year 2000.
Failure to make such modifications could result in system failures or
miscalculations causing disruptions of operations, including among others an
inability to process transactions, send invoices or engage in normal business
activities. The Company's core internal systems that have been recently
implemented are year 2000 compliant. The remaining core internal systems are
scheduled to be replaced by the second quarter of 1999 and are expected to be
year 2000 compliant when
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installed. The Company is also completing a preliminary assessment of year 2000
issues not related to its core systems, including issues surrounding systems
that interface with those operated by unrelated parties. Based on its initial
evaluation, the Company does not believe that the cost of remedial actions will
have a material adverse effect on the Company's results of operations and
financial condition. There can be no assurance, however, that there will not be
a delay in, or increased costs associated with, the implementation of changes as
the program progresses, and failure to implement such changes could have an
adverse effect on future results of operations.
COMPETITION
The telecommunications industry is highly competitive. In most markets,
the Company's principal competitor for local exchange services is the RBOC or
GTE Corporation and its affiliated companies (collectively, the "GTE
Companies"). Other competitors may include other CLECs, microwave and satellite
carriers, wireless telecommunications providers and private networks built by
large end- users. Potential competitors (using similar or different
technologies) include cable television companies, utilities and RBOCs outside
their current local service areas. In addition, the Company anticipates future
competition from large long distance carriers, such as AT&T, MCI Communications
Corporation ("MCI") and Sprint Corporation ("Sprint"), which have begun to offer
integrated local and long distance telecommunications services. AT&T also has
announced its intention to offer local services using a new wireless technology.
Several companies have begun to offer telecommunications services over the
Internet at rates substantially below current long distance rates. Companies
offering telecommunications services over the Internet could enjoy a significant
cost advantage because at this time they do not pay carrier access charges or
universal service fees. The influx of competitors into the Company's markets and
into markets that the Company may subsequently enter may result in more
participants than can ultimately be successful in a given market. 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 Inc. ("WorldCom") acquired MFS Communications Company, Inc. ("MFS") and
Brooks Fiber Properties Inc. ("Brooks") and has agreed to acquire MCI, each of
which compete with the Company in several of the markets in which the Company
operates. AT&T has announced its intention to acquire Teleport Communications
Group, Inc. ("Teleport"), a CLEC that also competes with the Company in several
markets. 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 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. For example, the FCC granted
ILECs additional flexibility in pricing their interstate special and switched
access services on a central office specific basis. Under this pricing scheme,
ILECs may establish pricing zones based on access traffic density and charge
different prices for central offices in each zone. On February 8, 1997, new FCC
rules became effective allowing ILECs to file streamlined tariffs on 15 days'
notice for rate increases
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and seven days' notice for rate decreases. Unless the FCC acts during the notice
period, such tariffs become effective at its end. The Company has begun to
target Tier 1 cities and competition in such markets is expected to be
significantly greater than in Tier 2 and Tier 3 cities in which the Company is
currently operating.
To the extent the Company interconnects with and uses ILEC networks to
service its customers, the Company will be dependent upon the technology and
capabilities of the ILECs to meet certain telecommunications needs of the
Company's customers and to maintain its service standards. The Company will
become increasingly dependent on interconnection with ILECs as switched services
become a greater percentage of the Company's business. The Telecommunications
Act imposes interconnection obligations on ILECs, but there can be no assurance
that the Company will be able to obtain the interconnection it requires at
rates, and on terms and conditions, that permit the Company to offer switched
services at rates that are simultaneously competitive and profitable. See " --
Difficulties in Implementing Local and Enhanced Services." In the event that the
Company experiences difficulties in obtaining high quality, reliable and
reasonably priced service from the ILECs, the attractiveness of the Company's
services to its customers could be impaired.
The long distance telecommunications industry has relatively
insignificant barriers to entry, numerous entities competing for the same
customers and a high average churn rate, as customers frequently change long
distance providers in response to the offering of lower rates or promotional
incentives by competitors. The Company competes with major carriers such as
AT&T, MCI, 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. Many of these competitors
have greater financial, technological and marketing resources than the Company.
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 prohibits RBOC entry into
long distance markets is unconstitutional. A stay of that decision has been
granted pending a decision by the United States Court of Appeals for the Fifth
Circuit (the "Fifth Circuit").
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 Company's longhaul business is subject to intense competition. See
"-- Pricing Pressures and Risks of Industry Over-Capacity."
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.
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On February 25, 1998, U S WEST Communications, Inc. ("U S WEST")
petitioned the FCC to allow it to build and operate packet-and cell-switched
data networks across LATA boundaries, to permit it to carry interLATA data
traffic incident to its provision of digital subscriber line services, to not
require it to make those data services available on a discounted resale basis
and to not require it to make the non-bottleneck elements of such services
available on an unbundled basis. The Company provides certain services with
which U S WEST proposed services would compete if the petition is granted by the
FCC.
The recent World Trade Organization ("WTO") agreement on basic
telecommunications services could increase the Company's competition for
telecommunication services both domestically and internationally. Under this
agreement, the United States and other members of the WTO committed themselves
to opening their telecommunications markets to competition and foreign ownership
and to adopting regulatory measures to protect competitors against
anticompetitive behavior by dominant telephone companies, effective in some
cases as early as January 1, 1998.
The Company believes that providers of wireless services increasingly
will offer, in addition to products that supplement a customer's wireline
communications, wireline replacement products that may result in wireless
services becoming the customer's primary mode of communication. Competition with
providers of wireless services may be intense. Many of the Company's potential
wireless competitors have substantially greater financial, technical, marketing,
sales, manufacturing and distribution resources than the Company. Furthermore,
the FCC has made spectrum available through public auction over the past several
years for use in wireless communications and began offering additional spectrum
in February 1998. This additional spectrum is intended by the FCC to be used for
broadband, data and video transmission but its use in wireless local loop is
also possible.
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. Certificates of authority to provide services can generally be
conditioned, modified, cancelled, terminated or revoked for failure to comply
with rules and regulations. Fines and other penalties may also be imposed. 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.
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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 and state rulemakings, and thus it
is difficult to predict what effect the legislation will have on the Company and
its operations. There are currently many regulatory actions underway and being
contemplated by federal and state authorities regarding interconnection pricing
and other issues that could result in significant changes to the business
conditions in the telecommunications industry. There can be no assurance that
these changes will not have a material adverse effect upon the Company.
In addition to requirements placed on ILECs, the Telecommunications Act
subjects the Company to certain federal regulatory requirements upon the
Company's provision of local exchange service in a market. All ILECs and CLECs
must interconnect with other carriers, provide nondiscriminatory access to
rights-of-way, offer reciprocal compensation for termination of traffic and
provide dialing parity and telephone number portability. The Telecommunications
Act also requires all telecommunications carriers to ensure that their services
are accessible to and usable by persons with disabilities.
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. The revenues for the high cost and low income fund are the
Company's estimated quarterly interstate and gross end-user telecommunications
revenues. The revenues for the schools and libraries and rural health care fund
are the Company's estimated quarterly intrastate, interstate and international
gross end-user telecommunications revenues. The contribution factors issued by
the FCC for the first and second quarters of 1998 are 3.19% and 3.14%,
respectively, for the high cost and low income fund and .72% and .76%,
respectively, for the schools, libraries and rural healthcare fund. The amounts
contributed may be billed to customers. The Company has been billed for such
contributions and on an annualized basis, the amounts billed would have
represented less than 1% of total revenues for Fiscal 1997. 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.
The FCC released a Report to Congress on April 10, 1998 concerning its
implementation of the telecommunications subsidy provisions of the
Telecommunications Act. The FCC clarified that entities that provide
transmission capacity to Internet service providers are providing
telecommunications services subject to contribution requirements. The FCC
indicated that it would address the issue of whether ISPs would contribute to a
universal service fund based on the utilization of their own transmission
facilities at a later date and whether certain ISP services such as
phone-to-phone IP telephony are telecommunications services subject to universal
service fund contribution and access charge payments.
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
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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 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. As a result of changes in federal policies, it is the
intention of the Company and PNI to reach an agreement to transfer such
microwave facilities and associated licenses to the Company, subject to FCC
approval. 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.
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. Concurrent with the
Company's sale of NACT, the Company and World Access, Inc. entered into an
agreement whereby the Company generally will bear 50% of any damages in the
action, including reasonable attorneys' fees, losses, liabilities, claims and
assessments, royalties and license fees provided that if a court determines that
the patent is valid and that it has been infringed, the Company's liability
associated with future royalties, license fees, refunds and cost of product
replacement or modification is limited to $2.0 million. 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.
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POSSIBLE INABILITY TO RECOVER PAYMENTS MADE TO MAGNACOM
Magnacom Wireless, L.L.C. ("Magnacom"), a company 99% owned by PNI,
which is 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.
Magnacom currently has an application on file with the FCC requesting authority
to effect a reorganization with PCS Plus Holdings Corporation ("PCS Plus
Holdings"), another company controlled by Mr. Warta and of which Mr. Warta and
Stephen Irwin, Vice Chairman of the Board and Secretary of the Company, serve as
officers and directors.
Magnacom and the Company have entered into a master services and
facilities agreement (the "Magnacom Services Agreement") with an initial term of
five years 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 granted the Company a right of first refusal 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 provided that the Company's rates and other
terms of service are competitive. Magnacom has 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 Services Agreement, as of
December 31, 1997, the Company had paid Magnacom approximately $14.4 million as
prepayments for future PCS services. The Magnacom Services Agreement supersedes
a previous reseller agreement between the Company and Magnacom.
In addition, the Company has been granted an option to acquire up to
PNI's entire interest in Magnacom (currently 99%). The exercise of the option is
subject to compliance with all applicable FCC 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 licensees. 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. The Company, Magnacom and PNI are in negotiations with respect to
modifying the option in order to provide, among other things, that the Company
own no more than a 25% interest in Magnacom or PCS Plus Holdings upon exercise
of such option.
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 will
be dependent upon the ability to obtain the financing necessary to make payments
to the FCC under the terms of its licenses, to obtain working capital and to
build the required facilities, including the purchase of telecommunications
equipment. There can be no assurance that Magnacom 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.
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,
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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.
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 currencies and the additional expenses and risks inherent in conducting
operations in geographically distant locations with customers speaking different
languages and having different cultural approaches to the conduct of business.
