1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 2001
REGISTRATION NO. 333-58624
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 1
TO
FORM F-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
GT GROUP TELECOM INC.
(Exact name of Registrant as specified in its charter)
<Table>
CANADA 4813 NOT APPLICABLE
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
</Table>
20 BAY STREET, 7TH FLOOR, TORONTO, ONTARIO, CANADA M5J 2N8 (416) 848-2000
(Address and telephone number of Registrant's principal executive offices)
CT CORPORATION SYSTEM, 111 EIGHTH AVENUE, 13TH FLOOR, NEW YORK, NY 10011 (212)
894-8940
(Name, address, including zip code and telephone number, including area code, of
Agent for Service)
------------------------------------
Copies to:
<Table>
BRICE T. VORAN, ESQ CHRISTOPHER W. MORGAN, ESQ.
SHEARMAN & STERLING SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Commerce Court West Royal Bank Plaza, North Tower
199 Bay Street, Suite 4405 Suite 1820, P.O. Box 189
Toronto, Ontario M5L 1E8 Toronto, Ontario
(416) 360-8484 (416) 777-4747
</Table>
------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8 OF THE SECURITIES
ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A) OF THE ACT, MAY
DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED SEPTEMBER 26, 2001.
[GT Group Telecom Logo]
GT GROUP TELECOM INC.
Class B Non-Voting Shares
Warrants to Purchase Class B Non-Voting Shares
13 1/4% Senior Discount Notes Due 2010
Our class B non-voting shares are currently quoted on the Nasdaq National
Market under the symbol "GTTLB" and listed on the Toronto Stock Exchange under
the symbol "GTG.B". The warrants and the notes are not listed on any national
securities exchange.
TERMS OF THE 13 1/4% SENIOR DISCOUNT NOTES DUE 2010
INTEREST
We will pay cash interest on the notes from August 1, 2005 at the rate of
13 1/4% per year, payable semi-annually in arrears on each February 1 and August
1, commencing on August 1, 2005. Prior to February 1, 2005, interest will accrue
on the original issue price of the notes but will not be payable in cash.
MATURITY
The notes will mature on February 1, 2010.
RANKING
The notes will rank equally with our other unsubordinated, unsecured
indebtedness.
CHANGE OF CONTROL
If we experience specific kinds of change of control, we must offer to
repurchase the notes at the prices specified herein.
OPTIONAL REDEMPTION
On or after February 1, 2005, we may redeem the notes, in whole or in part, at
any time, at the redemption prices specified herein.
In addition, before February 1, 2003, we may redeem up to 35% of the stated
amount at maturity of the notes at the prices specified herein with the proceeds
of sales of certain kinds of our share capital.
This prospectus has been prepared for and will be used by Goldman, Sachs &
Co., Spear Leeds & Kellogg, L.P. and their broker-dealer subsidiaries in
connection with offers and sales of the class B non-voting shares, the warrants
and the 13 1/4% senior discount notes due 2010 of Group Telecom in market-making
transactions. These transactions may occur in the open market or may be
privately negotiated, at prevailing market prices, related prices or negotiated
prices. Goldman, Sachs & Co., Spear Leeds & Kellogg, L.P. and their
broker-dealer subsidiaries may act as principal or agent in these transactions.
See "Plan of Distribution". Group Telecom will not receive any of the proceeds
from these sales of the class B non-voting shares, the warrants or the notes.
------------------------
See "Risk Factors" beginning on page 3 to read about factors you should
consider before buying the class B non-voting shares, the warrants or the notes.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
GOLDMAN, SACHS & CO.
------------------------
Prospectus dated , 2001.
3
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form F-3 that we
filed with the Securities and Exchange Commission, the SEC, using a "shelf"
registration process. Under this process, Goldman, Sachs & Co., Spear Leeds &
Kellogg, L.P. and their broker-dealer subsidiaries may, from time to time, sell
the offered securities described in this prospectus in market-making
transactions. This prospectus does not contain all of the information included
in the registration statement and the exhibits thereto. Statements included in
this prospectus as to the contents of any contract or other document that is
filed as an exhibit to the registration statement are not necessarily complete
and you should refer to that agreement or document for a complete description of
these matters. You should read both this prospectus and any prospectus
supplement together with the additional information described below under the
heading "Where You Can Obtain More Information About Us."
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. This prospectus is an
offer to sell or to buy only the securities referred to in this prospectus, and
only under circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus and any prospectus supplement is
current only as of the date on the front page of those documents. Neither the
delivery of this prospectus or any prospectus supplement, nor any distribution
of securities made hereunder or thereunder shall under any circumstances create
any implication that there has not been any change in the facts set forth in
this prospectus or the applicable prospectus supplement or in the affairs of
Group Telecom since the date hereof.
WHERE YOU CAN OBTAIN MORE INFORMATION ABOUT US
We are currently subject to the information and periodic reporting
requirements of the Securities Exchange Act of 1934, as amended, and, file
periodic reports and other information with the Commission through its
Electronic Data Gathering, Analysis and Retrieval (or EDGAR) system. Our SEC
filings, including the registration statement, of which this prospectus is a
part, and the exhibits thereto, are available for inspection and copying at the
public reference facilities maintained by the Commission in Room 1024, 450 Fifth
Street, N.W. Washington, D.C. 20549, and the Commission's regional offices
located in New York, New York and Chicago, Illinois. Copies of all or any part
of the registration statement may be obtained from these offices after payment
of fees prescribed by the Commission. Please call the Commission at
1-800-SEC-0330 for further information on the public reference rooms. The
Commission also maintains a Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
As a foreign private issuer, we are exempt from the rules under the
Securities Exchange Act of 1934, as amended, prescribing the furnishing and
content of proxy statements to shareholders. Because we are a foreign private
issuer, we, our directors and our officers are also exempt from the shortswing
profit recovery and disclosure regime of section 16 of the Exchange Act.
The SEC allows us to "incorporate by reference" the information that we
file with it. This means that we can disclose important information to you by
referring you to those documents that are considered part of this prospectus.
The information incorporated by reference is an important part of this
prospectus. Our subsequent filings of similar documents with the SEC will
automatically update and supersede this information. Our SEC file number is
0-30594.
The following documents have been filed with the SEC pursuant to the
Securities Exchange Act of 1934 and are hereby incorporated by reference:
- our annual report on Form 20-F for the fiscal year ended September 30,
2000, filed on February 20, 2001, and
i
4
- our report on Form 6-K, furnished to the Commission on September 25,
2001, which includes our results for the nine months ended June 30, 2001
and a description of a corporate governance and standstill agreement
entered into by certain of our shareholders.
All subsequent annual reports filed by us on Form 20-F, Form 40-F or Form
10-K and all subsequent filings on Form 10-Q and Form 8-K pursuant to the
Exchange Act subsequent to the date of this prospectus and before the
termination of the offering shall be deemed to be incorporated by reference and
a part of this prospectus from the date such documents are filed. We may
incorporate by reference any reports submitted by us on Form 6-K by identifying
on such forms that they are being incorporated by reference into this
prospectus.
We will provide without charge to each person, including any beneficial
owner, to whom a copy of this prospectus has been delivered, on the written or
oral request of such person, a copy of any or all documents referred to above
which have been or may be incorporated by reference in this prospectus (not
including exhibits to such incorporated information that are not specifically
incorporated by reference into such information). Requests for such copies
should be directed to us at the following address: GT Group Telecom Inc., 20 Bay
Street, 7th Floor, Toronto, Ontario, Canada M5J 2N8, Attention: Secretary,
telephone number: (416) 848-2433.
------------------------
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN RECOMMENDED BY ANY UNITED
STATES FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY.
FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR
DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference into this
prospectus contain forward-looking statements. These statements relate to future
events or our future financial performance. You can generally identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "intends," "anticipates," "believes," "estimates,"
"projects," "predicts," "potential," or "continue" or the negative of these
terms or other comparable terminology. These statements are only predictions and
involve known and unknown risks, uncertainties and other factors, including the
risks outlined under "Risk Factors", that may cause our or our industry's actual
results, levels of activity, performance or achievements to differ materially
from any future results, levels of activity, performance or achievements
expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, we do not assume and no other
person assumes responsibility for the accuracy and completeness of these
statements. We undertake no obligation to publicly update or revise any
forward-looking information to reflect actual results or changes in assumptions.
PRESENTATION OF OUR FINANCIAL AND OTHER INFORMATION
Unless we indicate otherwise, financial information in this prospectus has
been prepared in accordance with Canadian generally accepted accounting
principles. Canadian GAAP differs in some respects from U.S. GAAP and thus our
financial statements may not be comparable to the financial statements of U.S.
companies. The principal differences as they apply to us are summarized in the
notes to the audited consolidated financial statements of Group Telecom
incorporated by reference
ii
5
into this prospectus and note 10 to the audited financial statements of Shaw
FiberLink beginning on page F-2.
We present our financial information in Canadian dollars. In this
prospectus, except where we indicate, all dollar amounts are in Canadian
dollars. References to "$" or "Cdn$" are to Canadian dollars and references to
"US$" are to U.S. dollars. This prospectus contains a translation of some
Canadian dollar amounts into U.S. dollars at specified exchange rates solely for
your convenience. Unless we indicate otherwise, U.S. dollar amounts have been
translated from Canadian dollars at US$0.6589 per Cdn$1.00, which was the
inverse of the buying rate for transfers in Canadian dollars as quoted by
Reuters on June 30, 2001.
iii
6
SUMMARY OF THE NOTES
This summary highlights information about the notes that you will find
elsewhere in this prospectus and in the documents incorporated by reference into
this prospectus. This summary does not contain all the information you should
consider before investing in the notes. You should carefully read the entire
prospectus and the risk factors beginning on page 3.
Notes Offered.............. 13 1/4% senior discount notes due 2010.
Maturity Date.............. February 1, 2010.
Interest................... We will pay cash interest on the notes from August
1, 2005 at the rate of 13 1/4% per year, payable
semi-annually in arrears on each February 1 and
August 1, commencing on August 1, 2005. Prior to
February 1, 2005, interest will accrue on the
original issue price of the notes but will not be
payable in cash. However, we may elect to commence
the accrual of interest payable in cash on any
February 1 or August 1 on or after February 1,
2003. The stated amount at maturity of each note
will be reduced to the accreted value of the notes
on the date that cash interest starts to accrue.
Optional Redemption........ Generally, we may not redeem the notes prior to
February 1, 2005. On or after February 1, 2005, we
may redeem the notes, in whole or in part, at any
time, at the redemption prices set forth under the
section entitled "Description of the Notes --
Optional Redemption", together with accrued and
unpaid interest, if any, to the redemption date.
In addition, before February 1, 2003, we may redeem
up to 35% of the stated amount at maturity of the
notes with the proceeds of sales of certain kinds
of our share capital at a redemption price of
113.25% of the accreted value of the notes.
Change of Control.......... If we experience specific kinds of change of
control we must offer to repurchase the notes at
the amount listed under the heading "Description of
the Notes -- Covenants -- Change of Control".
Ranking.................... The notes will rank equally with our other
unsubordinated, unsecured indebtedness. The notes
are effectively subordinated to our secured
indebtedness and all liabilities of our
subsidiaries.
Certain Covenants.......... The indenture under which the notes were issued
restricts our ability to:
- incur additional indebtedness;
- make investments or certain other restricted
payments;
- create liens;
- pay dividends or make distributions in respect of
share capital;
- redeem share capital;
- sell assets;
- issue or sell shares of restricted subsidiaries;
- enter into transactions with shareholders or
affiliates; or
- effect a consolidation or merger.
1
7
All of these limitations and prohibitions will be
subject to a number of important qualifications and
exceptions. For more details, see the section
entitled "Description of the Notes -- Covenants".
Withholding Tax............ Unless required by law, all our payments with
respect to the notes will be made without
withholding or deduction for any present or future
taxes or governmental charges of whatever nature
imposed or levied by any tax authority within
Canada or any other relevant taxing jurisdiction.
We will pay any additional amounts so that the net
amounts receivable by the holders after any
payment, withholding or deduction in respect of
such tax or liability shall equal the respective
amounts which would have been receivable in respect
of the notes in the absence of such payments,
withholding or deduction.
Absence of a Public Market
for the Notes.............. The initial purchasers of the notes have advised us
that they intend to make a market for the notes as
permitted by applicable laws and regulations.
However, they are not obligated to do so and may
discontinue any such market making activities at
any time without notice.
2
8
RISK FACTORS
An investment in our class B non-voting shares, warrants or notes involves
a high degree of risk. You should carefully consider the risks described below
and all other information contained in this prospectus before purchasing our
class B non-voting shares, warrants or notes.
THE COSTS OF DEPLOYING OUR NETWORK AND EXPANDING OUR BUSINESS MAY EXCEED
THE CAPITAL AVAILABLE TO US. IF THIS HAPPENS, WE MAY HAVE TO DELAY OR ABANDON
OUR BUSINESS PLAN.
We used substantial capital to fund our acquisitions of the businesses of
Shaw FiberLink and Videon FiberLink, our acquisition of the Cable Atlantic
competitive local exchange carrier and commercial telecommunications operations
and our acquisitions from 360networks, and will have significant capital
expenditures, working capital, debt service and cash flow deficits during the
period in which we are expanding our business and deploying our network,
services and systems. The actual amount and timing of our future capital
requirements may differ materially from our estimates as a result of prevailing
economic conditions and financial, business and other factors, many of which are
beyond our control. We cannot assure you that the capital actually required for
this expansion and deployment will not exceed our expectations. If demand in the
targeted markets exceeds current expectations, capital requirements may increase
materially. In addition, we may identify new markets in the future and, as
opportunities develop, we may be required to make additional investments in our
network and facilities or pursue strategic alliances to consummate those
opportunities.
If required, we expect to raise additional capital through the sale of debt
and equity and through vendor financing. We cannot assure you that we will be
able to raise sufficient capital or that such funding will be available on a
timely basis or on terms acceptable to us, if at all. If we fail to raise
additional funds when and if required, we may have to delay or abandon our
planned expansion of our network, services and systems, which could cause us to
lose revenue and would hinder our ability to compete in the telecommunications
industry.
IF WE ARE UNABLE TO NEGOTIATE ACCESS RIGHTS TO THE PROPERTY OF A VARIETY OF
THIRD PARTIES, WE WOULD BE DELAYED IN EXECUTING OUR BUSINESS PLAN.
Most of our target customers are tenants within large buildings. To execute
our business plan, we will need to obtain additional building license agreements
with several different building management companies. We may not be able to
secure additional building license agreements on a timely basis or on acceptable
terms. If we cannot obtain building license agreements, our operating results
will be harmed and we may be required to delay or abandon some of our planned
future expansion.
To build our network, we must obtain rights and other permits, which
include, but are not limited to, rights-to-use underground conduit and aerial
pole space and other rights-of-way from entities such as utilities, railroads,
long distance providers, provincial highway authorities, local governments and
transit authorities. We cannot assure you that we will be successful in either
obtaining or maintaining these permits and rights-of-way on commercially
reasonable terms and conditions. Certain permits and rights-of-way may require
regulatory filings or may be subject to legal challenge by municipal
governments, land and building owners or other third parties. For example, there
is a public notice proceeding that was initiated by Canada's telecommunications
regulatory authority, the Canadian Radio-television and Telecommunications
Commission (commonly known as the "CRTC") in which interested parties were
invited to comment on the terms and conditions of access to municipal rights-
of-way in the city of Vancouver. Loss of substantial permits or rights-of-way or
the failure to enter into or maintain required arrangements could cause us to
lose revenue or abandon certain markets.
If we cannot enter into agreements for access rights or purchase or lease
fiber with accompanying access rights, our business and our operating results
may be harmed and we may be required to delay or abandon some of our business
plan.
3
9
WE ARE DEPENDENT ON OTHER PARTIES IN RESPECT OF THE FIBER WHICH CONSTITUTES
A SIGNIFICANT PART OF OUR NETWORK.
In connection with our acquisition of the business of Shaw FiberLink we
received an indefeasible right to use Shaw FiberLink's fiber for 60 years. Shaw
FiberLink has, in turn, a one-year indefeasible right to use fiber of various
cable companies which are owned by Shaw Communications, renewable annually by
Shaw FiberLink during the term of our indefeasible right to use Shaw FiberLink's
fiber. As a result, in order to have access to the fiber provided by the
indefeasible right to use, we are dependent on Shaw FiberLink's ability to
maintain its indefeasible right to use agreements with the Shaw cable companies.
In addition, the terms of our agreements with Shaw FiberLink, Videon FiberLink,
Cable Atlantic and 360networks provide, and the terms of any similar agreements
we enter into in the future are likely to provide, that our rights under those
agreements are limited if the underlying rights associated with the fiber that
is the subject of the indefeasible rights to use have any limitations or
prohibitions. We entered into performance assurance agreements with Shaw
Communications and Moffat Communications to support our rights under our
agreement with Shaw FiberLink and Videon FiberLink. If we discover that
indefeasible right to use rights are not passed to us as anticipated, or if we,
Shaw FiberLink, Videon FiberLink, Cable Atlantic or 360networks do not obtain
and maintain the necessary underlying rights, or if Shaw Communications or
Moffat Communications do not comply with the performance assurance agreements,
we may not have access to the fiber provided by the indefeasible right to use
agreement and this could substantially impair our ability to carry on business.
SOME OF OUR CUSTOMERS ARE ALSO OUR COMPETITORS AND, GIVEN OUR COMPETITION
WITH THEM, MAY REDUCE THE LEVEL OF BUSINESS THEY DO WITH US.
We provide data services to and derive revenue from other
telecommunications carriers, even though we also compete with some of them for
customers. A large portion of the revenues of the businesses we have recently
acquired are also derived from services to other telecommunications carriers.
These carriers may not wish to use our services to this extent given our
competition with them and they may reduce the level of business they do with us.
WE HAVE EXPERIENCED AND ANTICIPATE THAT WE WILL CONTINUE TO EXPERIENCE NET
LOSSES.
For the nine months ended June 30, 2001 and for the year ended September
30, 2000 we had net losses of $301.7 million and $138.0 million and negative
cash flow from operating activities of $92.1 million and $49.2 million,
respectively. We expect to incur significant additional expenditures in
connection with the development and expansion of our network and service
offerings. As a result, we expect to continue to incur significant future net
losses and negative cash flow. If our revenues do not increase significantly or
the increase in our expenses is greater than expected, we may not achieve or
sustain profitability or generate positive cash flow in the future.
GROUP TELECOM'S LIMITED HISTORY OF OPERATIONS MAY MAKE IT DIFFICULT TO
EVALUATE OUR PROSPECTS.
Group Telecom was incorporated in 1996. Our short operating history permits
us to provide you with only limited operating and financial data which you can
use to evaluate our performance.
IF WE DO NOT CONTINUALLY ADAPT TO TECHNOLOGICAL CHANGE, WE COULD LOSE
CUSTOMERS AND MARKET SHARE.
The telecommunications industry is subject to rapid and significant changes
in technology, and we rely on outside vendors for the development of and access
to new technology. The effect of technological changes on our business cannot be
predicted. We believe our future success will depend, in part, on our ability to
anticipate or adapt to such changes and to offer, on a timely basis, services
that meet customer demands. In addition, we rely on vendors with whom we have
financing agreements to anticipate and adapt to new technology and to make
products that incorporate such technology available to us. We cannot assure you
that we will obtain access to new technology on a
4
10
timely basis or on satisfactory terms. If we fail to obtain new technology, we
may lose customers and market share which could harm our business and operating
results.
OUR SUBSTANTIAL DEBT OBLIGATIONS MAY HINDER OUR GROWTH AND PUT US AT A
COMPETITIVE DISADVANTAGE.
We have a significant amount of debt. As of June 30, 2001, we had
approximately $1,354.9 million of long-term debt outstanding. In addition, we
could incur an additional $319.8 million under our bank facility and our vendor
facilities, including those with Cisco and Lucent, assuming we could incur debt
in compliance with covenants set forth in these facilities. We may need to incur
additional debt in the future. Our substantial debt obligations could have
important consequences to you. For example, they could:
- require us to use a substantial portion of our operating cash flow to
pay interest, which reduces funds available to expand our network and
for other purposes;
- place us at a competitive disadvantage compared to our competitors that
have less debt;
- make us more vulnerable to economic and industry downturns and reduce
our flexibility in responding to changing business and economic
conditions;
- limit our ability to pursue business opportunities; and
- limit our ability to borrow more money for operations or capital in the
future.
A 1 percent interest rate change on our floating interest rate long-term
debt outstanding at June 30, 2001, would have an annual impact of $5.1 million
on our interest cost.
