<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14(a)-12
GST TELECOMMUNICATIONS, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) filing Proxy Statement, if other than Registrant)
Payment of filing fee (check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
<PAGE>
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- -------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- -------------------------------------------------------------------------------
(3) Filing Party:
- -------------------------------------------------------------------------------
(4) Date Filed:
<PAGE>
GST TELECOMMUNICATIONS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE is hereby given that the Annual Meeting (the "Meeting") of the
shareholders of GST Telecommunications, Inc. (the "Company") will be held at
The Pan Pacific Hotel, 300-999 Canada Place, Vancouver, British Columbia,
Canada, on Thursday, June 8, 2000 at 10:30 a.m. (local time) for the following
purposes:
1. To receive the Annual Report of the Company, including the report of
the directors and the consolidated annual financial statements of
the Company for the fiscal year ended December 31, 1999 together with
the auditors report thereon.
2. To fix the number of directors to be elected at six (6) and to elect
directors to hold office until the next Annual Meeting of the
shareholders or until their successors are duly elected or appointed.
3. To consider, and if thought fit, to approve an amendment to the
Company's Amended and Restated 1996 Employee Stock Purchase Plan, to
provide for the reservation of an additional 300,000 shares for
issuance thereunder.
4. To consider, and if thought fit, to approve an amendment to the
Company's 1999 Stock Option Plan, to "pour-over" Common Shares
available for issuance under the Company's other stock option plans
into the 1999 Stock Option Plan.
5. To consider, and if thought fit, to approve a proposal to re-grant
and re-price certain of the Company's outstanding stock options.
6. To consider, and if thought fit, to approve an amendment to the
Company's 1999 Stock Option Plan, to provide for the reservation of
an additional 2,000,000 shares for issuance thereunder.
7. To appoint auditors for the Company until the next Annual Meeting of
the shareholders and to authorize the directors to fix the
remuneration to be paid to the auditors.
8. To transact such other business as may properly come before the
Meeting, or any adjournment thereof.
Further information regarding the matters to be considered at the Meeting
are set out in the accompanying Proxy Circular.
Shareholders unable to attend the Meeting in person are requested to read
the
<PAGE>
enclosed Proxy Circular, and then complete, sign and return the accompanying
Proxy Card for use at the Meeting. To be effective, the Proxy Card must be
received by the Company's transfer agent, Montreal Trust Company of Canada,
510 Burrard Street, Vancouver, British Columbia, V6C 3B9, (facsimile (604)
683-3694) not later than 48 hours (excluding Saturdays, Sundays and statutory
holidays) before the time of the Meeting or any adjournment thereof. Non-
registered shareholders who received these proxy materials through their broker
or other intermediary should deliver the Proxy Card in accordance with the
instructions given by such broker or other intermediary.
Only shareholders of record on the close of business on April 27, 2000
are entitled to notice of, and, subject to the provisions of the CANADA
BUSINESS CORPORATIONS ACT, to vote at, the Annual Meeting.
DATED at Vancouver, Washington, as of this 1st day of May, 2000.
ON BEHALF OF THE BOARD OF DIRECTORS
/s/ Robert A. Ferchat
-------------------------------------
(Robert A. Ferchat)
Chairman of the Company
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE
PROVIDED.
-2-
<PAGE>
GST TELECOMMUNICATIONS, INC.
4001 MAIN STREET
VANCOUVER, WASHINGTON 98663
PROXY CIRCULAR FOR ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY CIRCULAR CONTAINS INFORMATION AS AT APRIL 17, 2000
----------
THIS PROXY CIRCULAR AND THE ACCOMPANYING NOTICE OF MEETING AND PROXY
CARD ARE BEING FURNISHED IN CONNECTION WITH THE SOLICITATION OF PROXIES BY
THE BOARD OF DIRECTORS OF GST TELECOMMUNICATIONS, INC., A CANADIAN
CORPORATION (REFERRED TO IN THIS PROXY CIRCULAR AS "WE" "US" OR "GST"), FOR
USE AT THE ANNUAL MEETING OF SHAREHOLDERS, AND ANY ADJOURNMENT THEREOF,
WHICH WE REFER TO AS THE MEETING. THE MEETING WILL BE HELD AT THE PAN PACIFIC
HOTEL, 300-999 CANADA PLACE, VANCOUVER, BRITISH COLUMBIA, CANADA, ON
THURSDAY, JUNE 8, 2000 AT 10:30 A.M. (LOCAL TIME). AT THE MEETING,
SHAREHOLDERS WILL BE ASKED TO VOTE ON THE MATTERS SET FORTH IN THE
ACCOMPANYING NOTICE OF MEETING.
We expect that the solicitation of proxies for the Meeting will be
primarily by mail. In addition to solicitation by mail, proxies may be
solicited by our directors, officers and other employees and may be solicited
by agents engaged by us, by telephone, Internet, telefax, in person or
otherwise, without additional compensation. We will also request brokerage
firms, nominees, custodians and fiduciaries to forward proxy materials to the
beneficial owners of shares held of record by such persons, and we will
reimburse such persons and our transfer agent for their reasonable
out-of-pocket expenses for doing so. We will bear all of our own expenses in
connection with this solicitation. We do not presently anticipate that these
costs will exceed $25,000.
The approximate mailing date of this Proxy Circular and the
accompanying Proxy Card to shareholders is May 3, 2000. Unless otherwise
stated, all amounts expressed as "$" or "dollars" refer to United States
currency.
GENERAL PROXY INFORMATION
APPOINTMENT OF PROXYHOLDERS
The persons named in the accompanying Proxy Card as proxyholders are
directors or officers of GST.
A SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON OTHER THAN THE
PERSONS NAMED IN THE PROXY CARD (WHICH PERSON NEED NOT BE A GST SHAREHOLDER)
AS PROXYHOLDER TO ATTEND AND ACT ON BEHALF OF THE SHAREHOLDER AT THE MEETING.
TO EXERCISE THIS RIGHT, THE SHAREHOLDER MUST STRIKE OUT THE NAMES OF THE
PERSONS NAMED, INSERT THE NAME OF THE PERSON TO BE APPOINTED IN THE SPACE
PROVIDED, AND SIGN AND RETURN THE PROXY CARD IN THE MANNER SET OUT BELOW.
<PAGE>
VOTING OF SHARES REPRESENTED BY PROXY
A shareholder may indicate the manner in which the proxyholder named
on the Proxy Card is to vote with respect to each matter by marking an "X" in
the appropriate space. If a shareholder's instructions as to voting are
certain, all of the shares represented by such proxy will be voted or
withheld from voting in accordance with the instructions given in the proxy
on any ballot that may be called for.
If a shareholder wishes to confer discretionary authority on a
proxyholder (other than one of the persons named in the Proxy Card) with
respect to any matter, then no voting instructions should be indicated on the
Proxy Card with respect to that matter. IF NO CHOICE IS SPECIFIED AND ONE OF
THE PERSONS NAMED IN THE PROXY CARD IS APPOINTED PROXYHOLDER, THE SHARES
REPRESENTED BY SUCH PROXY WILL BE VOTED IN FAVOR OF EACH OF THE MATTERS
IDENTIFIED THEREON.
AMENDMENTS OR VARIATIONS IN MATTERS TO BE ACTED UPON
THE PROXY CARD WILL CONFER DISCRETIONARY AUTHORITY UPON THE NAMED
PROXYHOLDER WITH RESPECT TO AMENDMENTS OR VARIATIONS TO THE MATTERS
IDENTIFIED IN THE NOTICE OF MEETING AND WITH RESPECT TO OTHER MATTERS THAT
MAY BE PROPERLY BROUGHT BEFORE THE MEETING. At the time of printing this
Proxy Circular, the Board of Directors is not aware of any amendments,
variations or other matters to be brought before the Meeting. If, however,
other matters that are not now known to the Board of Directors should
properly come before the Meeting, the Proxy Card will confer discretionary
authority upon the proxyholder named to vote on such matters in accordance
with the best judgment of the proxyholder.
Abstentions from voting by a shareholder or proxyholder attending the
Meeting will be counted for purposes of determining the presence or absence of a
quorum at the Meeting for the transaction of business. With respect to the
matters to be dealt with at the Meeting, only the actual votes cast will be
considered in determining if that matter has been passed by the requisite
majority. An abstention will not be considered a vote cast. While broker
non-votes will be counted for purposes of determining the presence or absence of
a quorum for the transaction of business, broker non-votes will not be counted
for purposes of determining the number of shares voted with respect to the
particular proposal on which the broker has expressly not voted.
VALIDITY OF PROXY
To be valid and effective a proxy or other instrument appointing a
proxyholder must be dated and signed by the shareholder, any nominee or other
intermediary acting on behalf of a shareholder or the shareholder's attorney
authorized in writing. In the case of a shareholder which is a corporation,
association or other entity, the proxy or other instrument must be dated and
executed under its corporate seal or signed by a duly authorized officer or
attorney for the corporation, association or other entity.
DEPOSIT OF PROXIES
COMPLETED PROXIES TOGETHER WITH THE POWER OF ATTORNEY OR OTHER
AUTHORITY, IF ANY, UNDER WHICH IT WAS SIGNED OR A NOTARIALLY CERTIFIED COPY
THEREOF, MUST BE DEPOSITED WITH THE COMPANY'S TRANSFER AGENT, MONTREAL TRUST
COMPANY OF CANADA, 510 BURRARD STREET, VANCOUVER, BRITISH COLUMBIA,
2
<PAGE>
V6C 3B9, (FACSIMILE (604) 683-3694), NOT LATER THAN 48 HOURS (EXCLUDING
SATURDAYS, SUNDAYS AND STATUTORY HOLIDAYS) BEFORE THE TIME OF THE MEETING OR
ANY ADJOURNMENT THEREOF. NON-REGISTERED SHAREHOLDERS WHO RECEIVED THESE
MEETING MATERIALS THROUGH THEIR BROKER OR OTHER INTERMEDIARY SHOULD DELIVER
THE PROXY CARD OR OTHER VOTING INSTRUCTIONS IN ACCORDANCE WITH THE
INSTRUCTIONS GIVEN BY SUCH BROKER OR OTHER INTERMEDIARY.
A vote cast in accordance with the terms of a proxy will be valid
notwithstanding the previous death, incapacity or bankruptcy of the
shareholder on whose behalf the proxy was given unless written notice thereof
is received by the Chairman of the Meeting before the vote is cast.
REVOCATION OF PROXIES
A shareholder who has given a proxy may revoke it by (i) signing and
depositing a proxy bearing a later date; (ii) an instrument in writing signed
by the shareholder or the shareholder's attorney authorized in writing, or,
if the shareholder is a corporation, association or other entity, executed
under its corporate seal or signed by a duly authorized officer or attorney
for the corporation, association or other entity and either delivered to our
registered office in Canada at Suite 1300-777 Dunsmuir Street, Vancouver,
British Columbia, Canada V7Y 1K2, at any time up to and including the last
business day preceding the day of the Meeting, or deposited with the Chairman
of the Meeting on the day of the Meeting; (iii) attending the Meeting in
person and registering with the scrutineer as a shareholder present in person
and signing and dating a written notice of revocation; or (iv) in any other
manner permitted by law. Any such revocation will have effect only in respect
of those matters upon which a vote has not already been cast pursuant to the
authority conferred by a previously deposited proxy.
SHARES ENTITLED TO VOTE
Only shareholders of record of our common shares (the "Common
Shares") at the close of business on April 27, 2000, which we have declared
as the Record Date, are entitled to notice of and to vote at the Meeting,
except as may be otherwise provided for under the CANADA BUSINESS
CORPORATIONS ACT. According to the records of Montreal Trust Company, our
registrar and transfer agent, 39,962,283 Common Shares were outstanding and
entitled to vote as of the Record Date.
Each outstanding Common Share entitles the holder thereof to one
vote on all matters set forth in this Proxy Circular. Two or more persons
holding or representing a total of five percent or more of our Common Shares
is required for a quorum at the Meeting. A MAJORITY OF GREATER THAN 50% OF
THE VOTES CAST ON EACH OF THE MATTERS TO BE CONSIDERED AT THE MEETING WILL BE
REQUIRED TO APPROVE SUCH MATTER, OTHER THAN THE ELECTION OF DIRECTORS OR
APPOINTMENT OF THE AUDITORS, IN WHICH CASE THE NOMINEES RECEIVING THE MOST
VOTES IN FAVOR WILL BE ELECTED OR APPOINTED, AS THE CASE MAY BE.
3
<PAGE>
PARTICULARS OF MATTERS TO BE ACTED UPON AT THE MEETING
I. ELECTION OF DIRECTORS
We currently have seven (7) directors. The term of office of each
director expires at the Meeting. We propose to fix the number of directors to
be elected at the Meeting at six (6) and to elect six directors at the
Meeting. Each director holds office until the next annual meeting or until
his successor is duly elected or appointed, unless his office is earlier
vacated in accordance with our by-laws or he becomes disqualified to act as a
director.
We intend to nominate each of the individuals listed below for
election as a director. We are not aware that any of the nominees below are
unable or unwilling to serve; however, in the event that any of our nominees
is unable or declines to serve as director at the time of the Meeting, it is
intended that the discretionary authority granted under the enclosed form of
proxy may be used to vote for a substitute nominee designated by the present
Board of Directors. There are no family relationships among any of the
nominees for election as director, the current directors, or the executive
officers of GST.
<TABLE>
<CAPTION>
NAME AGE(1) DIRECTOR SINCE POSITION HELD WITH GST(2)
<S> <C> <C> <C>
ROBERT A. FERCHAT 65 March 4, 1998 Chairman
Toronto, Ontario
(3)(4)(5)(6)
STANLEY M.D. BECK 65 April 15, 1999 Director
Toronto, Ontario
(5)(6)
GEORGE B. COBBE 62 April 15, 1999 Director
Grass Valley, California
(3)(4)
JOSEPH G. FOGG, III 53 June 3, 1997 Director
Westbury, New York
(4)(6)(7)
DAVID W. GARRISON 44 April 15, 1999 Director
Saratoga, California
(4)(5)
A. ROY MEGARRY 63 September 9, 1997 Director
Uxbridge, Ontario
(3)(5)
- -------------------
</TABLE>
(1) As of April 17, 2000.