As of February 28, 1998, the Company had invested approximately $3.7
million in a publicly-traded Canadian corporation (subsequently renamed GST
Global Telecommunications Inc., "Global") and held approximately 3.6 million
shares and warrants to purchase 750,000 additional shares. At that date, Global
had approximately 14.7 million shares outstanding (approximately 28.7 million
shares on a fully diluted basis, excluding any additional shares that may be
issued to the Company as discussed below). It is the Company's position that
Global is to issue to the Company up to an additional 5,000,000 common shares of
Global, subject to regulatory approval in consideration for the assignment by
the Company to Global of its rights to acquire a telecommunications project in
Mexico (the "Bestel Project"). Global has asserted that the Company is only
entitled to receive up to 3,000,000 additional common shares of Global, subject
to the approval of its board of directors and regulatory approval. To date,
Global has not issued any of its common shares to the Company in respect of such
assignment.
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.
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VOLATILITY OF MARKET PRICE OF COMMON SHARES
Since the Common Shares have been publicly traded, their market price
has fluctuated over a wide range and may continue to do so in the future. The
market price of the Common Shares could be subject to significant fluctuations
in response to various factors and events, including among other things, the
depth and liquidity of the trading market of the Common Shares, variations in
the Company's operating results and the difference between actual results and
the results expected by investors and analysts. In addition, from time to time
the stock market has experienced broad price and volume fluctuations that have
often been unrelated to the operating performance of companies. These broad
market fluctuations also may adversely affect the market price of the Common
Shares.
RISKS OF INVESTMENT IN A CANADIAN CORPORATION
The Company is a corporation incorporated under the Canada Business
Corporations Act. Certain of the directors and the Company's professional
advisors are residents of Canada or otherwise reside outside of the U.S. All or
a substantial portion of the assets of such persons are or may be located
outside of the U.S. It may be difficult to effect service of process within the
United States upon the Company or upon such directors or professional advisors
or to realize in the U.S. upon judgments of U.S. courts predicated upon civil
liability of the Company or such persons under U.S. federal securities laws. The
Company has been advised that there is doubt as to whether Canadian courts would
(i) enforce judgments of U.S. courts obtained against the Company or such
directors or professional advisors predicated solely upon the civil liabilities
provisions of U.S. federal securities laws, or (ii) impose liabilities in
original actions against the Company or such directors and professional advisors
predicated solely upon such U.S. laws. However, a judgment against the Company
predicated solely upon civil liabilities provisions of such U.S. federal
securities laws may be enforceable in Canada if the U.S. court in which such
judgment was obtained has a basis for jurisdiction in that matter that would be
recognized by a Canadian court. 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 March 31, 1998, the Company had outstanding 35,863,008 Common
Shares. Of these shares, 31,252,170 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 4,610,838 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
March 31, 1998, (i) 4,116,332 Common Shares were reserved for issuance upon
exercise of outstanding stock options at prices ranging from $5.00 to $15.00 per
share, (ii) 596,155 Common Shares were reserved for issuance upon exercise of
outstanding warrants at exercise prices ranging from $6.75 to $12.96 per share,
(iii) 3,574,495 Common Shares were reserved for issuance upon conversion of the
Convertible Notes (based on the aggregate accreted value of Convertible Notes on
March 31, 1998) and (iv) 4,933,072 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 March 31, 1998).
The Company has registered the resale of the Common Shares issuable upon
exercise of the options and warrants (other than the Common Shares issuable upon
exercise of warrants to purchase 75,000 Common Shares issued to Tomen in
connection with a recent financing and the Shares 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
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<PAGE>
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.
MATERIAL CHANGES
In May 1998, the Company, through an indirect wholly-owned subsidiary,
completed the 1998 Notes Offering of $500.0 million principal amount at maturity
of 1998 Notes. The 1998 Notes will fully accrete to face value on May 1, 2003.
From and after May 1, 2003, the 1998 Notes will bear interest, which will be
payable in cash, at a rate of 10 1/2% per annum on each May 1 and November 1,
commencing November 1, 2003. The Company intends to use the net proceeds from
the 1998 Notes Offering, aggregating approximately $288.5 million, to purchase
telecommunications equipment for the continued expansion of its infrastructure,
including the development and construction of additional networks and longhaul
fiber optic facilities.
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 represent an
alternative to ILECs. The Company's full line of products, which offer a
"one-stop" solution to customers' telecommunications services requirements,
include local dial tone, long distance, Internet, data transmission and private
line services.
The Company's digital networks currently serve 40 markets in Arizona,
California, Hawaii, Idaho, New Mexico, Texas and Washington. In addition, the
Company has networks under construction which, when completed, will expand its
regional footprint to Oregon. The Company also constructs, markets and manages
longhaul fiber optic facilities in Arizona, California and Hawaii. The Company's
longhaul fiber optic facilities currently extend over 900 route miles and
approximately 1,700 route miles are under construction and expected to become
operational over the next 12 months.
Management believes that the formation of an integrated regional
network through the interconnection of the Company's individual networks with
longhaul fiber optic facilities will provide significant competitive and
economic advantages. In addition to providing the Company with a larger
addressable market, the interconnection of its networks is expected to allow the
Company to carry a portion of its intra-regional telecommunications traffic
on-net, thereby improving operating margins by reducing payments to other
carriers for use of
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<PAGE>
their facilities. In addition, increasing demand for high bandwidth capacity has
created opportunities for the Company to sell or lease capacity on its network
to other communications carriers.
USE OF PROCEEDS
The Company will receive the exercise price of the options when
exercised by the holders thereof. The Company will not receive any of the
proceeds from the reoffer and resale of the Shares by the Selling Shareholders
and the Future Selling Shareholders.
SELLING SHAREHOLDERS
This Prospectus relates to the reoffer and resale of Shares issued or
that may be issued to the Selling Shareholders under the Plans.
The following table sets forth (i) the number of Common Shares
beneficially owned by each Selling Shareholder as of April 30, 1998, (ii) the
number of Shares to be offered for resale by each Selling Shareholder and (iii)
the number and percentage of Common Shares to be held by each Selling
Shareholder after completion of the offering.
<TABLE>
<CAPTION>
Number of Common
Number of Shares/Percentage of
Number of Common Shares to be Class to be Owned
Shares Owned as of Offered for After Completion of
Name April 30, 1998 Resale the Offering
- ---------------------------------------- ------------------------ ----------------- ------------------------
<S> <C> <C> <C>
John Warta(1) 1,741,163(2) 200,000 1,541,163/4.29%
Stephen Irwin(3) 443,011(4) 200,000 243,011/*
Joseph A. Basile, Jr.(5) 150,000 450,000 0
Daniel L. Trampush(6) 33,334 210,000 0
Clifford V. Sander(7) 366,100(8) 108,000 258,100/*
Robert H. Hanson(9) 160,481(10) 35,000 125,481/*
Joseph G. Fogg, III(11) 0 10,000 0
Mitsuhiro Naoe(12) 0 10,000 0
Jack G. Armstrong(13) 50,500(14) 30,000 20,500/*
Peter E. Legault(15) 128,250(16) 35,000 93,250/*
A. Roy Megarry(17) 5,000 25,000 5,000/*
Robert A. Ferchat(18) 0 15,000 0
</TABLE>
- --------------------
* Less than 1%.
(1) Mr. Warta has been Chairman of the Board of the Company since March
1997, Chief Executive Officer and a director of the Company since March
1995. He was the President of the Company from March 1995 to March
1997.
(2) Includes 191,666 Common Shares issuable upon exercise of options. Does
not include 133,334 Common Shares issuable upon the exercise of options
that are not exercisable until the market price of the Common Shares
reaches certain levels for certain prescribed periods.
(3) Mr. Irwin has been Vice Chairman of the Board and a director of the
Company since September 1995 and Secretary of the Company since
November 1992.
(4) Includes (i) 166,666 Common Shares issuable upon exercise of options
and (ii) 200,000 Common Shares issuable upon exercise of an outstanding
warrant. Does not include (i) 133,334 Common Shares issuable upon the
exercise of options that are not exercisable until the closing price of
the Common Shares reaches certain levels for certain prescribed periods
and (ii) 100,000 Common Shares issuable upon exercise of an outstanding
warrant.
(5) Mr. Basile has been President and Chief Operating Officer of the
Company since March 1997 and a director of the Company since September
1997.
(6) Mr. Trampush has been Senior Vice President and Chief Financial Officer
of the Company since March 1997.
(7) Mr. Sander has been Senior Vice President and Treasurer of the Company
since March 1995.
(8) Includes 62,000 Common Shares issuable upon exercise of options.
(9) Mr. Hanson has been Senior Vice President - Corporate Development since
October 1993.
(10) Includes 60,416 Common Shares issuable upon exercise of options.
(11) Mr. Fogg has been a director of the Company since June 1997.
(12) Mr. Naoe has been a director of the Company since June 1997.
(13) Mr. Armstrong has been a director of the Company since July 1994.
-20-
<PAGE>
(14) Includes 42,500 Common Shares issuable upon exercise of options.
(15) Mr. Legault has been a director of the Company since April 1993.
(16) Includes 53,750 Common Shares issuable upon exercise of options.
(17) Mr. Megarry has been a director of the Company since September 1997.
(18) Mr. Ferchat has been a director of the Company since March 1998.
PLAN OF DISTRIBUTION
This offering is self-underwritten; neither the Company nor the Selling
Shareholders have employed an underwriter for the sale of Common Shares by the
Selling Shareholders. The Company will bear all expenses in connection with the
preparation of this Prospectus. The Selling Shareholders will bear all expenses
associated with the sale of the Common Shares.
The Common Shares may be sold from time to time by the Selling
Shareholders, or by pledgees, donees, transferees or other successors in
interest on the Nasdaq National Market, 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 Nasdaq National Market or
at prices related to such prevailing market prices or at negotiated prices to
its customers or a combination of such methods. The Selling Shareholders and any
broker- dealers that act in connection with the sale of the Common Shares
hereunder might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act; any commissions received by them and any profit on
the resale of shares as principal might be deemed to be underwriting discounts
and commissions under the Securities Act. Any such commissions, as well as other
expenses incurred by the Selling Shareholders and applicable transfer taxes, are
payable by the Selling Shareholders.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Shares
offered hereby have been passed upon for the Company by Messrs. Olshan Grundman
Frome & Rosenzweig LLP, 505 Park Avenue, New York, New York 10022. Stephen
Irwin, counsel to Olshan Grundman Frome & Rosenzweig LLP, is an officer and
director of the Company and holds 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 December 31, 1997 and September 30, 1997 and 1996 and the
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for the three month period ended December 31, 1997 and 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.
-21-
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-8 under the Securities Act with respect to the Shares offered hereby. For
further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
-22-
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS REFERENCE
The following documents filed by GST Telecommunications, Inc. (the
"Company") with the Securities and Exchange Commission are incorporated herein
by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997.