WE REQUIRE A SIGNIFICANT AMOUNT OF CASH TO PAY OUR DEBT. IF WE FAIL TO
GENERATE SUFFICIENT CASH FLOW FROM OPERATIONS, WE MAY NEED TO REFINANCE OUR
DEBT, OBTAIN ADDITIONAL FINANCING OR POSTPONE CAPITAL EXPENDITURES.
We cannot assure you that we will generate sufficient cash flow from
operations to make scheduled payments on our debt. Our ability to meet our debt
obligations will depend on whether we can successfully implement our strategy,
as well as on economic, financial, competitive, legal and technical factors.
Some of the factors are beyond our control, such as economic conditions in the
different local markets where we operate or intend to operate, and pressure from
existing and new competitors. If we cannot generate sufficient cash flow from
operations to make scheduled payments on our debt obligations, we may need to
refinance our debt, obtain additional financing, delay planned capital
expenditures or sell assets. Our ability to refinance our debt or obtain
additional financing will depend on, among other things:
- our financial condition at the time;
- restrictions in agreements governing our debt; and
- other factors, including market conditions.
THE NOTES ARE EFFECTIVELY SUBORDINATED TO OUR SECURED INDEBTEDNESS AND THE
LIABILITIES OF OUR SUBSIDIARIES.
The notes are effectively subordinated to our secured indebtedness to the
extent of the value of the assets securing the indebtedness. The notes are
effectively subordinated to all liabilities, including trade payables and lease
obligations, of our subsidiaries. Any right we may have to receive assets of any
of our subsidiaries upon liquidation or reorganization will be effectively
subordinated to the claims of that subsidiary's creditors, including trade
creditors. As of June 30, 2001, we had no outstanding secured debt and our
subsidiaries had approximately $1,354.9 million of long-term debt (including
current portion). In addition, under our bank facility and our vendor
facilities, including those with Cisco and Lucent, we may borrow an additional
$319.8 million of secured debt. The indenture governing the notes and our credit
and vendor facilities contain limitations on our ability and the ability
5
11
of our subsidiaries to incur additional debt. However, these limitations are
subject to a number of exceptions, and we cannot assure you that we will not
incur significant additional debt in the future, including debt to which the
holders of the notes would be effectively subordinated.
WE ARE ORGANIZED AS A HOLDING COMPANY AND SO WE WILL DEPEND ON THE CASH
FLOW OF OUR SUBSIDIARIES TO SATISFY OUR OBLIGATIONS UNDER THE NOTES.
Our operating cash flow and our ability to service our debt, including the
notes, depends upon the operating cash flow of our subsidiaries and their
payments to us in the form of loans, dividends or otherwise. Our subsidiaries
are separate legal entities and have no obligation to pay any amounts due on the
notes or to make any funds available for that purpose, whether by dividends,
interest, loans, advances or other payments. In addition, our subsidiaries'
payment of dividends and the making of loans, advances and other payments to us
may be subject to regulatory and contractual restrictions. These restrictions
include requirements to maintain minimum levels of working capital and other
assets. Subsidiary payments are contingent upon earnings and various business
and other considerations.
DUE TO RESTRICTIONS IN OUR FINANCING AGREEMENTS, WE MAY NOT BE ABLE TO
OPERATE OUR BUSINESS AS WE DESIRE.
The indenture relating to the notes and our other financing agreements will
limit our flexibility in operating our businesses. In particular, the indenture
and our financing agreements limit our ability in certain circumstances to:
- incur additional indebtedness;
- voluntarily prepay indebtedness;
- create liens on our property;
- pay dividends or make distributions in respect of share capital;
- make investments or certain other restricted payments;
- enter into interest rate, currency exchange rate or other hedging
arrangements;
- enter into transactions with shareholders or affiliates;
- enter into sale and leaseback transactions;
- sell assets; and
- merge or consolidate with other companies.
Our future financing arrangements, if any, will most likely contain similar
or more restrictive covenants. As a result of these restrictions, we are limited
in how we conduct business and we may be unable to raise additional debt or
equity financing to operate during economic or business downturns, to compete
effectively or to take advantage of new business opportunities. This may affect
our ability to generate revenues and make profits. Without sufficient revenues
and cash, we may not be able to pay interest and principal on our indebtedness,
including the notes.
Our failure to comply with the covenants and restrictions contained in the
indenture for the notes and our other financing agreements could lead to a
default under the terms of these agreements. If a default occurs, the other
parties to our other financing agreements could declare all amounts borrowed and
all amounts due under these other agreements due and payable.
WE FACE POTENTIAL CONFLICTS OF INTEREST CAUSED BY INVESTOR INFLUENCE WHICH
COULD BE DETRIMENTAL TO HOLDERS OF OUR SECURITIES.
As a result of an amended and restated shareholders agreement entered into
by shareholders on February 16, 2000 then holding approximately 88.0% of our
fully-diluted equity in connection with our acquisition of the business of Shaw
FiberLink, two of our institutional investors (which are affiliates of
6
12
Goldman Sachs and CIBC World Markets) and Shaw Communications, were able to
nominate a majority of our directors. As of the date of this prospectus,
affiliates of Goldman Sachs and CIBC World Markets hold approximately 33% of our
equity and are entitled to nominate 4 of 11 directors on our board of directors.
In addition, Shaw Communications holds approximately 40% of our equity and is
entitled to nominate 3 directors on our board of directors. Each of Shaw
Communications and Goldman Sachs has a right to consent to:
- specified major transactions by us, including acquisitions and
investments in excess of $300 million and mergers or business
combinations, for a period of 18 months after February 16, 2000; and
- our annual operating budget, for a period of 24 months after February
16, 2000.
Decisions concerning our operations or financial structure may present
conflicts of interest between these investors, our management and other holders
of our securities. In addition, these investors or their affiliates currently
have significant investments in other telecommunications companies, including
entities that compete with us, and may in the future invest in other entities
engaged in the telecommunications business or in related businesses. Conflicts
may also arise in the negotiation or enforcement of arrangements entered into by
us and entities in which these investors have an interest.
SOME OF OUR COMPETITORS HAVE GREATER FINANCIAL, TECHNICAL AND OTHER
RESOURCES THAN WE DO, AND WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.
The Canadian telecommunications market is highly competitive. We face, and
expect to continue to face, intense competition in all of our target markets
from the incumbent local exchange carriers, cable companies, competitive long
distance providers, wireless providers, new local exchange carriers, and
resellers. Many of our current and potential competitors, including the Bell
companies, Aliant, BCT.TELUS, AT&T Canada and Call-Net, have longer operating
histories in the telecommunications industry and substantially greater
financial, marketing, technical, personnel, regulatory and other resources,
including greater brand name recognition. The emergence in Canada of a
competitive market for local telecommunications services has resulted in price
competition among market participants, and this pricing pressure may be more
intense than we expect, which could harm our business and our financial
condition. Also, as communications technologies develop, new classes of
competitors will emerge.
OUR BUSINESS STRATEGY DEPENDS ON SECURING AND MAINTAINING INTERCONNECTION
AGREEMENTS WITH OTHER PROVIDERS.
We provide some local services to our customers using facilities that we
lease or purchase from the incumbent local exchange carriers. We must enter into
agreements for the interconnection of our network with the networks of the
incumbent local exchange carriers and other carriers covering each market in
which we intend to offer service. We have entered into interconnection
agreements in a number of jurisdictions. However, we cannot assure you that we
will successfully renegotiate these agreements as they become due to expire, or
negotiate additional agreements as we enter new markets. Although the incumbent
local exchange carriers are not entitled to unjustly discriminate against
telecommunications carriers like us in respect of the rates or services they
provide to us or to disrupt the access of competitors to their respective
facilities, we are vulnerable to changes in our lease and interconnection
arrangements with the incumbent local exchange carriers, such as rate increases
and changes in rules and policies of the CRTC.
WE DEPEND ON OUR SUPPLIERS OF SWITCHES AND OTHER EQUIPMENT AND MAY
EXPERIENCE DELAYS IN RECEIVING REQUIRED COMPONENTS.
We rely on other companies to supply key components of our network
infrastructure, primarily switching and data routing equipment. These components
are only available in the quantities and quality we require from limited
sources. We may experience delays in receiving components or may
7
13
not be able to obtain these components on the scale and within the time frames
required by us at an affordable cost, or at all.
IF OUR BILLING, CUSTOMER SERVICE AND INFORMATION SYSTEMS DO NOT OPERATE AS
WE EXPECT OR IF WE FAIL TO UPGRADE SYSTEMS AS NECESSARY, WE WILL NOT BE ABLE TO
CONDUCT OUR BUSINESS EFFICIENTLY.
Integrated management information and processing systems are vital to our
growth and our ability to monitor costs, process customer orders, bill customers
and operate efficiently. The cost of implementing these systems has been, and we
expect will continue to be, substantial.
We are in the final stages of developing and testing our operational
support system to integrate important facets of our operations. The development
and implementation of this system relies in part on the products and services of
third party vendors, over which we have no control. Unanticipated problems with
our system may harm our business and operating results.
In addition, any of the following developments could harm us:
- our failure to adequately identify and integrate all of our information
and processing needs;
- failure of our processing or information systems to perform as expected;
and
- our failure to upgrade systems as necessary and on a timely basis.
IF WE LOSE KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, OUR BUSINESS AND OUR PROSPECTS COULD BE HARMED.
We are dependent on the continued service of a small number of key
executives and operations personnel, including Daniel Milliard, our chief
executive officer, Robert Wolfe, our president, Stephen Shoemaker, our chief
financial officer and Eric Demirian, our executive vice president, corporate
development. The loss of services of one or more of our key executives,
particularly Messrs. Milliard, Wolfe, Shoemaker and Demirian, could harm our
business and our prospects. We do not maintain key person life insurance for any
of our executive officers.
REGULATIONS RELATING TO CANADIAN OWNERSHIP AND CONTROL OF OUR VOTING SHARES
PREVENTS A FOREIGN INVESTOR FROM ACQUIRING US, WHICH COULD LIMIT THE VALUE OF
YOUR CLASS B NON-VOTING SHARES AND YOUR WARRANTS TO PURCHASE CLASS B NON-VOTING
SHARES.
As a competitive local exchange carrier, we are subject to regulations
which require that not less than 66 2/3% of our issued and outstanding voting
shares be beneficially owned by "Canadians" (as defined in these regulations).
To ensure compliance with these regulations, we have placed restrictions on the
transfer of our class A voting shares to non-Canadians. These restrictions
effectively limit the number of potential acquirors of our business and
therefore a takeover bid for us is less likely and you are less likely to
receive the change of control premium that generally comes with such bids.
OUR ABILITY TO COMPETE IN THE CANADIAN LOCAL TELECOMMUNICATIONS MARKET IS
SUBJECT TO EXTENSIVE GOVERNMENT REGULATION WHICH MAY BE CHANGED IN A MANNER
HARMFUL TO OUR BUSINESS.
We are subject to regulation by the CRTC pursuant to the provisions of the
Canadian Telecommunications Act. We are also subject to radio spectrum
regulation by the Canadian Federal Department of Industry (commonly known as
Industry Canada) pursuant to the provisions of the Radiocommunication Act. Since
1994, the stated policy of the CRTC has been to recognize the importance of
competition in the local switched services market. As a relatively new entrant
into the Canadian telecommunications market, we benefit from this policy and
these decisions. However, we cannot assure you that the CRTC's policy to foster
the development of competition in the local switched services market will not
change or that the CRTC will react quickly and efficiently to anti-competitive
practices or effects resulting from the dominant position of Canada's incumbent
local
8
14
exchange carriers. Any change in the CRTC's policies or regulations could harm
our business, operating results and prospects.
CRTC decisions are subject to review and variance by the CRTC at any time.
CRTC decisions can also be appealed to the Canadian Federal Court of Appeal and
may also be challenged by petition to the Federal Cabinet. We cannot assure you
that the local competition decisions of the CRTC, or other decisions relating to
the telecommunications markets in which we compete will not be reviewed and
varied by the CRTC or by the Federal Court or Cabinet on appeal. Any variance of
these decisions or other rules and regulations of the CRTC could harm our
business.
OUR NEED TO COMPLY WITH EXTENSIVE GOVERNMENT REGULATION CAN INCREASE OUR
COSTS AND SLOW OUR GROWTH.
Because we are subject to extensive government regulation, delays in
receiving required regulatory approvals may slow our growth. In addition, the
enactment of new adverse regulations or regulatory requirements may increase our
costs, which could have a harmful effect on us. We also cannot assure you that,
as we expand our business, the CRTC and Industry Canada will continue to grant
us the authority we need to conduct our business or will not take action against
us if we are found to have provided services without obtaining the necessary
authorizations or to have violated other requirements of their rules or orders.
The CRTC, Industry Canada or others could challenge our compliance with
applicable rules and orders, which could cause us to incur substantial legal and
administrative expenses. Lengthy administrative hearings might also delay the
deployment of our network, which could slow our growth.
OUR CLASS B NON-VOTING SHARES HAVE A LIMITED TRADING HISTORY AND THEIR
PRICE MAY BE VOLATILE. WE CANNOT ASSURE YOU THAT OUR SHARE PRICE WILL NOT
DECLINE IN THE FUTURE.
There has only been a public market for our class B non-voting shares since
March 2000. The market price of our class B non-voting shares could be subject
to significant fluctuation. Among the factors that could affect our share price
are:
- quarterly variations in our operating results;
- changes in revenue or earnings estimates or publication of research
reports by analysts;
- strategic decisions by us or our competitors, such as acquisitions or
restructurings or changes in business strategy;
- actions by institutional stockholders;
- speculation in the press or investment community;
- general market conditions; and
- economic factors unrelated to our performance.
Recently, stock markets in the United States have experienced significant
price and volume fluctuations and the market prices of securities of
telecommunications services providers and technology companies, particularly
Internet-related companies, have been highly volatile. Investors may not be able
to resell their class B non-voting shares at or above the current price reported
on the Nasdaq National Market. In the past, following periods of volatility in
the market price of a company's securities, securities class action litigation
in the United States has often been instituted against such a company. The
institution of such litigation against us could result in substantial costs and
a diversion of our management's attention and resources, which could harm our
business and financial condition.
WE DO NOT INTEND TO LIST THE WARRANTS ON ANY STOCK EXCHANGE.
The warrants have not been listed on any national stock exchange and we do
not intend to list the warrants on any national stock exchange in the future.
The absence of a listing on a stock
9
15
exchange may cause the warrants to trade at a price lower than the price for the
underlying class B non-voting shares that are traded on the Nasdaq National
Market.
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE
NOTES.
Group Telecom has not applied, and does not intend to apply, for listing of
the notes on any securities exchange or for the inclusion of the notes on any
automated quotation system. Although the initial purchasers of the notes,
including Goldman Sachs & Co., have informed us that they intend to make a
market in the notes, they are not obligated to make a market and may discontinue
such market making at any time without notice. Accordingly, you cannot be sure
that an active trading market will develop for the notes.
Historically, the market for non-investment grade debt has been highly
volatile in terms of price. It is possible that the market for the notes will be
volatile. This volatility in price may affect your ability to resell your notes
or the timing of their sale. Because of the potential lack of a trading market,
you may not be able to resell your notes at or above the price you paid for
them.
SINCE OUR REVENUE IS IN CANADIAN DOLLARS AND MOST OF OUR DEBT IS IN U.S.
DOLLARS, WE ARE SUBJECT TO FLUCTUATIONS IN THE EXCHANGE RATE BETWEEN CANADIAN
AND U.S. DOLLARS.
As of June 30, 2001 we had debt outstanding denominated in U.S. dollars of
approximately US$689.1 million. Since the majority of our revenue is in Canadian
dollars, we are, and will continue to be, exposed to fluctuations in the
exchange rate between Canadian and U.S. dollars and the uncertainty of the
amount of Canadian dollars that will be required to service the principal and
interest payments under our U.S. dollar denominated debt. In order to minimize
these effects, as at June 30, 2001, we had entered into certain cross currency
swaps to hedge approximately 74% of our outstanding U.S. dollar denominated
debt. Based on our June 30, 2001 balances, a 1 percent change in the foreign
currency exchange rate between the Canadian and U.S. dollar would have an impact
of $2.8 million on the unhedged portion of our long-term debt. Any substantial
increase in the U.S. dollar relative to the Canadian dollar could affect our
results of operations and our ability to meet our future payment obligations on
our debt.
IN CONNECTION WITH ITS MARKET-MAKING ACTIVITIES IN OUR SECURITIES, GOLDMAN,
SACHS & CO. MAY BE REQUIRED TO COMPLY WITH REQUIREMENTS OF THE SECURITIES ACT
THAT COULD AFFECT ITS ABILITY TO CONTINUE THESE ACTIVITIES.
Goldman, Sachs & Co. may be deemed to be an affiliate of Group Telecom and,
as such, Goldman, Sachs & Co. and its affiliates may be required to deliver a
current prospectus and otherwise comply with the requirements of the Securities
Act in connection with any secondary market sale of our securities. These
requirements may affect their ability to continue their market-making activities
in these securities. We filed a registration statement, of which this prospectus
is a part, that would allow Goldman, Sachs & Co. and its affiliates to engage in
market-making transactions in our class B non-voting shares, warrants or notes.
See "Plan of Distribution".
IF OUR FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS ARE INCORRECT, OUR
RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THESE
FORWARD-LOOKING STATEMENTS.
This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. You can generally
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "intends," "anticipates," "believes," "estimates,"
"projects," "predicts," "potential," or "continue" or the negative of these
terms or other comparable terminology. These statements are only predictions and
involve known and unknown risks, uncertainties and other factors, including the
risks outlined under "Risk Factors", that may cause our or our industry's actual
results, levels of activity, performance or achievements to differ materially
from any future results, levels of activity, performance or achievements
expressed or implied by these forward-looking statements.
10
16
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, we do not assume and no other
person assumes responsibility for the accuracy and completeness of these
statements.
11
17
USE OF PROCEEDS
This prospectus is being delivered in connection with the sale of the class
B non-voting shares, warrants or notes by Goldman, Sachs & Co., Spear Leeds &
Kellogg, L.P. and their broker-dealer subsidiaries in market-making
transactions. We will not receive any of the proceeds from these transactions.
RATIO OF EARNINGS TO FIXED CHARGES
The following table shows our ratio of earnings to fixed charges for each
of the five years in the period ended September 30, 2000, and for the nine month
period ended June 30, 2001.
<Table>
<Caption>
TWELVE MONTHS ENDED SEPTEMBER 30,
------------------------------------- NINE MONTHS ENDED
1996 1997 1998 1999 2000 JUNE 30, 2001
----- ----- ----- ----- ----- -----------------
Ratio of Earnings to Fixed Charges(1)..... * * * * * *
</Table>
---------------
* Not meaningful.
(1) For purposes of calculating the ratio of earnings to fixed charges, earnings
represent earnings (loss) before income taxes and fixed charges, consisting
of interest and financing expenses. For the period from April 12, 1996, our
date of incorporation, to September 30, 1996, and the years ended September
30, 1997, 1998, 1999 and 2000, our earnings were insufficient to cover our
fixed charges by $251,000, $430,000, $2,439,000, $11,390,000 and
$179,439,000, respectively. For the nine months ended June 30, 2001, our
earnings were insufficient to cover our fixed charges by $301,092,000.
DIVIDEND POLICY
We have not paid any dividends on our class B non-voting shares and do not
intend to pay any dividends on our class B non-voting shares in the foreseeable
future. We currently intend to retain future earnings, if any, to finance the
future growth of our business. In addition, our ability to pay cash dividends is
currently restricted under the terms of financing agreements related to our long
term debt. For a further description of these restrictions, see the description
of our financing arrangements in Item 10.C. of our annual report on Form 20-F,
which is incorporated by reference into this prospectus, and the exhibits
contained in the registration statement of which this prospectus is a part.
Future dividends, if any, will be determined by our board of directors.
12
18
CAPITALIZATION
The following table sets forth our actual capitalization as of June 30,
2001. You should read this table together with the information contained in the
documents incorporated by reference into this prospectus, including our
financial statements and the notes thereto.
<Table>
<Caption>
JUNE 30, 2001
ACTUAL
--------------
(IN THOUSANDS)
Cash and cash equivalents................................... $ 346,121
===========
Long-term debt (including current portion):
Bank facility(1).......................................... $ 178,378
13 1/4% Senior Discount Notes due 2010.................... 747,102
Vendor financing(1)....................................... 327,327
Long-term lease arrangement(2)............................ 84,647
Note payable(3)........................................... 481
Capital leases............................................ 16,966
-----------
Total long-term debt................................... 1,354,901
-----------
Shareholders' equity
Class A voting shares..................................... 465,740
Class B non-voting shares................................. 614,725
Warrants.................................................. 55,189
Additional paid-in-capital................................ 255
Loans to officers......................................... (3,868)
Deficit................................................... (452,713)
-----------
Total shareholders' equity................................ 679,328
-----------
Total capitalization................................... $ 2,034,229
===========
</Table>
---------------
(1) For a description of the terms of the bank facility, the Lucent facility and
the Cisco facility, see the description of our financing arrangements in
Item 10.C. of our annual report on Form 20-F, which is incorporated by
reference into this prospectus.