(2) For information concerning occupations of each of the directors for the
preceding five years, see "Information Regarding Nominees and
Continuing Directors." For information concerning the number of Common
Shares beneficially owned, directly or indirectly, or over which
control or direction is exercised, see "Security Ownership of Certain
Beneficial Owners and Management."
(3) Member of the Audit Committee.
(4) Member of the Compensation Committee.
(5) Member of the Governance and Nominating Committee.
(6) Member of the Executive Committee.
4
<PAGE>
(7) In connection with the purchase in 1997 of our Series A Preferred
Shares by Princes Gate Investors II, L.P., we agreed to nominate a
designeee of the holders of those shares to our Board of Directors. Mr.
Fogg is the designee of such holders.
INFORMATION REGARDING NOMINEES AND CONTINUING DIRECTORS
The following information concerning each of our directors has been
furnished by such director.
ROBERT A. FERCHAT has been Chairman of GST since June 1998 and a
director since March 1998. Mr. Ferchat was the Chairman and Chief Executive
Officer of BCE Mobile Communications, Ltd. from 1994 to 1999. Additionally, Mr.
Ferchat serves as a director of Brookfield Properties, Ltd., Gennum Corporation,
ATS Information Trading Systems, Ltd, AirGate PCS, Inc. and Nextair, Inc.
STANLEY M.D. BECK has been a director of GST since April 1999. Since
1994, Mr. Beck has served as President of Granville Arbitrations Limited. Mr.
Beck also served as the non-executive chairman of Central Capital Corporation
from 1993 to 1999. Mr. Beck currently serves as a director of the following
companies: New Growth Corporation, Utility Corporation, Canadian Life & Health
Insurance Compensation Corporation, Philex Gold, Inc., YMG Capital Management,
Inc., 407-ETR Concession Company Ltd., and Rio Narcea Gold Mines Ltd. Mr. Beck
is a member of the Advisory Board of Altamira.
GEORGE B. COBBE has been a director of GST since April 1999. Mr. Cobbe
retired from Hewlett-Packard in 1998, having most recently served as Vice
President and Managing Director of the Americas. Mr. Cobbe currently serves as a
director of Perigree Investment Counsel, Inc., Alternative Resources
Corporation, Global Election Systems, and The Bombay Company, Inc.
JOSEPH G. FOGG, III has been a director of GST since June 1997. Mr.
Fogg has served as the Chairman and Chief Executive Officer of J.G. Fogg & Co.
Incorporated, a private venture capital firm, since 1993. He has been an
advisory director to Morgan Stanley Dean Witter since 1992 and co-chairman of
the investment committee of Princes Gate Investors II, L.P. since its inception.
Mr. Fogg also serves as a director for Silicon Magic, Inc., Confluence Holdings
Corporation, 407-ETR Concession Company Ltd., Pardee Resources Company,
Maxspeed, Inc. and My Duc Ceramics. In addition to his corporate directorships,
Mr. Fogg serves as a director for Empower America, a not-for-profit entity.
DAVID W. GARRISON has been a director of GST since April 1999. He
currently serves on the Board of Directors for Ameritrade, Inc, ATC Teleports,
Inc., enonymous.com, and Datarover. From 1995 to 1998, Mr. Garrison was
Chairman and Chief Executive Officer of Netcom, Inc., an Internet services
company. Prior to joining Netcom, Mr. Garrison was President of SkyTel, Inc.,
a provider of telecommunications messaging services.
A. ROY MEGARRY has been a director of GST since September 1997. He
served as the Chairman of The Globe and Mail, Canada's national newspaper from
1993 to 1999. Mr. Megarry is also a director of Hewlett-Packard (Canada)
Limited, The Bombay Company, Inc., Publicitas Globe Media and the Inter American
Press Association.
VOTE REQUIRED AND BOARD RECOMMENDATION
With respect to fixing the number of directors to be elected, this will
be decided based upon the majority of votes cast on that matter at the Meeting.
5
<PAGE>
The six nominees for election as director receiving the highest number
of affirmative votes of the shares present or represented by proxy and entitled
to be voted for them, up to the fixed number of directors to be elected, will be
elected as directors. Shareholders do not have the right to cumulate their votes
in the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF FIXING THE NUMBER
OF DIRECTORS TO BE ELECTED AT SIX.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF
THE NOMINEES SET FORTH ABOVE.
6
<PAGE>
II. APPROVAL OF AN AMENDMENT TO OUR AMENDED AND RESTATED 1996 EMPLOYEE STOCK
PURCHASE PLAN TO RESERVE AN ADDITIONAL 300,000 COMMON SHARES FOR ISSUANCE
THEREUNDER.
The Board of Directors has determined, subject to shareholder approval,
to reserve an additional 300,000 Common Shares for issuance pursuant to our
Amended and Restated 1996 Employee Stock Purchase Plan, which we refer to as the
Purchase Plan. The Purchase Plan was approved by the shareholders on April 15,
1999. Of the 600,000 Common Shares that were reserved for issuance, 299,536 have
been issued as of April 17, 2000.
The following table shows, for the past two years, the number of Common
Shares issued under the Purchase Plan at the end of each six-month offering
period:
<TABLE>
<CAPTION>
----------------------------------------------------------
OFFERING PERIOD NUMBER OF COMMON
SHARES ISSUED
<S> <C>
----------------------------------------------------------
March 31, 2000 166,268
----------------------------------------------------------
September 30, 1999 133,268
----------------------------------------------------------
March 31, 1999 127,049*
----------------------------------------------------------
September 30, 1998 167,697
----------------------------------------------------------
</TABLE>
*Owing to a shortfall in the number of shares needed for the
March 31, 1999 offering period, an additional 88,372 Common
Shares were issued from the 1999 Supplemental Employee Stock
Purchase Plan following its approval on April 15, 1999, for a
total of 215,421 Common Shares issued under both plans.
The number of Common Shares required is a factor of the amount of
employee contributions and the market price of our Common Shares at the time the
offering price is determined under the Purchase Plan. If, during 2000 and 2001,
more employees join the Purchase Plan or increase their level of contribution,
we may require more Common Shares than in the prior offering periods shown
above. At the Meeting, shareholders will be asked to approve the reservation of
an additional 300,000 Common Shares under the Purchase Plan to ensure that an
adequate number of Common Shares are available for issuance through the next
annual meeting of shareholders. Without this additional reservation of Common
Shares, we believe that a shortfall will likely occur prior to the annual
meeting in 2001.
SUMMARY OF THE PURCHASE PLAN
A copy of the Purchase Plan will be available at the Meeting, or by
written request to our Secretary.
GENERAL. The purpose of the Purchase Plan is to provide employees with
an opportunity to purchase Common Shares through payroll deductions.
ADMINISTRATION. The Purchase Plan may be administered by the Board of
Directors or a
7
<PAGE>
committee appointed by the Board (as applicable, the "Administrator"). All
questions of interpretation or application of the Purchase Plan are
determined by the Administrator, and its decisions are final, conclusive and
binding upon all participants.
ELIGIBILITY. Each GST employee (including officers), whose customary
employment with GST is at least twenty (20) hours per week and more than five
(5) months in any calendar year, is eligible to participate in the Purchase
Plan; provided, however, that no employee shall be granted a purchase right
under the Purchase Plan (i) to the extent that, immediately after the grant,
such employee would own 5% of either the voting power or value of the
outstanding Common Shares, or (ii) to the extent that his or her rights to
purchase Common Shares under this or any future GST employee stock purchase plan
accrues at a rate which exceeds $25,000 worth of Common Shares (determined at
the fair market value of the shares at the time such purchase right is granted)
for each calendar year.
OFFERING PERIOD. The Purchase Plan is implemented over offering periods
lasting approximately six months in duration, with a new offering period
commencing on April 1 and October 1 of each year, subject to modification with
advance notice by the Administrator. To participate in the Purchase Plan, each
eligible employee must authorize payroll deductions pursuant to the Purchase
Plan. Such payroll deductions may not exceed 10% of a participant's
compensation. Compensation is defined as base straight time gross earnings and
commissions, exclusive of payments for overtime, shift premium, incentive
compensation, bonuses and other compensation. Once an employee becomes a
participant in the Purchase Plan, Common Shares will automatically be purchased
under the Purchase Plan at the end of each offering period, unless the
participant withdraws or terminates employment earlier. Further, the employee
will automatically participate in each successive offering period until such
time as the employee withdraws from the Purchase Plan or the employee's
employment with GST terminates.
PURCHASE PRICE. The purchase price per share at which Common Shares
will be sold in an offering under the Purchase Plan is the lower of (i) 85% of
the fair market value of a share of Common Shares on the first day of an
offering period or (ii) 85% of the fair market value of a share of Common Shares
on the last day of each offering period. The fair market value of the Common
Shares on a given date is generally the weighted average trading price for such
shares for the five trading days immediately before such date, as reported on
NASDAQ or other exchange which is a primary exchange for the Common Shares for
such date.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS. The purchase price of
the shares is accumulated by payroll deductions throughout the offering period.
The number of Common Shares a participant may purchase in each offering period
is determined by dividing the total amount of payroll deductions withheld from
the participant's compensation during that offering period by the purchase
price; provided, however, that a participant may not purchase more than 20,000
shares for each offering period. During the offering period, a participant may
discontinue his or her participation in the Purchase Plan, and may decrease or
increase the rate of payroll deductions in an offering period within limits set
by the Administrator.
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<PAGE>
All payroll deductions made for a participant are (i) credited to the
participant's account under the Purchase Plan, (ii) withheld in whole
percentages only and (iii) included with our general funds. Funds received by us
pursuant to exercises under the Purchase Plan are also used for general
corporate purposes. A participant may not make any additional payments into his
or her account.
WITHDRAWAL. A participant may terminate his or her participation in the
Purchase Plan by signing and delivering to us a notice of withdrawal from the
Purchase Plan at any time, provided that such withdrawal shall not take effect
until the commencement of the next offering period.
TERMINATION OF EMPLOYMENT. Termination of a participant's employment
for any reason, including death, cancels his or her participation in the
Purchase Plan immediately. In such event the payroll deductions credited to the
participant's account will be returned without interest to such participant, his
or her designated beneficiaries or the executors or administrators of his or her
estate.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of any changes
in our capitalization effected without receipt of consideration by us, such as a
stock split, stock dividend, combination or reclassification of the Common
Shares, resulting in an increase or decrease in the number of Common Shares,
proportionate adjustments will be made by the Administrator in the shares
subject to purchase and in the price per share under the Purchase Plan. In the
event of liquidation or dissolution of GST, the offering periods then in
progress will be shortened by setting a new exercise date and will terminate
immediately prior to the consummation of such event unless otherwise provided by
the Administrator. In the event of a sale of all or substantially all of our
assets, or the merger of GST with or into another corporation, each purchase
right under the Purchase Plan shall be assumed or an equivalent purchase right
shall be substituted by such successor corporation or a parent or subsidiary of
such successor corporation. If the successor corporation refuses to assume or
substitute for the outstanding purchase rights, the offering period then in
progress will be shortened and a new exercise date will be set by the
Administrator.
AMENDMENT AND TERMINATION. The Board of Directors may at any time and
for any reason amend or terminate the Purchase Plan, except that no such
termination shall affect purchase rights previously granted and no amendment
shall make any change in a purchase right granted prior thereto which adversely
affects the rights of any participant. Approval for amendments to the Purchase
Plan shall be obtained in such a manner and to such a degree as required to
comply with all applicable laws or regulations. The Purchase Plan will terminate
in 2006, unless terminated earlier by the Board of Directors in accordance with
the Purchase Plan.
CERTAIN U.S. FEDERAL INCOME TAX INFORMATION. THE FOLLOWING IS A BRIEF
SUMMARY OF THE EFFECT OF U.S. FEDERAL INCOME TAXATION UPON U.S. PARTICIPANTS AND
GST WITH RESPECT TO THE SHARES PURCHASED UNDER THE PURCHASE PLAN. IT DOES NOT
PURPORT TO BE COMPLETE, AND
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<PAGE>
DOES NOT DISCUSS THE TAX CONSEQUENCES OF A PARTICIPANT'S DEATH OR THE INCOME
TAX LAWS OF ANY STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
until the shares purchased under the Purchase Plan are sold or otherwise
disposed of. Upon sale or other disposition of the shares, the participant will
generally be subject to tax in an amount that depends upon the holding period.
If the shares are sold or otherwise disposed of more than two years from the
first day of the applicable offering period and one year from the applicable
date of purchase, the participant will recognize ordinary income measured as the
lesser of (a) the excess of the fair market value of the shares at the time of
such sale or disposition over the purchase price, or (b) an amount equal to 15%
of the fair market value of the shares as of the first day of the applicable
offering period. Any additional gain will be treated as long-term capital gain.
If the shares are sold or otherwise disposed of before the expiration of these
holding periods, the participant will recognize ordinary income generally
measured as the excess of the fair market value of the shares on the date the
shares are purchased over the purchase price. Any additional gain or loss on
such sale or disposition will be long-term or short-term capital gain or loss,
depending on the holding period. We generally are not entitled to a deduction
for amounts taxed as ordinary income or capital gain to a participant except to
the extent of ordinary income recognized by participants upon a sale or
disposition of shares prior to the expiration of the holding periods described
above.
VOTE REQUIRED AND BOARD RECOMMENDATION
Under the policies of The Toronto Stock Exchange, the increase in the
number of shares to be reserved for issuance under the Purchase Plan must be
approved by a majority of votes cast on the resolution other than votes
attaching to Common Shares beneficially owned by insiders to whom Common Shares
may be issued under the Purchase Plan, and their respective associates. To our
knowledge, approximately 11,363 Common Shares are held by such insiders and
their associates.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOUR OF THE RESERVATION
OF AN ADDITIONAL 300,000 COMMON SHARES UNDER THE AMENDED AND RESTATED 1996
EMPLOYEE STOCK PURCHASE PLAN.