2. The Company's Transitional Report on Form 10-K for the three months
ended December 31, 1997.
3. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
4. The Company's Current Reports on Form 8-K dated May 4, 1998,
February 27, 1998 and January 6, 1998.
5. The description of the Company's Common Shares, no par value per
share, in the Company's Registration Statement on Form 8-A filed on April 13,
1998.
All reports and other documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act
of 1934, as amended, after the effective date of this registration statement and
prior to the filing of a post-effective amendment which indicates that all
securities offered hereunder have been sold or which de-registers all securities
then remaining unsold, shall be deemed to be incorporated by reference herein
and to be a part hereof from the date of filing of such documents.
ITEM 4. DESCRIPTION OF SECURITIES
Not applicable.
ITEM 5. INTEREST OF NAMED EXPERTS AND COUNSEL
Certain legal matters in connection with the issuance of the Shares
offered hereby have been passed upon for the Company by Messrs. Olshan Grundman
Frome & Rosenzweig LLP, 505 Park Avenue, New York, New York 10022. Stephen
Irwin, counsel to Olshan Grundman Frome & Rosenzweig LLP, is an officer and
director of the Company and holds 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.
ITEM 6. 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:
II-1
<PAGE>
(1) INDEMNIFICATION. Except in respect of an action by or on behalf of
the corporation or body corporate to procure a judgment in its favor, a
corporation may indemnify a director or officer of the corporation, a former
director or officer of the corporation or a person who acts or acted at the
corporation's request as a director or officer of a body corporate of which the
corporation is or was a shareholder or creditor, and his heirs and legal
representatives, against all costs, charges and expenses, including an amount
paid to settle an action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal or administrative action or proceeding to which
he is made a party by reason of being or having been a director or officer of
such corporation or body corporate, if
(a) he acted honestly and in good faith with a view to the best
interests of the corporation; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he had reasonable grounds
for believing that his conduct was lawful.
(2) INDEMNIFICATION IN DERIVATIVE ACTIONS. A corporation may with the
approval of a court indemnify a person referred to in subsection (1) in respect
of an action by or on behalf of the corporation or body corporate to procure a
judgment in its favor, to which he is made a party by reason of being or having
been a director or an officer of the corporation or body corporate, against all
costs, charges and expenses reasonably incurred by him in connection with such
action if he fulfills the conditions set out in paragraphs (1)(a) and (b).
(3) INDEMNITY AS OF RIGHT. Notwithstanding anything in this section, a
person referred to in subsection (1) is entitled to indemnity from the
corporation in respect of all costs, charges and expenses reasonably incurred by
him in connection with the defense of any civil, criminal or administrative
action or proceeding to which he is made a party by reason of being or having
been a director or officer of the corporation or body corporate, if the person
seeking indemnity
(a) was substantially successful on the merits in his defense of the
action or proceeding, and
(b) fulfills the conditions set out in paragraphs (1)(a) and (b).
(4) DIRECTORS' AND OFFICERS' INSURANCE. A corporation may purchase and
maintain insurance for the benefit of any person referred to subsection (1)
against any liability incurred by him
(a) in his capacity as a director or officer of the corporation,
except where the liability relates to his failure to act honestly
and in good faith with a view to the best interests of the
corporation; or
(b) in his capacity as a director or officer of another body corporate
where he acts or acted in that capacity at the corporation's
request, except where the liability relates to his failure to act
honestly and in good faith with a view to the best interests of
the body corporate.
(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.
II-2
<PAGE>
(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 sustains 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 7. EXEMPTION FROM REGISTRATION CLAIMED.
Not Applicable.
ITEM 8. EXHIBITS.
EXHIBIT INDEX
*4(a) 1996 Stock Option Plan, as amended to date.
*4(b) 1996 Senior Executive Officer Stock Option Plan, as amended to
date.
*4(c) 1996 Senior Operating Officer Stock Option Plan, as amended to
date.
4(d) 1997 Stock Option Plan, as amended to date, incorporated by
reference to Exhibit 10(ii) to the Company's Transition Report on
Form 10-K for the three months ended December 31, 1997.
*5 Opinion of Olshan Grundman Frome & Rosenzweig LLP with respect to
the securities registered hereunder.
23(a) Consent of Olshan Grundman Frome & Rosenzweig LLP (included in its
opinion filed as Exhibit 5).
*23(b) Consent of KPMG Peat Marwick LLP.
*23(c) Consent of KPMG Peat Marwick LLP.
24 Powers of Attorney (included on the signature page to this
Registration Statement).
- --------------------------
* Filed herewith
ITEM 9. 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
II-3
<PAGE>
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 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-4
<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-8 and has duly caused this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Vancouver, State of Washington, on this 28th day
of May 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 any related registration statement filed pursuant to
Rule 462(b) of the Securities Act of 1933, as amended 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.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ JOHN WARTA Chairman of the Board, Chief May 28, 1998
- ------------------------- Executive Officer (Principal
(John Warta) Executive Officer) and Director
/S/ DANIEL TRAMPUSH Senior Vice President and Chief May 28, 1998
- ------------------------- Financial Officer (Principal
(Daniel Trampush) Financial Officer)
/S/ CLIFFORD V. SANDER Senior Vice President, Treasurer May 28, 1998
- ------------------------- and Chief Accounting Officer
(Clifford V. Sander) (Principal Accounting Officer)
/S/ STEPHEN IRWIN Vice Chairman of the Board, May 28, 1998
- ------------------------ Secretary and Director
(Stephen Irwin)
/S/ JOSEPH A. BASILE, JR. President, Chief Operating Officer May 28, 1998
- ------------------------- and Director
(Joseph A. Basile, Jr.)
/S/ PETER E. LEGAULT Director May 28, 1998
- ------------------------- Member of Compensation Committee
(Peter E. Legault)
II-5
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/S/ ROY MEGARRY Director May 28, 1998
- ------------------------
(Roy Megarry)
/S/ ROBERT A. FERCHAT Director May 28, 1998
- ------------------------
(Robert A. Ferchat)
/S/ JACK G. ARMSTRONG Director May 28, 1998
- ------------------------ Member of Compensation Committee
(Jack G. Armstrong)
/S/ MITSUHIRO NAOE Director May 28, 1998
- -----------------------
(Mitsuhiro Naoe)
/S/ JOSEPH G. FOGG, III Director May 28, 1998
- ------------------------ Member of Compensation Committee
(Joseph G. Fogg, III)
The Company's Authorized Representative
in the United States
/S/ DANIEL L TRAMPUSH May 28, 1998
- --------------------------
Daniel L. Trampush
165133.7
II-6
As Amended Through
March 4, 1998
GST TELECOMMUNICATIONS, INC.
1996 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
This 1996 Stock Option Plan (the "Plan") is intended as an
incentive, to retain in the employ of and as consultants and advisors to GST
TELECOMMUNICATIONS, INC., a Canadian corporation with its principal office at
4317 N.E. Thurston Way, Vancouver, Washington 98662 (the "Company") and any
Subsidiary of the Company, within the meaning of Section 425(f) of the United
States Internal Revenue Code of 1986, as amended (the "Code"), persons of
training, experience and ability, to attract new employees, directors, advisors
and consultants whose services are considered valuable, to encourage the sense
of proprietorship and to stimulate the active interest of such persons in the
development and financial success of the Company and its Subsidiaries.
It is further intended that certain options granted pursuant to
the Plan shall constitute incentive stock options within the meaning of Section
422 of the Code (the "Incentive Options") while certain other options granted
pursuant to the Plan shall be nonqualified stock options (the "Nonqualified
Options"). Incentive Options and Nonqualified Options are hereinafter referred
to collectively as "Options."
The Company intends that the Plan meet the requirements of Rule
16b-3 ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and that transactions of the type specified in
subparagraphs (c) to (f) inclusive of Rule 16b-3 by officers and directors of
the Company pursuant to the Plan will be exempt from the operation of Section
16(b) of the Exchange Act. In all cases, the terms, provisions, conditions and
limitations of the Plan shall be construed and interpreted consistent with the
Company's intent as stated in this Section 1.
2. ADMINISTRATION OF THE PLAN.
The Board of Directors of the Company (the "Board") shall appoint
and maintain as administrator of the Plan a Committee (the "Committee")
consisting of two or more Non-Employee Directors (as such term is defined in
Rule 16b-3), which shall serve at the pleasure of the Board. The Committee,
subject to Sections 3 and 5 hereof, shall have full power and authority to
designate recipients of Options, to determine the terms and conditions of
respective
<PAGE>
Option agreements (which need not be identical) and to interpret the provisions
and supervise the administration of the Plan. The Committee shall have the
authority, without limitation, to designate which Options granted under the Plan
shall be Incentive Options and which shall be Nonqualified Options. To the
extent any Option does not qualify as an Incentive Option, it shall constitute a
separate Nonqualified Option.
Subject to the provisions of the Plan, the Committee shall
interpret the Plan and all Options granted under the Plan, shall make such rules
as it deems necessary for the proper administration of the Plan, shall make all
other determinations necessary or advisable for the administration of the Plan
and shall correct any defects or supply any omission or reconcile any
inconsistency in the Plan or in any Options granted under the Plan in the manner
and to the extent that the Committee deems desirable to carry into effect the
Plan or any Options. The act or determination of a majority of the Committee
shall be the act or determination of the Committee and any decision reduced to
writing and signed by all of the members of the Committee shall be fully
effective as if it had been made by a majority at a meeting duly held. Subject
to the provisions of the Plan, any action taken or determination made by the
Committee pursuant to this and the other Sections of the Plan shall be
conclusive on all parties.
In the event that for any reason the Committee is unable to act
or if the Committee at the time of any grant, award or other acquisition under
the Plan of Options or Stock does not consist of two or more Non-Employee
Directors, then any such grant, award or other acquisition may be approved or
ratified in any other manner contemplated by subparagraph (d) of Rule 16b-3.
3. DESIGNATION OF OPTIONEES.
The persons eligible for participation in the Plan as recipients
of Options (the "Optionees") shall include employees, officers and directors of,
and consultants and advisors to, the Company or any Subsidiary; provided that
Incentive Options may only be granted to employees of the Company and the
Subsidiaries. In selecting Optionees, and in determining the number of shares to
be covered by each Option granted to Optionees, the Committee may consider the
office or position held by the Optionee or the Optionee's relationship to the
Company, the Optionee's degree of responsibility for and contribution to the
growth and success of the Company or any Subsidiary, the Optionee's length of
service, age, promotions, potential and any other factors that the Committee may
consider relevant. An Optionee who has been granted an Option hereunder may be
granted an additional Option or Options, if the Committee shall so determine.