(2) For a description of this long-term lease arrangement, see Item 10.C. of our
annual report on Form 20-F and Item 3.A. of our quarterly financial
statements on Form 6-K, which are incorporated by reference into this
prospectus.
(3) Represents an amount payable pursuant to a right to purchase the building
that houses our central office in Burnaby, British Columbia.
13
19
BUSINESS
You will find a complete description of our business in our most recent
annual report on Form 20-F. Important recent events that have occurred since the
filing of most recent annual report are described in our quarterly and current
reports filed by us with the SEC. See "Where You Can Obtain More Information".
DESCRIPTION OF THE WARRANTS
The warrants that are being offered were issued by Group Telecom on
February 1, 2000. The warrants have been issued pursuant to a warrant agreement
(the "Warrant Agreement"), as of the same date, between Group Telecom and The
Chase Manhattan Bank, as warrant agent (the "Warrant Agent"). On February 1,
2000, Group Telecom issued and sold 855,000 units consisting of US$855,000,000
in stated amount at maturity of 13 1/4% senior discount notes due 2010 and
855,000 warrants to purchase an aggregate 4,198,563 shares. The notes and
warrants became separately transferable in July 2000. As of September 19, 2001,
72,275 of the outstanding warrants have been exercised. If all the 855,000
outstanding warrants were exercised at the Exercise Rate (as defined below) in
effect at the date of this prospectus, such exercise would result in the
issuance by Group Telecom of 4,198,563 class B non-voting shares. The following
summary of certain provisions of the Warrant Agreement does not purport to be
complete and is qualified in its entirety by reference to the provisions of the
Warrant Agreement relating thereto, a copy of which may be obtained upon request
from Group Telecom.
GENERAL
As of the date of this prospectus, each warrant, when exercised, will
entitle the holder thereof to receive 4.9106 class B non-voting shares (the
"Exercise Rate") of Group Telecom at no additional cost to the holder of the
warrant. The warrants became exercisable upon the effectiveness of the shelf
registration statement, of which this prospectus forms a part. Unless earlier
exercised, the warrants will expire on February 1, 2010. The number of class B
non-voting shares issuable upon exercise of a warrant is subject to adjustment
in the circumstances described below under "-- Adjustments."
No service charge will be made for registration of transfer or exchange
upon surrender of any warrant certificate at the office of the Warrant Agent
maintained for that purpose. Group Telecom may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with an registration or transfer or exchange of warrant certificates.
The holders of the warrants have no right to vote on matters submitted to
the shareholders of Group Telecom or to receive notice of meetings of
shareholders or any other rights of shareholders of Group Telecom, including any
right to receive cash dividends. The holders of the warrants have no preemptive
rights and are not entitled to share in the assets of Group Telecom in the event
of the liquidation, dissolution or winding up of Group Telecom's affairs.
EXERCISE
The warrants may be exercised by surrendering to Group Telecom the warrant
certificates evidencing such warrants, if any, with the accompanying form of
election to purchase, properly completed and executed. Upon surrender of the
warrant certificate, the Warrant Agent will deliver or cause to be delivered, to
or upon the written order of such holder, stock certificates representing the
number of class B non-voting shares or other securities or property to which
such holder is entitled under the warrants and Warrant Agreement, including,
without limitation, at Group Telecom's option, any cash payable to adjust for
fractional interests in class B non-voting shares issuable upon such exercise.
If less than all of the warrants evidenced by a warrant certificate are to be
exercised, a new warrant certificate will be issued for the remaining number of
warrants.
14
20
At Group Telecom's option, fractional class B non-voting shares may not be
issued upon exercise of the warrants. If any fraction of a class B non-voting
share would, except for the foregoing provision, be issuable upon the exercise
of any such warrants (or specified portion thereof), Group Telecom will pay an
amount in cash equal to the Current Market Value per class B non-voting share as
determined on the day immediately preceding the date the warrant is presented
for exercise, multiplied by such fraction, computed to the nearest whole cent.
ADJUSTMENTS
The number of class B non-voting shares that may be purchased upon the
exercise of the warrants will be subject to adjustment in certain events
including:
(1) the payment by Group Telecom of dividends or other distributions
on class A voting or class B non-voting shares of Group Telecom payable in
such class A voting or class B non-voting shares or other shares of Group
Telecom's capital stock,
(2) subdivisions, combinations and certain reclassifications of class
A voting or class B non-voting shares,
(3) sales by Group Telecom of class A voting or class B non-voting
shares, or of securities convertible into or exchangeable or exercisable
for, class A voting or class B non-voting shares of the Company at less
than the Current Market Value of such shares (provided that no adjustment
shall be made with respect to our issuance, after the date of the
Indenture, of series B first preference shares to Shaw Communications in
connection with our acquisition of the business of Shaw FiberLink), and
(4) the distribution to all holders of class A voting or class B
non-voting shares of any of Group Telecom's assets, debt securities or any
rights or warrants to purchase securities (excluding those rights and
warrants referred to in clause (3) above and excluding cash dividends or
other cash distributions from current or retained earnings).
In the event of a taxable distribution to holders of class B non-voting
shares which results in an adjustment to the number of class B non-voting shares
or other consideration for which a warrant may be exercised, the holders of the
warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States Federal Income tax as a dividend.
In the case of certain reclassifications, redesignations, reorganizations
or change in the number of outstanding shares of class B non-voting shares or
amalgamations, consolidations or mergers of Group Telecom or the sale of all or
substantially all of the assets of Group Telecom, each warrant shall thereafter
be exercisable for the right to receive the kind and amount of shares of stock
or other securities or property to which such holder would have been entitled as
a result of such amalgamation, consolidation, merger or sale had the warrants
been exercised immediately prior thereto.
AMENDMENT
From time to time, Group Telecom and the Warrant Agent, without the consent
of the holders of the warrants, may amend or supplement the Warrant Agreement
for certain purposes, including, without limitation, curing defects or
inconsistencies or making any change that does not adversely affect the rights
of any holder. Any amendment or supplement to the Warrant Agreement that has an
adverse effect on the interests of the holders of the warrants shall require the
written consent of the holders of a majority of the then outstanding warrants.
The consent of each holder of the warrants affected shall be required for an
amendment pursuant to which the number of class B non-voting shares purchasable
upon exercise of warrants would be decreased (other than pursuant to adjustments
provided in the Warrant Agreement).
15
21
REPORTS
Whether or not required by the rules and regulations of the Commission, so
long as any of the warrants remain outstanding, Group Telecom shall cause copies
of the reports and other documents, which it would have been required to file
with the Commission pursuant to Section 13(a) or 15(d) of the Securities and
Exchange Act if it was subject to those rules, to be filed with the Warrant
Agent and mailed to the holders at their addresses appearing in the register of
warrants maintained by the Warrant Agent.
CERTAIN DEFINITIONS
"Current Market Value" per class B non-voting share or any other security
of Group Telecom at any date means
(1) if the security is not registered under the Exchange Act,
(a) the value of the security, determined in good faith by the
Board of Directors of Group Telecom and certified in a Board resolution
filed with the Warrant Agent, based on the most recently completed
arms-length transaction between Group Telecom and a person other than an
Affiliate of Group Telecom and the closing of which occurs on such date
or shall have occurred with the six-month period preceding such date, or
(b) if no such transaction shall have occurred on such date or
within such six-month period, the fair market value of the security as
determined by a nationally recognized independent financial expert
(provided that, in the case of the calculation of Current Market Value
for determining the cash value of fractional shares, any such
determination within six months that is, in the good faith judgement of
the Board of Directors, a reasonable determination of value, may be
utilized), or
(2) (a) if the security is registered under the Exchange Act, the
average of the daily closing sales prices of the securities for the 20
consecutive days immediately preceding such date, or (b) if the
securities have been registered under the Exchange Act for less than 20
consecutive trading days before such date, then the average of the daily
closing sales prices for all of the trading days before such date for
which closing sales prices are available, in the case of each of (2)(a)
and (2)(b), as certified to the Warrant Agent by the President, the
Chief Executive Officer or the Chief Financial Officer of Group Telecom.
The closing sales price for each such trading day shall be (A) in the
case of a security listed or admitted to trading on any United States
national securities exchange or quotation system, the closing sales
price, regular way, on such day, or if no sale takes place on such day,
the average of the closing bid and asked prices on such day, (B) in the
case of a security not then listed or admitted to trading on any
national securities exchange or quotation system, the last reported sale
price on such day, or if no sale takes place on such day, the average of
the closing bid and asked prices on such day, as reported by a reputable
quotation source designated by Group Telecom, (C) in the case of a
security not then listed or admitted to trading on any national
securities exchange or quotation system and as to which no such reported
sale price or bid and asked prices are available, the average of the
reported high bid and low asked prices on such day, as reported by a
reputable quotation service, or a newspaper of general circulation in
the Borough of Manhattan, City and State of New York, customarily
published on each business day, designated by Group Telecom, or, if
there shall be no bid and asked prices on such day, the average of the
high bid and low asked prices, as so reported, on the most recent day
(not more than 30 days prior to the date in question) for which prices
have been so reported and (D) if there are not bid and asked prices
reported during the 30 days prior to the date in question, the Current
Market Value shall be determined as if the securities were not
registered under the Exchange Act.
16
22
If clause (1) of the preceding paragraph is applicable, the Board of
Directors of Group Telecom is required to select an independent financial expert
not more than five business days following an event requiring a valuation.
Within five days after its selection of the independent financial expert, Group
Telecom must deliver to the Warrant Agent a notice setting forth the name of
such independent financial expert. Group Telecom must use its best efforts
(including by selecting another independent financial expert) to cause the
independent financial expert to deliver to Group Telecom, with a copy to the
Warrant Agent, a value report which states the relevant value of the class B
non-voting shares or warrants or other securities being valued as of the
valuation date and contains a brief statement as to the nature and scope of the
methodologies upon which the determination was made. The Warrant Agent will have
no duty with respect to the value report of any independent financial expert,
except to keep it on file and available for inspection by the holders of the
warrants. The determination of the independent financial expert as to the
relevant value in accordance with the provisions of the warrant agreement will
be conclusive on all persons.
REGISTRATION COVENANT
Group Telecom entered into a registration rights agreement (the "Warrants
Registration Rights Agreement") pursuant to which Group Telecom agreed, for the
benefit of the holders of the warrants, to file with the Commission a shelf
registration statement (the "Class B Registration Statement") under the
Securities Act relating to the resale of the warrants and the class B non-voting
shares issuable upon the exercise of the warrants upon the earlier to occur of
(1) the 180th day following the initial public offering of the class B
non-voting shares of Group Telecom; or
(2) December 31, 2001,
and to use its best efforts to cause such registration statement to become
effective within 90 days following its filing.
Group Telecom agreed to use its best efforts to keep the Class B
Registration Statement effective until the earlier to occur of (i) the second
anniversary of the effective date of the registration statement or (ii) such
time as there are no longer outstanding any warrants or class B non-voting
shares issuable upon exercise of the warrants; provided that Group Telecom may
postpone the filing of, or suspend the effectiveness of, any registration
statement or amendment thereto, suspend the use of any prospectus and shall not
be required to amend or supplement the Class B Registration Statement, any
related prospectus or any document incorporated therein by reference in the
event that, and for a period (a "Suspension Period") not to exceed an aggregate
of 60 days,
(1) an event or circumstance occurs and is continuing as a result of
which the Class B Registration Statement, any related prospectus or any
document incorporated therein by reference as then supplemented or proposed
to be filed would, in Group Telecom's good faith judgment, contain an
untrue statement of material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, and
(2) Group Telecom determines in its good faith judgment that the
disclosure of such an event at such time would have a material adverse
effect on the business, operations or prospects of Group Telecom or the
disclosure otherwise relates to a material business transaction that has
not yet been publicly disclosed.
If the Class B Registration Statement is not declared effective by the
earlier to occur of (1) the 270th day following the initial public offering of
the class B non-voting shares of Group Telecom or (2) March 31, 2002, and the
class B non-voting shares are not at that time listed on a stock exchange
prescribed for Canadian income tax purposes, Group Telecom will be required to
make an offer to purchase all of the outstanding warrants at a price at least
equal to the Current Market Value of the warrants.
17
23
DESCRIPTION OF THE NOTES
The notes were issued under an Indenture, dated as of February 1, 2000,
between Group Telecom and The Chase Manhattan Bank, as trustee (the "Trustee"),
as amended by a supplemental indenture dated July 11, 2000 between Group Telecom
and the Trustee (the "Indenture"). The statements under this caption relating to
the notes and the Indenture are summaries and do not purport to be complete, and
are subject to, and are qualified in their entirety by reference to, all the
provisions of the Indenture, including the definitions of certain terms therein.
The Indenture is by its terms subject to and governed by the Trust Indenture Act
of 1939, as amended. Unless otherwise indicated, references under this caption
to sections, "sec." or articles are references to the Indenture. Where reference
is made to particular provisions of the Indenture or to defined terms not
otherwise defined herein, such provisions or defined terms are incorporated
herein by reference. Copies of the Indenture and the Registration Rights
Agreement are available for review at the corporate office of the Trustee and
may also be obtained from Group Telecom upon request (see "Where You Can Obtain
More Information About Us").
As used in this Description of the Notes, references to the "Group Telecom"
refer to GT Group Telecom Inc. only, without reference to its subsidiaries.
GENERAL
In February 2000, Group Telecom issued Units consisting of notes with an
aggregate stated amount at maturity of US$855 million, and Warrants, at an issue
price of US$526.51 per US$1,000 (or 52.651%) stated amount at maturity of the
Notes (the "Issue Price"), to generate gross proceeds of approximately US$450
million. Pursuant to the Registration Rights Agreement, Group Telecom later
registered a like amount of notes which are substantially identical to the
initial notes issued as part of the Units and exchanged these registered notes
for those initial notes. The initial notes and the registered notes issued in
exchange are collectively referred to herein as the "Notes". The indenture
governing the Notes will allow Group Telecom to issue Notes having up to an
additional aggregate stated amount at maturity of US$200 million. The issuance
of any of those additional Notes will be subject to Group Telecom's ability to
incur indebtedness under the covenant "Limitation on Debt" and similar
restrictions in the instruments governing Group Telecom's other Debt. Any such
additional Notes will be treated as part of the same class and series as the
Notes for purposes of voting under the Indenture governing the Notes. Notes will
be issued in denominations of US$1,000 in stated amount at maturity and integral
multiples of US$1,000 in stated amount at maturity. The Notes will mature on
February 1, 2010.
The Notes will bear interest on the Issue Price at the rate of 13 1/4% per
year computed on a semiannual bond equivalent basis using a 360-day year
comprised of twelve 30-day months from the date of original issuance of the
Notes. In the period prior to February 1, 2005, interest at the rate of 13 1/4%
per year will accrue on the Issue Price but will not be payable in cash until
the maturity date ("Deferred Interest"). For U.S. federal income tax purposes a
significant amount of original issue discount, taxable as ordinary income, will
be recognized by a holder of Notes as such Deferred Interest accrues from the
date of original issuance of the Notes.
Beginning on February 1, 2005, the Notes will bear interest ("Current
Interest") on the stated amount at maturity at the rate per annum shown on the
front cover of this prospectus, payable in cash semi-annually on February 1 and
August 1 of each year, commencing August 1, 2005, to the Person in whose name
the Note (or any predecessor Note) is registered at the close of business on the
preceding January 15 or July 15, as the case may be. The stated amount at
maturity is US$1,000 per Note and represents the Issue Price plus Deferred
Interest accrued but unpaid to February 1, 2005. The Notes will bear interest on
overdue principal and premium, if any, and, to the extent permitted by law,
overdue interest at the rate of 13 1/4% per year plus 1%. Interest on the Notes
will be computed on the basis of a 360-day year of twelve 30-day months. The
yearly rate of interest that is equivalent to the rate payable under the Notes
is the rate payable multiplied by the actual number of
18
24
days in the year and divided by 360 and is disclosed herein solely for purpose
of providing the disclosure required by the Interest Act (Canada).
Group Telecom may elect upon not less than 90 days prior notice, to
commence the accrual of interest payable in cash on all outstanding Notes on any
February 1 or August 1 on or after February 1, 2003 and prior to February 1,
2005, in which case the stated amount at maturity of each Note will on such
commencement date be reduced to the Accreted Value of such Note as of such date
and cash interest shall by payable with respect to such Note on each August 1
and February 1 thereafter. (sec.sec. 301, 308 and 311)
Principal of and premium, if any, and interest on the Notes will be
payable, and the Notes may be presented for registration of transfer and
exchange, at the office or agency of Group Telecom maintained for that purpose
in the Borough of Manhattan, the City of New York, provided, that at the option
of Group Telecom, payment of interest on the Notes may be made by check mailed
to the address of the Person entitled thereto as it appears in the Note
Register. Until otherwise designated by Group Telecom, such office or agency
will be the corporate trust office of the Trustee, as Paying Agent and
Registrar. (sec.sec. 301, 305 and 1002)
The Notes will be issued in fully registered form, without coupons, in
denominations of US$1,000 stated amount at maturity and any integral multiple
thereof. (sec. 302) No service charge will be made for any registration of
transfer or exchange of Notes, but Group Telecom may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (sec. 305) Notes will not be issued in bearer form.
RANKING
The Notes will be senior unsecured obligations of Group Telecom, will rank
pari passu in right of payment with all existing and future senior unsecured
obligations of Group Telecom and will rank senior in right of payment to all
future subordinated obligations of Group Telecom. Holders of secured obligations
of Group Telecom, however, will have claims that are prior to the claims of the
holders of the Notes with respect to the assets securing such other obligations.
Group Telecom's principal operations are conducted through its Subsidiaries
and, therefore, Group Telecom is dependent upon the cash flow of its
Subsidiaries to meet its obligations. Group Telecom's Subsidiaries will have no
obligation to guarantee or otherwise pay amounts due under the Notes. Therefore,
the Notes will be effectively subordinated to all indebtedness and other
liabilities and commitments (including trade payables) of Group Telecom's
Subsidiaries. Any right of Group Telecom to receive assets of any of its
Subsidiaries upon any liquidation or reorganization of such Subsidiary (and the
consequent right of holders of the Notes to participate in those assets) will be
effectively subordinated to the claims of the Subsidiary's creditors, except to
the extent that Group Telecom is itself recognized as a creditor of the
Subsidiary. Any recognized claims of Group Telecom as a creditor of the
Subsidiary would be subordinate to any prior security interest held by any other
creditor of the Subsidiary and obligations of the Subsidiary that are senior to
those owing to Group Telecom.
OPTIONAL REDEMPTION
GENERAL
Group Telecom may redeem the Notes, at its option, in whole or in part, at
any time on or after February 1, 2005 and prior to maturity, upon not less than
30 nor more than 60 days' notice mailed to each holder of Notes to be redeemed
at such holder's address appearing in the note register, in amounts of US$1,000
stated amount at maturity or an integral multiple of US$1,000 stated amount at
maturity, at the following redemption prices (expressed as percentages of the
stated amount at maturity) plus accrued and unpaid Current Interest to but
excluding the Redemption Date (subject to the right of holders of record on the
relevant Regular Record Date to receive interest due on an
19
25
Interest Payment Date that is on or prior to the Redemption Date), if redeemed
during the 12-month period beginning February 1 of the years indicated below:
<Table>
<Caption>
YEAR REDEMPTION PRICE
---- ----------------
2005..................................................... 106.625%
2006..................................................... 104.417%
2007..................................................... 102.208%
2008 and thereafter...................................... 100.000%
</Table>
Group Telecom may redeem the Notes prior to February 1, 2005 only in the
event that on or before February 1, 2003, Group Telecom receives net proceeds
from the sale of its Common Stock in one or more Public Equity Offerings or
Strategic Equity Investments, in which case Group Telecom may, at its option,
use all or a portion of any such net proceeds to redeem Notes up to 35% of the
stated amount at maturity of the Notes, provided, however, that Notes in an
amount equal to at least 65% of the aggregate stated amount at maturity of the
Notes remain outstanding after each such redemption. Any such redemption must
occur on a Redemption Date within 75 days of any such sale and upon not less
than 30 nor more than 60 days' notice mailed to each holder of Notes to be
redeemed at such holder's address appearing in the note register, in stated
amounts of US$1,000 at maturity or integral multiples thereof, at a redemption
price of 113.25% of the Accreted Value of the Notes plus accrued and unpaid
Current Interest, if any, to but excluding the Redemption Date.