10
<PAGE>
III. APPROVAL OF AN AMENDMENT TO THE 1999 STOCK OPTION PLAN TO POUR-OVER COMMON
SHARES AVAILABLE FOR ISSUANCE UNDER OTHER GST STOCK OPTION PLANS INTO THE 1999
STOCK OPTION PLAN.
Our past practice of creating annual stock option plans has resulted in
an administrative burden, as we currently have six (6) separate stock option
plans from which we grant stock options [namely, our 1995 Stock Option Plan,
1996 Stock Option Plan, 1997 Stock Option Plan, Senior Operating Officer and
Senior Executive Officer Plans (collectively, the "Old Plans") and our 1999
Stock Option Plan (the "1999 Plan")]. Each of these Plans were previously
described in detail in our previous Proxy Circulars and approved by
shareholders. Under each of these plans there is a fixed number of Common
Shares reserved for issuance upon the exercise of stock options granted under
that plan. Our Board of Directors has determined that it would be beneficial
to use a single stock option plan going forward. To address this issue, our
Board has approved a plan to reorganize and simplify our existing stock
option arrangements by amending our 1999 Plan to increase the number of
shares reserved for issuance under that plan based on a "pour-over" of shares
which are presently available or will become available under the Old Plans
upon options being surrendered (in connection with the proposed re-pricing
discussed in Proposal IV or upon optionees ceasing to be employed by us or
otherwise surrendering their options) under those plans.
The following table summarizes certain information regarding all of our
existing stock option plans. All six plans are substantively the same except as
noted below. A detailed summary of the 1999 Plan is included below.
<TABLE>
<CAPTION>
------------------------- --------------------- -------------------------------- ------------------- ---------------
DATE INITIALLY MAXIMUM NUMBER OF MAXIMUM
APPROVED BY THE COMMON SHARES CURRENTLY NUMBER OF OPTIONS OPTION TERM
STOCK OPTION PLAN SHAREHOLDERS RESERVED FOR ISSUANCE OUTSTANDING (IN YEARS)
------------------------- --------------------- -------------------------------- ------------------- ---------------
<S> <C> <C> <C> <C>
1995 Plan February 14, 1995 576,036 381,825 5
------------------------- --------------------- -------------------------------- ------------------- ---------------
1996 Plan February 15, 1996 848,051 373,384 5
------------------------- --------------------- -------------------------------- ------------------- ---------------
1997 Plan March 4, 1998 953,521 737,582 5
------------------------- --------------------- -------------------------------- ------------------- ---------------
Senior Operating March 17, 1997 594,292
Officer Plan 294,375 6
------------------------- --------------------- -------------------------------- ------------------- ---------------
Senior Executive March 17, 1997 400,002 0 6
Officer Plan
------------------------- --------------------- -------------------------------- ------------------- ---------------
1999 Plan April 15, 1999 2,000,000 1,962,827 10
------------------------- --------------------- -------------------------------- ------------------- ---------------
TOTAL: 5,371,902 3,749,993
</TABLE>
The 1999 Plan was adopted by our Board of Directors in March 1999 and
approved by a majority of disinterested shareholders on April 15, 1999. At that
time, shareholders approved the reservation of 2,000,000 Common Shares for
issuance under the 1999 Plan.
As of April 17, 2000, we have issued options with respect to 1,962,827
Common Shares under the 1999 Plan. No options have been exercised under the 1999
Plan. As a result, we have remaining only 37,173 Common Shares for issuance
under the 1999 Plan.
11
<PAGE>
The number of Common Shares available for future grants under all of
our plans decreases as options are granted or exercised and increases upon
optionees ceasing to be employed by us or otherwise surrendering their options.
However, these increases and decreases apply on a plan-by-plan basis. This
has resulted in an added administrative burden and occasionally results in
some unintended inconsistencies in option grants where, because of a limited
number of Common Shares being available for issuance, we must draw upon
multiple plans to grant the desired total number of options to a single
optionee.
As a matter of administrative convenience and to ensure consistent
terms and conditions among option grants, we would like to eliminate the
multiple-plan approach previously employed and make future option grants from a
single stock option plan. As a means to reorganize our stock option plans so
that we will eventually have only one plan, we propose to amend the 1999 Plan
and terminate the use of and phase out the Old Plans. Our Board of Directors has
approved, subject to shareholder and other applicable approvals, to amend the
1999 Plan to redesignate it as our "Consolidated Stock Option Plan" and to amend
and replace Section 3 of the Plan substantially as shown by the text underlined
below:
"3. Shares Subject to the Plan. Subject to the provisions of
Section 12 of the Plan, the maximum aggregate number of Common Shares
which may be reserved for issuance under the Plan is (a) [THE ORIGINAL
2,000,000 PLUS THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE UNDER THE
OLD PLANS PLUS 2,000,000 PURSUANT TO PROPOSAL V], PLUS (b) THE NUMBER
OF COMMON SHARES WHICH AT ANY TIME AFTER JUNE 8, 2000 BECOME AVAILABLE
FOR ISSUANCE UNDER THE OLD PLANS, AS A RESULT OF THE TERMINATION,
CANCELLATION OR SURRENDER OF OPTIONS PREVIOUSLY GRANTED UNDER THE OLD
PLANS."
The above amendment does not entail any overall increase in the number
of Common Shares reserved for issuance under our stock option plans. Contingent
upon obtaining shareholder approval for these amendments to the 1999 Plan, the
Board of Directors will terminate all of the Old Plans, except with respect to
any options remaining outstanding under the Old Plans as of June 8, 2000, which
will continue to be dealt with in accordance with the terms of the Old Plans.
SUMMARY OF THE 1999 PLAN
A copy of the 1999 Plan, as amended, will be available for inspection at our
corporate headquarters during normal business hours on any business day before
the Meeting and will be available at the Meeting.
GENERAL. The purpose of the 1999 Plan is to attract and retain the best
available personnel for positions of substantial responsibility with GST, to
provide additional incentive to our employees, directors and consultants and to
promote the success of our business. Options granted under the 1999 Plan may
be either "incentive stock options," as defined in Section 422 of the Code, or
nonstatutory stock options.
ADMINISTRATION. The 1999 Plan may generally be administered by the
Board or a Committee appointed by the Board, which, as applicable, we refer to
as the Administrator. The Administrator may make any determinations deemed
necessary or advisable for the 1999 Plan.
ELIGIBILITY. Nonstatutory stock options may be granted under the 1999
Plan to the employees (including directors) and consultants of GST and any
parent or subsidiary of GST. Incentive stock options may be granted only to
employees. The Administrator, in its discretion, selects the employees and
consultants to whom options may be granted, the time or times at which such
options shall be granted, and the exercise price and number of shares subject to
each such grant.
LIMITATIONS. Section 162(m) places limits on the deductibility for
federal income tax purposes of compensation paid to certain executive officers
of GST. In order to preserve our ability to deduct the compensation income
associated with options granted to such persons, the 1999 Plan provides that no
employee may be granted, in any fiscal year of GST, options to
12
<PAGE>
purchase more than 750,000 Common Shares. Notwithstanding this limit,
however, in connection with such individual's initial employment with us, he
or she may be granted options to purchase up to an additional 750,000 Common
Shares. Furthermore, the maximum aggregate number of Common Shares subject to
options granted under the 1999 Plan and any other share compensation
arrangement held by any one employee, director or consultant shall not exceed
5% of our outstanding Common Shares.
TERMS AND CONDITIONS OF OPTIONS. Each option is evidenced by a stock
option agreement between us and the optionee, and is subject to the following
terms and conditions:
(a) EXERCISE PRICE. The Administrator determines the exercise price of
options at the time the options are granted. The exercise price of an incentive
stock option may not be less than 100% of the fair market value of the Common
Shares on the date such option is granted; provided, however, the exercise price
of an incentive stock option granted to a 10% shareholder may not be less than
110% of the fair market value of the Common Shares on the date such option is
granted. The fair market value of the Common Shares is generally determined with
reference to the closing sale price for the Common Shares (or the closing bid if
no sales were reported) on the last market trading day prior to the date the
option is granted, as reported on NASDAQ or any other exchange which is a
primary exchange for the Common Shares.
(b) EXERCISE OF OPTION; FORM OF CONSIDERATION. The Administrator
determines when options become exercisable, and may in its discretion,
accelerate the vesting of any outstanding option. The means of payment for
shares issued upon exercise of an option is specified in each option agreement.
The 1999 Plan permits payment to be made by cash, bank draft or money order,
other shares of Common Shares of the Company (with some restrictions), cashless
exercises, any other form of consideration permitted by applicable law, or any
combination thereof.
(c) TERM OF OPTION. The term of an incentive stock option may be no
more than ten (10) years from the date of grant; provided that in the case of an
incentive stock option granted to a 10% shareholder, the term of the option may
be no more than five (5) years from the date of grant. No option may be
exercised after the expiration of its term.
(d) TERMINATION OF EMPLOYMENT. If an optionee's employment or
consulting relationship terminates for any reason (including death or
disability), then the optionee may exercise the option within such period of
time as is specified in the option agreement to the extent that the option is
vested on the date of termination, (but in no event later than the expiration of
the term of such option as set forth in the option agreement). The 1999 Plan and
the option agreement may provide for a longer period of time for the option to
be exercised after terminations due to the optionee's death or disability than
for other terminations. The optionee (or the optionee's estate or the person who
acquires the right to exercise the option by bequest or inheritance) may
exercise all or part of his or her option to the extent the option is
exercisable at the time of such termination.
(e) NONTRANSFERABILITY OF OPTIONS: Unless otherwise determined by the
Administrator, options granted under the 1999 Plan are not transferable other
than by will or the
13
<PAGE>
laws of descent and distribution, and may be exercised during the optionee's
lifetime only by the optionee.
(f) OTHER PROVISIONS: The stock option agreement may contain other
terms, provisions and conditions not inconsistent with the 1999 Plan as may be
determined by the Administrator.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event that our stock
changes by reason of any stock split, reverse stock split, stock dividend,
combination, reclassification or other similar change in our capital structure
effected without the receipt of consideration, appropriate adjustments shall be
made in the number and class of shares of stock subject to the 1999 Plan, the
number and class of shares of stock subject to any option outstanding under the
1999 Plan, and the exercise price of any such outstanding option.
In the event of a liquidation or dissolution, any unexercised options
will terminate. The Administrator may, in its sole discretion, provide that each
optionee shall have the right to exercise all of the optionee's options,
including those not otherwise exercisable.
In connection with any merger, consolidation, acquisition of assets or
like occurrence involving GST, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation. If the successor
corporation refuses to assume the options or to substitute substantially
equivalent options, the optionee shall fully vest in and have the right to
exercise the option as to all the optioned stock, including shares not otherwise
vested or exercisable. In such event, the Administrator shall notify the
optionee that the option is fully exercisable for fifteen (15) days from the
date of such notice and that the option terminates upon expiration of such
period.
AMENDMENT AND TERMINATION OF THE 1999 PLAN. The Board of Directors may
amend, alter, suspend or terminate the 1999 Plan, or any part thereof, at any
time and for any reason. However, we shall obtain shareholder approval for any
amendment to the 1999 Plan to the extent necessary and desirable to comply with
applicable law. No such action by the Board of Directors or shareholders may
alter or impair any option previously granted under the 1999 Plan without the
written consent of the optionee. Unless terminated earlier, the 1999 Plan shall
terminate ten years from the date of its approval by the shareholders or our
Board of Directors, whichever is earlier.
FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise is an adjustment item for alternative
minimum tax purposes and may subject the optionee to the alternative minimum
tax. Upon a disposition of the shares more than two years after grant of the
option and one year after exercise of the option, any gain or loss is treated as
long-term capital gain or loss. Net capital gains on shares held more than 12
months may be taxed at a maximum federal rate of 20%. Capital losses are allowed
in full against capital gains and up to $3,000 against other income. If these
holding periods are not satisfied, the optionee recognizes ordinary income at
the time of disposition equal to the difference between the
14
<PAGE>
exercise price and the lower of (i) the fair market value of the shares at
the date of the option exercise or (ii) the sale price of the shares. Any
gain or loss recognized on such a premature disposition of the shares in
excess of the amount treated as ordinary income is treated as long-term or
short-term capital gain or loss, depending on the holding period. A different
rule for measuring ordinary income upon such a premature disposition may
apply if the optionee is also an officer, director, or 10% shareholder of
GST. Unless limited by Section 162(m) of the Code, we are entitled to a
deduction in the same amount as the ordinary income recognized by the
optionee.
NONSTATUTORY STOCK OPTIONS. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by one of our
employees is subject to tax withholding by us. Unless limited by Section 162(m)
of the Code, we are entitled to a deduction in the same amount as the ordinary
income recognized by the optionee. Upon a disposition of such shares by the
optionee, any difference between the sale price and the optionee's exercise
price, to the extent not recognized as taxable income as provided above, is
treated as long-term or short-term capital gain or loss, depending on the
holding period. Net capital gains on shares held more than 12 months may be
taxed at a maximum federal rate of 20%. Capital losses are allowed in full
against capital gains and up to $3,000 against other income.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME
TAXATION UPON OPTIONEES AND GST WITH RESPECT TO THE GRANT AND EXERCISE OF
OPTIONS UNDER THE 1999 PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT
DISCUSS THE TAX CONSEQUENCES OF THE EMPLOYEE'S OR CONSULTANT'S DEATH OR THE
PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY
IN WHICH THE EMPLOYEE OR CONSULTANT MAY RESIDE.