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<PAGE>
4. STOCK RESERVED FOR THE PLAN.
Subject to adjustment as provided in Section 7 hereof, a total of
1,000,000 shares of the Company's Common Shares (the "Stock") shall be subject
to the Plan. The shares of Stock subject to the Plan shall consist of unissued
shares or previously issued shares held by any Subsidiary of the Company, and
such amount of shares of Stock shall be and is hereby reserved for such purpose.
Any of such shares of Stock that may remain unsold and that are not subject to
outstanding Options at the termination of the Plan shall cease to be reserved
for the purposes of the Plan, but until termination of the Plan the Company
shall at all times reserve a sufficient number of shares of Stock to meet the
requirements of the Plan. Should any Option expire or be cancelled prior to its
exercise in full or should the number of shares of Stock to be delivered upon
the exercise in full of an Option be reduced for any reason, the shares of Stock
theretofore subject to such Option may be subject to future Options under the
Plan.
5. TERMS AND CONDITIONS OF OPTIONS.
Options granted under the Plan shall be subject to the following
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) OPTION PRICE. The purchase price of each share of Stock
purchasable under an Option shall be determined by the Committee at the time of
grant, but shall not be less than 100% of the Fair Market Value (as defined
below) of such share of Stock on the last trading day prior to the date the
Option is granted; PROVIDED, HOWEVER, that with respect to an Optionee who, at
the time an Incentive Option is granted, owns (within the meaning of Section
424(d) of the Code) more than 10% of the total combined voting power of all
classes of stock of the Company or of any Subsidiary, the purchase price per
share of Stock shall be at least 110% of the Fair Market Value per share of
Stock on the last trading day prior to the date of grant. The exercise price for
each Option shall be subject to adjustment as provided in Section 7 below. Fair
Market Value means the closing price of publicly traded shares of Stock on the
principal United States securities exchange on which shares of Stock are listed
(if the shares of Stock are so listed), or on the NASDAQ Stock Market (if the
shares of Stock are regularly quoted on the NASDAQ Stock Market), or, if not so
listed or regularly quoted, the mean between the closing bid and asked prices of
publicly traded shares of Stock in the over-the-counter market, or, if such bid
and asked prices shall not be available, as reported by any nationally
recognized quotation service selected by the Company, or as determined by the
Committee in a manner consistent with the provisions of the Code. Anything in
this Section 5(a) to the contrary notwithstanding, in no event shall the
purchase price of a share of Stock be less than the
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<PAGE>
minimum price permitted under rules and policies of the American Stock Exchange,
the Toronto Stock Exchange or the Vancouver Stock Exchange, so long as the
Common Shares are listed on any such exchange.
(b) OPTION TERM. The term of each Option shall be fixed by
the Committee, but no Option shall be exercisable more than five years after the
date such Option is granted.
(c) EXERCISABILITY. Subject to Section 5(j) hereof, Options
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee at the time of grant.
(d) METHOD OF EXERCISE. Options to the extent then
exercisable may be exercised in whole or in part at any time during the option
period, by giving written notice to the Company specifying the number of shares
of Stock to be purchased, accompanied by payment in full of the purchase price,
in cash, by check or such other instrument as may be acceptable to the
Committee. As determined by the Committee, in its sole discretion, at or after
grant, payment in full or in part may also be made in the form of Stock owned by
the Optionee (based on the Fair Market Value of the Stock on the trading day
before the Option is exercised). An Optionee shall have the right to dividends
and other rights of a stockholder with respect to shares of Stock purchased upon
exercise of an Option after (i) the Optionee has given written notice of
exercise and has paid in full for such shares and (ii) becomes a stockholder of
record with respect thereto.
(e) NON-TRANSFERABILITY OF OPTIONS. Options are not
transferable and may be exercised solely by the Optionee during his lifetime or
after his death by the person or persons entitled thereto under his will or the
laws of descent and distribution. Any attempt to transfer, assign, pledge or
otherwise dispose of, or to subject to execution, attachment or similar process,
any Option contrary to the provisions hereof shall be void and ineffective and
shall give no right to the purported transferee.
(f) TERMINATION BY DEATH. Unless otherwise determined by the
Committee at grant, if any Optionee's employment with or service to the Company
or any Subsidiary terminates by reason of death, the Option may thereafter be
exercised, to the extent then exercisable (or on such accelerated basis as the
Committee shall determine at or after grant), by the legal representative of the
estate or by the legatee of the Optionee under the will of the Optionee, for a
period of one year after the date of such death or until the expiration of the
stated term of such Option as provided under the Plan, whichever period is
shorter.
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<PAGE>
(g) TERMINATION BY REASON OF DISABILITY. Unless otherwise
determined by the Committee at grant, if any Optionee's employment with or
service to the Company or any Subsidiary terminates by reason of total and
permanent disability, any Option held by such Optionee may thereafter be
exercised, to the extent it was exercisable at the time of termination due to
Disability (or on such accelerated basis as the Committee shall determine at or
after grant), but may not be exercised after 30 days after the date of such
termination of employment or service or the expiration of the stated term of
such Option, whichever period is shorter; provided, however, that, if the
Optionee dies within such 30 day period, any unexercised Option held by such
Optionee shall thereafter be exercisable to the extent to which it was
exercisable at the time of death for a period of one year after the date of such
death or for the stated term of such Option, whichever period is shorter.
(h) TERMINATION BY REASON OF RETIREMENT. Unless otherwise
determined by the Committee at grant, if any Optionee's employment with or
service to the Company or any Subsidiary terminates by reason of Normal or Early
Retirement (as such terms are defined below), any Option held by such Optionee
may thereafter be exercised to the extent it was exercisable at the time of such
Retirement (or on such accelerated basis as the Committee shall determine at or
after grant), but may not be exercised after 30 days after the date of such
termination of employment or service or the expiration of the stated term of
such Option, whichever period is shorter; provided, however, that, if the
Optionee dies within such 30 day period, any unexercised Option held by such
Optionee shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of one year after the date of
such death or for the stated term of such Option, whichever period is shorter.
For purposes of this paragraph (h), Normal Retirement shall
mean retirement from active employment with the Company or any Subsidiary on or
after the normal retirement date specified in the applicable Company or
Subsidiary pension plan or if no such pension plan, age 65. Early Retirement
shall mean retirement from active employment with the Company or any Subsidiary
pursuant to the early retirement provisions of the applicable Company or
Subsidiary pension plan or if no such pension plan, age 55.
(i) OTHER TERMINATION. Unless otherwise determined by the
Committee at grant, if any Optionee's employment with or service to the Company
or any Subsidiary terminates for any reason other than death, Disability or
Normal or Early Retirement, the Option shall thereupon terminate, except that
the portion of any Option that was exercisable on the date of such termination
of employment may be exercised for the lesser of 30 days after the date of
termination or the balance of such Option's term if the Optionee's employment or
service with the Company or any Subsidiary
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<PAGE>
is terminated by the Company or such Subsidiary without cause (the determination
as to whether termination was for cause to be made by the Committee). The
transfer of an Optionee from the employ of the Company to a Subsidiary, or vice
versa, or from one Subsidiary to another, shall not be deemed to constitute a
termination of employment for purposes of the Plan.
(j) LIMIT ON VALUE OF INCENTIVE OPTION. The aggregate Fair
Market Value, determined as of the date the Incentive Option is granted, of
Stock for which Incentive Options are exercisable for the first time by any
Optionee during any calendar year under the Plan (and/or any other stock option
plans of the Company or any Subsidiary) shall not exceed $100,000.
(k) TRANSFER OF INCENTIVE OPTION SHARES. The stock option
agreement evidencing any Incentive Options granted under this Plan shall provide
that if the Optionee makes a disposition, within the meaning of Section 424(c)
of the Code and regulations promulgated thereunder, of any share or shares of
Stock issued to him upon exercise of an Incentive Option granted under the Plan
within the two-year period commencing on the day after the date of the grant of
such Incentive Option or within a one-year period commencing on the day after
the date of transfer of the share or shares to him pursuant to the exercise of
such Incentive Option, he shall, within 10 days after such disposition, notify
the Company thereof and immediately deliver to the Company any amount of United
States federal income tax withholding required by law.
(l) LIMITATION ON OPTIONS HELD BY ONE PERSON. The aggregate
number of shares of Stock subject to options held by any one person shall not
exceed that number of shares as equals 5% of the outstanding shares of the
Company.
(m) LIMITATION ON OPTIONS GRANTED TO INSIDERS. No Option may
be granted under the Plan to an insider (as such term is defined in the company
manual of the Toronto Stock Exchange) if such grant would cause the Company to:
(i) reserve for issuance to insiders such number of Common Shares of the company
as would exceed 10% of the outstanding issue of the company; (ii) issue to
insiders, within a one-year period, such number of Common Shares of the Company
as would exceed 10% of the outstanding issue of the Company; or (iii) issue to
any one insider and such insider's associates (as such term is defined in the
company manual of the Toronto Stock Exchange), within a one year period, such
number of Common Shares as would exceed 5% of the outstanding issue of the
Company.
6. TERM OF PLAN.
No Option shall be granted pursuant to the Plan on or after
January 5, 2006, but Options theretofore granted may extend beyond that date.
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<PAGE>
7. CAPITAL CHANGE OF THE COMPANY.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Stock, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares reserved for issuance under the Plan
and in the number and option price of shares subject to outstanding Options
granted under the Plan, to the end that after such event each Optionee's
proportionate interest shall be maintained as immediately before the occurrence
of such event.
8. PURCHASE FOR INVESTMENT.
Unless the Options and shares covered by the Plan have been
registered under the United States Securities Act of 1933, as amended (the
"Securities Act"), or the Company has determined that such registration is
unnecessary, each person exercising an Option under the Plan may be required by
the Company to give a representation in writing that he is acquiring the shares
for his own account for investment and not with a view to, or for sale in
connection with, the distribution of any part thereof.
9. TAXES.
The Company may make such provisions as it may deem appropriate,
consistent with applicable law, in connection with any Options granted under the
Plan with respect to the withholding of any United States or Canadian taxes or
any other tax matters.
10. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on January 5, 1996, provided however
that the Plan shall subsequently be approved by majority vote of the Company's
shareholders not later than January 4, 1997.