If less than all the Notes are to be redeemed, the Trustee shall select, in
such manner as it shall deem fair and appropriate, the particular Notes to be
redeemed or any portion thereof that is an integral multiple of US$1,000;
provided that the Trustee shall redeem the Notes on as nearly a pro rata basis
as is practicable. (sec.sec. 203, 1101, 1104, 1105 and 1107)
The Notes will not have the benefit of any sinking fund.
REDEMPTION FOR CHANGES IN CANADIAN WITHHOLDING TAX
Group Telecom may, at its option, redeem the Notes, as a whole but not in
part, at any time upon not less than 30 nor more than 60 days' notice mailed to
each holder of Notes at the addresses appearing in the Note Register at a
redemption price equal to 100% of the Accreted Value of the Notes plus accrued
and unpaid Current Interest to but excluding the Redemption Date if Group
Telecom has become or would become obligated to pay on the next date on which
any amount would be payable under or with respect to the Notes, any Additional
Amounts as a result of any change or amendment to the laws (or regulations
promulgated thereunder) of Canada (or any political subdivision or taxing
authority thereof or therein), or any change in or amendment to any official
position or administration or assessing practices regarding the application or
interpretation of such laws or regulations, which change or amendment is
announced or becomes effective on or after the date of the Indenture. See "--
Additional Amounts for Canadian Taxes." (sec. 1101)
COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON DEBT
Group Telecom may not, and may not permit any Restricted Subsidiary of
Group Telecom to, incur any Debt unless
(1) the ratio of
(a) the aggregate principal amount of Debt of Group Telecom and the
Restricted Subsidiaries of Group Telecom outstanding as of the most
recent available quarterly or annual balance sheet, after giving pro
forma effect to the Incurrence of such Debt and any
20
26
other Debt Incurred since such balance sheet date and the receipt and
application of the proceeds thereof,
to
(b) Consolidated Cash Flow Available for Fixed Charges for the four
full fiscal quarters immediately preceding the Incurrence of such Debt
for which consolidated financial statements are available, determined on
a pro forma basis as if any such Debt had been Incurred and the proceeds
thereof had been applied at the beginning of such four fiscal quarters,
would be greater than zero and be less than 6.0 to 1.0 for such
four-quarter periods, or
(2) Group Telecom's Consolidated Capital Ratio as of the most recent
available quarterly or annual balance sheet of Group Telecom, after giving
pro forma effect to
(a) the Incurrence of such Debt and any other Debt Incurred since
such balance sheet date,
and
(b) paid-in capital (excluding the amount of any Redeemable Stock)
received since such balance sheet date or concurrently with the
Incurrence of such Debt,
and in each case the receipt and application of the proceeds thereof, is
less than 2.0 to 1.
Even if Group Telecom is not able to comply with the financial ratios
described in the first paragraph of this covenant, Group Telecom and any
Restricted Subsidiary may Incur the following Debt:
(1) Debt under Credit Facilities in an aggregate principal amount at
any one time not to exceed $220 million, and any renewal, extension,
refinancing or refunding thereof in an amount which, together with any
principal amount remaining outstanding or available under all Credit
Facilities, does not exceed the aggregate principal amount outstanding or
available under all Credit Facilities immediately prior to such renewal,
extension, refinancing or refunding;
(2) Purchase Money Debt and Vendor Financing Debt which is incurred
for the construction, acquisition, design, development, installation,
integration, transportation and improvement of Telecommunications Assets;
provided that the amount of such Purchase Money Debt and Vendor Financing
Debt does not exceed 100% of the cost of the construction, acquisition,
design, development, installation, integration, transportation or
improvement of the applicable Telecommunications Assets;
(3) Debt (other than Debt described in another clause of this
paragraph) outstanding on the date of original issuance of the Notes after
giving effect to the application of the proceeds of the Notes and the
Credit Facilities, as described in a schedule to the Indenture;
(4) Debt Incurred by Group Telecom under the Notes issued as of the
date of the Indenture;
(5) Debt owed by Group Telecom to any Wholly Owned Restricted
Subsidiary of Group Telecom for which fair value has been received or Debt
owed by a Restricted Subsidiary of Group Telecom to Group Telecom or a
Wholly Owned Restricted Subsidiary of Group Telecom; provided, however,
that (a) any such Debt owing by Group Telecom to a Wholly Owned Restricted
Subsidiary shall be Subordinated Debt evidenced by an intercompany
promissory note and (b) upon either (1) the transfer or other disposition
by such Wholly Owned Restricted Subsidiary or Group Telecom of any Debt so
permitted to a Person other than Group Telecom or another Wholly Owned
Restricted Subsidiary of Group Telecom or (2) the issuance (other than
directors' qualifying shares), sale, lease, transfer or other disposition
of shares of Capital Stock (including by consolidation or merger) of such
Wholly Owned Restricted Subsidiary to a Person other than
21
27
Group Telecom or another such Wholly Owned Restricted Subsidiary, the
provisions of this clause (iv) shall no longer be applicable to such Debt
and such Debt shall be deemed to have been Incurred at the time of such
transfer or other disposition;
(6) Debt Incurred under a Receivables Facility in an aggregate
principal amount not to exceed at any one time outstanding 80% of (i) the
net book value (after allowance for doubtful accounts) of the Accounts
Receivable of Group Telecom or such Restricted Subsidiary less (ii) the
value of any Accounts Receivable of such Persons pledged, contributed, sold
or otherwise transferred or encumbered pursuant to any Receivables Sale,
determined in accordance with generally accepted accounting principles;
(7) Acquired Debt; provided that after giving pro forma effect to the
applicable merger, amalgamation, consolidation or acquisition to which such
Acquired Debt relates, and treating such Debt as having been Incurred at
the time of such merger, amalgamation, consolidation or acquisition, Group
Telecom could Incur at least US$1.00 of additional Debt pursuant to the
first paragraph of this covenant;
(8) Debt consisting of Permitted Interest Rate or Currency Agreements;
(9) Debt which is exchanged for or the proceeds of which are used to
refinance or refund, or any extension or renewal of, the Notes (including
any Exchange Notes) or outstanding Debt Incurred pursuant to the first
paragraph of this covenant or clause (2) or clause (3) of this paragraph
(each of the foregoing, a "refinancing") in an aggregate principal amount
not to exceed the principal amount of the Debt so refinanced plus the
amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of the Debt so refinanced or the amount
of any premium reasonably determined by Group Telecom as necessary to
accomplish such refinancing by means of a tender offer or privately
negotiated repurchase, plus the expenses of Group Telecom or the Restricted
Subsidiary, as the case may be, incurred in connection with such
refinancing; provided, however, that
(a) Debt the proceeds of which are used to refinance the Notes or
Debt which is pari passu with or subordinate in right of payment to the
Notes shall only be permitted if (i) in the case of any refinancing of
the Notes or Debt which is pari passu to the Notes, the refinancing Debt
is Incurred by Group Telecom and made pari passu to the Notes, or
subordinated to the Notes, and (ii) in the case of any refinancing of
Debt which is subordinated to the Notes, the refinancing Debt is
Incurred by Group Telecom and constitutes Subordinated Debt;
(b) the refinancing Debt by its terms, or by the terms of any
agreement or instrument pursuant to which such Debt is issued,
(i) does not provide for payments of principal of such Debt at
the stated maturity thereof or by way of a sinking fund applicable
thereto or by way of any mandatory redemption, defeasance, retirement
or repurchase thereof (including any redemption, defeasance,
retirement or repurchase which is contingent upon events or
circumstances, but excluding any retirement required by virtue of
acceleration of such Debt upon any event of default thereunder), in
each case prior to the stated maturity of the corresponding portion
of the Debt being refinanced, and
(ii) does not permit redemption or other retirement (including
pursuant to an offer to purchase) of such debt at the option of the
holder thereof prior to the final stated maturity of the Debt being
refinanced, other than a redemption or other retirement at the option
of the holder of such Debt (including pursuant to an offer to
purchase) which is conditioned upon provisions substantially similar
to those described under the "Change of Control" and "Limitation on
Asset Dispositions" covenants;
22
28
(c) in the case of any refinancing of Debt Incurred by Group
Telecom, the refinancing Debt may be Incurred only by Group Telecom, and
in the case of any refinancing of Debt Incurred by a Restricted
Subsidiary, the refinancing Debt may be Incurred only by such Restricted
Subsidiary or Group Telecom; and
(d) in the case of any refinancing of Preferred Stock of a
Subsidiary, such Preferred Stock may be refinanced only with Preferred
Stock of such Subsidiary or Group Telecom;
(10) Debt
(a) in respect of performance, surety or appeal bonds Incurred in
the ordinary course of business,
(b) in respect of guarantees or letters of credit Incurred in the
ordinary course of business or
(c) arising from customary agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from guarantees or letters of credit, surety bonds or performance bonds
securing any obligations of Group Telecom or any of its Restricted
Subsidiaries pursuant to such agreements, in the case of this clause (c)
Incurred in connection with the disposition of any business, assets or
Restricted Subsidiary (other than Guarantees of Debt Incurred by any
Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition);
and
(11) Debt Incurred by Group Telecom not otherwise permitted to be
Incurred pursuant to clauses (1) through (10) of this paragraph, which,
together with any other outstanding Debt Incurred pursuant to this clause
(11), has an aggregate principal amount not in excess of US$20 million at
any time outstanding. (sec. 1008)
For purposes of determining compliance with this covenant, in the event
that an item of Debt outstanding or to be Incurred meets the criteria of more
than one of the types of Debt described in this covenant, Group Telecom, in its
sole discretion, may classify such item of Debt and only be required to include
the amount and type of such Debt in one of such clauses. Accrual of interest,
accretion or amortization of original issue discount and the payment of interest
in the form of additional Debt will not be deemed to be an Incurrence of Debt
for purposes of this covenant.
Notwithstanding any other provision of this "-- Limitation on Debt"
covenant, the maximum amount of Indebtedness that the Company or a Restricted
Subsidiary may Incur pursuant to this "-- Limitation on Debt" covenant shall not
be deemed to be exceeded, with respect to any outstanding Debt, solely as a
result of fluctuations in the exchange rates of currencies.
LIMITATION ON RESTRICTED PAYMENTS
Group Telecom
(1) may not, and may not permit any Restricted Subsidiary of Group
Telecom to, directly or indirectly, declare or pay any dividend or make any
distribution (including any payment in connection with any merger,
amalgamation or consolidation derived from assets of Group Telecom or any
Restricted Subsidiary) in respect of its Capital Stock or to the holders
thereof, excluding
(a) any dividends or distributions by Group Telecom payable solely
in shares of its Capital Stock (other than Redeemable Stock) or in
options, warrants or other rights to acquire its Capital Stock (other
than Redeemable Stock), and
(b) in the case of a Restricted Subsidiary, dividends or
distributions payable
(i) to Group Telecom or a Restricted Subsidiary, and
23
29
(ii) to minority shareholders of such Restricted Subsidiary;
provided that at least a pro rata amount is paid to Group Telecom
and/or a Restricted Subsidiary, as the case may be,
(2) may not, and may not permit any Restricted Subsidiary to, directly
or indirectly, purchase, redeem, or otherwise acquire or retire for value
(a) any Capital Stock of Group Telecom or any Restricted Subsidiary
or any Related Person of Group Telecom, or
(b) any options, warrants or other rights to acquire shares of
Capital Stock of Group Telecom or any Restricted Subsidiary or any
Related Person of Group Telecom or any securities convertible or
exchangeable into shares of Capital Stock of Group Telecom or any
Restricted Subsidiary or any Related Person of Group Telecom, in each
case except, in the case of Capital Stock of a Restricted Subsidiary,
from Group Telecom or a Wholly Owned Restricted Subsidiary of Group
Telecom,
(3) may not make, or permit any Restricted Subsidiary to make, any
Investment in any Unrestricted Subsidiary or any Affiliate or any Person
that would become an Affiliate after giving effect thereto or any Related
Person, other than an Investment
(a) in Group Telecom or a Restricted Subsidiary of Group Telecom or
(b) in a Person that will, as a result of such Investment
(i) become a Restricted Subsidiary of Group Telecom, or
(ii) be merged with or into or amalgamated or consolidated with
a Restricted Subsidiary of Group Telecom in a transaction in which
such Restricted Subsidiary will continue to be a Restricted
Subsidiary of Group Telecom, or the successor entity (if it is not
such Restricted Subsidiary) will become a Restricted Subsidiary of
the Company,
and which is not, in each case, subject to any restriction that would
prevent such Restricted Subsidiary from repaying such Investment, and
(4) may not, and may not permit any Restricted Subsidiary to, redeem,
repurchase, defease or otherwise acquire or retire for value prior to any
scheduled maturity, repayment or sinking fund payment, Debt of Group
Telecom which is subordinate in right of payment to the Notes
(each of clauses (1) through (4) being a "Restricted Payment") if:
(1) an Event of Default, or an event that with the passing of time or
the giving of notice, or both, would constitute an Event of Default, shall
have occurred and is continuing or would result from such Restricted
Payment, or
(2) after giving pro forma effect to such Restricted Payment as if
such Restricted Payment had been made at the beginning of the applicable
four-fiscal-quarter period, Group Telecom could not Incur at least US$1.00
of additional Debt pursuant to the terms of the Indenture described in the
first paragraph of the "Limitation on Debt" covenant above, or
(3) after giving pro forma effect to such Restricted Payment, the
aggregate of all Restricted Payments from the date of original issuance of
the Notes exceeds the sum of:
(a) cumulative Consolidated Cashflow Available for Fixed Charges of
Group Telecom, less 150% of the cumulative Consolidated Interest Expense
of Group Telecom, determined from the date of original issuance of the
Notes through the last day of the last full fiscal quarter ending
immediately preceding the date of such Restricted Payment for which
quarterly or annual financial statements are available (taken as a
single accounting period); plus
24
30
(b) an amount equal to the net reduction in investments by Group
Telecom and its Restricted Subsidiaries subsequent to the date of
original issuance of the Notes in any Unrestricted Subsidiary resulting
from dividends, repayments of loans or advances, or other transfers of
assets, in each case to Group Telecom or any Restricted Subsidiary from
such Unrestricted Subsidiary, or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries, but only to the extent such
amount is not included in Consolidated Net Income and not to exceed in
the case of any one Unrestricted Subsidiary the amount of Investments
previously made by Group Telecom and its Restricted Subsidiaries in such
Unrestricted Subsidiary;
provided, however, that if the requirements of clauses (1) and (2) above
are satisfied, Group Telecom or a Restricted Subsidiary of Group Telecom
may make a Restricted Payment in an amount equal to the aggregate Net
Available Proceeds, and the fair market value of property consisting of
Telecommunications Assets (determined by the Board of Directors as
evidenced by a resolution of the Board of Directors filed with the
Trustee), received after the date of original issuance of the Notes as
capital contributions to Group Telecom or from the issuance, other than
to a Subsidiary, of Capital Stock (other than Redeemable Stock and other
than Capital Stock in an amount equal to $160 million) of Group Telecom
and options, warrants or other rights to acquire Capital Stock (other
than Redeemable Stock) of Group Telecom and the amount by which Debt of
Group Telecom has been reduced on Group Telecom's balance sheet upon the
conversion or exchange (other than by a Restricted Subsidiary of Group
Telecom) after the date of original issuance of the Notes of any Debt of
Group Telecom convertible or exchangeable for Capital Stock (other than
Redeemable Stock) of Group Telecom, less the amount of any cash or the
fair market value of any property distributed by Group Telecom upon such
conversion or exchange; provided that any such net proceeds received by
Group Telecom from an employee stock ownership plan financed by loans
from Group Telecom or a Restricted Subsidiary of Group Telecom shall be
included only to the extent such loans have been repaid with cash on or
prior to the date of determination.
Prior to the making of any Restricted Payment pursuant to clauses 3(a) and (b)
above that, itself or together with Restricted Payments not previously reported
pursuant to the requirements of this sentence, exceeds US$1 million, Group
Telecom shall deliver to the Trustee an Officers' Certificate setting forth the
computations by which the determinations required by such clauses were made and
stating that no Event of Default, or event that with the passing of time or the
giving of notice, or both, would constitute an Event of Default, has occurred
and is continuing or will result from such Restricted Payment.
Even if Group Telecom is unable to comply with the first paragraph of this
covenant, so long as no Event of Default, or event that with the passing of time
or the giving of notice, or both, would constitute an Event of Default, shall
have occurred and be continuing or would result therefrom,
(1) Group Telecom and any Restricted Subsidiary of Group Telecom may
pay any dividend on Capital Stock of any class within 60 days after the
declaration thereof if, on the date when the dividend was declared, Group
Telecom or such Restricted Subsidiary could have paid such dividend in
accordance with the foregoing provisions;
(2) Group Telecom may refinance any Debt otherwise permitted by clause
(9) of the second paragraph under the "Limitation on Debt" covenant above
or solely in exchange for or out of the net proceeds of the substantially
concurrent sale (other than from or to a Restricted Subsidiary or from or
to an employee stock ownership plan financed by loans from Group Telecom or
a Restricted Subsidiary) of shares of Capital Stock (other than Redeemable
Stock) of Group Telecom;
(3) Group Telecom may purchase, redeem, acquire or retire any shares
of Capital Stock of Group Telecom solely in exchange for or out of the net
proceeds of the substantially concurrent
25
31
sale (other than from or to a Restricted Subsidiary or from or to an
employee stock ownership plan financed by loans from Group Telecom or a
Restricted Subsidiary) of shares of Capital Stock (other than Redeemable
Stock) of Group Telecom;
(4) Group Telecom and any Restricted Subsidiary of Group Telecom may
purchase or redeem any Debt from Net Available Proceeds to the extent
permitted under the "Limitation on Asset Dispositions" covenant;
(5) Group Telecom may redeem any right issued to holders of its
Capital Stock generally under a shareholders rights plan at a price not to
exceed $0.01 per right;
(6) Group Telecom may purchase, redeem, acquire, cancel or otherwise
retire for value shares of Capital Stock of Group Telecom to the extent
necessary under provisions limiting foreign ownership of Group Telecom's
Capital Stock in the Telecommunications Act (Canada) (after bona fide
efforts by Group Telecom to enforce provisions in the Telecommunications
Act (Canada)) to enable Group Telecom or any Restricted Subsidiary to
operate as a Canadian carrier under the Telecommunications Act (Canada);
(7) Group Telecom and any Restricted Subsidiary of Group Telecom may
make a Permitted Telecommunications Investment in an amount which, together
with the aggregate amount of any other Permitted Telecommunications
Investment made pursuant to this clause (7), does not exceed the sum of
US$20 million;
(8) Group Telecom and any Restricted Subsidiary of Group Telecom may
make any Investment in exchange for, or out of the Net Available Proceeds
of, a substantially concurrent issue and sale (other than from or to a
Restricted Subsidiary or from or to an employee stock ownership plan
financed by loans from Group Telecom or a Restricted Subsidiary) of Capital
Stock (other than Redeemable Stock) of Group Telecom;
(9) Group Telecom may redeem, repurchase, retire or otherwise acquire
for value any Capital Stock of Group Telecom and options, warrants or other
rights to acquire Capital Stock of Group Telecom held at any time by any
director, officer or employee of the Company or any of its Restricted
Subsidiaries upon termination of such person's position with the Company or
any of its Restricted Subsidiaries in an aggregate amount in any fiscal
year not to exceed $2 million; and
(10) Group Telecom and any Restricted Subsidiary of Group Telecom may
make Restricted Payments in an aggregate amount not to exceed US$20
million.
Any payment made pursuant to clauses (1), (6), (7), (9) or (10) of the
second paragraph of this covenant shall be a Restricted Payment for purposes of
calculating aggregate Restricted Payments pursuant to the first paragraph of
this covenant and the amount of net proceeds from any exchange, conversion or
sale of Capital Stock of Group Telecom pursuant to clauses (2), (3) or (8) of
the second paragraph of this covenant shall be excluded from the calculation of
the amount available for Restricted Payments pursuant to the proviso after
clause (3)(b) of the first paragraph of this covenant. (sec. 1009)
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
Group Telecom may not, and may not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary of Group Telecom
(1) to pay dividends (in cash or otherwise) or make any other
distributions in respect of its Capital Stock owned by Group Telecom or any
other Restricted Subsidiary of Group Telecom or pay any Debt or other
obligation owed to Group Telecom or any other Restricted Subsidiary;
(2) to make loans or advances to Group Telecom or any other Restricted
Subsidiary; or
26
32
(3) to transfer any of its property or assets to Group Telecom or any
other Restricted Subsidiary.