VOTE REQUIRED AND BOARD RECOMMENDATION
Under the policies of the TSE, the amendment to the 1999 Plan must be
approved by a majority of votes cast on the resolution other than votes
attaching to our Common Shares beneficially owned by insiders to whom shares may
be issued under the 1999 Plan and their respective associates. To our knowledge,
approximately 62,163 Common Shares are held by such insiders and their
associates.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOUR OF AN AMENDMENT TO
THE 1999 STOCK OPTION PLAN TO "POUR-OVER" COMMON SHARES AVAILABLE FOR ISSUANCE
UNDER OTHER GST STOCK OPTION PLANS INTO THE 1999 STOCK OPTION PLAN.
15
<PAGE>
IV. APPROVAL OF A PROPOSAL TO RE-GRANT AND RE-PRICE CERTAIN OUTSTANDING STOCK
OPTIONS.
We have experienced employee retention issues in the extremely
competitive marketplace for talented technical, sales and executive personnel.
Stock options constitute an integral part of our overall compensation package
in recruiting, retaining and motivating our employees and executives.
However, the current weighted average exercise price of our outstanding
options is $9.39 per share, which is substantially higher than the current
trading price of our Common Shares on NASDAQ. To address this issue, we
propose to offer all of our employees and executives the opportunity to
surrender their existing stock options and receive a new option grant from
our 1999 Plan.
Our Board of Directors approved a plan to offer employees of the
Company as of June 8, 2000, the opportunity to surrender their outstanding stock
options and, subject to regulatory approval, receive a new grant from the 1999
Plan (or, in the event Proposal III is not approved, from the plan under which
the surrendered option was granted). Our directors will not be offered the
opportunity to participate in the re-granting of options and so will retain
their existing stock options. The re-granted options will be for the same
number of shares and have the same expiry date and vesting conditions which
applied under the surrendered option.
As of April 17, 2000, we had options outstanding with respect to
3,749,993 Common Shares under all of our plans. These six stock option plans
have individual grants outstanding at exercise prices ranging from $4.875 to
$16.4375 per share. At April 17, 2000, the weighted average exercise price of
all outstanding options under all of the plans was $9.39.
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
----------------------------------
WEIGHTED
NUMBER AVERAGE
RANGE OF OF SHARES EXERCISE
EXERCISE PRICES OUTSTANDING PRICE
- ------------------------------- ---------------- ---------------
<S> <C> <C>
$ 3.00 - 5.99 399,350 $ 5.19
6.00 - 8.99 1,507,310 7.40
9.00 - 11.99 1,159,935 10.95
12.00 - 14.99 403,354 12.83
15.00 - 16.4375 261,973 15.08
- ------------------------------------------------------------------------
TOTAL 3,731,922 $ 9.39
</TABLE>
The exercise price of the options granted to employees who agree to
surrender their existing options will be priced at the greater of the
weighted average closing price for the five trading days preceding April 27,
2000 (namely, $3.30) or the date of grant (which has been determined as June
8, 2000). We expect that the exercise price of the re-granted options will be
lower than the exercise price of the current options. The employees
surrendering their options must also agree to a "black-out" period of six (6)
months, during which they may not exercise any vested portion of the newly
granted options. This prohibition will also apply to employees who
voluntarily terminate their employment, or are terminated for cause, during
the six-month period.
16
<PAGE>
Under current U.S. accounting rules, the exchange of options proposed here
will result in a compensation expense for all options that are exchanged
equal to the difference between the exercise price of the option and the fair
market value of the option on the day the option is exercised. This non-cash
expense is calculated on an ongoing basis until the option is exercised. To
the extent that GST's common stock price increases prior to the exercise of
the repriced options, there could be a significant compensation expense to
GST.
VOTE REQUIRED AND BOARD RECOMMENDATION
Under the rules of The Toronto Stock Exchange, "disinterested"
shareholder approval must be obtained, but only with respect to the surrender
and re-grant of any options held by "insiders." Insiders are defined to include
our directors, senior officers and our five highest paid employees. As discussed
above, our directors will not be eligible to surrender their options under this
proposal. As of April 17, 2000, options with respect to 1,131,068 Common Shares
were held by our "insiders", other than the directors. Under the rules of the
TSE, options with respect to approximately 2,400,000 Common Shares held by
non-insider employees are not subject to shareholder approval. "Disinterested"
shareholder approval requires that this proposal must be approved by a
majority of the shareholders of the Company who vote at the meeting, other
than insiders who are eligible to participate in this proposal and their
associates, who are required to abstain from voting on this matter. To our
knowledge, approximately 11,363 shares are held by such insiders and their
associates.
At the Meeting, shareholders will be asked to consider, and if thought
fit, to approve the resolution set out on Appendix A attached to this Circular.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOUR OF A RESOLUTION TO
APPROVE A PROPOSAL TO RE-GRANT AND RE-PRICE CERTAIN OUTSTANDING STOCK OPTIONS.
17
<PAGE>
V. APPROVAL OF AN AMENDMENT TO OUR 1999 STOCK OPTION PLAN TO RESERVE AN
ADDITIONAL 2,000,000 COMMON SHARES FOR ISSUANCE THEREUNDER.
As noted in Proposal III above, the 1999 Plan was adopted by our Board
of Directors in March 1999 and approved by a majority of disinterested
shareholders on April 15, 1999. At that time, the shareholders approved the
reservation of 2,000,000 Common Shares for issuance under the 1999 Plan.
As of April 17, 2000, we have issued 1,962,827 options with respect to
Common Shares under the 1999 Plan. No options have been exercised under the 1999
Plan. As a result, we have 37,173 options with respect to Common Shares
available to grant under the 1999 Plan.
If approved by the shareholders at the Meeting, we anticipate that the
amendment to the 1999 Plan described above as Proposal III (to include a
pour-over provision with respect to our Old Plans) will result in approximately
1,622,000 additional shares becoming available under the 1999 Plan. As a
consequence of our termination of the Old Plans, Proposal III has a net effect
of zero additional shares across all of our stock option plans.
During 1999, we issued approximately 466,000 options with respect to
Common Shares from the 1999 Plan pursuant to our broad-based plan. Our
broad-based plan was approved by the Compensation Committee in July, 1999 and
awards non-executive employees stock option grants based on a valuation of a
percentage of the mid-point of their salary-grade range. Approximately 800
employees participate in this plan. During 1999 and the first quarter of 2000,
we also issued approximately 900,000 options with respect to Common Shares for
new-hire incentives, including initial option grants to three new executive
officers, which together accounted for 700,000 options. During 1999, we also
granted options as retention incentives to key employees. Finally, to date, we
have issued options with respect to approximately 250,000 Common Shares under
our long-term incentive plan to certain senior executives.
During 2000, we anticipate hiring a Chief Executive Officer and two
executive officers in sales and technology. We anticipate that option grants for
these new-hires, along with non-executive management new-hire options and
continuance of the non-executive broad-based plan and executive long-term
incentive plan in 2000, will result in a need for substantially more than the
1,622,000 Common Shares we expect to be available during the year.
Our Board of Directors has approved, subject to shareholder and
other applicable approvals, to amend the 1999 Plan to increase the maximum
aggregate number of Common Shares which may be reserved for issuance under
that plan by an additional 2,000,000 Common Shares. This amendment is
separate from and in addition to any amendment set out in Proposal III above.
SUMMARY OF THE 1999 PLAN
A copy of the 1999 Plan, as amended, will be available at the Meeting,
or by written request to our Secretary.
A summary of the 1999 Plan is provided above, with respect to
Proposal III.
VOTE REQUIRED AND BOARD RECOMMENDATION
Under the policies of the TSE, the increase in the number of shares to
be reserved for issuance under the 1999 Plan must be approved by a majority of
votes cast on the resolution other than votes attaching to Common Shares
beneficially owned by insiders to whom Common Shares
18
<PAGE>
may be issued under the 1999 Plan, and their respective associates. To our
knowledge, approximately 62,163 Common Shares are held by such insiders and
their associates.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOUR OF THE RESERVATION
OF AN ADDITIONAL 2,000,000 COMMON SHARES UNDER THE 1999 STOCK OPTION PLAN.
19
<PAGE>
VI. APPOINTMENT OF INDEPENDENT AUDITORS
Upon recommendation of the Audit Committee, which is composed entirely
of non-employee directors, the Board of Directors recommended that KPMG LLP
("KPMG") be re-appointed as our independent auditors and that the directors be
authorized to fix the remuneration to be paid to the auditors.
The appointment of our auditors will be determined by the majority of
votes cast at the Meeting with respect to that matter.
KPMG has been our auditor since 1995. We have been advised by KPMG
that it will have a representative present at the Meeting who will be available
to respond to appropriate questions. The representative will also have the
opportunity to make a statement if he or she desires to do so.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPOINT KPMG LLP AS GST'S
INDEPENDENT AUDITORS UNTIL THE NEXT ANNUAL MEETING OF THE SHAREHOLDERS AND TO
AUTHORIZE THE DIRECTORS TO FIX THE REMUNERATION TO BE PAID TO THE AUDITORS.
20
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following is a list of our directors and executive officers as of
April 17, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
Robert A. Ferchat (1) (2) (3) (4) 65 Chairman
- ------------------------------------------------------------------------------------------------
Joseph A. Basile, Jr. 43 Director
- ------------------------------------------------------------------------------------------------
Stanley M.D. Beck (3) (4) 65 Director
- ------------------------------------------------------------------------------------------------
George B. Cobbe (1) (2) 62 Director
- ------------------------------------------------------------------------------------------------
Joseph G. Fogg, III (2) (4) 53 Director
- ------------------------------------------------------------------------------------------------
David W. Garrison (2) (3) 44 Director
- ------------------------------------------------------------------------------------------------
A. Roy Megarry (1) (3) 63 Director
- ------------------------------------------------------------------------------------------------
Thomas M. Malone 44 Acting Chief Executive Officer and
President, Chief Operating Officer
- ------------------------------------------------------------------------------------------------
Donald A. Bloodworth 43 Senior Vice President and Chief Financial
Officer
- ------------------------------------------------------------------------------------------------
J. Jeffrey Mayhook 49 Secretary, Vice President and Corporate
Counsel
- ------------------------------------------------------------------------------------------------
Michael R. Vestal 32 Treasurer and Controller
- ------------------------------------------------------------------------------------------------
Bruce D. Becker 46 Senior Vice President, Legal and External
Affairs
- ------------------------------------------------------------------------------------------------
Kevin R. Wright 46 Chief Technical Officer
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Governance and Nominating Committee.
(4) Member of the Executive Committee.
Biographical summaries for each of our executive officers are set forth
below. These summaries include a brief description of each executive officer's
experience and principal occupations for the past five years. Biographical
information regarding our continuing directors is contained in Proposal I,
"Election of Directors."
BRUCE D. BECKER has been Senior Vice President, Law and External
Affairs since December 1999. From 1996 to 1999, Mr. Becker was General Counsel
of Ameritech Corporation's long distance industry services unit, and from 1994
to 1996 he was counsel to Ameritech's custom business services unit.
DONALD A. BLOODWORTH was appointed Senior Vice President and Chief
Financial Officer in March 2000. From 1999 to March 2000, Mr. Bloodworth was
Vice President and Corporate Controller at 3Com Corporation. Mr. Bloodworth
served as Vice President, Systems Integration at
21
<PAGE>
PacifiCorp from 1997 to 1999. During 1997, Mr. Bloodworth was Corporate
Controller for Air Touch Communications, Inc. Mr. Bloodworth has served in
various capacities at PacifiCorp since 1987, including Corporate Controller
from 1993 to 1997.
THOMAS M. MALONE was appointed Acting Chief Executive Officer and
President of GST in January 2000. Mr. Malone has been GST's Chief Operating
Officer since November 1999. From 1998 to 1999, Mr. Malone served as President
of the Internet, web-hosting, and messaging division of Cable & Wireless USA.
From 1995 to 1998, Mr. Malone served as Senior Vice President and General
Manager of two Cable & Wireless business units, where he conceived, launched and
managed SureCom, an international fax and Internet mail delivery service.
J. JEFFREY MAYHOOK has served as Secretary and Corporate Counsel of GST
since August 1998, and has directed the in-house legal department since January
1996. Prior to joining GST, Mr. Mayhook was engaged in private law practice for
fifteen years in Anchorage, Alaska.
MICHAEL R. VESTAL has served as Treasurer of GST since March 1999, and
has been GST's Corporate Controller since February 2000. He had previously
served as GST's Assistant Controller, beginning in 1996. From 1993 to 1996, Mr.
Vestal was associated with KPMG LLP (formerly KPMG Peat Marwick LLP).
KEVIN R. WRIGHT has been the Chief Technical Officer of GST since
August 1997. From 1996 to 1997, Mr. Wright was Senior Vice President,
Engineering and Operations for US ONE Communications. From 1994 to 1996, he was
Senior Vice President, Engineering for Qwest Communications.
This section, "Compensation of Executive Officers and Directors,"
includes information regarding the following individuals who were executive
officers at December 31, 1999.
JOSEPH A. BASILE, JR., age 43, has been a director of GST since
September 1997. He served as President and Chief Executive Officer of GST from
October 1998 to January 2000. Prior to his appointment as Chief Executive
Officer, beginning in March 1997, Mr. Basile was GST's President and Chief
Operating Officer. From 1995 to 1997, Mr. Basile served as Chief Operating
Officer of Cable & Wireless, Inc.
DANIEL L. TRAMPUSH, age 52, was Senior Vice President and Chief
Financial Officer of GST from March 1997 to April 2000. From 1980 to 1997, Mr.
Trampush was a partner with the telecommunications consulting practice of Ernst
& Young LLP.
PETER H. MEYER, age 43, was Senior Vice President, Sales &
Marketing, from September 1998 to March 2000. From 1997 to 1998, Mr. Meyer was
employed by ICG Netcom as Senior Vice President and General Manager for the
Southeast Region, where he directed daily operations of the division. Mr.