11. AMENDMENT AND TERMINATION.
The Board may amend, suspend, or terminate the Plan, except that
no amendment shall be made that would impair the rights of any Optionee under
any Option theretofore granted without his consent, and except that no amendment
shall be made which, without the approval of the shareholders of the Company
would:
(a) materially increase the number of shares that may be
issued under the Plan, except as is provided in Section 7;
(b) materially increase the benefits accruing to the
Optionees under the Plan;
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<PAGE>
(c) materially modify the requirements as to eligibility for
participation in the Plan;
(d) decrease the exercise price of an Incentive Option to
less than 100% of the Fair Market Value per share of Stock on the last
trading day prior to the date of grant thereof; or
(e) extend the term of any Option beyond that provided for
in Section 5(b).
The Committee may amend the terms of any Option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Optionee without his consent. The Committee may also substitute new Options
for previously granted Options, including options granted under other plans
applicable to the participant and previously granted Options having higher
option prices, upon such terms as the Committee may deem appropriate.
12. GOVERNMENT REGULATIONS.
The Plan, and the grant and exercise of Options hereunder, and the
obligation of the Company to sell and deliver shares under such Options, shall
be subject to all applicable laws, rules and regulations, and to such approvals
by any governmental agencies or national securities exchanges (including the
American Stock Exchange, the Toronto Stock Exchange or the Vancouver Stock
Exchange, so long as the Common Shares are listed on any such exchange) as may
be required.
13. GENERAL PROVISIONS.
(a) CERTIFICATES. All certificates for shares of Stock
delivered under the Plan shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations
and other requirements of the Securities and Exchange Commission, or other
securities commission having jurisdiction, any applicable Federal, provincial or
state securities law, any stock exchange upon which the Stock is then listed and
the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
(b) EMPLOYMENT MATTERS. The adoption of the Plan shall not
confer upon any Optionee of the Company or any Subsidiary, any right to
continued employment or, in the case of an Optionee who is a director, continued
service as a director, with the Company or a Subsidiary, as the case may be, nor
shall it interfere in any way with the right of the Company or any Subsidiary to
terminate the employment of any of its employees, the
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<PAGE>
service of any of its directors or the retention of any of its consultants or
advisors at any time.
(c) LIMITATION OF LIABILITY. No member of the Board or the
Committee, or any officer or employee of the Company acting on behalf of the
Board or the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the
Plan, and all members of the Board or the Committee and each and any officer or
employee of the Company acting on their behalf shall, to the extent permitted by
law, be fully indemnified and protected by the Company in respect of any such
action, determination or interpretation.
(d) REGISTRATION OF STOCK. Notwithstanding any other
provision in the Plan, no Option may be exercised unless and until the Stock to
be issued upon the exercise thereof has been registered under the Securities Act
and applicable state securities laws, or are, in the opinion of counsel to the
Company, exempt from such registration in the United States or exempt from the
prospectus and registration requirements under applicable provincial
legislation. The Company shall not be under any obligation to register under
applicable federal or state securities laws any Stock to be issued upon the
exercise of an Option granted hereunder, or to comply with an appropriate
exemption from registration under such laws or the laws of any province in order
to permit the exercise of an Option and the issuance and sale of the Stock
subject to such Option however, the Company may in its sole discretion register
such Stock at such time as the Company shall determine. If the Company chooses
to comply with such an exemption from registration, the Stock issued under the
Plan may, at the direction of the Committee, bear an appropriate restrictive
legend restricting the transfer or pledge of the Stock represented thereby, and
the Committee may also give appropriate stop transfer instructions to the
Company's transfer agents.
GST TELECOMMUNICATIONS, INC.
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As Amended Through
March 4, 1998
GST TELECOMMUNICATIONS, INC.
SENIOR EXECUTIVE OFFICER STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
This Senior Executive Officer Stock Option Plan (the "Plan") is
intended as an incentive, to retain in the employ of GST TELECOMMUNICATIONS,
INC., a federally chartered Canadian corporation with its principal office at
4317 N.E. Thurston Way, Vancouver, Washington 98662 (the "Company") and any
Subsidiary of the Company, within the meaning of Section 424(f) of the United
States Internal Revenue Code of 1986, as amended (the "Code"), as senior
executive officers, persons of training, experience and ability, to attract new
senior executive officers whose services are considered valuable, to encourage
the sense of proprietorship and to stimulate the active interest of such persons
in the development and financial success of the Company and its Subsidiaries.
It is further intended that certain options granted pursuant to
the Plan shall constitute incentive stock options within the meaning of Section
422 of the Code (the "Incentive Options"), while certain other options granted
pursuant to the Plan shall be nonqualified stock options (the "Nonqualified
Options"). Incentive Options and Nonqualified Options are hereinafter referred
to collectively as "Options."
The Company intends that the Plan meet the requirements of Rule
16b-3 ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and that transactions of the type specified in
subparagraphs (c) to (f) inclusive of Rule 16b-3 by officers and directors of
the Company pursuant to the Plan will be exempt from the operation of Section
16(b) of the Exchange Act. In all cases, the terms, provisions, conditions and
limitations of the Plan shall be construed and interpreted consistent with the
Company's intent as stated in this Section 1.
2. ADMINISTRATION OF THE PLAN.
The Board of Directors of the Company (the "Board") shall appoint
and maintain as administrator of the Plan a Committee (the "Committee")
consisting of two or more Non-Employee Directors (as such term is defined in
Rule 16b-3), which shall serve at the pleasure of the Board. The Committee,
subject to Sections 3 and 5 hereof, shall have full power and authority to
designate recipients
<PAGE>
of Options, to determine the terms and conditions of respective Option
agreements (which need not be identical) and to interpret the provisions and
supervise the administration of the Plan. The Committee shall have the
authority, without limitation, to designate which Options granted under the Plan
shall be Incentive Options and which shall be Nonqualified Options. To the
extent any Option does not qualify as an Incentive Option, it shall constitute a
separate Nonqualified Option.
Subject to the provisions of the Plan, the Committee shall
interpret the Plan and all Options granted under the Plan, shall make such rules
as it deems necessary for the proper administration of the Plan, shall make all
other determinations necessary or advisable for the administration of the Plan
and shall correct any defects or supply any omission or reconcile any
inconsistency in the Plan or in any Options granted under the Plan in the manner
and to the extent that the Committee deems desirable to carry into effect the
Plan or any Options. The act or determination of a majority of the Committee
shall be the act or determination of the Committee and any decision reduced to
writing and signed by all of the members of the Committee shall be fully
effective as if it had been made by a majority at a meeting duly held. Subject
to the provisions of the Plan, any action taken or determination made by the
Committee pursuant to this and the other Sections of the Plan shall be
conclusive on all parties.
In the event that for any reason the Committee is unable to act
or if the Committee at the time of any grant, award or other acquisition under
the Plan of Options or Stock does not consist of two or more Non-Employee
Directors, then any such grant, award or other acquisition may be approved or
ratified in any other manner contemplated by subparagraph (d) of Rule 16b-3.
3. DESIGNATION OF OPTIONEES.
The persons eligible for participation in the Plan as recipients
of Options (the "Optionees") shall comprise senior executive officers of the
Company or any Subsidiary; provided that Incentive Options may only be granted
to senior executive officers who are employees of the Company and the
Subsidiaries. In selecting Optionees, and in determining the number of shares to
be covered by each Option granted to Optionees, the Committee may consider the
office or position held by the Optionee or the Optionee's relationship to the
Company, the Optionee's degree of responsibility for and contribution to the
growth and success of the Company or any Subsidiary, the Optionee's length of
service, age, promotions, potential and any other factors that the Committee may
consider relevant. An Optionee who has been granted an Option hereunder may be
granted an additional Option or Options, if the Committee shall so determine.
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<PAGE>
4. STOCK RESERVED FOR THE PLAN.
Subject to adjustment as provided in Section 7 hereof, a total of
600,000 of the Company's Common Shares (the "Stock") shall be subject to the
Plan. The shares of Stock subject to the Plan shall consist of unissued shares
or previously issued shares held by any Subsidiary of the Company, and such
amount of shares of Stock shall be and is hereby reserved for such purpose. Any
of such shares of Stock that may remain unsold and that are not subject to
outstanding Options at the termination of the Plan shall cease to be reserved
for the purposes of the Plan, but until termination of the Plan the Company
shall at all times reserve a sufficient number of shares of Stock to meet the
requirements of the Plan. Should any Option expire or be cancelled prior to its
exercise in full or should the number of shares of Stock to be delivered upon
the exercise in full of an Option be reduced for any reason, the shares of Stock
theretofore subject to such Option may be subject to future Options under the
Plan.
5. TERMS AND CONDITIONS OF OPTIONS.
Options granted under the Plan shall be subject to the following
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) OPTION PRICE. The purchase price of each share of Stock
purchasable under an Option shall be determined by the Committee at the time of
grant, but shall not be less than 100% of the Fair Market Value (as defined
below) of such share of Stock on the last trading day prior to the date the
Option is granted; PROVIDED, HOWEVER, that with respect to an Optionee who, at
the time an Incentive Option is granted, owns (within the meaning of Section
424(d) of the Code) more than 10% of the total combined voting power of all
classes of stock of the Company or of any Subsidiary, the purchase price per
share of Stock shall be at least 110% of the Fair Market Value per share of
Stock on the last trading day prior to the date of grant. The exercise price for
each Option shall be subject to adjustment as provided in Section 7 below. Fair
Market Value means the closing price of publicly traded shares of Stock on the
principal United States securities exchange on which shares of Stock are listed
(if the shares of Stock are so listed), or on the NASDAQ Stock Market (if the
shares of Stock are regularly quoted on the NASDAQ Stock Market), or, if not so
listed or regularly quoted, the mean between the closing bid and asked prices of
publicly traded shares of Stock in the over-the-counter market, or, if such bid
and asked prices shall not be available, as reported by any nationally
recognized quotation service selected by the Company, or as determined by the
Committee in a manner consistent with the provisions of the Code. Anything in
this Section 5(a) to the contrary notwithstanding, in no event shall the
purchase price of a share of Stock be less than the
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<PAGE>
minimum price permitted under rules and policies of the American Stock Exchange,
the Toronto Stock Exchange or the Vancouver Stock Exchange, so long as the
Common Shares are listed on any such exchange.
(b) OPTION TERM. The term of each Option shall be fixed by
the Committee, but no Option shall be exercisable more than six years after the
date such Option is granted.
(c) EXERCISABILITY. Subject to Section 5(j) hereof, Options
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee at the time of grant. No
option may be exercised to the extent that such exercise will cause the Company
to issue, upon exercise of options to purchase shares of Stock granted by the
Company without shareholder approval, that number of shares of Stock as equals
or exceeds (i) 5% of the number of outstanding shares of Stock in any 12-month
period, or (ii) 10% of the number of outstanding shares of Stock in any
five-year period.