Even if Group Telecom is unable to comply with the first paragraph of this
covenant, Group Telecom may, and may permit any Restricted Subsidiary to, suffer
to exist any such encumbrance or restriction:
(1) pursuant to any agreement existing on the date of original
issuance of the Notes as described in a schedule to the Indenture;
(2) pursuant to an agreement relating to any Debt Incurred by a Person
(other than a Restricted Subsidiary of Group Telecom existing on the date
of original issuance of the Notes or any Restricted Subsidiary carrying on
any of the businesses of any such Restricted Subsidiary) prior to the date
on which such Person became a Restricted Subsidiary of Group Telecom and
outstanding on such date and not Incurred in anticipation of becoming a
Restricted Subsidiary, which encumbrance or restriction is not applicable
to any Person, or the properties or assets of any Person, other than the
Person so acquired;
(3) pursuant to an agreement effecting a renewal, extension, refunding
or refinancing of Debt Incurred pursuant to an agreement referred to in
clause (1) or (2) above, provided, however, that the provisions contained
in such renewal, extension, refunding or refinancing agreement relating to
such encumbrance or restriction are no more restrictive in any material
respect than the provisions contained in the agreement the subject thereof,
as determined in good faith by the Board of Directors and evidenced by a
resolution of the Board of Directors filed with the Trustee;
(4) in the case of clause (3) of the first paragraph of this covenant,
pursuant to restrictions contained in any security agreement (including a
capital lease) securing Debt of a Restricted Subsidiary otherwise permitted
under the Indenture, but only to the extent such restrictions restrict the
transfer of the property subject to such security agreement;
(5) in the case of clause (3) of the first paragraph of this covenant,
pursuant to customary nonassignment provisions entered into in the ordinary
course of business consistent with past practices in leases and other
contracts to the extent such provisions restrict the transfer or subletting
of any such lease or the assignment of rights under any such contract;
(6) with respect to a Restricted Subsidiary of Group Telecom imposed
pursuant to an agreement which has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of
such Restricted Subsidiary, provided that consummation of such transaction
would not result in an Event of Default or an event that, with the passing
of time or the giving of notice or both, would constitute an Event of
Default, that such restriction terminates if such transaction is closed or
abandoned and that the closing or abandonment of such transaction occurs
within one year of the date such agreement was entered into; or
(7) if such encumbrance or restriction is the result of applicable
corporate law or other regulation relating to the payment of dividends or
distributions. (sec. 1010)
LIMITATION ON LIENS
Group Telecom may not, and may not permit any Restricted Subsidiary of
Group Telecom to, directly or indirectly, Incur or suffer to exist any Lien on
or with respect to any property or assets, now owned or hereafter acquired, to
secure any Debt without making, or causing such Restricted Subsidiary to make,
effective provision for securing the Notes
(1) equally and ratably with such Debt as to such property for so long
as such Debt will be so secured, or
27
33
(2) in the event such Debt is Debt of Group Telecom which is
subordinate in right of payment to the Notes, prior to such Debt as to such
property for so long as such Debt will be so secured.
Even if Group Telecom does not satisfy the requirements in the first
paragraph of this covenant, Group Telecom and any Restricted Subsidiary may
incur:
(1) Liens existing on the date of the Indenture and securing Debt
outstanding on the date of the Indenture, after giving effect to the
application of the proceeds of the Notes, as described in a schedule to the
Indenture;
(2) Liens securing only the Notes;
(3) Liens securing Debt under clause (1) or clause (2) under the
second paragraph of the "Limitation on Debt" covenant;
(4) Liens in favor of Group Telecom or any Wholly-Owned Subsidiary of
Group Telecom;
(5) Liens on real or personal property of Group Telecom or a
Restricted Subsidiary of Group Telecom acquired, constructed or
constituting improvements made after the date of original issuance of the
Notes to secure Purchase Money Debt or Vendor Financing Debt which is
Incurred for the construction, design, development, installation,
integration, transportation, acquisition or improvement of
Telecommunications Assets and is otherwise permitted under the Indenture,
provided, however, that
(a) the principal amount of any Debt secured by such a Lien does
not exceed 100% of such purchase price or cost of construction or
improvement of the property subject to such Liens,
(b) such Lien attaches to such property prior to, at the time of or
within 180 days after the acquisition, completion of construction or
commencement of operation of such property, and
(c) such Lien does not extend to or cover any property other than
the specific item of property (or portion thereof) acquired, constructed
or constituting the improvements made with the proceeds of such Purchase
Money Debt;
(6) Liens to secure Acquired Debt, provided, however, that
(a) such Lien attaches to the acquired asset prior to the time of
the acquisition of such asset, and
(b) such Lien does not extend to or cover any other asset;
(7) Liens to secure Debt Incurred to extend, renew, refinance or
refund (or successive extensions, renewals, refinancings or refundings), in
whole or in part, Debt secured by any Lien referred to in the foregoing
clauses (1), (2), (5) and (6) so long as such Lien does not extend to any
other property and the principal amount of Debt so secured is not increased
except as otherwise permitted under clause (9) of the second paragraph of
the "-- Limitation on Debt" covenant;
(8) Permitted Liens.
In addition to the foregoing, Group Telecom and its Restricted Subsidiaries
may incur a Lien to secure any Debt or enter into a Sale and Leaseback
Transaction, without equally and ratably securing the Notes, if the sum of
(1) the amount of Debt secured by any Lien incurred after the date of
the Indenture and otherwise prohibited by the Indenture, and
28
34
(2) the Attributable Value of all Sale and Leaseback Transactions
entered into after the date of the Indenture and otherwise prohibited by
the Indenture
does not exceed 5% of Consolidated Tangible Assets of the Company. (sec. 1011)
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
Group Telecom may not, and may not permit any Restricted Subsidiary of
Group Telecom to, enter into any Sale and Leaseback Transaction unless
(1) Group Telecom or such Restricted Subsidiary would be entitled to
Incur a Lien to secure Debt by reason of the provisions described under the
"Limitation on Liens" covenant above, equal in amount to the Attributable
Value of the Sale and Leaseback Transaction without equally and ratably
securing the Notes, and
(2) the Sale and Leaseback Transaction is treated as an Asset
Disposition and all of the conditions of the Indenture described under the
"Limitation on Asset Dispositions" covenant (including the provisions
concerning the application of Net Available Proceeds) are satisfied with
respect to such Sale and Leaseback Transaction, treating all of the
consideration received in such Sale and Leaseback Transaction as Net
Available Proceeds for purposes of such covenant. (sec. 1012)
LIMITATION ON ASSET DISPOSITIONS
Group Telecom may not, and may not permit any Restricted Subsidiary to,
make any Asset Disposition in one or more related transactions unless:
(1) Group Telecom or the Restricted Subsidiary, as the case may be,
receives consideration for such disposition at least equal to the fair
market value for the assets sold or disposed of as determined by the Board
of Directors in good faith and evidenced by a resolution of the Board of
Directors filed with the Trustee; and
(2) at least 75% of the consideration for such disposition consists of
(a) cash or readily marketable cash equivalents or the assumption
of Debt of Group Telecom (other than Debt that is subordinated to the
Notes) or of such Restricted Subsidiary, as the case may be, relating to
such assets and release from all liability on the Debt assumed, or
(b) Telecommunications Assets.
An amount equal to all Net Available Proceeds, less any amounts invested
within 360 days of such disposition in assets related to the business of Group
Telecom and its Restricted Subsidiaries, must be applied within 360 days of such
disposition
(1) first, to the permanent repayment or reduction of Debt then
outstanding under any Credit Facility or Vendor Financing Debt, to the
extent such agreements would require such application or prohibit payments
pursuant to clause (2) of this paragraph,
(2) second, to the extent of remaining Net Available Proceeds, to make
an Offer to Purchase outstanding Notes at 100% of their Accreted Value plus
accrued and unpaid Current Interest to the date of purchase and, to the
extent required by the terms thereof, any other Debt of Group Telecom that
is pari passu with the Notes at a price no greater than 100% of the
principal amount thereof plus accrued interest to the date of purchase,
(3) third, to the extent of any remaining Net Available Proceeds
following the completion of the Offer to Purchase, within 15 days after the
completion of such Offer to Purchase, to the repayment of other Debt of
Group Telecom or Debt of a Restricted Subsidiary of Group Telecom, to the
extent permitted under the terms of such Debt, and
29
35
(4) fourth, to the extent of any remaining Net Available Proceeds, to
any other use as determined by Group Telecom for any purpose which is not
otherwise prohibited by the Indenture.
Notwithstanding the requirements of the second paragraph of this covenant,
Group Telecom shall not be required to make an Offer to Purchase pursuant to
clause (2) of the second paragraph of this covenant if the remaining Net
Available Proceeds after giving effect to the application required by clause (1)
of the second paragraph of this covenant is less than US$5 million. (sec. 1013)
LIMITATION ON OWNERSHIP OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
Group Telecom may not, and may not permit any Restricted Subsidiary of
Group Telecom to, issue, transfer, convey, lease or otherwise dispose of any
shares of Capital Stock of a Restricted Subsidiary of Group Telecom or
securities convertible or exchangeable into, or options, warrants, rights or any
other interest with respect to, Capital Stock of a Restricted Subsidiary of
Group Telecom if, as a result of such transaction, such Restricted Subsidiary
would cease to be a Restricted Subsidiary, unless such transaction
(1) consists of a sale of all of the Capital Stock of such Restricted
Subsidiary owned by Group Telecom and its Restricted Subsidiaries, and
(2) complies with the provisions described under the "Limitation on
Asset Dispositions" covenant above to the extent such provisions apply.
(sec. 1014)
TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
Group Telecom may not, and may not permit any Restricted Subsidiary of
Group Telecom to, enter into any transaction (or series of related transactions)
with an Affiliate or Related Person of Group Telecom (other than Group Telecom
or a Wholly Owned Restricted Subsidiary of Group Telecom), including any
Investment, either directly or indirectly, unless such transaction is on terms
no less favorable to Group Telecom or such Restricted Subsidiary than those that
could be obtained in a comparable arm's-length transaction with an entity that
is not an Affiliate or Related Person and is in the best interests of such
Company or such Restricted Subsidiary.
For any transaction that involves in excess of US$250,000 but less than or
equal to US$2,500,000, the Chief Executive Officer or Chief Operating Officer of
Group Telecom shall determine that the transaction satisfies the above criteria
and shall evidence such a determination by a certificate filed with the Trustee.
For any transaction that involves in excess of US$2,500,000, a majority of
the disinterested members of the Board of Directors shall determine that the
transaction satisfies the above criteria and shall evidence such a determination
by a Board Resolution filed with the Trustee. For any transaction that involves
in excess of US$10,000,000 (other than for investments by or financial advisory
or financing services provided by any of Goldman Sachs Merchant Bank, Canadian
Imperial Bank of Commerce, First Marathon Securities Limited or their respective
Affiliates, in respect of which the pricing or fees are negotiated in good faith
by Group Telecom, as determined by the Board of Directors), Group Telecom shall
also obtain an opinion from a nationally recognized expert in the United States
or Canada with experience in appraising the terms and conditions of the type of
transaction (or series of related transactions) for which the opinion is
required stating that such transaction (or series of related transactions) is on
terms no less favorable to Group Telecom or such Restricted Subsidiary than
those that could be obtained in a comparable arm's-length transaction with an
entity that is not an Affiliate or Related Person of Group Telecom, which
opinion shall be filed with the Trustee.
The requirements described in the preceding paragraphs of this covenant
shall not apply to
30
36
(1) any compensation or employment benefit arrangements (including
stock options) entered into by Group Telecom or any Restricted Subsidiary
in the ordinary course of business of Group Telecom or such Restricted
Subsidiary or which have been approved by the Compensation Committee of the
Board of Directors of Group Telecom, and
(2) any transaction pursuant to agreements or arrangements in
existence on the date of the Indenture. (sec. 1015)
CHANGE OF CONTROL
Within 30 days of the occurrence of a Change of Control, Group Telecom will
be required to make an Offer to Purchase all Outstanding Notes at a purchase
price equal to 101% of the Accreted Value thereof plus Current Interest, if any,
to the date of purchase.
A "Change of Control" will be deemed to occur at such time as either:
(1) any Person or any Persons acting together that would constitute a
"group" (a "Group") for purposes of Section 13(d) of the Securities
Exchange Act of 1934, or any successor provision thereto, together with any
Affiliates or Related Persons thereof, other than Permitted Holders, shall
beneficially own (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, or any successor provision thereto) at least 50% of
the aggregate voting power of all classes of Voting Stock of Group Telecom;
or
(2) any Person or Group other than Permitted Holders, together with
any Affiliates or Related Persons thereof, shall succeed in having a
sufficient number of its nominees elected to the Board of Directors of
Group Telecom so that such nominees, when added to any existing director
remaining on the Board of Directors of Group Telecom after such election
who was a nominee of or is an Affiliate or Related Person of such Person or
Group, will constitute a majority of the Board of Directors of Group
Telecom.
Group Telecom will not be required to make an Offer to Purchase any Notes
upon a Change of Control if it has exercised its right to redeem all of the
Notes as described above under "-- Optional Redemption" or if a third party
makes an Offer to Purchase in the manner, at the times and otherwise in
compliance with the requirements set forth in the Indenture applicable to an
Offer to Purchase made by Group Telecom and purchases all of the Notes of such
series validly tendered and not withdrawn under such an Offer to Purchase.
If Group Telecom makes an Offer to Purchase, we cannot assure you that
Group Telecom will have funds sufficient to pay the purchase price and accrued
interest described above for all of the Notes that might be tendered by holders
of the Notes seeking to accept the Offer to Purchase. If Group Telecom fails to
make the Offer to Purchase or fails to pay the purchase price and accrued
interest described above on the date specified therefor, the Trustee and the
holders of Notes will have the rights described under "-- Events of Default."
In the event that Group Telecom makes an Offer to Purchase the Notes, Group
Telecom intends to comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Securities Exchange Act of 1934. (sec. 1016)
PROVISION OF FINANCIAL INFORMATION
Whether or not Group Telecom is required to be subject to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, or any successor provision
thereto, Group Telecom shall file with the Commission the annual reports,
quarterly reports and other documents which Group Telecom would have been
required to file with the Commission pursuant to such Section 13(a) or 15(d) or
any successor provision thereto if Group Telecom were so required, such
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which Group
31
37
Telecom would have been required so to file such documents if Group Telecom were
so required. Group Telecom shall also in any event
(1) within 15 days of each Required Filing Date
(a) transmit by mail to all holders of the Notes, as their names
and addresses appear in the Security Register, without cost to such, and
(b) file with the Trustee, copies of the annual reports, quarterly
reports and other documents which Group Telecom files with the
Commission pursuant to such Section 13(a) or 15(d) or any successor
provision thereto or would have been required to file with the
Commission pursuant to such Section 13(a) or 15(d) or any successor
provisions thereto if Group Telecom were required to be subject to such
Sections, and
(2) if filing such documents by Group Telecom with the Commission is
not permitted under the Securities Exchange Act of 1934, promptly upon
written request supply copies of such documents to any prospective holder
of Notes. (sec. 1017)
UNRESTRICTED SUBSIDIARIES
Group Telecom may designate any Subsidiary of Group Telecom to be an
"Unrestricted Subsidiary" as provided below in which event such Subsidiary and
each other Person that is then or thereafter becomes a Subsidiary of such
Subsidiary will be deemed to be an Unrestricted Subsidiary. "Unrestricted
Subsidiary" means
(1) any Subsidiary designated as such by the Board of Directors as set
forth below where
(a) neither Group Telecom nor any of its other Subsidiaries, other
than another Unrestricted Subsidiary,
(i) provides credit support for, or Guarantee of, any Debt of
such Subsidiary or any Subsidiary of such Subsidiary (including any
undertaking, agreement or instrument evidencing such Debt), or
(ii) is directly or indirectly liable for any Debt of such
Subsidiary or any Subsidiary of such Subsidiary, and
(b) no default with respect to any Debt of such Subsidiary or any
Subsidiary of such Subsidiary, including any right which the holders
thereof may have to take enforcement action against such Subsidiary
would permit, upon notice, lapse of time or both, any holder of any
other Debt of Group Telecom and its Subsidiaries, other than another
Unrestricted Subsidiary, to declare a default on such other Debt or
cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity, and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds
any Lien on any property of, any other Subsidiary of Group Telecom which is not
a Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted
Subsidiary, provided that either
(1) the Subsidiary to be so designated has total assets of US$1,000 or
less, or
(2) immediately after giving effect to such designation, Group Telecom
could Incur at least US$1.00 of additional Debt pursuant to the first
paragraph under the "Limitation on Debt" covenant,
and provided, further, that Group Telecom could make a Restricted Payment in an
amount equal to the greater of the fair market value and book value of such
Subsidiary pursuant to the "Limitation on
32
38
Restricted Payments" covenant and such amount is thereafter treated as a
Restricted Payment for the purpose of calculating the aggregate amount available
for Restricted Payments thereunder.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary provided that, immediately after giving effect to such
designation,
(1) no Event of Default or event that with the passing of time or the
giving of notice, or both, would constitute an Event of Default shall have
occurred and be continuing,
(2) Group Telecom could Incur at least US$1.00 of additional Debt
pursuant to the first paragraph under the "Limitation on Debt" covenant,
and
(3) all Liens of such Subsidiary outstanding immediately following
such designation would, if incurred at that time, have been permitted to be
Incurred for all purposes of the Indenture.
Any such designation by the Board of Directors shall be evidenced by filing
with the Trustee a certified copy of the resolution of the Board of Directors
giving effect to such designation and an officers' certificate certifying that
such designation complies with the foregoing conditions. (sec. 101)
AMALGAMATIONS, MERGERS, CONSOLIDATIONS AND CERTAIN SALES AND PURCHASES OF ASSETS
Group Telecom may not, in a single transaction or a series of related
transactions,
(1) amalgamate, consolidate or merge with or into any other Person or
permit any other Person to amalgamate, consolidate or merge with or into
Group Telecom, or
(2) directly or indirectly transfer, sell, lease or otherwise dispose
of all or substantially all of its assets,
unless:
(1) in a transaction in which Group Telecom does not survive or in
which Group Telecom sells, leases or otherwise disposes of all or
substantially all of its assets, the successor entity to Group Telecom is
organized under the laws of the United States of America, any State
thereof, the District of Columbia, Canada or any territory or province
thereof and shall expressly assume, by a supplemental indenture executed
and delivered to the Trustee in form satisfactory to the Trustee, all of
Group Telecom's obligations under the Indenture;
(2) immediately before and after giving effect to such transaction and
treating any Debt which becomes an obligation of Group Telecom or a
Restricted Subsidiary as a result of such transaction as having been
Incurred by Group Telecom or such Restricted Subsidiary at the time of the
transaction, no Event of Default or event that with the passing of time or
the giving of notice, or both, would constitute an Event of Default shall
have occurred and be continuing;
(3) immediately after giving effect to such transaction, the
Consolidated Net Worth of Group Telecom (or other successor entity to Group
Telecom) is equal to or greater than that of Group Telecom immediately
prior to the transaction;
(4) immediately after giving effect to such transaction and treating
any Debt which becomes an obligation of Group Telecom or a Restricted
Subsidiary as a result of such transaction as having been Incurred by Group
Telecom or such Restricted Subsidiary at the time of the transaction, Group
Telecom (including any successor entity to Group Telecom) could Incur at
least US$1.00 of additional Debt pursuant to the provisions of the
Indenture described in the first paragraph under the "Limitation on Debt"
covenant above;
(5) if, as a result of any such transaction, property or assets of
Group Telecom would become subject to a Lien prohibited by the provisions
of the Indenture described under the "Limitation on Liens" covenant above,
Group Telecom or the successor entity to Group Telecom shall have secured
the Notes as required by such covenant; and
33
39
(6) certain other conditions are met. (sec. 801)
ADDITIONAL AMOUNTS FOR CANADIAN TAXES
All payments made by Group Telecom under or with respect to the Notes will
be made free and clear of and without withholding or deduction for or on account
of, any present or future tax, duty, levy, impost, assessment or other
governmental charge imposed or levied by or on behalf of the Government of
Canada or of any province or territory thereof or by any authority or agency
therein or thereof having power to tax (hereinafter "Taxes"), unless Group
Telecom is required to withhold or deduct Taxes by law or by the interpretation
or administration thereof. If Group Telecom is so required to withhold or deduct
any amount for or on account of Taxes from any payment made under or with
respect to the Notes, Group Telecom will pay such additional amounts
("Additional Amounts") as may be necessary so that the net amount received by
each holder of the Notes (including Additional Amounts) after such withholding
or deduction will not be less than the amount the holder would have received if
such Taxes had not been withheld or deducted; provided that no Additional
Amounts will be payable with respect to a payment made to a holder of the Notes
(an "Excluded Holder")
(1) with which Group Telecom does not deal at arm's length (within the
meaning of the Income Tax Act (Canada)) at the time of making such payment,
or
(2) which is subject to such Taxes by reason of any connection between
such holder and Canada or any province or territory thereof other than the
mere holding of Notes or the receipt of payments thereunder.