Meyer also served as Vice President and General Manager with Time Warner
Telecom (formerly Time Warner Communications) from 1995 to 1997.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the cash and
non-cash compensation
22
<PAGE>
paid or accrued, during the periods indicated, to our Chief Executive Officer
and our four other most highly compensated executive officers whose combined
salary and bonus exceeded $100,000 during the fiscal year ended December 31,
1999 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- -----------------------------
NAME AND YEAR SALARY($) BONUS($) OTHER ANNUAL SECURITIES ALL OTHER
PRINCIPAL COMPENSATION UNDERLYING COMPENSATION
POSITION ($)(1) OPTIONS ($)
GRANTED (#)
- ----------------------- ---- -------- -------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Basile, Jr., 1999 325,000 56,875 - 1,000,000
Former Chief 1998 269,425 - - - 60,938 (2)
Executive Officer 1997 201,370 92,812 - 450,000(3) 304,688 (2)
Daniel L. Trampush, 1999 256,000 38,400 - - -
Former Chief Financial 1998 250,000 - - 110,000 -
Officer 1997 198,575 86,400 - 100,000 -
Kevin R. Wright, 1999 190,000 28,500 36,604 (4) 50,000 -
Chief Technology 1998 181,904 - 79,359 (5) 100,000 -
Officer 1997 68,260 25,000 - 100,000 -
Peter H. Meyer, 1999 190,000 28,500 57,858 (6) - -
Former Senior 1998 63,333 45,790 8,731 (6) 200,000 -
Vice President, 1997
Sales and
Marketing
J. Jeffrey Mayhook, 1999 144,230 46,835 - 34,228 -
Secretary, Vice President
and Corporate Counsel 1998 124,000 43,700 - 10,973 -
1997 121,337 10,000 - 8,227 -
</TABLE>
- -------------------
(1) Excludes certain perquisites that do not exceed the lesser of $50,000 or
10% of the named executive officer's aggregate salary and bonus.
(2) Represents an accrual of compensation cost for options vesting based on
stock price or operating performance.
(3) Options with respect to 300,000 Common Shares were cancelled in 1999
pursuant to Mr. Basile's employment agreement. See "Employment Agreements."
(4) Represents $24,811 in amounts paid for relocation benefits and $11,793
on account of accrued vacation benefits.
23
<PAGE>
(5) Represents $72,051 in amounts paid for relocation benefits and $7,308 on
account of accrued vacation benefits.
(6) Represents amounts paid for relocation benefits.
STOCK OPTIONS
The following table provides information with respect to stock options
granted during 1999 to the Named Executive Officers. We have not granted any
stock appreciation rights.
OPTION GRANTS IN FISCAL 1999
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Individual Grants Annual Rates of Stock
------------------------------------------------------------------- Price Appreciation
Securities % of Total Options Exercise or for Option Term(1)
Under Options Granted to Employees Base Price Expiration -----------------------
Name Granted (#) in Fiscal Year ($/Sh) Date ($) 5% 10%($)
---- ------------- -------------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Basile, Jr. 1,000,000 32.1 8.63 3/3/09 5,424,216 13,746,029
Kevin R. Wright 50,000 1.6 11.44 8/11/09 359,649 911,421
J. Jeffrey Mayhook 34,228 1.1 12.75 4/15/09 274,454 695,520
</TABLE>
- -----------------
(1) The potential realizable portion of the foregoing table illustrates
value that might be realized upon exercise of options immediately prior
to the expiration of their term, assuming (for illustrative purposes
only) the specified compound rates of appreciation of the Common Shares
over the term of the option. These numbers do not take into account
provisions providing for the termination of the option following
termination of employment, nontransferability or difference in vesting
terms. Additionally, these numbers are calculated based upon
requirements promulgated by the U.S. Securities and Exchange Commission
and do not necessarily reflect our estimate of future stock price
growth.
AGGREGATED OPTION EXERCISES DURING FISCAL 1999 AND FISCAL YEAR END OPTION
VALUES (1)
The following table sets forth information for each Named Executive
Officer concerning the exercise of options during 1999, the number of securities
underlying unexercised options at the 1999 year-end and the year-end value of
all unexercised in-the-money options held by such individuals.
<TABLE>
<CAPTION>
Value of
Unexercised in the
Money Options at
No. of Common Shares Underlying FY-End ($)(3)
Securities Value Unexercised Options at FY-End (#)(2) --------------------
Acquired on Realized --------------------------------- Exercisable/
Name Exercise (#) ($) Exercisable Unexercisable Unexercisable
- --------------------- ------------ -------- --------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
Joseph A. Basile, Jr. 0 0 691,665 458,335 236,978/200,522
Daniel L. Trampush 0 0 103,332 106,668 0/0
Kevin R. Wright 0 0 99,999 150,001 0/0
Peter H. Meyer 0 0 50,000 150,000 95,625/286,875
J. Jeffrey Mayhook 0 0 25,714 49,286 3,635/0
</TABLE>
24
<PAGE>
- -------------------
(1) All disclosures relate to options to purchase Common Shares of GST.
(2) FY-End means the fiscal year ended December 31, 1999.
(3) Represents the total gain which would be realized if all in-the-money
options held at December 31, 1999 were exercised, determined by
multiplying the number of Common Shares underlying the options by the
difference between the per share option exercise price and the fair
market value of $9.0625 per share at December 31, 1999. An option is
in-the-money if the fair market value of the underlying shares exceeds
the exercise price of the option.
EMPLOYMENT AND OTHER AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
JOSEPH BASILE, JR. was employed by GST USA, Inc., our subsidiary,
pursuant to an employment agreement effective as of October 20, 1998 for a
four-year term, replacing Mr. Basile's March 11, 1997 employment agreement. The
agreement provided for a base salary of $325,000 per annum, incentive
compensation annually based upon GST's achievement of predetermined performance
objectives pursuant to our Variable Incentive Plan and the reimbursement of
relocation expenses. The agreement restricts Mr. Basile's ability to engage in
activities competitive with those of GST. Mr. Basile was granted options to
purchase an aggregate of 1,000,000 Common Shares as follows: (i) 25% of the
1,000,000 Common Shares subject to the options vested on the first anniversary
date of the agreement and (ii) 1/36th of the remaining 750,000 Common Shares
subject to the option vested on completion of each full calendar month following
the date of the agreement. Any previously granted options which were unvested as
of the date of the agreement were cancelled. See "Option Grants in Fiscal 1999."
In the event of a change of control, the options would have vested and become
immediately exercisable only if (i) in the event of such change of control, Mr.
Basile did not receive substituted options with substantially the same benefits
as provided under the agreement; and (ii) such acceleration would not cause an
inability of a change of control transaction to be accounted for as a pooling of
interest, if desired or applicable. Mr. Basile resigned from his position as
President and CEO on January 24, 2000; however, due to accrued vacation time,
his separation date was March 1, 2000.
On February 12, 2000, Mr. Basile and GST USA entered into a Separation
Agreement and Release of Claims, pursuant to which Mr. Basile received severance
pay of $325,000. The Agreement also provided that Mr. Basile could surrender any
vested but unexercised options to us, in consideration of which we would pay Mr.
Basile the difference between the exercise price and the closing market price on
the day of surrender; provided that any proceeds would be off-set by
payment-in-full of the $100,000 loan we made to Mr. Basile in May 1997.
DANIEL L. TRAMPUSH was employed by GST USA and GST Telecom, Inc., our
subsidiaries, pursuant to an employment agreement effective March 3, 1997 for a
three-year term. The agreement provided for a base salary of $240,000 per annum,
which was increased to $256,000 effective April 15, 1998. The agreement
restricts Mr. Trampush's ability to engage in activities competitive with those
of GST. Mr. Trampush was granted options to purchase an aggregate 100,000 Common
Shares, which is referred to as the Initial Option, exercisable in three equal
annual installments commencing one year after grant. He was also eligible for
additional option grants, referred to as Performance Options, as determined by
the Compensation Committee based on his performance under the agreement with
respect to criteria set forth in the agreement. In the event of a change of
control, (i) the Initial Option would become exercisable in
25
<PAGE>
full, and (ii) Mr. Trampush would be eligible to receive additional
Performance Options or a cash payment in lieu thereof.
PETER H. MEYER was employed by GST USA and GST Telecom pursuant to an
employment agreement effective September 1, 1998 continuing through December 31,
2002. The agreement provided for a base salary of $190,000 per annum. The
agreement provides for options relating to 200,000 Common Shares exercisable in
three equal annual installments commencing one year after grant. In the event of
a change of control, all options granted would have become exercisable in full.
Mr. Meyer resigned on March 3, 2000.
On March 7, 2000, Mr. Meyer and GST USA entered into a Separation
Agreement and Release of Claims, pursuant to which Mr. Meyer received severance
pay of $190,000. The Agreement also provided that Mr. Meyer could surrender any
vested but unexercised options to us, in consideration of which we would pay Mr.
Meyer the difference between the exercise price and the closing market price on
the day of surrender; provided that any proceeds would be off-set by
payment-in-full of the $100,000 loan we made to Mr. Meyer in September 1998.
KEVIN R. WRIGHT is employed by GST USA and GST Telecom pursuant to an
employment agreement effective August 1, 1997 continuing through March 5, 2001.
The agreement provides for a base salary of $165,000 per annum, which was
increased to $190,000 effective March 4, 1998. Mr. Wright has been granted
options to purchase an aggregate of 200,000 Common Shares exercisable in three
equal annual installments commencing one year after grant. He is also eligible
for the grant annually of options with respect to that number of Common Shares
as is determined by the Compensation Committee based upon his performance under
the agreement with respect to criteria set forth in the agreement. In the event
of a change of control, the initial 200,000 options become exercisable in full.
If we terminate Mr. Wright's employment without cause, Mr. Wright is entitled to
receive a lump sum payment equal to his annual base salary and one-third of any
unvested stock options shall immediately vest.
J. JEFFREY MAYHOOK has been granted 124,038 options, which, pursuant to
a separate agreement, shall immediately vest upon a change of control, provided
that if Mr. Mayhook voluntarily resigns or is terminated for cause within six
(6) months following the change of control, then (i) Mr. Mayhook shall
immediately pay to us an amount equal to 50% of the net proceeds from any
options that were exercised (and sold) and would not have been exercisable but
for the accelerated vesting; and (ii) upon his separation, any remaining
exercisable options shall be reduced by 50% of the total number of options that
would not have been exercisable but for the accelerated vesting. The agreement
further provides that if Mr. Mayhook is terminated without cause within six (6)
months following the investment in more than 50% of our Common Shares by a
private equity or other financial investor which is otherwise excluded from the
definition of change of control, Mr. Mayhook's options will immediately vest and
become exercisable.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of December 31, 1999, our Compensation Committee was composed of
Messrs. Joseph G. Fogg, III, George B. Cobbe and Robert A. Ferchat. From
January 1, 1999 to April 14,
26
<PAGE>
1999, Jack Armstrong and Peter Legault, both former GST directors, were
members of the Compensation Committee. No interlocking relationship exists
between any member of our Board of Directors or Compensation Committee and
any member of the Board of Directors or Compensation Committee of any other
company, nor has any such interlocking relationship existed in the past. No
member of the Compensation Committee is or was formerly an officer or an
employee of GST.
REPORT ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
The Compensation Committee is responsible for developing and making
recommendations to the Board of Directors with respect to our executive
compensation and stock option policies and practices. In addition, the
Compensation Committee approves the compensation to be paid to the Chief
Executive Officer and all employees who report directly to the Chief Executive
Officer.
The Compensation Committee seeks to provide a competitive compensation
program that will enable us to attract, motivate, reward and retain individuals
who possess the skills, experience and talents necessary to advance our growth
and financial performance. Our compensation policies are based on the principle
that each executive's financial rewards should be aligned with the financial
interests of our shareholders. The Compensation Committee also believes that the
potential for equity ownership by management is beneficial in joining
management's and shareholders' interest in the enhancement of shareholder value.
Our executive compensation has four key elements: (i) base salary, (ii) an
annual performance-based cash incentive plan, (iii) a long-term
performance-based incentive plan that consists of stock options, and (iv)
participation in the Employee Stock Purchase Plan.
BASE SALARIES
Base salaries for our executive officers are determined initially by
evaluating the responsibilities associated with the position held and the
experience of the individual, and by reference to the competitive marketplace
for management talent, including a comparison of base salaries for comparable
positions at comparable companies within our industry. Adjustments in salary and
performance-based bonuses in addition to base salary are determined by
evaluating the competitive marketplace, GST's performance, the performance of
the executive officer, and any increased responsibilities assumed by the
executive officer. We believe that long-term compensation, such as stock options
is the most important component of the compensation package. As a result, much
consideration is given to the stock options held by our executive officers in
determining their cash remuneration.
ANNUAL BONUSES AND INCENTIVE COMPENSATION
From time to time, we consider the payment of cash bonuses and
incentive compensation to our executive officers. We have implemented a Variable
Incentive Plan, available to all non-
27
<PAGE>
commission-based employees, which awards bonuses based on a combination of
each employee's personal objectives and GST's achievement of pre-determined
targets. The plan provides that, subject to final review by the Compensation
Committee, if GST fails to meet at least 90% of the threshold targets, no
bonus will be paid regardless of personal performance level.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Chief Executive Officer's compensation for 1999 was approved by an
amendment to his employment agreement made effective as of the date of his
appointment as CEO, on October 20, 1998. The Compensation Committee engaged the
services of an executive compensation consultant to analyze compensation
packages at similarly-situated companies and recommend competitive ranges for
base salary and performance-based compensation. During 1999, the CEO's base
salary was $325,000 and he was granted an option to purchase one million Common
Shares, a portion of which vested on a monthly basis over a three-year period
and the remainder which vested in a lump sum one year from the date of grant.
Additionally, the CEO is eligible to participate in the Variable Incentive Plan
described above. Pursuant to that plan, the CEO may receive incentive pay in an
amount not to exceed 35% of his annual base salary if certain individual and
company performance targets are met. In 1999, the CEO received a bonus of
$56,875 for the six-month period ended June 30, 1999, pursuant to the plan. For
the six-month period ended December 31, 1999, the CEO received a bonus of
$29,859 under the plan, which was paid to him during 2000.