(d) METHOD OF EXERCISE. Options to the extent then
exercisable may be exercised in whole or in part at any time during the option
period, by giving written notice to the Company specifying the number of shares
of Stock to be purchased, accompanied by payment in full of the purchase price,
in cash, by check or such other instrument as may be acceptable to the
Committee. As determined by the Committee, in its sole discretion, at or after
grant, payment in full or in part may also be made in the form of Stock owned by
the Optionee (based on the Fair Market Value of the Stock on the trading day
before the Option is exercised). An Optionee shall have the right to dividends
and other rights of a stockholder with respect to shares of Stock purchased upon
exercise of an Option after (i) the Optionee has given written notice of
exercise and has paid in full for such shares and (ii) becomes a stockholder of
record with respect thereto.
(e) NON-TRANSFERABILITY OF OPTIONS. Options are not
transferable and may be exercised solely by the Optionee during his lifetime or
after his death by the person or persons entitled thereto under his will or the
laws of descent and distribution. Any attempt to transfer, assign, pledge or
otherwise dispose of, or to subject to execution, attachment or similar process,
any Option contrary to the provisions hereof shall be void and ineffective and
shall give no right to the purported transferee.
(f) TERMINATION BY DEATH. Unless otherwise determined by the
Committee at grant, if any Optionee's employment with or service to the Company
or any Subsidiary terminates by reason of death, the Option may thereafter be
exercised, to the extent then exercisable (or on such accelerated basis as the
Committee shall determine at or after grant), by the legal
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<PAGE>
representative of the estate or by the legatee of the Optionee under the will of
the Optionee, for a period of one year after the date of such death or until the
expiration of the stated term of such Option as provided under the Plan,
whichever period is shorter.
(g) TERMINATION BY REASON OF DISABILITY. Unless otherwise
determined by the Committee at grant, if any Optionee's employment with or
service to the Company or any Subsidiary terminates by reason of total and
permanent disability, any Option held by such Optionee may thereafter be
exercised, to the extent it was exercisable at the time of termination due to
Disability (or on such accelerated basis as the Committee shall determine at or
after grant), but may not be exercised after 30 days after the date of such
termination of employment or service or the expiration of the stated term of
such Option, whichever period is shorter; provided, however, that, if the
Optionee dies within such 30 day period, any unexercised Option held by such
Optionee shall thereafter be exercisable to the extent to which it was
exercisable at the time of death for a period of one year after the date of such
death or for the stated term of such Option, whichever period is shorter.
(h) TERMINATION BY REASON OF RETIREMENT. Unless otherwise
determined by the Committee at grant, if any Optionee's employment with or
service to the Company or any Subsidiary terminates by reason of Normal or Early
Retirement (as such terms are defined below), any Option held by such Optionee
may thereafter be exercised to the extent it was exercisable at the time of such
Retirement (or on such accelerated basis as the Committee shall determine at or
after grant), but may not be exercised after 30 days after the date of such
termination of employment or service or the expiration of the stated term of
such Option, whichever period is shorter; provided, however, that, if the
Optionee dies within such 30 day period, any unexercised Option held by such
Optionee shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of one year after the date of
such death or for the stated term of such Option, whichever period is shorter.
For purposes of this paragraph (h), Normal Retirement shall
mean retirement from active employment with the Company or any Subsidiary on or
after the normal retirement date specified in the applicable Company or
Subsidiary pension plan or if no such pension plan, age 65. Early Retirement
shall mean retirement from active employment with the Company or any Subsidiary
pursuant to the early retirement provisions of the applicable Company or
Subsidiary pension plan or if no such pension plan, age 55.
(i) OTHER TERMINATION. Unless otherwise determined by the
Committee at grant, if any Optionee's employment with or service to the Company
or any Subsidiary terminates for any reason
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<PAGE>
other than death, Disability or Normal or Early Retirement, the Option shall
thereupon terminate, except that the portion of any Option that was exercisable
on the date of such termination of employment may be exercised for the lesser of
30 days after the date of termination or the balance of such Option's term if
the Optionee's employment or service with the Company or any Subsidiary is
terminated by the Company or such Subsidiary without cause (the determination as
to whether termination was for cause to be made by the Committee). The transfer
of an Optionee from the employ of the Company to a Subsidiary, or vice versa, or
from one Subsidiary to another, shall not be deemed to constitute a termination
of employment for purposes of the Plan.
(j) LIMIT ON VALUE OF INCENTIVE OPTIONS. The aggregate Fair
Market Value, determined as of the date the Incentive Option is granted, of
Stock for which Incentive Options are exercisable for the first time by any
Optionee during any calendar year under the Plan (and/or any other stock option
plans of the Company or any Subsidiary) shall not exceed $100,000.
(k) TRANSFER OF INCENTIVE OPTION SHARES. The stock option
agreement evidencing any Incentive Options granted under this Plan shall provide
that if the Optionee makes a disposition, within the meaning of Section 424(c)
of the Code and regulations promulgated thereunder, of any share or shares of
Stock issued to him upon exercise of an Incentive Option granted under the Plan
within the two-year period commencing on the day after the date of the grant of
such Incentive Option or within a one-year period commencing on the day after
the date of transfer of the share or shares to him pursuant to the exercise of
such Incentive Option, he shall, within 10 days after such disposition, notify
the Company thereof and immediately deliver to the Company any amount of United
States federal income tax withholding required by law.
(l) LIMITATION ON OPTIONS HELD BY ONE PERSON. The aggregate
number of shares of Stock subject to options held by any one person shall not
exceed that number of shares as equals 5% of the outstanding shares of the
Company.
(m) LIMITATION ON OPTIONS GRANTED TO INSIDERS. No Option may
be granted under the Plan to an insider (as such term is defined in the company
manual of the Toronto Stock Exchange) if such grant would cause the Company to:
(i) reserve for issuance to insiders such number of Common Shares of the company
as would exceed 10% of the outstanding issue of the company; (ii) issue to
insiders, within a one-year period, such number of Common Shares of the Company
as would exceed 10% of the outstanding issue of the Company; or (iii) issue to
any one insider and such insider's associates (as such term is defined in the
company manual of the Toronto Stock Exchange), within a one year period, such
number of Common Shares as would exceed 5% of the outstanding issue of the
Company.
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6. TERM OF PLAN.
No Option shall be granted pursuant to the Plan on or after May
21, 2006, but Options theretofore granted may extend beyond that date.
7. CAPITAL CHANGE OF THE COMPANY.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Stock, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares reserved for issuance under the Plan
and in the number and option price of shares subject to outstanding Options
granted under the Plan, to the end that after such event each Optionee's
proportionate interest shall be maintained as immediately before the occurrence
of such event.
8. PURCHASE FOR INVESTMENT.
Unless the Options and shares covered by the Plan have been
registered under the United States Securities Act of 1933, as amended (the
"Securities Act"), or the Company has determined that such registration is
unnecessary, each person exercising an Option under the Plan may be required by
the Company to give a representation in writing that he is acquiring the shares
for his own account for investment and not with a view to, or for sale in
connection with, the distribution of any part thereof.
9. TAXES.
The Company may make such provisions as it may deem appropriate,
consistent with applicable law, in connection with any Options granted under the
Plan with respect to the withholding of any United States or Canadian taxes or
any other tax matters.
10. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on May 22, 1996.
11. AMENDMENT AND TERMINATION.
The Board may amend, suspend, or terminate the Plan, except that
no amendment shall be made that would impair the rights of any Optionee under
any Option theretofore granted without his consent, and except that no amendment
shall be made which, without the approval of the shareholders of the Company
would:
(a) materially increase the number of shares that may be
issued under the Plan, except as is provided in Section 7;
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(b) materially increase the benefits accruing to the
Optionees under the Plan;
(c) materially modify the requirements as to eligibility for
participation in the Plan;
(d) decrease the exercise price of an Incentive Option to
less than 100% of the Fair Market Value per share of Stock on the last
trading day prior to the date of grant thereof; or
(e) extend the term of any Option beyond that provided for
in Section 5(b).
The Committee may amend the terms of any Option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Optionee without his consent. The Committee may also substitute new Options
for previously granted Options, including options granted under other plans
applicable to the participant and previously granted Options having higher
option prices, upon such terms as the Committee may deem appropriate.
12. GOVERNMENT REGULATIONS.
The Plan, and the grant and exercise of Options hereunder, and
the obligation of the Company to sell and deliver shares under such Options,
shall be subject to all applicable laws, rules and regulations, and to such
approvals by any governmental agencies or national securities exchanges
(including the American Stock Exchange, the Toronto Stock Exchange or the
Vancouver Stock Exchange, so long as the Common Shares are listed on any such
exchange) as may be required.
13. GENERAL PROVISIONS.
(a) CERTIFICATES. All certificates for shares of Stock
delivered under the Plan shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations
and other requirements of the Securities and Exchange Commission, or other
securities commission having jurisdiction, any applicable Federal, provincial or
state securities law, any stock exchange upon which the Stock is then listed and
the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
(b) EMPLOYMENT MATTERS. The adoption of the Plan shall not
confer upon any Optionee of the Company or any Subsidiary, any right to
continued employment or, in the case of an Optionee who is a director, continued
service as a director, with the Company or a Subsidiary, as the case may be, nor
shall it
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interfere in any way with the right of the Company or any Subsidiary to
terminate the employment of any of its employees, the service of any of its
directors or the retention of any of its consultants or advisors at any time.
(c) LIMITATION OF LIABILITY. No member of the Board or the
Committee, or any officer or employee of the Company acting on behalf of the
Board or the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the
Plan, and all members of the Board or the Committee and each and any officer or
employee of the Company acting on their behalf shall, to the extent permitted by
law, be fully indemnified and protected by the Company in respect of any such
action, determination or interpretation.
(d) REGISTRATION OF STOCK. Notwithstanding any other
provision in the Plan, no Option may be exercised unless and until the Stock to
be issued upon the exercise thereof has been registered under the Securities Act
and applicable state securities laws, or are, in the opinion of counsel to the
Company, exempt from such registration in the United States or exempt from the
prospectus and registration requirements under applicable provincial
legislation. The Company shall not be under any obligation to register under
applicable federal or state securities laws any Stock to be issued upon the
exercise of an Option granted hereunder, or to comply with an appropriate
exemption from registration under such laws or the laws of any province in order
to permit the exercise of an Option and the issuance and sale of the Stock
subject to such Option however, the Company may in its sole discretion register
such Stock at such time as the Company shall determine. If the Company chooses
to comply with such an exemption from registration, the Stock issued under the
Plan may, at the direction of the Committee, bear an appropriate restrictive
legend restricting the transfer or pledge of the Stock represented thereby, and
the Committee may also give appropriate stop transfer instructions to the
Company's transfer agents.