Group Telecom will also
(1) make such withholding or deduction, and
(2) remit the full amount deducted or withheld to the relevant
authority in accordance with applicable law.
Group Telecom will furnish to the holders of the Notes, within 30 days
after the date the payment of any Taxes is due pursuant to applicable law,
certified copies of tax receipts evidencing such payment by Group Telecom. Group
Telecom will indemnify and hold harmless each holder of the Notes (other than
all Excluded Holders) for the amount of
(1) any Taxes not withheld or deducted by Group Telecom and levied or
imposed and paid by such holder as a result of payments made under or with
respect to the Notes,
(2) any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, and
(3) any Taxes imposed with respect to any reimbursement under clauses
(1) or (2) of this paragraph.
At least 30 days prior to each date on which any payment under or with
respect to the Notes is due and payable, if Group Telecom is aware that it will
be obligated to pay Additional Amounts with respect to such payment, Group
Telecom will deliver to the Trustee an Officers' Certificate stating the fact
that such Additional Amounts will be payable, the amounts so payable and will
set forth such other information necessary to enable the Trustee to pay such
Additional Amounts to holders of the Notes on the payment date. Whenever in the
Indenture there is mentioned, in any context, the payment of principal (and
premium, if any), Accreted Value, interest or any other amount payable under or
with respect to any Note, such mention shall be deemed to include mention of the
payment of Additional Amounts provided for in this section to the extent that,
in such context, Additional Amounts are, were or would be payable in respect
thereof. (sec. 1018)
34
40
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided. (sec. 101)
"Accreted Value" means, as of any date (the "Specified Date"), with respect
to each US$1,000 stated amount at maturity of Notes the sum of (a) the Issue
Price of each Note and (b) the amount of accrued but unpaid Deferred Interest on
such Note to the Specified Date such that:
(1) if the Specified Date is one of the following dates (each a
"Semiannual Accrual Date") the Accreted Value will be the amount set
forth opposite such date below:
<Table>
<Caption>
SEMIANNUAL ACCRUAL DATE ACCRETED VALUE
----------------------- --------------
Issue Date.................................................. US$ 526.51
August 1, 2000.............................................. 561.39
February 1, 2001............................................ 598.58
August 1, 2001.............................................. 638.24
February 1, 2002............................................ 680.52
August 1, 2002.............................................. 725.61
February 1, 2003............................................ 773.68
August 1, 2003.............................................. 824.94
February 1, 2004............................................ 879.59
August 1, 2004.............................................. 937.86
February 1, 2005 and thereafter............................. US$1,000.00
</Table>
(2) if the Specified Date occurs before February 1, 2005, and between two
Semiannual Accrual Dates, the sum of (A) the Accreted Value for the
Semiannual Accrual Date immediately preceding the Specified Date and
(B) an amount equal to the Deferred Interest accrued from such
Semiannual Accrual Date to the Specified Date;
provided that, if Group Telecom has elected to accrue interest payable in cash
commencing on any date (the "cash election date") on or after February 1, 2003
and prior to February 1, 2005, the Accreted Value of any Note on any Specified
Date after such cash election date will be equal to the Accreted Value as of
such cash election date.
"Accounts Receivable" of a Person means the Receivables of such person
arising in the ordinary course of business from the sale of products or the
provision or sale of services by such Person.
"Acquired Debt" means, with respect to any specified Person,
(1) Debt of any other Person existing at the time such Person merges
with or into or amalgamates or consolidates with or becomes a Restricted
Subsidiary of such specified Person,
(2) Debt secured by a Lien encumbering any asset acquired by such
specified Person,
which Debt was not Incurred in anticipation of, and was outstanding prior to,
such merger, amalgamation, consolidation or acquisition but excluding Debt which
is extinguished, retired or repaid in connection with such other Person merging
with or into or amalgamating or consolidating with or becoming a Restricted
Subsidiary of such Person.
"Acquisition" means the Acquisition of the business and assets of Shaw
FiberLink Ltd. pursuant to the Asset Purchase and Subscription Agreement, dated
as of December 22, 1999, among Shaw Communications Inc., Shaw FiberLink Ltd., GT
Group Telecom Inc. and GT Group Telecom Services Corp., as the same may be
amended from time to time.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition,
35
41
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" by any Person means any transfer, conveyance, sale,
lease or other disposition by such Person or any of its Restricted Subsidiaries
(including a consolidation or merger or other sale of any such Restricted
Subsidiary with, into or to another Person in a transaction in which such
Restricted Subsidiary ceases to be a Restricted Subsidiary, but excluding a
disposition by a Restricted Subsidiary of such Person to such Person or a Wholly
Owned Restricted Subsidiary of such Person or by such Person to a Wholly Owned
Restricted Subsidiary of such Person) of (i) shares of Capital Stock (other than
directors' qualifying shares) or other ownership interests of a Restricted
Subsidiary of such Person, (ii) substantially all of the assets of such Person
or any of its Restricted Subsidiaries representing a division or line of
business or (iii) other assets or rights of such Person or any of its Restricted
Subsidiaries outside of the ordinary course of business, provided in each of the
foregoing instances that the aggregate consideration for such transfer,
conveyance, sale, lease or other disposition is equal to US$2 million or more.
The term "Asset Disposition" shall not include
(1) the designation of any Subsidiary as an Unrestricted Subsidiary;
(2) the contribution to the capital of any Unrestricted Subsidiary, in
either case in compliance with the applicable provisions of the Indenture;
(3) exchanges or swaps of Telecommunications Assets for other
Telecommunications Assets where the fair market value of the
Telecommunications Assets received is at least equal to the fair market
value of the Telecommunications Assets disposed of or, if less, the
difference is received in cash and such cash is Net Available Proceeds;
(4) sales of Receivables in connection with a Receivables Facility; or
(5) an Investment that is permitted under the "Limitation on
Restricted Payments" covenant.
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable other than a Capital Lease Obligation, and at any
date as of which the amount thereof is to be determined, the total net amount of
rent required to be paid by such Person under such lease during the initial term
thereof as determined in accordance with generally accepted accounting
principles, discounted from the last date of such initial term to the date of
determination at a rate per annum equal to the discount rate which would be
applicable to a Capital Lease Obligation with like term in accordance with
generally accepted accounting principles. The net amount of rent required to be
paid under any such lease for any such period shall be the aggregate amount of
rent payable by the lessee with respect to such period after excluding amounts
required to be paid on account of insurance, taxes, assessments, utility,
operating and labor costs and similar charges. In the case of any lease which is
terminable by the lessee upon the payment of penalty, such net amount shall also
include the lesser of the amount of such penalty (in which case no rent shall be
considered as required to be paid under such lease subsequent to the first date
upon which it may be so terminated) or the rent which would otherwise be
required to be paid if such lease is not so terminated. "Attributable Value"
means, as to a Capital Lease Obligation, the capitalized amount thereof that
would appear on the face of a balance sheet in accordance with generally
accepted accounting principles.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Debt arrangements conveying
the right to use) real or personal property of such Person which is required to
be classified and accounted for as a capital lease or a liability on the face of
a balance sheet of such Person in accordance with generally accepted accounting
principles. The stated maturity of such obligation shall be the date of the last
payment of
36
42
rent or any other amount due under such lease prior to the first date upon which
such lease may be terminated by the lessee without payment of a penalty. The
principal amount of such obligation shall be the capitalized amount thereof that
would appear on the face of a balance sheet of such Person in accordance with
generally accepted accounting principles.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations, including partnership interests, whether general or
limited, of such Person.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Capital Ratio" as of any date means the ratio of:
(1) the aggregate consolidated principal amount of Debt of Group
Telecom and any Debt of its Restricted Subsidiaries then outstanding; to
(2) the consolidated capital of Group Telecom and its Restricted
Subsidiaries as of such date.
For purposes of this calculation, "capital" shall mean shareholders' equity
(deficit), except that all Preferred Stock (other than Redeemable Stock) shall
be included and retained earnings (deficit) shall be excluded, each in
accordance with generally accepted accounting principles.
"Consolidated Cash Flow Available for Fixed Charges" for any period means
the Consolidated Net Income of Group Telecom and its Restricted Subsidiaries for
such period increased by the sum of (i) Consolidated Interest Expense of Group
Telecom and its Restricted Subsidiaries for such period, plus (ii) Consolidated
Income Tax Expense of Group Telecom and its Restricted Subsidiaries for such
period, plus (iii) the consolidated depreciation and amortization expense
included in the income statement of Group Telecom and its Restricted
Subsidiaries for such period, plus (iv) other non-cash charges of Group Telecom
and its Restricted Subsidiaries reducing Consolidated Net Income for such
period, minus (v) other non-cash items of Group Telecom and its Restricted
Subsidiaries for such period increasing Consolidated Net Income for such period.
"Consolidated Income Tax Expense" for any period means the consolidated
provision for income taxes of Group Telecom and its Restricted Subsidiaries for
such period calculated on a consolidated basis in accordance with generally
accepted accounting principles.
"Consolidated Interest Expense" means for any period the consolidated
interest expense included in a consolidated income statement (without deduction
of interest income) of Group Telecom and its Restricted Subsidiaries for such
period calculated on a consolidated basis in accordance with generally accepted
accounting principles, including without limitation or duplication or, to the
extent not so included, with the addition of,
(1) the amortization of Debt discounts;
(2) any payments or fees with respect to letters of credit, bankers'
acceptances or similar facilities or with respect to any Credit Facility or
Vendor Financing Debt;
(3) fees with respect to interest rate swap or similar agreements or
foreign currency hedge, exchange or similar agreements;
(4) Preferred Stock dividends of Group Telecom and its Restricted
Subsidiaries (other than with respect to Redeemable Stock) declared and
paid or payable;
(5) accrued Redeemable Stock dividends of Group Telecom and its
Restricted Subsidiaries, whether or not declared or paid;
37
43
(6) interest on Debt guaranteed by Group Telecom and its Restricted
Subsidiaries; and
(7) the portion of any rental obligation allocable to interest
expense.
"Consolidated Net Income" for any period means the consolidated net income
(or loss) of Group Telecom and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles; provided that there shall be excluded therefrom
(1) the net income (or loss) of any Person acquired by Group Telecom
or a Restricted subsidiary of Group Telecom in a pooling-of-interests
transaction for any period prior to the date of such transaction,
(2) the net income (or loss) of any Person that is not a Restricted
Subsidiary of Group Telecom except to the extent of the amount of dividends
or other distributions actually paid to Group Telecom or a Restricted
Subsidiary of Group Telecom by such Person during such period,
(3) gains or losses on Asset Dispositions by Group Telecom or its
Restricted Subsidiaries,
(4) all extraordinary gains and extraordinary losses,
(5) the cumulative effect of changes in accounting principles,
(6) non-cash gains or losses resulting from fluctuations in currency
exchange rates, and
(7) the tax effect of any of the items described in clauses (1)
through (6) of this definition;
provided, further, that for purposes of any determination pursuant to the
provisions described under "Limitation on Restricted Payments," there shall
further be excluded therefrom the net income (but not net loss) of any
Restricted Subsidiary of Group Telecom that is subject to a restriction which
prevents the payment of dividends or the making of distributions to Group
Telecom or another Restricted Subsidiary of Group Telecom to the extent of such
restriction.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
generally accepted accounting principles, less amounts attributable to
Redeemable Stock of such Person, provided, however, that, adjustments following
the date of the Indenture to the accounting books and records of such Person
required to be made in accordance with Accounting Principles Board Opinions Nos.
16 and 17 (or successor opinions thereto), or comparable standards in Canada
resulting from the acquisition of control of such Person by another Person shall
not be given effect.
"Consolidated Tangible Assets" of any Person means the sum of the Tangible
Assets of such Person after eliminating inter-company items, determined on a
consolidated basis in accordance with generally accepted accounting principles,
including appropriate deductions for any minority interest in Tangible Assets of
such Person's Restricted Subsidiaries; provided, however, that, adjustments
following the date of the Indenture to the accounting books and records of such
Person required to be made in accordance with Accounting Principles Board
Opinions Nos. 16 and 17 (or successor opinions thereto), or comparable standards
in Canada resulting from the acquisition of control of such Person by another
Person shall not be given effect.
"Credit Facility" means credit agreements or other arrangements made
available from time to time to Group Telecom and its Restricted Subsidiaries by
banks, other financial institutions and/or equipment manufacturers for the
Incurrence of Debt, and including any related notes, Guarantees, collateral
documents, instruments and agreements executed in connection therewith, as the
same may be amended, supplemented, modified or restated from time to time.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent,
38
44
(1) every obligation of such Person for money borrowed,
(2) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations Incurred in
connection with the acquisition of property, assets or businesses,
(3) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for
the account of such Person,
(4) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (including securities repurchase
agreements but excluding trade accounts payable or accrued liabilities
arising in the ordinary course of business which are not overdue or which
are being contested in good faith),
(5) every Capital Lease Obligation of such Person,
(6) all Receivables Sales of such Person, together with any obligation
of such Person to pay any discount, interest, fees, indemnities, penalties,
recourse, expenses or other amounts in connection therewith,
(7) all Redeemable Stock issued by such Person,
(8) if such Person is a Restricted Subsidiary of Group Telecom, all
Preferred Stock issued by such Person,
(9) every obligation to pay rent or other payment amounts of such
Person with respect to any Sale and Leaseback Transaction to which such
Person is a party,
(10) every obligation under Interest Rate or Currency Agreements of
such Person and
(11) every obligation of the type referred to in clauses (1) through
(10) of this definition of another Person and all dividends of another
Person the payment of which, in either case, such Person has Guaranteed or
is responsible or liable, directly or indirectly, as obligor, Guarantor or
otherwise.
The "amount" or "principal amount" of Debt at any time of determination as
used herein represented by
(1) any contingent Debt, shall be the maximum principal amount
thereof,
(2) any Debt issued at a price that is less than the principal amount
at maturity thereof, shall be the face amount of the liability less the
remaining unamortized portion of the original issue discount determined in
accordance with generally accepted accounting principles,
(3) any Receivables Sale, shall be the amount of the unrecovered
capital or principal investment of the purchaser (other than Group Telecom
or a Wholly Owned Restricted Subsidiary of Group Telecom) thereof,
excluding amounts representative of yield or interest earned on such
investment,
(4) any Redeemable Stock, shall be the maximum fixed redemption or
repurchase price in respect thereof, and
(5) any Preferred Stock, shall be the maximum voluntary or involuntary
liquidation preference plus accrued and unpaid dividends in respect
thereof, in each case as of such time of determination.
"Full Accretion Date" means February 1, 2005.
"generally accepted accounting principles" means, as at any date of
determination, generally accepted accounting principles in Canada (unless
otherwise indicated) and which are applicable as of the date of such
determination.
39
45
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing, or having the economic effect of guaranteeing, any
Debt of any other Person (the "primary obligor") in any manner, whether directly
or indirectly, and including, without limitation, any obligation of such Person,
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or to purchase (or to advance or supply funds for the
purchase of) any security for the payment of such Debt,
(2) to purchase property, securities or services for the purpose of
assuring the holder of such Debt of the payment of such Debt, or
(3) to maintain working capital, equity capital or other financial
statement condition or liquidity of the primary obligor so as to enable the
primary obligor to pay such Debt
and "Guaranteed", "Guaranteeing" and "Guarantor" shall have meanings correlative
to the foregoing; provided, however, that the Guarantee by any Person shall not
include endorsements by such Person for collection or deposit, in either case,
in the ordinary course of business.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other obligation
including by acquisition of Restricted Subsidiaries or the recording, as
required pursuant to generally accepted accounting principles or otherwise, of
any such Debt or other obligation on the balance sheet of such Person (and
"Incurrence", "Incurred", "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); provided, however, that a change in generally
accepted accounting principles that results in an obligation of such Person that
exists at such time becoming Debt shall not be deemed an Incurrence of such
Debt.
"Interest Rate or Currency Agreement" of any Person means any forward
contract, futures contract, swap, option or other financial agreement or
arrangement (including, without limitation, caps, floors, collars, puts and
similar agreements) relating to, or the value of which is dependent upon,
interest rates or currency exchange rates or indices.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution (by means of transfers of cash
or other property to others or payments for property or services for the account
or use of others, or otherwise) to, or purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidence of Debt issued by, any
other Person, including any payment on a Guarantee of any obligation of such
other Person, but shall not include
(1) trade accounts receivable in the ordinary course of business on
credit terms made generally available to the customers of such Person,
(2) any non-cash consideration received in connection with an Asset
Disposition that was made in compliance with the "Limitation on Asset
Dispositions" covenant,
(3) Permitted Interest Rate or Currency Agreements,
(4) loans and advances to employees made in the ordinary course of
business, and
(5) prepaid expenses, negotiable instruments held for collection and
lease, utility and workers' compensation, performance and other similar
documents.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, Receivables Sale, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any
40
46
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing).
"Net Available Proceeds" means
(1) with respect to any Asset Disposition by any Person, cash or
readily marketable cash equivalents received (including by way of sale or
discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiror of Debt or other obligations relating to such properties or
assets) therefrom by such Person, net of
(a) all legal, title and recording tax expenses, commissions and
other fees and expenses Incurred and all federal, state, provincial,
foreign and local taxes required to be accrued as a liability as a
consequence of such Asset Disposition,
(b) all payments made by such Person or its Restricted Subsidiaries
on any Debt which is secured by such assets in accordance with the terms
of any Lien upon or with respect to such assets or which must by the
terms of such Lien, or in order to obtain a necessary consent to such
Asset Disposition or by applicable law, be repaid out of the proceeds
from such Asset Disposition,
(c) all distributions and other payments made to minority interest
holders in Restricted Subsidiaries of such Person or joint ventures as a
result of such Asset Disposition, and
(d) appropriate amounts to be provided by such Person or any
Restricted Subsidiary thereof, as the case may be, as a reserve in
accordance with generally accepted accounting principles against any
liabilities associated with such assets and retained by such Person or
any Restricted Subsidiary thereof, as the case may be, after such Asset
Disposition, including, without limitation, liabilities under any
indemnification obligations and severance and other employee termination
costs associated with such Asset Disposition, in each case as determined
by the Board of Directors, in its reasonable good faith judgment
evidenced by a resolution of the Board of Directors filed with the
Trustee; provided, however, that any reduction in such reserve within
twelve months following the consummation of such Asset Disposition will
be treated for all purposes of the Indenture and the Notes as a new
Asset Disposition at the time of such reduction with Net Available
Proceeds equal to the amount of such reduction, and
(2) with respect to any issuance or sale of Capital Stock by any
Person, the proceeds of such issuance or sale in the form of cash or
readily marketable cash equivalents received therefrom by such Person, net
of
(a) attorneys' fees,
(b) accountants' fees,
(c) underwriters' or placement agents' fees, discounts or
commissions, and
(d) brokerage, consultant, printing and other fees and expenses,
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Offer to Purchase" means a written offer (the "Offer") sent by Group
Telecom by first class mail, postage prepaid, to each Holder at his address
appearing in the Note Register on the date of the Offer offering to purchase up
to the principal amount of Notes specified in such Offer at the purchase price
specified in such Offer (as determined pursuant to the Indenture). Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase which shall be, subject to any
contrary requirements of applicable law, not less than 30 days or more than 60
days after the date of such Offer and a settlement date (the "Purchase Date")
for purchase of Notes within five Business Days after the Expiration Date. Group
Telecom shall
41
47
notify the Trustee at least 15 Business Days (or such shorter period as is
acceptable to the Trustee) prior to the mailing of the Offer of Group Telecom's
obligation to make an Offer to Purchase, and the Offer shall be mailed by Group
Telecom or, at Group Telecom's request, by the Trustee in the name and at the
expense of Group Telecom. The Offer shall contain information concerning the
business of Group Telecom and its Restricted Subsidiaries which Group Telecom in
good faith believes will enable such holders of the Notes to make an informed
decision with respect to the Offer to Purchase (which at a minimum will include)
(1) the most recent annual and quarterly financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the documents required to be filed with the
Trustee pursuant to the Indenture (which requirements may be satisfied by
delivery of such documents together with the Offer),
(2) a description of material developments in Group Telecom's business
subsequent to the date of the latest of such financial statements referred
to in clause (i) (including a description of the events requiring Group
Telecom to make the Offer to Purchase),
(3) if applicable, appropriate pro forma financial information
concerning the Offer to Purchase and the events requiring Group Telecom to
make the Offer to Purchase and
(4) any other information required by applicable law to be included
therein.