STOCK OPTION PLANS
The Compensation Committee ties a significant portion of an executive's
total opportunity for financial gain to increases in the value of the Common
Shares. The Compensation Committee typically grants stock options to executive
officers upon their appointment. Additionally, executive officers are eligible
to receive options under a long-term performance-based incentive plan. From time
to time, the Compensation Committee grants options to all employees under
broad-based plans; however, executive officers are typically excluded from these
plans.
The Compensation Committee granted options to Messrs. Basile, Wright
and Mayhook during 1999. The size of such awards was based generally on the
factors described in the "Salaries" and "Compensation of Chief Executive
Officer" paragraphs above.
QUALIFYING COMPENSATION
The compensation paid to each of our executive officers in 1999 was
below $1 million. As a result, it has not been necessary for the Compensation
Committee to consider the potential impact of Section 162(m) of the Code
("Section 162(m)") adopted under the Federal Revenue Reconciliation Act of 1993,
which disallows a tax deduction for any publicly-held corporation for certain
executive officers' compensation exceeding $1 million per person in any taxable
year unless it is "performance based" within the meaning of Section 162(m). The
Compensation Committee will consider the potential application of Section 162(m)
with respect to incentive compensation awards and other compensation decisions
made by it in the future.
28
<PAGE>
Joseph G. Fogg, III George B. Cobbe Robert A. Ferchat
Committee Chairman Director Director
COMPENSATION OF DIRECTORS
STANDARD COMPENSATION ARRANGEMENTS
Each outside director, meaning a director who is not a GST employee,
is paid a director's fee of $15,000 per annum, plus $1,500 per board meeting
physically attended, per day. Each outside director is also paid an annual fee
of $2,500 for membership on each committee of the board to which he is appointed
and committee chairmen receive an annual payment of $5000. Committee members,
including chairmen, receive $1000 per day or portion of a day for each committee
meeting physically attended. Outside directors participating in telephonic
meetings, whether committee or board meeting, receive $750 for each meeting.
Upon election to the board of directors for the first time, each outside
director is granted an option to purchase 15,000 Common Shares and an option to
purchase 10,000 Common Shares for each additional year such person serves as a
director. These options are exercisable at the closing price of the Common
Shares on NASDAQ on the trading day immediately prior to the date of grant, and
vest in full one year after the date of grant.
OTHER ARRANGEMENTS
During 1999, we paid Robert A. Ferchat a total of $264,000 as
compensation for time spent conducting company business or working on special
projects on behalf of our company. Mr. Ferchat is paid for his services at a PER
DIEM rate of $3000, which was approved by the Board of Directors.
Additionally, during 1999 we paid A. Roy Megarry $17,000 as
compensation for extraordinary services to the Audit and Litigation Committees
and we paid $10,000 to Joseph G. Fogg, III as compensation for extraordinary
services to the Litigation Committee. These one-time payments to Messrs. Megarry
and Fogg were approved by the Board of Directors.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE AND INDEMNITY
We currently have three insurance policies insuring our directors and
officers against certain liabilities incurred by them in the course of acting as
a director or officer. The first policy is for a maximum amount of $10 million
and has a $75,000 deductible, except that a deductible of $150,000 applies to
claims asserted by the Securities and Exchange Commission. We have two excess
policies for an aggregate $30 million. Each such excess policy becomes payable
only if the preceding policies have been fully exhausted. The annual premium for
these three policies is approximately $353,000. No additional premiums are
required to be paid by the insured persons under those policies. The policies do
not include a co-insurance clause. The insurance does not cover a director or
officer in instances in
29
<PAGE>
which liability relates to such director's or officer's failure to act
honestly and in good faith with a view to our best interests, in addition to
other customary exclusions in such policies.
Before the three current policies were in force, we maintained five
directors' and officers' liability insurance policies in the aggregate amount of
$40 million for an annual premium of approximately $346,000.
In 1998, four of our present directors, namely , Messrs. Basile,
Ferchat, Fogg and Megarry were named as defendants in a lawsuit initiated by
several of our former officers and directors. The claims presented against the
present directors were struck out by the court on October 6, 1999. That decision
may be appealed by the plaintiffs in that case. In 1999, we have paid
approximately $164,000 Cdn. by way of indemnity for the legal costs incurred by
our present directors in defending this action.
30
<PAGE>
PERFORMANCE GRAPH
The following graph compares the performance of our Common Shares for
the period from September 30, 1994 to December 31, 1999 with the performance of
the NASDAQ Market Index and an industry index. We have selected the NASDAQ
Market Index as a basis for comparison since our Common Shares have been quoted
on the NASDAQ National Market since April 14, 1998. Our Common Shares traded on
the AMEX from March 11, 1994 until April 14, 1998, and before 1994 were traded
only on the Vancouver Stock Exchange, initially in Canadian dollars and on and
after March 9, 1995 in U.S. dollars. Our relevant industry index is telephone
communications (excluding radio telephone), which is composed of all NASDAQ
companies with a Standard Industry Classification, or SIC, Code of 4813. We will
furnish a list of the companies included in this index to any shareholder, upon
written request made to the Corporate Secretary. For comparison purposes it is
assumed that $100 was invested in the Common Shares and in the securities
contained in such indices as they existed on September 30, 1994, and that any
dividends are reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORE
COMPANIES, PEER GROUPS, INDUSTRY INDEXES AND/OR BROAD MARKETS
<TABLE>
<CAPTION>
---------------------------FISCAL YEAR ENDING---------------------------
COMPANY/INDEX/MARKET 9/30/1994 9/29/1995 9/30/1996 12/31/1997 12/31/1998 12/31/1999
<S> <C> <C> <C> <C> <C> <C>
GST Telecommctn 100.00 135.06 236.36 246.75 136.36 188.31
Telephone Comm, Exc Radiotel 100.00 114.40 114.33 156.93 238.91 364.00
NASDAQ Market Index 100.00 121.41 141.75 181.55 256.06 451.63
AMEX Market Index 100.00 120.49 125.40 153.26 151.17 188.47
</TABLE>
31
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial
ownership of our Common Shares as of April 17, 2000 by:
- each of our directors
- each Named Executive Officer
- all executive officers and directors as a group
Under the U.S. SECURITIES EXCHANGE ACT OF 1934, as amended, a person is
deemed to be a "beneficial owner" of a security if he or she has or shares the
power to vote or direct the voting of such security or the power to dispose or
direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities of which that person has the right to acquire
beneficial ownership within 60 days. More than one person may be deemed to be a
beneficial owner of the same securities. The percentage ownership of each
shareholder listed in the table below is calculated based on the total number of
outstanding Common Shares on April 17, 2000, plus any Common Shares that such
shareholder has the right to acquire within 60 days. Consequently, the
denominator for calculating such percentage may be different for each
shareholder.
The table is based upon information supplied by our directors and
executive officers. Except as noted below, the table includes shares that the
individuals named below have the right to acquire within 60 days from April 17,
2000 upon exercise of stock options granted to that person. As of April 17,
2000, there is no person believed by management to be the beneficial owner of,
or who has control or direction over, more than 5% of our outstanding Common
Shares.
<TABLE>
<CAPTION>
NUMBER OF COMMON SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER(S) (1) OWNED OWNED (2)
- ------------------------------------------- ----------------------- ------------
<S> <C> <C>
Robert A. Ferchat...................................... 227,000 (3) *
Daniel Trampush........................................ 182,917 (4) *
Kevin Wright........................................... 139,524 (5) *
J. Jeffrey Mayhook..................................... 49,212 (6) *
A. Roy Megarry......................................... 40,000 (7) *
Joseph G. Fogg, III.................................... 35,000 (8) *
David W. Garrison...................................... 35,000 (9) *
Stanley M.D. Beck...................................... 28,800 (10) *
George B. Cobbe........................................ 25,000 (11) *
Joseph A. Basile, Jr. ................................. 11,137 *
Peter H. Meyer......................................... 5,500 (12) *
All Directors and Executive Officers
as a Group (13 persons).............................. 788,483 (13) 2.0%
</TABLE>
32
<PAGE>
- -------------------
* Less than 1%.
(1) Unless otherwise indicated, the mailing address for each person listed
is GST's principal executive offices. Unless otherwise indicated, to
our knowledge, the persons named have sole voting and investment power
over the number of GST common shares shown as being beneficially owned
by them. As to each person or group named in the table, the table
includes the following shares issuable upon exercise of options that
are exercisable within 60 days after April 17, 2000: 110,546. This
information, to the extent not within GST's knowledge or publicly made
known by such person, has been provided by such person.
(2) Does not reflect the issuance of 500 Series A Preference Shares by GST
to an affiliate of Princes Gate Investors II, L.P. in a private
placement in February 1997 or any subsequent conversion of the Series A
Preference Shares into Common Shares. Mr. Fogg is the co-chairman of
the investment committee of Princes Gate.
(3) Includes 225,000 Common Shares issuable upon exercise of options.
(4) Includes 173,333 Common Shares issuable upon exercise of options.
(5) Includes 133,332 Common Shares issuable upon exercise of options.
(6) Includes 45,782 Common Shares issuable upon exercise of options.
(7) Includes 35,000 Common Shares issuable upon exercise of options.
(8) Includes 35,000 Common Shares issuable upon exercise of options.
(9) Includes 15,000 Common Shares issuable upon exercise of options.
(10) Includes 15,000 Common Shares issuable upon exercise of options.
(11) Includes 15,000 Common Shares issuable upon exercise of options.
(12) Includes 2000 Common Shares held by Mr. Meyer's spouse in an Individual
Retirement Account and 3500 Common Shares held by Mr. Meyer in an
Individual Retirement Account.
(13) Includes an aggregate 700,069 Common Shares issuable upon exercise of
options.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the U.S. SECURITIES EXCHANGE ACT OF 1934, as amended,
requires our directors, officers and beneficial owners of more than 10% of our
Common Shares to file with the U.S. Securities and Exchange Commission, or SEC,
initial reports of ownership of our equity securities and to file subsequent
reports when there are changes in such ownership. Officers, directors and
beneficial owners of more than 10% of our Common Shares are required by SEC
regulations to furnish us with copies of all Section 16(a) reports they file.
Based on our review of these reports and on written representations
from the reporting persons that no other reports were required, we believe that
during the fiscal year ended December 31, 1999 all Section 16(a) filing
requirements applicable to our officers, directors and greater than 10%
beneficial owners were complied with, except that one Form 3 for Mr. Wright and
one Form 4 for each of Messrs. Ferchat and Cobbe was filed late.
33
<PAGE>
INDEBTEDNESS OF DIRECTORS AND OFFICERS
Except as set forth herein, none of the following individuals have been
indebted to us or any of our subsidiaries or another entity, which was the
subject of a guarantee, support agreement, letter of credit or other similar
arrangement or understanding provided by us or any of our subsidiaries at any
time since January 1, 1999:
- our directors;
- executive officers;
- senior officers;
- any proposed nominee for election as a director; or
- associates or affiliates of any of the above.
<TABLE>
<CAPTION>
LARGEST AMOUNT
OUTSTANDING DURING
(LAST COMPLETED AMOUNT OUTSTANDING AS
NAME AND PRINCIPAL INVOLVEMENT OF FINANCIAL YEAR) AT APRIL 17, 2000
POSITION ISSUER OR SUBSIDIARY ($) ($)
- --------------------- --------------------- ------------------- ----------------------
<S> <C> <C> <C>
Joe Basile Loan (1) 116,823 0
Dan Trampush Loan (2) 72,000 0
Peter H. Meyer Loan (3) 106,116 0
Kevin Wright Loan (4) 109,350 109,350
</TABLE>
(1) In May, 1997, we loaned $100,000 to Joseph A. Basile, Jr., our former
President, Chief Executive Officer and a current director, to enable
him to purchase a new primary residence in the Vancouver, Washington
area. The loan matured on March 11, 2000, accrued interest at a rate of
6% per annum, was unsecured but was to be prepaid to the extent of the
proceeds from the sale of Mr. Basile's former residence and from the
sale of Common Shares acquired upon exercise of options held by Mr.
Basile. Such loan was made pursuant to the terms of his employment
agreement, which was approved by the Board of Directors. The loan, and
accrued interest, was paid in full in February, 2000.
(2) In March, 1997, we loaned $72,000 to Daniel L. Trampush, our former
Senior Vice President and Chief Financial Officer, to enable him to
purchase a new primary residence in the Vancouver, Washington area. The
loan was interest free and matures in March 2002, was unsecured but was
to be prepaid to the extent of the proceeds from the sale of Common
Shares acquired upon exercise of options held by Mr. Trampush. Such
loan was made pursuant to the terms of his employment agreement, which
was approved by the Board of Directors. The Board of Directors forgave
Mr. Trampush's loan in July, 1999.
(3) In September 1998, we loaned $100,000 to Peter H. Meyer, our former
Senior Vice President, Sales and Marketing, to enable him to purchase a
new primary residence in the Vancouver, Washington area. The loan had a
maturity date of September 2001, accrued interest at a rate of 6% per
annum, was unsecured but was to be prepaid to the extent of the
proceeds from the sale of Mr. Meyer's former residence and from the
sale of Common Shares acquired upon exercise of options held by Mr.
Meyer. Mr. Meyer made an interest payment of approximately $6,000
during 1999. The loan, and accrued interest, was paid in full in March,
2000.
(4) In June 1998, we loaned $100,000 to Kevin R. Wright, our Chief
Technical Officer, to enable him to purchase a new primary residence in
the Vancouver, Washington area. The loan matures on June 9, 2001,
accrues interest at a rate of 6% per annum and is to be prepaid to the
extent of the
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proceeds from the sale of Mr. Wright's former residence and from the sale
of Common Shares acquired upon exercise of options held by Mr. Wright.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
None of our directors or executive officers, nor any person who has
held such a position since January 1, 1999, nor any proposed nominee for
election as a director, nor any associate or affiliate of the foregoing persons,
has any material interest, direct or indirect, by way of beneficial ownership of
securities or otherwise, in any matter to be acted on at the Meeting, other than
the election of directors and the approval of amendments to our 1999 Stock
Option and Amended and Restated 1996 Employee Stock Purchase Plan insofar as
they may be granted options to purchase our Common Shares, pursuant thereto.