GST TELECOMMUNICATIONS, INC.
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As Amended Through
March 4, 1998
GST TELECOMMUNICATIONS, INC.
SENIOR OPERATING OFFICER STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
This Senior Operating Officer Stock Option Plan (the "Plan") is
intended as an incentive, to retain in the employ of GST TELECOMMUNICATIONS,
INC., a federally chartered Canadian corporation with its principal office at
4317 N.E. Thurston Way, Vancouver, Washington 98662 (the "Company") and any
Subsidiary of the Company, within the meaning of Section 424(f) of the United
States Internal Revenue Code of 1986, as amended (the "Code"), as senior
operating officers, operating officers, senior executive officers, other
officers, employees and directors, persons of training, experience and ability,
to attract new senior operating officers, operating officers, senior executive
officers, other officers, employees and directors whose services are considered
valuable, to encourage the sense of proprietorship and to stimulate the active
interest of such persons in the development and financial success of the Company
and its Subsidiaries.
It is further intended that certain options granted pursuant to
the Plan shall constitute incentive stock options within the meaning of Section
422 of the Code (the "Incentive Options"), while certain other options granted
pursuant to the Plan shall be nonqualified stock options (the "Nonqualified
Options"). Incentive Options and Nonqualified Options are hereinafter referred
to collectively as "Options."
The Company intends that the Plan meet the requirements of Rule
16b-3 ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and that transactions of the type specified in
subparagraphs (c) to (f) inclusive of Rule 16b-3 by officers and directors of
the Company pursuant to the Plan will be exempt from the operation of Section
16(b) of the Exchange Act. In all cases, the terms, provisions, conditions and
limitations of the Plan shall be construed and interpreted consistent with the
Company's intent as stated in this Section 1.
<PAGE>
2. ADMINISTRATION OF THE PLAN.
The Board of Directors of the Company (the "Board") shall appoint
and maintain as administrator of the Plan a Committee (the "Committee")
consisting of two or more Non-Employee Directors (as such term is defined in
Rule 16b-3), which shall serve at the pleasure of the Board. The Committee,
subject to Sections 3 and 5 hereof, shall have full power and authority to
designate recipients of Options, to determine the terms and conditions of
respective Option agreements (which need not be identical) and to interpret the
provisions and supervise the administration of the Plan. The Committee shall
have the authority, without limitation, to designate which Options granted under
the Plan shall be Incentive Options and which shall be Nonqualified Options. To
the extent any Option does not qualify as an Incentive Option, it shall
constitute a separate Nonqualified Option.
Subject to the provisions of the Plan, the Committee shall
interpret the Plan and all Options granted under the Plan, shall make such rules
as it deems necessary for the proper administration of the Plan, shall make all
other determinations necessary or advisable for the administration of the Plan
and shall correct any defects or supply any omission or reconcile any
inconsistency in the Plan or in any Options granted under the Plan in the manner
and to the extent that the Committee deems desirable to carry into effect the
Plan or any Options. The act or determination of a majority of the Committee
shall be the act or determination of the Committee and any decision reduced to
writing and signed by all of the members of the Committee shall be fully
effective as if it had been made by a majority at a meeting duly held. Subject
to the provisions of the Plan, any action taken or determination made by the
Committee pursuant to this and the other Sections of the Plan shall be
conclusive on all parties.
In the event that for any reason the Committee is unable to act
or if the Committee at the time of any grant, award or other acquisition under
the Plan of Options or Stock does not consist of two or more Non-Employee
Directors, then any such grant, award or other acquisition may be approved or
ratified in any other manner contemplated by subparagraph (d) of Rule 16b-3.
3. DESIGNATION OF OPTIONEES.
The persons eligible for participation in the Plan as recipients
of Options (the "Optionees") shall comprise senior operating officers, operating
officers, senior executive officers, other officers, employees and directors of
the Company or any Subsidiary; provided that Incentive Options may only be
granted to senior operating officers, operating officers, senior executive
officers, other officers, employees and directors who are employees of the
Company and the Subsidiaries. In selecting Optionees, and in determining the
number of shares to be covered by each Option
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<PAGE>
granted to Optionees, the Committee may consider the office or position held by
the Optionee or the Optionee's relationship to the Company, the Optionee's
degree of responsibility for and contribution to the growth and success of the
Company or any Subsidiary, the Optionee's length of service, age, promotions,
potential and any other factors that the Committee may consider relevant. An
Optionee who has been granted an Option hereunder may be granted an additional
Option or Options, if the Committee shall so determine.
4. STOCK RESERVED FOR THE PLAN.
Subject to adjustment as provided in Section 7 hereof, a total of
900,000 of the Company's Common Shares (the "Stock") shall be subject to the
Plan. The shares of Stock subject to the Plan shall consist of unissued shares
or previously issued shares held by any Subsidiary of the Company, and such
amount of shares of Stock shall be and is hereby reserved for such purpose. Any
of such shares of Stock that may remain unsold and that are not subject to
outstanding Options at the termination of the Plan shall cease to be reserved
for the purposes of the Plan, but until termination of the Plan the Company
shall at all times reserve a sufficient number of shares of Stock to meet the
requirements of the Plan. Should any Option expire or be cancelled prior to its
exercise in full or should the number of shares of Stock to be delivered upon
the exercise in full of an Option be reduced for any reason, the shares of Stock
theretofore subject to such Option may be subject to future Options under the
Plan.
5. TERMS AND CONDITIONS OF OPTIONS.
Options granted under the Plan shall be subject to the following
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) OPTION PRICE. The purchase price of each share of Stock
purchasable under an Option shall be determined by the Committee at the time of
grant, but shall not be less than 100% of the Fair Market Value (as defined
below) of such share of Stock on the last trading day prior to the date the
Option is granted; PROVIDED, HOWEVER, that with respect to an Optionee who, at
the time an Incentive Option is granted, owns (within the meaning of Section
424(d) of the Code) more than 10% of the total combined voting power of all
classes of stock of the Company or of any Subsidiary, the purchase price per
share of Stock shall be at least 110% of the Fair Market Value per share of
Stock on the last trading day prior to the date of grant. The exercise price for
each Option shall be subject to adjustment as provided in Section 7 below. Fair
Market Value means the closing price of publicly traded shares of Stock on the
principal United States securities exchange on which shares of Stock are listed
(if the shares of
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Stock are so listed), or on the NASDAQ Stock Market (if the shares of Stock are
regularly quoted on the NASDAQ Stock Market), or, if not so listed or regularly
quoted, the mean between the closing bid and asked prices of publicly traded
shares of Stock in the over-the-counter market, or, if such bid and asked prices
shall not be available, as reported by any nationally recognized quotation
service selected by the Company, or as determined by the Committee in a manner
consistent with the provisions of the Code. Anything in this Section 5(a) to the
contrary notwithstanding, in no event shall the purchase price of a share of
Stock be less than the minimum price permitted under rules and policies of the
American Stock Exchange, the Toronto Stock Exchange or the Vancouver Stock
Exchange, so long as the Common Shares are listed on any such exchange.
(b) OPTION TERM. The term of each Option shall be fixed by
the Committee, but no Option shall be exercisable more than six years after the
date such Option is granted.
(c) EXERCISABILITY. Subject to Section 5(j) hereof, Options
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee at the time of grant. No
option may be exercised to the extent that such exercise will cause the Company
to issue, upon exercise of options to purchase shares of Stock granted by the
Company without shareholder approval, that number of shares of Stock as equals
or exceeds (i) 5% of the number of outstanding shares of Stock in any 12-month
period, or (ii) 10% of the number of outstanding shares of Stock in any
five-year period.
(d) METHOD OF EXERCISE. Options to the extent then
exercisable may be exercised in whole or in part at any time during the option
period, by giving written notice to the Company specifying the number of shares
of Stock to be purchased, accompanied by payment in full of the purchase price,
in cash, by check or such other instrument as may be acceptable to the
Committee. As determined by the Committee, in its sole discretion, at or after
grant, payment in full or in part may also be made in the form of Stock owned by
the Optionee (based on the Fair Market Value of the Stock on the trading day
before the Option is exercised). An Optionee shall have the right to dividends
and other rights of a stockholder with respect to shares of Stock purchased upon
exercise of an Option after (i) the Optionee has given written notice of
exercise and has paid in full for such shares and (ii) becomes a stockholder of
record with respect thereto.
(e) NON-TRANSFERABILITY OF OPTIONS. Options are not
transferable and may be exercised solely by the Optionee during his lifetime or
after his death by the person or persons entitled thereto under his will or the
laws of descent and distribution. Any attempt to transfer, assign, pledge or
otherwise dispose of, or
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<PAGE>
to subject to execution, attachment or similar process, any Option contrary to
the provisions hereof shall be void and ineffective and shall give no right to
the purported transferee.
(f) TERMINATION BY DEATH. Unless otherwise determined by the
Committee at grant, if any Optionee's employment with or service to the Company
or any Subsidiary terminates by reason of death, the Option may thereafter be
exercised, to the extent then exercisable (or on such accelerated basis as the
Committee shall determine at or after grant), by the legal representative of the
estate or by the legatee of the Optionee under the will of the Optionee, for a
period of one year after the date of such death or until the expiration of the
stated term of such Option as provided under the Plan, whichever period is
shorter.
(g) TERMINATION BY REASON OF DISABILITY. Unless otherwise
determined by the Committee at grant, if any Optionee's employment with or
service to the Company or any Subsidiary terminates by reason of total and
permanent disability, any Option held by such Optionee may thereafter be
exercised, to the extent it was exercisable at the time of termination due to
Disability (or on such accelerated basis as the Committee shall determine at or
after grant), but may not be exercised after 30 days after the date of such
termination of employment or service or the expiration of the stated term of
such Option, whichever period is shorter; provided, however, that, if the
Optionee dies within such 30 day period, any unexercised Option held by such
Optionee shall thereafter be exercisable to the extent to which it was
exercisable at the time of death for a period of one year after the date of such
death or for the stated term of such Option, whichever period is shorter.
(h) TERMINATION BY REASON OF RETIREMENT. Unless otherwise
determined by the Committee at grant, if any Optionee's employment with or
service to the Company or any Subsidiary terminates by reason of Normal or Early
Retirement (as such terms are defined below), any Option held by such Optionee
may thereafter be exercised to the extent it was exercisable at the time of such
Retirement (or on such accelerated basis as the Committee shall determine at or
after grant), but may not be exercised after 30 days after the date of such
termination of employment or service or the expiration of the stated term of
such Option, whichever period is shorter; provided, however, that, if the
Optionee dies within such 30 day period, any unexercised Option held by such
Optionee shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of one year after the date of
such death or for the stated term of such Option, whichever period is shorter.