The Offer shall contain all instructions and materials necessary to enable
such holders of the Notes to tender Notes pursuant to the Offer to Purchase. The
Offer shall also state:
(1) the section of the Indenture pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the Outstanding Notes offered to
be purchased by Group Telecom pursuant to the Offer to Purchase (including,
if less than 100%, the manner by which such has been determined pursuant to
the Section hereof requiring the Offer to Purchase) (the "Purchase
Amount");
(4) the purchase price to be paid by Group Telecom for each US$1,000
aggregate principal amount of Notes accepted for payment (as specified
pursuant to the Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the Notes
registered in the name of such Holder and that any portion of a Note
tendered must be tendered in an integral multiple of US$1,000 principal
amount;
(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not
purchased by Group Telecom pursuant to the Offer to Purchase will continue
to accrue;
(8) that on the Purchase Date, the Purchase Price will become due and
payable upon each Note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(9) that each holder of the Notes electing to tender a Note pursuant
to the Offer to Purchase will be required to surrender such Note at the
place or places specified in the Offer prior to the close of business on
the Expiration Date (such Note being, if Group Telecom or the Trustee so
requires, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to Group Telecom and the Trustee duly
executed by, the holder thereof or his attorney duly authorized in
writing);
42
48
(10) that holders of the Notes will be entitled to withdraw all or any
portion of Notes tendered if Group Telecom (or its Paying Agent) receives,
not later than the close of business on the Expiration Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Note the holder tendered, the
certificate number of the Note the holder tendered and a statement that
such holder is withdrawing all or a portion of his tender;
(11) that (a) if Notes in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant
to the Offer to Purchase, Group Telecom shall purchase all such Notes and
(b) if Notes in an aggregate principal amount in excess of the Purchase
Amount are tendered and not withdrawn pursuant to the Offer to Purchase,
Group Telecom shall purchase Notes having an aggregate principal amount
equal to the Purchase Amount on a pro rata basis (with such adjustments as
may be deemed appropriate so that only Notes in denominations of US$1,000
or integral multiples thereof shall be purchased); and
(12) that in the case of any holder whose Note is purchased only in
part, Group Telecom shall execute, and the Trustee shall authenticate and
deliver to the holder of such Note without service charge, a new Note or
Notes, of any authorized denomination as requested by such holder, in an
aggregate principal amount equal to and in exchange for the unpurchased
portion of the Note so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with
the Offer for such Offer to Purchase.
"Permitted Holder" means Goldman, Sachs & Co., Canadian Imperial Bank of
Commerce, Shaw Communications Inc. and their respective Affiliates.
"Permitted Interest Rate or Currency Agreement" of any Person means any
Interest Rate or Currency Agreement entered into with one or more financial
institutions in the ordinary course of business that is designed to protect such
Person against fluctuations in interest rates or currency exchange rates with
respect to Debt Incurred and which shall have a notional amount no greater than
the payments due with respect to the Debt being hedged thereby.
"Permitted Liens" means:
(1) Liens incidental to the conduct of Group Telecom's or a Restricted
Subsidiary's business or the ownership of its Property and assets, and that
are not Incurred in connection with the borrowing of money or the obtaining
of advances of credit and which do not in the aggregate materially detract
from the value of Group Telecom's and its Restricted Subsidiaries' Property
or other assets when taken as a whole, or materially impair the use thereof
in the operation of its business;
(2) Liens with respect to assets of a Restricted Subsidiary granted by
such Restricted Subsidiary to secure Debt owing to Group Telecom;
(3) deposits made to secure the performance of tenders, bids, leases,
surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of like nature incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money);
(4) any interest or title of a lessor in the Property subject to any
lease other than a Capital Lease;
(5) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of Group Telecom and its
Restricted Subsidiaries;
(6) Liens encumbering Property or other assets under construction
arising from progress or partial payments by a customer of Group Telecom or
its Restricted Subsidiaries relating to such Property or other assets;
43
49
(7) Liens securing reimbursement obligations with respect to letters
of credit that encumber documents and other Property relating to such
letters of credit and the products and proceeds thereof;
(8) Liens encumbering customary initial deposits and margin deposits,
and other Liens that are either within the general parameters customary in
the industry and Incurred in the ordinary course of business securing
Indebtedness under Permitted Interest Rate Agreements or Currency
Agreements; and
(9) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by
Group Telecom or any of its Restricted Subsidiaries in the ordinary course
of business.
"Permitted Telecommunications Investment" means an investment in an entity
engaged primarily in a Telecommunications Business.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of Group Telecom pursuant to an effective registration statement
under the Securities Act of 1933, as amended, or pursuant to applicable Canadian
securities laws.
"Purchase Money Debt" means Debt of Group Telecom or any one or more of its
Restricted Subsidiaries (including Debt represented by Capital Lease
Obligations, mortgage financings and purchase money obligations) Incurred for
the purpose of financing all or any part of the cost of construction, design,
development, installation, integration, transportation, acquisition or
improvement of any Telecommunications Assets of Group Telecom or any Restricted
Subsidiary of Group Telecom, and including any related notes, Guarantees,
collateral documents, instruments and agreements executed in connection
therewith, as the same may be amended, supplemented, modified or restated from
time to time.
"Receivables" means chattel paper, instruments, documents, contract rights
or intangibles evidencing or relating to the right to payment of money.
"Receivables Facility" means any agreement or agreements between Group
Telecom or one or more Restricted Subsidiaries of Group Telecom and a financial
institution or institutions providing for the making of loans or advances,
letters of credit or bankers acceptances on a revolving basis for working
capital requirements, which is either unsecured or secured by no assets other
than Accounts Receivable of Group Telecom or such Restricted Subsidiaries;
provided, however, that such term shall not include a Credit Facility or any
renewal, extension, refinancing or refunding thereof as permitted under the
"Limitation on Debt" covenant.
"Receivables Sales" of any Person means any sale of Receivables of such
Person (pursuant to a purchase facility or otherwise), other than in connection
with a disposition of the business operations of such Person relating thereto or
a disposition of defaulted Receivables for purposes of collection and not as a
financing arrangement.
"Redeemable Stock" of any Person means any Capital Stock of such Person
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or otherwise (including upon the occurrence of
an event) matures or is required to be redeemed for cash or Debt (pursuant to
any sinking fund obligation or otherwise) or is convertible into or exchangeable
for Debt or is redeemable at the option of the holder thereof, in whole or in
part, for cash or Debt at any time prior to the final Stated Maturity of the
Notes.
44
50
"Related Person" of any Person means any other Person directly or
indirectly owning (a) 5% or more of the Outstanding Common Stock of such Person
(or, in the case of a Person that is not a corporation, 5% or more of the equity
interest in such Person) or (b) 5% or more of the combined voting power of the
Voting Stock of such Person.
"Restricted Subsidiary" means any Subsidiary of Group Telecom, whether
existing on or after the date of the Indenture, unless such Subsidiary is an
Unrestricted Subsidiary.
"Sale and Leaseback Transaction" of any Person means an agreement with any
lender or investor or to which such lender or investor is a party providing for
the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 180 days after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset. The stated maturity of such arrangement shall be the date of
the last payment of rent or any other amount due under such arrangement prior to
the first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"Strategic Equity Investment" means the issuance and sale of Capital Stock
(other than Redeemable Stock) to a Person that has an equity market
capitalization, net asset value or annual revenues of at least $1.0 billion and
owns and operates businesses primarily in a Telecommunications Business.
"Subordinated Debt" means Debt of Group Telecom as to which the payment of
principal of (and premium, if any) and interest and other payment obligations in
respect of such Debt shall be subordinate to the prior payment in full of the
Notes to at least the following extent:
(1) no payments of principal of (or premium, if any) or interest on or
otherwise due in respect of such Debt may be permitted for so long as any
default in the payment of principal (or premium, if any) or Interest on the
Notes exists;
(2) in the event that any other default that with the passing of time
or the giving of notice, or both, would constitute an Event of Default
exists with respect to the Notes, upon notice by 25% or more in principal
amount of the Notes to the Trustee, the Trustee shall have the right to
give notice to Group Telecom and the holders of such Debt (or trustees or
agents therefor) of a payment blockage, and thereafter no payments of
principal of (or premium, if any) or interest on or otherwise due in
respect of such Debt may be made for a period of 179 days from the date of
such notice; and
(3) such Debt may not
(a) provide for payments of principal of such Debt at the stated
maturity thereof or by way of a sinking fund applicable thereto or by
way of any mandatory redemption, defeasance, retirement or repurchase
thereof by Group Telecom (including any redemption, retirement or
repurchase which is contingent upon events or circumstances, but
excluding any retirement required by virtue of acceleration of such Debt
upon an event of default thereunder), in each case prior to the final
Stated Maturity of the Notes or
(b) permit redemption or other retirement (including pursuant to an
Offer to Purchase made by Group Telecom) of such other Debt at the
option of the holder thereof prior to the final Stated Maturity of the
Notes, other than a redemption or other retirement at the option of the
holder of such Debt (including pursuant to an Offer to Purchase made by
Group Telecom) which is conditioned upon a change of control of Group
Telecom pursuant to provisions substantially similar to those described
under "Change of Control" (and which shall provide that such Debt will
not be repurchased pursuant to such provisions prior to Group Telecom's
repurchase of the Notes required to be repurchased by Group Telecom
pursuant to the provisions described under "Change of Control").
45
51
"Subsidiary" of any Person means
(1) a corporation more than 50% of the combined voting power of the
outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such
Person and one or more Subsidiaries thereof, or
(2) any other Person (other than a corporation) in which such Person,
or one or more other Subsidiaries of such Person or such Person and one or
more other Subsidiaries thereof, directly or indirectly, has at least a
majority ownership and power to direct the policies, management and affairs
thereof.
"Tangible Assets" of any Person means, at any date, the gross book value as
shown by the accounting books and records of such Person of all its property
both real and personal, less (i) the net book value of all its licenses,
patents, patent applications, copyrights, trademarks, trade names, goodwill,
non-compete agreements or organizational expenses and other like intangibles,
(ii) unamortized Debt discount and expenses, (iii) all reserves for
depreciation, obsolescence, depletion and amortization of its properties and
(iv) all other proper reserves which in accordance with generally accepted
accounting principles should be provided in connection with the business
conducted by such Person, provided, however, that, adjustments to the value of
such Tangible Assets following the date of the Indenture to the accounting books
and records of such Person required to be made in accordance with Accounting
Principles Board Opinions Nos. 16 and 17 (or successor opinions thereto), or
comparable standards in Canada resulting from the acquisition of control of such
Person by another Person shall not be given effect.
"Telecommunications Assets" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used or intended for
use in connection with a Telecommunications Business.
"Telecommunications Business" means the business of
(1) transmitting, or providing products or services relating to the
transmission or storage of, voice, data or Internet applications through
owned or leased transmission facilities, including wireless facilities,
(2) creating, developing, marketing or providing communications
related network equipment, software or other devices or products for use in
a Telecommunications Business, or
(3) evaluating, participating or pursuing any other activity or
opportunity that is primarily related to those identified in clauses (1) or
(2) of this definition;
provided that the determination of what constitutes a Telecommunications
Business shall be made in good faith by the Board of Directors of Group Telecom.
"U.S. Government Securities" means securities that are direct obligations
of the United States of America, direct obligations of the Federal Home Loan
Mortgage Corporation, direct obligations of the Federal National Mortgage
Association, securities which the timely payment of whose principal and interest
is unconditionally guaranteed by the full faith and credit of the United States
of America, trust receipts or other evidence of indebtedness of a direct claim
upon the instruments described above and money market mutual funds that invest
solely in such securities.
"Vendor Financing Debt" means Debt of Group Telecom or any one or more of
its Restricted Subsidiaries Incurred pursuant to any agreement between Group
Telecom or a Restricted Subsidiary and one or more vendors or lessors (or any
affiliate of any such vendor or lessor) of Telecommunications Assets used or
intended for use in a Telecommunications Business by Group Telecom or any of its
Restricted Subsidiaries providing financing for all or any part of the cost of
construction, design, acquisition, integration, installation, development,
transportation or improvement by Group Telecom or any Restricted Subsidiary of
any Telecommunications Assets from any such vendor or lessor (or any affiliate
of such vendor or lessor) and including any related notes,
46
52
Guarantees, collateral documents, instruments and agreements executed in
connection therewith, as the same may be amended, supplemented, modified or
restated from time to time. Vendor Financing Debt shall not include any working
capital facility or Debt to fund interest or other similar expenses made
available by any vendor.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture:
(1) failure to pay principal of (or premium, if any, on) any Note when
due;
(2) failure to pay any interest on any Note when due, continued for 30
days;
(3) default in the payment of principal and interest on Notes required
to be purchased pursuant to an Offer to Purchase as described under the
"Change of Control" and "Limitation on Asset Dispositions" covenants when
due and payable;
(4) failure to perform or comply with the provisions described under
"-- Amalgamations, Mergers, Consolidations and Certain Sales and Purchases
of Assets";
(5) failure to perform any other covenant or agreement of Group
Telecom under the Indenture or the Notes continued for 30 days after
written notice to Group Telecom by the Trustee or holders of at least 25%
in aggregate principal amount of Outstanding Notes;
(6) default under the terms of any instrument evidencing or securing
Debt for money borrowed by Group Telecom or any Restricted Subsidiary
having an outstanding principal amount of US$10 million individually or in
the aggregate which default results in the acceleration of the payment of
all or any portion of such indebtedness or constitutes the failure to pay
all or any portion of such indebtedness when due;
(7) the rendering of a final judgment or judgments (not subject to
appeal) against Group Telecom or any Restricted Subsidiary in an amount in
excess of US$10 million which remains undischarged or unstayed for a period
of 60 days after the date on which the right to appeal has expired;
(8) certain events of bankruptcy, insolvency or reorganization
affecting Group Telecom or any Restricted Subsidiary; and
(9) Group Telecom shall challenge the Escrow Agreement prior to the
time that the escrow is to be released or the Escrow Agreement becomes, or
Group Telecom asserts, that the Escrow Agreement is, invalid and
unenforceable, otherwise than in accordance with its terms. (sec. 501)
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the holders of the Notes, unless
such holders shall have offered to the Trustee reasonable indemnity. (sec. 603)
Subject to such provisions for the indemnification of the Trustee, the holders
of a majority in aggregate principal amount of the Outstanding Notes will have
the right to direct the time, method and place of
47
53
conducting any proceeding or any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee. (sec. 512)
If an Event of Default (other than an Event of Default described in Clause
(8) above) shall occur and be continuing, either the Trustee or the holders of
at least 25% in aggregate principal amount of the Outstanding Notes may
accelerate the maturity of all Notes; provided, however, that after such
acceleration, but before a judgment or decree based on acceleration, the holders
of a majority in aggregate principal amount of Outstanding Notes may, under
certain circumstances, rescind and annul such acceleration if all Events of
Default, other than the non-payment of accelerated principal, have been cured or
waived as provided in the Indenture. If an Event of Default specified in Clause
(8) above occurs, the Outstanding Notes will ipso facto become immediately due
and payable without any declaration or other act on the part of the Trustee or
any holder of the Notes. (sec. 502) For information as to waiver of defaults,
see "Modification and Waiver."
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default (as defined) and unless also the holders of at least 25% in aggregate
principal amount of the Outstanding Notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the holders of a majority
in aggregate principal amount of the Outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. (sec. 507) However, such limitations do not apply to a suit instituted by
a holder of a Note for enforcement of payment of the principal of and premium,
if any, or interest on such Note on or after the respective due dates expressed
in such Note. (sec. 508)
Group Telecom will be required to furnish to the Trustee quarterly a
statement as to the performance by Group Telecom of certain of its obligations
under the Indenture and as to any default in such performance. (sec. 1019)
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will cease to be of further effect as to all Outstanding
Notes except as to
(1) rights of registration of transfer and exchange and Group
Telecom's right of optional redemption,
(2) substitution of apparently mutilated, defaced, destroyed, lost or
stolen Notes,
(3) rights of holders of the Notes to receive payment of principal and
interest on the Notes,
(4) rights, obligations and immunities of the Trustee under the
Indenture, and
(5) rights of the Notes as beneficiaries of the Indenture with respect
to any property deposited with the Trustee payable to all or any of them,
if Group Telecom will have paid or caused to be paid the principal of and
interest on the Notes as and when the same will have become due and payable or
(y) all outstanding Notes (except lost, stolen or destroyed Notes which have
been replaced or paid) have been delivered to the Trustee for cancellation.
(Article Four)
DEFEASANCE
The Indenture will provide that, at the option of Group Telecom,
(a) if applicable, Group Telecom will be discharged from any and all
obligations in respect of the Outstanding Notes or
(b) if applicable, Group Telecom may omit to comply with certain
restrictive covenants, that such omission shall not be deemed to be an
Event of Default under the Indenture and the Notes,
48
54
in either of clause (a) or (b) upon irrevocable deposit with the Trustee, in
trust for the benefit of holders of the Notes, or money and/or U.S. government
obligations which will provide money in an amount sufficient in the opinion of a
nationally recognized firm of independent certified public accountants to pay
the principal of and premium, if any, and each installment of interest, if any,
on the Outstanding Notes. With respect to clause (b), the obligations under the
Indenture other than with respect to such covenants and the Events of Default
other than the Events of Default relating to such covenants above shall remain
in full force and effect. Such trust may only be established if, among other
things
(1) with respect to clause (a), Group Telecom has received from, or
there has been published by, the Internal Revenue Service a ruling or there
has been a change in law, which in the Opinion of Counsel qualified to
practice in the United States provides that holders of the Notes will not
recognize gain or loss for U.S. federal income tax purposes as a result of
such deposit, defeasance and discharge and will be subject to U.S. federal
income tax on the same amount, in the same manner and at the same times as
would have been the case if such deposit, defeasance and discharge had not
occurred; or, with respect to clause (b), above, Group Telecom has
delivered to the Trustee an Opinion of Counsel qualified to practice in the
United States to the effect that the holders of the Notes will not
recognize gain or loss for U.S. federal income tax purposes as a result of
such deposit and defeasance and will be subject to U.S. federal income tax
on the same amount, in the same manner and at the same times as would have
been the case if such deposit and defeasance had not occurred;
(2) Group Telecom has delivered to the Trustee an Opinion of Counsel
qualified to practice in Canada or a ruling from the Canada Customs and
Revenue Agency to the effect that the holders of the Notes will not
recognize income, gain or loss for Canadian federal, provincial or
territorial income tax or other tax purposes as a result of such deposit
and defeasance and will be subject to Canadian federal or provincial income
tax and other tax on the same amounts, in the same manner and at the same
times as would have been the case had such deposit and defeasance not
occurred (and for the purposes of such opinion, such Canadian counsel shall
assume that holders of the Notes include holders who are not resident in
Canada);
(3) such deposit, defeasance and discharge will not result in a breach
or violation of, or constitute a default under, any agreement or instrument
to which Group Telecom or any Restricted Subsidiary is party or by which
Group Telecom or any Restricted Subsidiary is bound;
(4) no Event of Default or event that with the passing of time or the
giving of notice, or both, shall constitute an Event of Default shall have
occurred or be continuing;
(5) Group Telecom has delivered to the Trustee an Opinion of Counsel
to the effect that such deposit shall not cause the Trustee or the trust so
created to be subject to the Investment Company Act of 1940; and
(6) certain other customary conditions precedent are satisfied.
(Article Twelve)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by Group Telecom
and the Trustee with the consent of the holders of a majority in aggregate
principal amount of the Outstanding Notes; provided, however, that no such
modification or amendment may, without the consent of the holder of each
Outstanding Note affected thereby,
(1) change the Stated Maturity of the principal of, or any installment
of interest on, any Note,
(2) reduce the principal amount of, (or the premium) or interest on,
any Note,
(3) change the place or currency of payment of principal of (or
premium), or interest on, any Note,
49
55
(4) impair the right to institute suit for the enforcement of any
payment on or with respect to any Note,
(5) reduce the above-stated percentage of Outstanding Notes necessary
to modify or amend the Indenture,
(6) reduce the percentage of aggregate principal amount of Outstanding
Notes necessary for waiver of compliance with certain provisions of the
Indenture or for waiver of certain defaults,
(7) modify any provisions of the Indenture relating to the
modification and amendment of the Indenture or the waiver of past defaults
or covenants, except as otherwise specified,
(8) following the mailing of any Offer to Purchase, modify any Offer
to Purchase for the Notes required under the "Limitation on Asset
Dispositions" and the "Change of Control" covenants contained in the
Indenture in a manner materially adverse to the holders thereof, or
(9) modify any provisions in the Indenture relating to the payment of
Additional Amounts. (sec. 902)
The holders of a majority in aggregate principal amount of the Outstanding
Notes, on behalf of all holders of Notes, may waive compliance by Group Telecom
with certain restrictive provisions of the Indenture. (sec. 1020) Subject to
certain rights of the Trustee, as provided in the Indenture, the holders of a
majority in aggregate principal amount of the Outstanding Notes, on behalf of
all holders of Notes, may waive any past default under the Indenture, except a
default in the payment or principal, premium or interest or a default arising
from failure to purchase any Note tendered pursuant to an Offer to Purchase.