INTEREST OF MANAGEMENT AND INSIDERS IN MATERIAL TRANSACTIONS
Except as set out below or elsewhere herein, no insider, proposed
nominee for election as a director, or any associate or affiliate of any of the
foregoing persons had any material interest, directly or indirectly, in any
transaction since January 1, 1999 or any proposed transaction which, in either
case, has materially affected or will materially affect us or any of our
subsidiaries, other than an interest arising from the ownership of our
securities where the person receives no special or extra benefit not shared on
an equal basis by all holders of that class.
We are a party to a credit facility, which we refer to as the Tomen
Facility, with Tomen America, Inc., or Tomen, pursuant to which, Tomen has the
right to act as procurement agent for each network project it finances. As of
December 31, 1999, we had purchased a total of approximately $32.2 million of
equipment from Tomen, all of which was purchased prior to 1999. We believe that
the prices we have paid to Tomen for equipment are comparable to prices we would
have paid in transactions with unrelated third parties. Pursuant to the Tomen
Facility, Tomen has the contractual right to appoint a designee to our Board of
Directors, and Mitsuhiro Naoe was Tomen's designee until his resignation on May
28, 1999. During his service on our Board of Directors, Mr. Naoe did not have a
direct or indirect material interest in any amounts we paid to Tomen. Tomen is
not currently exercising its right to appoint a designee.
STATEMENT OF CORPORATE GOVERNANCE DISCLOSURE
GENERAL
Our Common Shares have been listed on The Toronto Stock Exchange, or
TSE, since August 26, 1997. In 1995, the TSE adopted the report of its Committee
on Corporate Governance in Canada and issued guidelines for effective corporate
governance, which we refer to as the "guidelines." The guidelines address
matters such as the constitution and independence of corporate boards, the
functions to be performed by boards and their committees, and the effectiveness
and education of board members. To implement these guidelines, the TSE requires
each listed corporation to provide annual disclosure regarding its approach to
corporate governance, namely, a description of our system of corporate
governance, with specific reference to the 14 guidelines.
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Our Governance and Nominating Committee and Board has reviewed the
guidelines and concluded that our corporate governance systems and practices are
in alignment with each of the guidelines, as discussed below.
MANDATE OF THE BOARD
Under the guidelines, the board of directors should explicitly assume
responsibility for the stewardship of the corporation. The mandate of our Board
of Directors is to supervise the management of the business and affairs of the
Company. In fulfilling its mandate, the Board is responsible for, among other
things:
- adoption of a strategic planning process;
- identifying the principal risks of our business and ensuring
the implementation of the appropriate systems to manage these
risks;
- succession planning, including appointing, training and
monitoring of senior management;
- implementing a communications policy to facilitate
communications with shareholders, analysts and media; and
- ensuring the integrity of our internal control and management
information systems.
The frequency of meetings of the Board, as well as the nature of the
items discussed, depend upon the state of our affairs and the opportunities and
risks which we face. The Board of Directors met twenty-one times in 1999,
including telephonic meetings, and all current directors attended at least 75
percent of the meetings of the Board and Committees of which they were members.
COMPOSITION OF THE BOARD
The guidelines recommend that a board of directors be constituted with
a majority of individuals who qualify as "unrelated directors." The guidelines
define an unrelated director as a director who is independent of management and
free from any interest and any business or other relationship which could, or
could reasonably be perceived to, materially interfere with the director's
ability to act with a view to the best interests of the corporation, other than
interests arising from shareholdings.
The directors have examined the relevant definitions in the guidelines
and have individually considered their respective interests and relationships in
and with GST. The Board's slate of nominees to be considered at the Meeting is
comprised of five directors, all of whom would be considered unrelated
directors. None of the nominees are part of management of GST. Although Mr.
Ferchat has undertaken special projects on behalf of GST in the last year and
has been compensated for doing so, the Board considers that this arrangement is
temporary and meant to accommodate certain unique demands on GST, and not of a
nature akin to his being
36
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part of the day-to-day management of GST.
The Board proposed for election consists of five directors. The Board
considers its size to be appropriate at the current time.
The guidelines recommend that the Board should appoint a committee of
directors to be responsible for the corporation's approach to corporate
governance issues. Our Board has appointed a Governance and Nominating
Committee, comprised entirely of outside, unrelated directors. Additionally, the
Board has an Audit Committee, a Compensation Committee and an Executive
Committee. The mandates of each committee are set out below. During 1999, the
Board disbanded its Litigation Committee and Finance Committee.
AUDIT COMMITTEE
The Audit Committee is responsible for assisting the Board of Directors
in fulfilling its oversight responsibilities relating to our accounting,
reporting and financial control practices. The committee reviews our annual and
interim financial statements and certain other public disclosure documents
required by regulatory authorities and makes recommendations to the board with
respect to such statements and documents. The committee also makes
recommendations to the Board regarding the appointment of independent auditors,
reviews the nature and scope of the annual audit as proposed by the auditors and
management, and reviews with management the risks inherent in our business and
risk management programs relating thereto. The committee reviews with the
auditors and management the adequacy of our internal accounting control
procedures and systems. The committee conducts, on an ongoing basis, an
appropriate review of related party transactions. The committee also reviews the
systems and procedures for direct communication between the committee and our
internal accounting staff and the auditors.
Further information regarding the Audit Committee is set out in the
Audit Committee Report below.
The members of the Audit Committee are Messrs. Cobbe, Megarry and
Ferchat. All three members are outside, unrelated directors. The committee held
a total of ten meetings during 1999.
GOVERNANCE AND NOMINATING COMMITTEE
The Governance and Nominating Committee is responsible for addressing
our approach to corporate governance issues. The committee periodically reviews
the structure and mandates of all committees. The Board of Directors adopted a
Corporate Governance Manual in April 1999. The Governance and Nominating
Committee periodically reviews this manual and recommends modifications to the
Board.
The Governance and Nominating Committee is also responsible for
evaluating board performance and recommending nominees to the Board. The
committee considers and recommends the appropriate size and composition of the
Board, establishes qualifications for directors and committee members, annually
recommends to the Board a slate of nominees for
37
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election by the shareholders and recommends nominees to fill any vacancy on
the Board which may arise. The committee also recommends and approves an
orientation and education program for new recruits to the Board. The
committee reviews and makes recommendations concerning executive succession
plans, including recommending successors to senior officers, such as Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer and other
senior executives as the committee deems appropriate. Any member of the Board
of Directors can present names for consideration, and no action is taken on
any candidate until that candidate is discussed with each non-employee member
of the Board. Further, all proposed nominees for membership on the Board of
Directors submitted in writing by shareholders to the Secretary will be
brought to the attention of the Nominating Committee.
The members of the Governance and Nominating Committee are Messrs.
Megarry, Beck, Ferchat and Garrison. All four members are outside, unrelated
directors. The committee held a total of three meetings during 1999.
COMPENSATION COMMITTEE
The Compensation Committee is responsible for reviewing and making
recommendations to the Board concerning our executive compensation and benefit
plans. The Committee sets annual and long-term performance goals for the Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer and other
senior executives and evaluates their performance against these goals. The
committee also administers our stock option plans, share purchase plans and
other share compensation arrangements. The committee establishes and
periodically reviews our compensation policies and practices for executive
officers and other employees, including salaries, bonuses, cash incentives,
long-term incentive compensation, stock purchase plans and other programs.
As recommended in the guidelines, the Compensation Committee reviews
and ensures that the compensation of directors reflects the responsibilities and
risks involved in being an effective director.
Further information concerning the Compensation Committee's approach to
compensation is set out in the Report on Executive Compensation above.
The members of the Compensation Committee are Messrs. Fogg, Cobbe,
Ferchat and Garrison. All four members are outside, unrelated directors. The
committee held a total of six meetings during 1999.
EXECUTIVE COMMITTEE
The Executive Committee meets as may be required between Board meetings
with a view to developing our strategic plan, canvassing specific business and
managerial issues and carrying out additional review of such plan and issues for
consideration by the Board.
The members of the Executive Committee are Messrs. Fogg, Ferchat and
Beck. All three members are outside, unrelated directors. The committee was
formed on November 7, 1999 and did not hold any formal meetings during the
remainder of 1999.
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INDEPENDENCE FROM MANAGEMENT
The guidelines state that the independence of the Board is most simply
assured by appointing a Chairman who is not a member of management. The Chairman
of the Board, Mr. Ferchat, is not a member of management, and the Board
considers that additionally, by virtue of the number of unrelated directors, it
is independent from management.
COMMUNICATIONS POLICY/INVESTOR RELATIONS
We communicate regularly with our shareholders through press releases,
and annual and quarterly reports. Investor and shareholder concerns are
addressed on an on-going basis by our investor relations department. Information
about us is also available on our web site at www.gstcorp.com. The web site is
regularly updated and permits access to annual reports, press releases, product
overviews and other information.
DECISIONS REQUIRING PRIOR APPROVAL BY THE BOARD
The Board has adopted a process whereby it will approve an annual
business plan and operating budget and will review performance against the plan
at various times throughout the year. The Board has also adopted an explicit
policy setting limits on management's responsibility and requiring Board
approval of any action leading to a material change in the nature of our
business, including any acquisition or disposition of a significant asset or
operating unit. The Board also approves key borrowing and financing decisions.
They also determine, based on the recommendation of the Compensation Committee,
the responsibilities and compensation of the Chief Executive Officer and other
senior executive officers.
ABILITY OF DIRECTORS TO ENGAGE OUTSIDE ADVISORS
The guidelines recommend that individual directors should be empowered
to engage outside advisors, as needed, and at our expense. We support this view,
and currently all requests to engage outside advisors are brought to the Audit
Committee. Such requests are currently addressed on a case-by-case basis;
however, the Audit Committee will continue to assess whether a more formal
system should be implemented.
BOARD'S EXPECTATIONS OF MANAGEMENT
The Board expects management to operate the company in accordance with
the approved annual business plan and operating budget, to act in a commercially
reasonable manner to enhance long-term shareholder value, and to otherwise
manage our day-to-day affairs in a prudent manner. Management is expected to
provide regular financial and operating reports to the Board and to make the
Board aware of all important issues and major business developments,
particularly those not anticipated previously.
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REPORT OF THE AUDIT COMMITTEE
Effective January 31, 2000, the Securities and Exchange Commission
adopted new rules and amendments to current rules relating to the disclosure
of information about companies' audit committees. In large part, the new
rules are based on recommendations made by the Blue Ribbon Committee on
Improving the Effectiveness of Corporate Audit Committees. The new rules
require that, for all votes of shareholders occurring after December 15,
2000, the proxy statement must contain a report of the audit committee
addressing several issues identified in the rules. In addition, the SEC
recommends that audit committees adopt written charters. Any such charter
must be included as an attachment to the proxy statement at least once every
three years. Our Audit Committee adopted a charter in April 1999, and it is
included in this proxy statement as Appendix B.
Our Audit Committee consists of three directors, all of whom are
independent directors. Consistent with Nasdaq's independent director and audit
committee listing standards, as amended on December 14, 1999, a director will
not be considered "independent" if, among other things, he has:
- been employed by the corporation or its affiliates in the
current or past three years; - accepted any compensation from
the corporation or its affiliates in excess of $60,000 during
the previous fiscal year (except for board service, retirement
plan benefits, or non-discretionary compensation);
- an immediate family member who is, or has been in the past
three years, employed by the corporation or its affiliates as
an executive officer;
- been a partner, controlling shareholder or an executive
officer of any for-profit business to which the corporation
made, or from which it received, payments (other than those
which arise solely from investments in the corporation's
securities) that exceed five percent of the organization's
consolidated gross revenues for that year, or $200,000,
whichever is more, in any of the past three years; or
- been employed as an executive of another entity where any of
the company's executives serve on that entity's compensation
committee.
The Audit Committee has reviewed and discussed the audited financial
statements for fiscal year 1999 with management and with the independent
auditors. Specifically, the Audit Committee has discussed with the independent
auditors the matters required to be discussed by SAS 61 (Codification of
Statements on Auditing Standards, AU Section 380), which includes, among other
things:
- methods used to account for significant unusual transactions
- the effect of significant accounting policies in controversial
or emerging areas for which there is a lack of authoritative
guidance or consensus;
- the process used by management in formulating particularly
sensitive accounting estimates and the basis for the auditor's
conclusions regarding the reasonableness of those estimates; and
- disagreements with management over the application of accounting
principles, the basis for management's accounting estimates, and
the disclosures in the financial
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statements.
The Audit Committee has received the written disclosures and the letter
from our independent accountants, KPMG LLP, required by Independence Standards
Board Standard No. 1, INDEPENDENCE DISCUSSIONS WITH AUDIT COMMITTEES.
Additionally, the audit committee has discussed with KPMG the issue of its
independence from GST.
Based on its review of the audited financial statements and the various
discussions noted above, the Audit Committee recommended to the Board of
Directors that the audited financial statements be included in our Annual Report
on Form 10-K for the fiscal year ended December 31, 1999.
George B. Cobbe A. Roy Megarry Robert A. Ferchat
Chairman Director Director
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OTHER MATTERS
The Board of Directors does not know of any other matters to come
before the Meeting other than those referred to in the accompanying Notice of
Meeting. If matters other than those described herein should properly arise at
the Meeting, the proxies will vote on such matters in accordance with their best
judgment.
ANNUAL REPORT
Our Annual Report on Form 10-K for the fiscal year ended December 31,
1999, including the consolidated financial statements and related notes thereto,
together with the report of independent auditors, accompanies this Proxy
Circular.