For purposes of this paragraph (h), Normal Retirement shall
mean retirement from active employment with the Company or
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<PAGE>
any Subsidiary on or after the normal retirement date specified in the
applicable Company or Subsidiary pension plan or if no such pension plan, age
65. Early Retirement shall mean retirement from active employment with the
Company or any Subsidiary pursuant to the early retirement provisions of the
applicable Company or Subsidiary pension plan or if no such pension plan, age
55.
(i) OTHER TERMINATION. Unless otherwise determined by the
Committee at grant, if any Optionee's employment with or service to the Company
or any Subsidiary terminates for any reason other than death, Disability or
Normal or Early Retirement, the Option shall thereupon terminate, except that
the portion of any Option that was exercisable on the date of such termination
of employment may be exercised for the lesser of 30 days after the date of
termination or the balance of such Option's term if the Optionee's employment or
service with the Company or any Subsidiary is terminated by the Company or such
Subsidiary without cause (the determination as to whether termination was for
cause to be made by the Committee). The transfer of an Optionee from the employ
of the Company to a Subsidiary, or vice versa, or from one Subsidiary to
another, shall not be deemed to constitute a termination of employment for
purposes of the Plan.
(j) LIMIT ON VALUE OF INCENTIVE OPTIONS. The aggregate Fair
Market Value, determined as of the date the Incentive Option is granted, of
Stock for which Incentive Options are exercisable for the first time by any
Optionee during any calendar year under the Plan (and/or any other stock option
plans of the Company or any Subsidiary) shall not exceed $100,000.
(k) TRANSFER OF INCENTIVE OPTION SHARES. The stock option
agreement evidencing any Incentive Options granted under this Plan shall provide
that if the Optionee makes a disposition, within the meaning of Section 424(c)
of the Code and regulations promulgated thereunder, of any share or shares of
Stock issued to him upon exercise of an Incentive Option granted under the Plan
within the two-year period commencing on the day after the date of the grant of
such Incentive Option or within a one-year period commencing on the day after
the date of transfer of the share or shares to him pursuant to the exercise of
such Incentive Option, he shall, within 10 days after such disposition, notify
the Company thereof and immediately deliver to the Company any amount of United
States federal income tax withholding required by law.
(l) LIMITATION ON OPTIONS HELD BY ONE PERSON. The aggregate
number of shares of Stock subject to options held by any one person shall not
exceed that number of shares as equals 5% of the outstanding shares of the
Company.
(m) LIMITATION ON OPTIONS GRANTED TO INSIDERS. No Option may
be granted under the Plan to an insider (as such term is defined in the company
manual of the Toronto Stock Exchange) if
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<PAGE>
such grant would cause the Company to: (i) reserve for issuance to insiders such
number of Common Shares of the company as would exceed 10% of the outstanding
issue of the company; (ii) issue to insiders, within a one-year period, such
number of Common Shares of the Company as would exceed 10% of the outstanding
issue of the Company; or (iii) issue to any one insider and such insider's
associates (as such term is defined in the company manual of the Toronto Stock
Exchange), within a one year period, such number of Common Shares as would
exceed 5% of the outstanding issue of the Company.
6. TERM OF PLAN.
No Option shall be granted pursuant to the Plan on or after May
21, 2006, but Options theretofore granted may extend beyond that date.
7. CAPITAL CHANGE OF THE COMPANY.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Stock, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares reserved for issuance under the Plan
and in the number and option price of shares subject to outstanding Options
granted under the Plan, to the end that after such event each Optionee's
proportionate interest shall be maintained as immediately before the occurrence
of such event.
8. PURCHASE FOR INVESTMENT.
Unless the Options and shares covered by the Plan have been
registered under the United States Securities Act of 1933, as amended (the
"Securities Act"), or the Company has determined that such registration is
unnecessary, each person exercising an Option under the Plan may be required by
the Company to give a representation in writing that he is acquiring the shares
for his own account for investment and not with a view to, or for sale in
connection with, the distribution of any part thereof.
9. TAXES.
The Company may make such provisions as it may deem appropriate,
consistent with applicable law, in connection with any Options granted under the
Plan with respect to the withholding of any United States or Canadian taxes or
any other tax matters.
10. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on May 22, 1996.
11. AMENDMENT AND TERMINATION.
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<PAGE>
The Board may amend, suspend, or terminate the Plan, except that
no amendment shall be made that would impair the rights of any Optionee under
any Option theretofore granted without his consent, and except that no amendment
shall be made which, without the approval of the shareholders of the Company
would:
(a) materially increase the number of shares that may be
issued under the Plan, except as is provided in Section 7;
(b) materially increase the benefits accruing to the Optionees
under the Plan;
(c) materially modify the requirements as to eligibility for
participation in the Plan;
(d) decrease the exercise price of an Incentive Option to less
than 100% of the Fair Market Value per share of Stock on the last
trading day prior to the date of grant thereof; or
(e) extend the term of any Option beyond that provided for in
Section 5(b).
The Committee may amend the terms of any Option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Optionee without his consent. The Committee may also substitute new Options
for previously granted Options, including options granted under other plans
applicable to the participant and previously granted Options having higher
option prices, upon such terms as the Committee may deem appropriate.
12. GOVERNMENT REGULATIONS.
The Plan, and the grant and exercise of Options hereunder, and
the obligation of the Company to sell and deliver shares under such Options,
shall be subject to all applicable laws, rules and regulations, and to such
approvals by any governmental agencies or national securities exchanges
(including the American Stock Exchange, the Toronto Stock Exchange or the
Vancouver Stock Exchange, so long as the Common Shares are listed on any such
exchange) as may be required.
13. GENERAL PROVISIONS.
(a) CERTIFICATES. All certificates for shares of Stock
delivered under the Plan shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations
and other requirements of the Securities and Exchange Commission, or other
securities commission having jurisdiction, any applicable Federal, provincial
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<PAGE>
or state securities law, any stock exchange upon which the Stock is then listed
and the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
(b) EMPLOYMENT MATTERS. The adoption of the Plan shall not
confer upon any Optionee of the Company or any Subsidiary, any right to
continued employment or, in the case of an Optionee who is a director, continued
service as a director, with the Company or a Subsidiary, as the case may be, nor
shall it interfere in any way with the right of the Company or any Subsidiary to
terminate the employment of any of its employees, the service of any of its
directors or the retention of any of its consultants or advisors at any time.
(c) LIMITATION OF LIABILITY. No member of the Board or the
Committee, or any officer or employee of the Company acting on behalf of the
Board or the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the
Plan, and all members of the Board or the Committee and each and any officer or
employee of the Company acting on their behalf shall, to the extent permitted by
law, be fully indemnified and protected by the Company in respect of any such
action, determination or interpretation.
(d) REGISTRATION OF STOCK. Notwithstanding any other
provision in the Plan, no Option may be exercised unless and until the Stock to
be issued upon the exercise thereof has been registered under the Securities Act
and applicable state securities laws, or are, in the opinion of counsel to the
Company, exempt from such registration in the United States or exempt from the
prospectus and registration requirements under applicable provincial
legislation. The Company shall not be under any obligation to register under
applicable federal or state securities laws any Stock to be issued upon the
exercise of an Option granted hereunder, or to comply with an appropriate
exemption from registration under such laws or the laws of any province in order
to permit the exercise of an Option and the issuance and sale of the Stock
subject to such Option however, the Company may in its sole discretion register
such Stock at such time as the Company shall determine. If the Company chooses
to comply with such an exemption from registration, the Stock issued under the
Plan may, at the direction of the Committee, bear an appropriate restrictive
legend restricting the transfer or pledge of the Stock represented thereby, and
the Committee may also give appropriate stop transfer instructions to the
Company's transfer agents.
GST TELECOMMUNICATIONS, INC.
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OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
505 PARK AVENUE
NEW YORK, NEW YORK 10022
TELEPHONE: 212-753-7200
May 29, 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-8
Gentlemen:
Reference is made to the Registration Statement on Form S-8 filed
the date hereof with the Securities and Exchange Commission (the "Registration
Statement") by GST Telecommunications, Inc., a federally chartered Canadian
corporation (the "Company"). The Registration Statement relates to an aggregate
of 3,100,000 Common Shares without par value of the Company (the "Shares"),
consisting of (i) 600,000 Shares to be issued and sold by the Company in
accordance with the Company's 1996 Stock Option Plan, as amended (the "1996
Plan"), (ii) 600,000 Shares to be issued and sold by the Company in accordance
with the Company's 1996 Senior Executive Officer Stock Option Plan, as amended
(the "Senior Executive Officer Plan"), (iii) 900,000 Shares to be issued and
sold by the Company in accordance with the Company's 1996 Senior Operating
Officer Stock Option Plan, as amended (the "Senior Operating Officer Plan"), and
(iv) 1,000,000 Shares to be issued and sold by the Company in accordance with
the Company's 1997 Stock Option Plan, as amended (the "1997 Plan" and together
with the 1996 Plan, the Senior Executive Officer Plan and the Senior Operating
Officer Plan, the "Plans").
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, each as amended to date, minutes of meetings of the
Board of Directors and shareholders of the Company, the Plans and such other
documents, instruments and certificates of officers and representatives of the
<PAGE>
Securities and Exchange Commission
May 29, 1998
Page -2-
Company and public officials, and we have made such examination of the law, as
we have deemed appropriate as the basis for the opinion hereinafter expressed.
In making such examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to original documents of documents submitted to us as certified or
photostatic copies.
Based upon the foregoing, we are of the opinion that the Shares,
when issued and paid for in accordance with the terms and conditions set forth
in the Plans, 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 McCarthy Tetrault, 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 of the Company and options and warrants to purchase an aggregate
of 600,000 Shares, the resale of 200,000 of which Shares is being registered
pursuant to the Registration Statement. 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 resale prospectus contemplated by the rules and regulations
under the Securities Act of 1933, as amended.
Very truly yours,
/S/ OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
------------------------------------------
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
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-8, dated May 29, 1998, of GST
Telecommunications, Inc. and to the reference to our firm under the heading
"Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
Portland, Oregon
May 29, 1998
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
GST Telecommunications, Inc.
We consent to the use of our report, dated February 25, 1998, incorporated by
reference in the Registration Statement on Form S-8, dated May 29, 1998, of GST
Telecommunications, Inc. and to the reference to our firm under the heading
"Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
Portland, Oregon
May 29, 1998