SHAREHOLDER PROPOSALS
Shareholder proposals in respect of matters to be acted upon at our
2001 Annual Meeting of Shareholders should be received by the Secretary at our
principal executive offices on or before March 10, 2001 in order that they
may be considered for inclusion in our proxy materials. Our principal executive
offices are located at:
GST Telecommunications, Inc.
4001 Main Street
Vancouver, WA 98663.
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<PAGE>
CERTIFICATION
The undersigned hereby certifies that the contents and the sending of
this Proxy Circular have been approved and authorized by the directors of the
Company.
DATED at Vancouver, Washington, this 1st day of May, 2000.
ON BEHALF OF THE BOARD OF DIRECTORS
/s/ Robert A. Ferchat
-----------------------------------
(Robert A. Ferchat)
Chairman of the Company
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Appendix A
Text of Resolution Regarding Surrender and Re-Grant of Stock Options
BE IT RESOLVED THAT:
(1) The offer made by the Company to the insiders of the Company, other
than the directors of the Company, who are holders of outstanding stock options
granted under the Company's various stock option plans, as such offer is
described in the Proxy Circular of the Company dated May 1, 2000 be and is
hereby ratified and approved;
(2) Upon the surrender of an option under the above offer, the number
of Common Shares reserved for issuance under the 1999 Plan be increased and the
number of Common Shares reserved for issuance under the Old Plan under which
such option was granted be correspondingly decreased by the number of shares
issuable upon the exercise of the surrendered option.
<PAGE>
APPENDIX B
AUDIT COMMITTEE CHARTER
FUNCTION
The Board delegates to the Audit Committee the role to assist the
Board in fulfilling its oversight responsibilities by reviewing:
- the financial information that will be provided to the shareholders
and others;
- the system of internal control management that the Board of Directors
have established;
- all audit processes related to the protection of Company assets and
shareholder fiduciary interests, including compliance and statutory
and regulatory reporting; and
- health, safety and environmental compliance, reporting and control
processes.
COMPOSITION
The Audit Committee of the Board of Directors of GST shall consist of
a minimum of three independent members of the Board. The Committee shall elect a
Chairman from among its members. The Secretary to the Board of Directors will
serve as Secretary to the Committee.
AUTHORITY
The Audit Committee is granted the authority to investigate any
activity of the Company related to its specific duties and all employees are
directed to cooperate as requested by members of the Committee. The Internal
Audit function and external auditors (KPMG) shall report and be responsible to
this Committee.
RESPONSIBILITY
- The Audit Committee facilitates open communication among the internal
auditors, the independent accountants and the Board of Directors.
- The Audit Committee reports Committee actions to the full Board and
makes appropriate recommendations.
- The Audit Committee has the power to conduct or authorize
investigations into matters within the Committee's scope of
responsibilities. The Committee is authorized to retain independent
counsel, accountants or others it needs to assist in an investigation.
- The Committee will meet at least four times a year and more frequently
if circumstances make that preferable. The Chairman of the Audit
Committee has the power to call meetings. An Audit Committee member
will not vote on any matter in which he or she is not independent.
<PAGE>
- The Committee will ensure that the independent accountants are aware
that the Audit Committee, not management, is their client.
- The Committee will do whatever else the law, the Company's charter or
bylaws or the Board of Directors requires.
In addition, the Committee shall undertake reviews of major
expenditures of funds, capital or other projects, or programs to ensure that the
Company has obtained value for the funds expended and to determine whether the
objectives established for such expenditures have been realized.
MINUTES OF THE MEETINGS
The Secretary of the Company will prepare the minutes of each meeting
of the Committee and send them to Committee members and all Directors of the
Company who are not members of the Committee.
SPECIFIC DUTIES
The Audit Committee shall:
- Recommend to the Board of Directors the independent accountants to be
selected to audit the books and records of the Company and review with
management the responsiveness of the independent accountants to the
Company's needs. Review and concur with the engagement of the
independent accountants (or related entity) for any services,
including audit and tax, where the fees for such services exceed
$25,000.
- Review with the Company's management, internal audit personnel, the
independent accountants and the Company's general counsel the
Company's policies and procedures to reasonably assure the adequacy of
internal accounting and financial controls, the adequacy of insurance
coverage, a code of legal and ethical business conduct and the
appropriate control of confidential information. The Committee will
also inquire as to significant risks or exposure and assess the steps
management has taken to minimize such risks.
- Oversee and receive reports of the work of the internal audit
functions and the annual work plans and the verification processes to
complement the external audit.
- Review, prior to the annual audit, the scope and general extent of the
independent accountant's audit examination, including their engagement
letter and proposed fees. The Committee's review should entail an
understanding from the independent accountants of the factors
considered by them in determining the scope of the audit and also
review the independence of the auditors.
- Review with management and the independent accountants, upon
completion of their review or audit, the financial results for each
quarter and the full year prior to their
<PAGE>
release to the public, together with a review of the news release, to
determine that the independent accountants are satisfied with the
disclosure and content of the financial information to be presented to
the shareholders and the public. Such review should encompass
significant adjustments proposed by the independent accountants, any
changes in accounting principles or policies, supplemental disclosures
required by generally accepted accounting principles or U.S. or
Canadian securities commissions, significant non-recurring
transactions, tax policy matters and other matters relating to the
conduct of the audit which are to be communicated to the Committee
under generally accepted auditing standards.
- Review with management and the independent accountants the adequacy
and cost effectiveness of data processing, internal auditing,
accounting and financial controls of the corporation including those
matters in the independent accountants' "Letter to Management."
- Provide opportunity at each meeting for the independent accountants to
meet with the Audit Committee without members of management present.
Among the items to be discussed at these meetings are the independent
accountants evaluation of the Company's accounting and auditing
personnel, the cooperation which they received from management during
the course of the audit and the extent to which undue pressure, if
any, was brought to bear on the independent accountants by management.
- Review the internal audit program for the coming year. Receive and
review with management a written report on each completed internal
audit and require notification when follow-up internal audits disclose
that corrective actions have not been implemented or have not been
effective.
- Review and concur in the appointment, replacement, reassignment or
dismissal of internal audit personnel.
- Review the Company's cash management program, including investment
guidelines.
- Review the appropriateness of all accruals and reserves.
- Ensure that the independent accountants meet with the full Board at
least once a year.
- Ensure that the independent accountants, internal audit personnel and
financial management provide the Committee with their comments on the
quality, not just the acceptability, of the Company's financial
reporting.
- Review the Circular of Authorities at least once a year.
- Receive an annual report from the CFO and external auditors indicating
whether or not management's travel expenditures, political
contribution and charitable donations are consistent with Company
policy.
- Receive reports from senior management, internal audit staff, the
independent
<PAGE>
accountants and other parties regarding significant litigation,
investigations by regulatory agencies, embezzlement or misuse of
Company assets, violations of insider trading rules and illegal
payments of any kind.
- Review at least annually the Company's compliance with health, safety
and environmental regulations and the processes to ensure "best
practices' are being followed to the degree possible.
<PAGE>
GST TELECOMMUNICATIONS, INC.
PROXY
FOR THE ANNUAL MEETING
TO BE HELD JUNE 8, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned, being a shareholder of GST Telecommunications, Inc.
(the "Company"), hereby appoints Robert A. Ferchat, Chairman of the Company, or
failing him, Donald A. Bloodworth, Senior Vice President and Chief Financial
Officer of the Company, or, alternatively, [INSERT NAME OF PROXYHOLDER TO BE
APPOINTED]__________________________, of [ADDRESS OF
PROXYHOLDER]__________________________________ as proxyholder, to attend the
Annual Meeting of the Company to be held at 10:30 a.m. (local time) at The Pan
Pacific Hotel, 300-999 Canada Place, Vancouver, British Columbia, Canada on June
8, 2000, and any adjournment thereof, and to vote all the Common Shares that the
undersigned would otherwise be entitled to vote if personally present at such
Annual Meeting, or any adjournment thereof, with respect to the matters set
forth below as follows:
1. To fix the number of directors to be elected at six.
/ / VOTE FOR / / AGAINST / / ABSTAIN
2. To vote for the election of the following directors: Stanley
M.D. Beck, George B. Cobbe, Robert A. Ferchat, Joseph G. Fogg,
III, David W. Garrison, and A. Roy Megarry.
/ / VOTE FOR all nominees / / WITHHOLD VOTE for all nominees
(except as marked to the contrary below)
(INSTRUCTIONS: To withhold vote for any individual nominee,
strike a line through the nominee's name in the list below)
Stanley M.D. Beck
George B. Cobbe
Robert A. Ferchat
Joseph G. Fogg, III
David W. Garrison
A. Roy Megarry
3. To approve an amendment to the Company's Amended and Restated
1996 Employee Stock Purchase Plan, reserving an additional
300,000 shares for issuance thereunder. (1)
/ / VOTE FOR / / AGAINST / / ABSTAIN
<PAGE>
4. To approve an amendment to the Company's 1999 Stock Option
Plan to "pour-over" Common Shares available for issuance under
the Company's other stock option plans into the 1999 Stock
Option Plan.(1)
/ / VOTE FOR / / AGAINST / / ABSTAIN
5. To approve a proposal to re-grant and re-price certain of the
Company's outstanding stock options.(2)
/ / VOTE FOR / / AGAINST / / ABSTAIN
6. To approve an amendment to the Company's 1999 Stock Option
Plan, reserving an additional 2,000,000 shares for issuance
thereunder.(1)
/ / VOTE FOR / / AGAINST / / ABSTAIN
7. Appointment of KPMG Peat Marwick LLP, Certified Public
Accountants, to serve as auditors for the Company and to
authorize for the directors to fix the remuneration to be
paid to the auditors.
/ / VOTE FOR / / AGAINST / / ABSTAIN
The undersigned hereby acknowledges receipt of a copy of the Notice of Annual
Meeting and Proxy Circular, both dated as of April 28, 2000 and the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
THE UNDERSIGNED HEREBY REVOKES ANY PROXY PREVIOUSLY GIVEN.
DATED this ________ day of ______________________, 2000.
- ------------------------------- -------------------------------
NAME (Please Print) SIGNATURE
NOTES:
(1) Under the rules of The Toronto Stock Exchange, this resolution must be
approved by a majority of the "disinterested" shareholders of the
Company. A shareholder is not "disinterested" if he or she is an
insider of the Company to whom options or rights may be granted under
such Plan or an associate of such person. If you are not "disinterested"
you must abstain from voting on this resolution and should mark your
proxy accordingly.
(2) Under the rules of the TSE, this resolution must be approved by a
majority of the "disinterested" shareholders of the Company. A
shareholder is not "disinterested" if he or she is an insider of
the Company who is eligible to participate in the re-granting and
re-pricing of options under this proposal, or an associate of such
person. If you are not "disinterested" you must abstain from voting
on this resolution and should mark your proxy accordingly.
(3) Please sign exactly as your name appears hereon. Joint owners should
each sign. When signing as an attorney, executor, administrator,
trustee or guardian, please give your full title as such. When signing
on behalf of a corporation, the proxy should be executed under the
corporation's seal or by an authorized officer or attorney of such
corporation, giving your title as such.
<PAGE>
NOTES
1. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED OR WITHHELD FROM
VOTING ON ANY POLL IN ACCORDANCE WITH THE INSTRUCTION OF THE SHAREHOLDER. IF THE
SHAREHOLDER HAS SPECIFIED A CHOICE WITH RESPECT TO ANY OF THE ITEMS ABOVE BY
MARKING AN "X" IN THE SPACE PROVIDED FOR THAT PURPOSE, THE SHARES WILL BE VOTED
ON ANY POLL IN ACCORDANCE WITH THAT CHOICE. IF NO CHOICE IS SPECIFIED AND ONE OF
THE PERSONS NAMED IN THE PROXY IS APPOINTED PROXYHOLDER, THE SHARES REPRESENTED
BY SUCH PROXY WILL BE VOTED IN FAVOR OF EACH OF THE MATTERS IDENTIFIED THEREON.
IF ANY AMENDMENTS OR VARIATIONS TO MATTERS IDENTIFIED IN THE NOTICE OF MEETING
ARE PROPOSED AT THE MEETING OR IF ANY OTHER MATTERS PROPERLY COME BEFORE THE
MEETING, DISCRETIONARY AUTHORITY IS HEREBY CONFERRED ON THE NAMED PROXYHOLDER
WITH RESPECT THERETO.
2. A SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON OTHER THAN THE
PERSONS NAMED IN THE PROXY AS PROXYHOLDER (WHICH PERSON NEED NOT BE A
SHAREHOLDER) TO ATTEND AND ACT ON HIS BEHALF AT THE ANNUAL MEETING. TO EXERCISE
THIS RIGHT, THE SHAREHOLDER MUST STRIKE OUT THE NAMES OF THE PERSONS NAMED ON
THIS PROXY, INSERT THE NAME OF THE PERSON TO BE APPOINTED IN THE SPACE PROVIDED
AND SIGN AND RETURN THIS PROXY IN THE MANNER REFERRED TO HEREIN.
3. This Proxy will not be valid unless it is dated and signed by the
shareholder or the shareholder's attorney authorized in writing. In the case of
a shareholder which is a corporation, association or other entity, this Proxy
must be dated and executed under its corporate seal or signed by a duly
authorized officer or attorney for the corporation, association or other entity.
If not dated, this proxy will be deemed to bear the date on which it is mailed.
4. To be effective, the Proxy together with the power of attorney or
other authority, if any, under which it was signed or a notarially certified
copy thereof, must be deposited with the Company's transfer agent, Montreal
Trust Company of Canada, 510 Burrard Street, Vancouver, British Columbia, V6C
3B9 (facsimile (604) 683-3694), at least 48 hours (excluding Saturdays, Sundays
and statutory holidays) before the time of the Annual Meeting. Non-registered
shareholders who received this Proxy through their broker or intermediary should
deliver the Proxy in accordance with the instructions given by such broker or
intermediary.
Your name and address are shown in the same manner in which the shares
of the Company held by you are registered. Please notify Montreal Trust Company
of Canada of any change in your address or other registration information.
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