(sec. 513)
GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State of
New York.
THE TRUSTEE
The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the Trustee
will exercise such rights and powers vested in it under the Indenture and use
the same degree of care and skill in its exercise as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
(sec.sec. 601 and 603)
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of Group Telecom, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claim as
otherwise. The Trustee is permitted to engage in other transactions with Group
Telecom or any Affiliate, provided, however, that if it acquires any conflicting
interest (as defined in the Indenture or in the Trust Indenture Act), it must
eliminate such conflict or resign. (sec. 608)
GLOBAL NOTES
The notes initially will be represented by one or more securities in
registered, global form (collectively, the "Global Securities"). The Global
Securities will be deposited upon issuance with the Trustee as custodian for The
Depository Trust Company ("DTC"), in New York, New York, and registered in the
name of DTC or its nominee, in each case for credit to an account of a direct or
indirect participant in DTC as described below.
Each Global Security will be held by DTC on behalf of its account holders
(each a "DTC Participant"). Except as set forth below, the Global Securities may
be transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the Global Securities
may not be exchanged for securities in certificated form except in the limited
50
56
circumstances described below under "-- Exchanges of Book-Entry Securities for
Certificated Securities."
EXCHANGE OF BOOK-ENTRY SECURITIES FOR CERTIFICATED SECURITIES
A beneficial interest in a Global Security may not be exchanged for a
security in certificated form unless (i) DTC (x) notifies Group Telecom that it
is unwilling or unable to continue as Depositary for such Global Security or (y)
has ceased to be clearing agency registered under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in either case Group Telecom
thereupon fails to appoint a successor Depositary, (ii) Group Telecom, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
the Notes in certificated form or (iii) there shall have occurred and be
continuing an Event of Default with respect to the Notes. In all cases,
certificated Notes delivered in exchange for any Global Security or beneficial
interests therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the Depositary (in accordance with
its customary procedures). Any such exchange will be effected through the DWAC
System and an appropriate adjustment will be made in the records of the
applicable security registrar to reflect a decrease in the principal amount of
the relevant Global Security.
CERTAIN BOOK-ENTRY PROCEDURES
The descriptions of the operations and procedures of DTC, Euroclear and
Clearstream that follow are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them from time to time. Group
Telecom take no responsibility for these operations and procedures and urges
investors to contact the system or their participants directly to discuss these
matters.
DTC has advised Group Telecom as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants ("participants") and facilitate the clearance
and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system is available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
DTC has advised Group Telecom that its current practice, upon the issuance
of a Restricted Global Security and a Regulation S Global Security, is to
credit, on its internal system, the respective principal amount of the
individual beneficial interests represented by such Global Security to the
accounts with DTC of the individual beneficial interests represented by such
Global Security to the accounts with DTC of the participants through which such
interests are to be held. Ownership of beneficial interests in the Global
Securities will be shown on, and the transfer of that ownership will be effected
only through, records maintained by DTC or its nominees (with respect to
interests of participants).
As long as DTC, or its nominee, is the registered holder of a Global
Security, DTC or such nominee, as the case may be, will be considered the sole
owner and holder of the Notes represented by such Global Security for all
purposes under the Indenture. Except in the limited circumstances described
above under "-- Exchanges of Book-Entry Securities for Certificated Securities,"
owners of beneficial interests in a Global Security will not be entitled to have
any portions of such Global Security registered in their names, will not receive
or be entitled to received physical delivery of Notes
51
57
in definitive form and will not be considered the owners or holders of the
Global Security (or any security represented thereby) under the Indenture.
Investors may hold their interests in a Global Security directly through
DTC, if they are participants in such system, or in directly through
organizations (including Euroclear and Clearstream) which are participants in
such system. Some investors may hold their interests in a Global Security
through organizations which are participants in such systems. Clearstream and
Euroclear will hold interests in a Global Security on behalf of their
participants through customers' securities accounts in their respective names on
the books of their respective depositories. The depositories, in turn, will hold
such interests in such Global Securities in customers' securities accounts in
the depositories' names on the books of DTC. Those interests held through
Euroclear or Clearstream will also be subject to the procedures and requirements
of such systems.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Security to such persons may be
limited to that extent. Because DTC can act only on behalf of its participants,
which in turn act on behalf of indirect participants and certain banks, the
ability of a person having beneficial interest, in a Global Security to pledge
such interest to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such interest, may be affected by the
lack of a physical certificate evidencing such interests.
Payments of the principal of, premium, if any, and interest on the Global
Securities will be made to DTC or its nominee as the registered owner thereof.
Neither Group Telecom, the Trustee nor any of their respective agents will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Securities or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
Group Telecom expects that DTC or its nominee, upon receipt of any payment
of principal or interest in respect of a Global Security representing any Notes
held by it or its nominee, will immediately credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Security for such Notes as shown on the
records of DTC or its nominee. Group Telecom also expect that payments by
participants to owners of beneficial interests in such Global Security held
through such participants will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers registered in "street name." Such payment will be the responsibility
of such participants.
Except for trades involving only Euroclear and Clearstream participants,
interests in the Global Securities will trade in DTC's settlement system and
secondary market trading activity in such interest will therefore settle in
immediately available funds, subject in all cases to the rules and procedures of
DTC and its participants. Transfers between participants in DTC will be effected
in accordance with DTC's procedure, and will be settled in same-day funds.
Transfers between participants in Euroclear and Clearstream will be effected in
the ordinary way in accordance with their respective rules and operating
procedures.
Subject to compliance with the transfer and exchange requirements
applicable to the Notes described elsewhere herein, cross-market transfers
between DTC participants, on the one hand, and Euroclear or Clearstream
participants, on the other hand, will be effected by DTC in accordance with
DTC's rules on behalf of Euroclear or Clearstream, as the case may be, by its
respective depositary; however, such cross-market transactions will require
delivery of instructions to Euroclear or Clearstream, as the case may be, by the
counterparty in such system in accordance with the rules and procedures and
within the established deadlines (Brussels time) of such system. Euroclear or
Clearstream, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depository to take action
to effect final settlement on its behalf by delivering or receiving interests in
the relevant Global Security in DTC, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC.
52
58
Euroclear participants and Clearstream participants may not deliver instructions
directly to the depositories for Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a Global Security from a DTC
participant will be credited, and any such crediting will be reported to the
relevant Euroclear or Clearstream participant, during the securities settlement
processing day (which must be a business day for Euroclear and Clearstream)
immediately following the DTC settlement date. Cash received in Euroclear or
Clearstream as a result of sales of interests in a Global Security by or through
a Euroclear or Clearstream participant to a DTC participant will be received
with value on the DTC settlement date but will be available in the relevant
Euroclear or Clearstream cash account only as of the business day for Euroclear
or Clearstream following the DTC settlement date.
DTC has advised Group Telecom that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more participants to
whose account with DTC interests in the Global Securities are credited and only
in respect of such portion of the aggregate stated amount at maturity of the
Notes as to which such participant or participants has or have given such
direction. However, if there is an Event of Default (as defined below) under the
Notes, the Global Securities will be exchanged for legended Notes in
certificated form, and distributed to DTC's participants.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures in order to facilitate transfers of beneficial ownership interests in
the Global Securities among participants of DTC, Euroclear and Clearstream, they
are under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither Group Telecom, the
Trustee or Exchange Agent nor any of their respective agents will have any
responsibility for the performance by DTC, Euroclear and Clearstream, their
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations, including maintaining,
supervising or reviewing the records relating to, or payments made on account
of, beneficial ownership interests in Global Securities.
DESCRIPTION OF OUR CLASS B NON-VOTING SHARES
For a description of our class B non-voting shares, see Item 10.B. of our
annual report on Form 20-F, which is incorporated by reference into this
prospectus.
PLAN OF DISTRIBUTION
This prospectus may be used by Goldman, Sachs and Co., Spear Leeds &
Kellogg, L.P. ("Spear Leeds") and their broker-dealer subsidiaries (the "Goldman
Entities") in connection with offers and sales related to market-making
transactions in the class B non-voting shares, the warrants to purchase class B
non-voting shares and the notes effected from time to time. The Goldman Entities
may act as principal or agent in such transactions, including as agent for the
counterparty when acting as principal or agent for both counterparties, and may
receive compensation in the form of discounts and commissions, including from
both counterparties when they act as agent for both such parties. Such sales
will be made at prevailing market prices at the time of sale, at prices related
thereto or at negotiated prices.
As of September 19, 2001, investment partnerships affiliated with Goldman,
Sachs & Co. owned 18,999,999 class A voting shares and 11,000,002 class B
non-voting shares, representing 23.47% of our class A voting shares and 20.36%
of our class B non-voting shares then issued and outstanding. These shares do
not include class B non-voting shares acquired by Goldman, Sachs & Co. in
market-making transactions or class B non-voting shares held in client accounts
for which Goldman, Sachs & Co. exercises voting or investment authority or both.
Goldman, Sachs & Co. disclaims beneficial ownership of shares held in client
accounts.
53
59
Robert R. Gheewalla and George Estey, Managing Directors of Goldman, Sachs
& Co., are directors of Group Telecom. Messrs. Gheewalla and Estey, as well as
James G. Matkin, were nominated by Goldman, Sachs & Co. as directors of Group
Telecom under the terms of an amended and restated shareholders agreement
entered into by Goldman, Sachs & Co. and other shareholders of Group Telecom on
February 16, 2000. The terms of this agreement are described in Item 10.B. to
our annual report on Form 20-F, which is incorporated by reference into this
prospectus.
Goldman, Sachs & Co. has provided investment banking services to us in the
past and may provide such services and financial advisory services to us in the
future. In addition, Goldman Sachs acted as one of the initial purchasers in
connection with the initial sale of the notes and served as a managing
underwriter in the initial public offering of our class B non-voting shares in
March 2000.
Group Telecom has been advised by the Goldman Entities that, subject to
applicable laws and regulations, the Goldman Entities currently intend to make a
market in the class B non-voting shares, the warrants to purchase class B
non-voting shares and the notes in either or both of the United States and
Canada. However, they are not obligated to do so and any market-making may be
interrupted or discontinued at any time without notice. In addition, such
market-making activity will be subject to the limits imposed by the Securities
Act and the Exchange Act. There can be no assurance that an active trading
market will be developed or sustained.
The Goldman Entities may not confirm sales to any accounts over which they
exercise discretionary authority without the prior specific written approval by
the customer.
LEGAL MATTERS
Certain legal matters with respect to the validity of the securities
offered hereby were passed upon by:
- Shearman & Sterling, our United States counsel, on matters of United
States and New York law; and
- Torys, our Canadian counsel, on matters of Canadian law.
EXPERTS
Our consolidated financial statements as of September 30, 2000, 1999 and
1998 incorporated by reference into this prospectus have been audited by
PricewaterhouseCoopers LLP, independent public accountants, as stated in their
report thereon incorporated by reference into this prospectus and are
incorporated in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing. Shaw FiberLink's financial statements as
of August 31, 1999 and 1998 and for the three year period ended August 31, 1999
included in this prospectus have been audited by Ernst & Young LLP, independent
public accountants, as stated in their report appearing in this prospectus and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
REGISTRARS AND TRANSFER AGENTS
The registrar and transfer agent for the class B non-voting shares in
Canada is CIBC Mellon Trust Company at its principal offices in Toronto and in
the United States is ChaseMellon Shareholder Services at its principal offices
in New York.
54
60
ENFORCEABILITY OF CIVIL LIABILITIES
We are a Canadian corporation. Some of our directors, controlling persons
and officers, and the experts named in this prospectus, are residents of Canada,
and a substantial portion of their assets and all of our assets are located
outside the United States. As a result, it may be difficult for you to effect
service of process within the United States upon the directors, controlling
persons, officers and experts who are not residents of the United States or to
enforce against them judgements of courts of the United States based upon the
civil liability under the federal securities laws of the United States. There is
doubt as to the enforceability in Canada against us or against any of our
directors, controlling persons, officers or experts, who are not residents of
the United States, in original actions or in actions for enforcement of
judgements of United States courts, of liabilities based solely upon the federal
securities laws of the United States.
55
61
INDEX TO FINANCIAL STATEMENTS
<Table>
Report of Independent Public Accountants of Shaw FiberLink
Ltd. -- FiberLink Division................................ F-2
Financial Statements of Shaw FiberLink Ltd. -- FiberLink
Division.................................................. F-3
Notes to Financial Statements of Shaw FiberLink Ltd. --
FiberLink Division........................................ F-6
Unaudited Pro Forma Condensed Consolidated Financial
Information............................................... F-13
Notes to Pro Forma Condensed Consolidated Statement of
Operations................................................ F-15
</Table>
F-1
62
AUDITORS' REPORT
To the Directors of
Shaw FiberLink Ltd.
We have audited the balance sheets of SHAW FIBERLINK LTD. -- FIBERLINK
DIVISION (the "Division") as at August 31, 1999 and 1998 and the statements of
income and net investment by Shaw FiberLink Ltd. and cash flows for each of the
years in the three year period ended August 31, 1999. These financial statements
are the responsibility of the Division's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Canada. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Division as at August 31, 1999 and 1998
and the results of its operations and its cash flows for each of the years in
the three year period ended August 31, 1999 in accordance with accounting
principles generally accepted in Canada.
As disclosed in note 1, the Division is a segment of Shaw FiberLink Ltd.
and has no separate legal status or existence.
Calgary, Canada /s/ ERNST & YOUNG LLP
December 23, 1999 Independent Public Accountants
(except as to Note 11
which is at February 16, 2000)
F-2
63
SHAW FIBERLINK LTD. -- FIBERLINK DIVISION
BALANCE SHEETS
SEE BASIS OF PRESENTATION -- NOTE 1
(thousands of Canadian dollars)
<Table>
<Caption>
AUGUST 31,
NOVEMBER 30, -----------------
1999 1999 1998
------------ ------- -------
(UNAUDITED)
ASSETS
CURRENT
Accounts receivable (net of allowance for doubtful accounts
of $86; August 31, 1999 -- $79; 1998 -- $84)............. $ 6,264 $ 7,336 $ 2,188
Prepaids and other......................................... 183 289 65
------- ------- -------
6,447 7,625 2,253
Property and equipment [note 3]............................ 78,422 70,472 46,793
------- ------- -------
$84,869 $78,097 $49,046
======= ======= =======
LIABILITIES AND NET INVESTMENT BY SHAW FIBERLINK LTD.
CURRENT
Accounts payable and accrued liabilities................... $ 1,905 $ 1,974 $ 7,613
Income taxes payable....................................... 92 116 148
Unearned revenues.......................................... 1,273 1,330 161
------- ------- -------
3,270 3,420 7,922
Commitments and contingency [notes 7 and 8]
Net investment by Shaw FiberLink Ltd....................... 81,599 74,677 41,124
------- ------- -------
$84,869 $78,097 $49,046
======= ======= =======
</Table>
On behalf of the Board:
<Table>
(Signed) PETER J. BISSONNETTE (Signed) MARGOT M. MICALLEF
Director Director
</Table>
See accompanying notes.
F-3
64
SHAW FIBERLINK LTD. -- FIBERLINK DIVISION
STATEMENTS OF INCOME AND NET INVESTMENT BY SHAW FIBERLINK LTD.
(thousands of Canadian dollars)
<Table>
<Caption>
THREE MONTHS ENDED
NOVEMBER 30, YEAR ENDED AUGUST 31,
------------------- ---------------------------
1999 1998 1999 1998 1997
-------- -------- ------- ------- -------
(UNAUDITED)
REVENUES................................. $13,197 $ 7,876 $38,815 $22,324 $11,631
Cost of sales (exclusive of items shown
separately below)...................... 6,503 3,529 17,800 10,174 3,965
------- ------- ------- ------- -------
6,694 4,347 21,015 12,150 7,666
------- ------- ------- ------- -------
Selling, general and administrative
expenses............................... 3,004 1,999 8,893 7,498 5,227
Depreciation............................. 2,109 1,347 6,565 3,832 1,954
Depreciation charge allocated by Shaw for
use of distribution network assets
[note 6(c)]............................ 1,648 1,259 5,649 4,394 3,073
------- ------- ------- ------- -------
6,761 4,605 21,107 15,724 10,254
------- ------- ------- ------- -------
LOSS BEFORE INCOME TAXES................. (67) (258) (92) (3,574) (2,588)
Income taxes [note 4].................... 25 23 92 50 25
------- ------- ------- ------- -------
Net loss................................. (92) (281) (184) (3,624) (2,613)
Net investment by Shaw FiberLink Ltd.,
beginning of the year.................. 74,677 41,124 41,124 23,208 14,137
Investment by Shaw FiberLink Ltd. during
the year............................... 7,014 11,117 33,737 21,540 11,684
------- ------- ------- ------- -------
NET INVESTMENT BY SHAW FIBERLINK LTD.,
END OF THE YEAR........................ $81,599 $51,960 $74,677 $41,124 $23,208
======= ======= ======= ======= =======
</Table>
See accompanying notes.
F-4
65
SHAW FIBERLINK LTD. -- FIBERLINK DIVISION
STATEMENTS OF CASH FLOWS
(thousands of Canadian dollars)
<Table>
<Caption>
THREE MONTHS ENDED
NOVEMBER 30, YEAR ENDED AUGUST 31,
------------------ ------------------------------
1999 1998 1999 1998 1997
-------- ------- -------- -------- --------
(UNAUDITED)
OPERATING ACTIVITIES [note 1]
Net loss............................. $ (92) $ (281) $ (184) $ (3,624) $ (2,613)
Non-cash items:
Depreciation......................... 2,109 1,347 6,565 3,832 1,954
-------- ------- -------- -------- --------
CASH FLOW FROM OPERATIONS............ 2,017 1,066 6,381 208 (659)
Net change in non-cash working
capital balances related to
operations [note 9]................ 1,028 (6,988) (9,874) 5,697 1,064
-------- ------- -------- -------- --------
3,045 (5,922) (3,493) 5,905 405
-------- ------- -------- -------- --------
INVESTING ACTIVITIES
Additions to property and
equipment.......................... (10,059) (5,195) (30,244) (27,445) (12,089)
-------- ------- -------- -------- --------
FINANCING ACTIVITIES
Investment by Shaw FiberLink Ltd.
during the year.................... 7,014 11,117 33,737 21,540 11,684
-------- ------- -------- -------- --------
CHANGE IN CASH DURING THE YEAR AND
CASH AT BEGINNING AND END OF YEAR.. -- -- -- -- --
======== ======= ======== ======== ========
</Table>
See accompanying notes.
F-5
66
SHAW FIBERLINK LTD. -- FIBERLINK DIVISION
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The Shaw FiberLink Ltd. -- FiberLink Division (the "Division" or
"FiberLink") operates high capacity fiber optic telecommunications networks in
various Canadian markets including: Greater Metropolitan Toronto, Calgary,
Edmonton, Winnipeg, Vancouver Island, Central British Columbia, Saskatoon,
Lethbridge and Red Deer. FiberLink also operates several strategically-located
inter-city networks and two international gateways into the United States.
FiberLink provides its customers with a wide range of telecommunications
services including dedicated voice services, switched data transmission and
Business Internet services.
While the Division owns certain of the assets required to carry on the
business, a number of assets, including distribution network assets (see note
6), administrative facilities and maintenance operations are owned by Shaw
Communications Inc.
These financial statements represent the business operations identified as
the FiberLink Division of Shaw FiberLink Ltd. Accordingly, there is no share
capital or retained earnings in the Division's accounts. The net investment by
Shaw FiberLink Ltd. represents the capital employed in the Division in the form
of investments and advances. Shaw FiberLink Ltd. is a wholly owned subsidiary of
Shaw Communications Inc. Investments and advancements by Shaw FiberLink Ltd. in
the Division are funded by Shaw Communications Inc. to Shaw FiberLink Ltd.
The Division has relied extensively upon Shaw FiberLink Ltd. and Shaw
Communications Inc. for ongoing financial support and accordingly, these
divisional financial statements are not necessarily indicative of the results of
operations, cash flows or financial position had the Division operated as an
independent entity as at or for the dates and periods presented. Should Shaw
FiberLink Ltd. or Shaw Communications Inc. cease to provide such financial
support, the Division would require alternative ongoing financing from other
sources. Shaw Communications Inc. has allocated corporate, overhead and
technical costs to the Division based on an estimate of the services provided,
and charges for the use of distribution network assets based on Shaw
Communications Inc.'s annual depreciation charge related to these assets (see
note 6). The management of Shaw Communications Inc. have estimated the
incremental costs of the Division as a stand-alone entity for corporate
expenses, other than taxes or interest, would be approximately $1,532,000
annually. Management believes this to be reasonable.
The information presented as at and for the interim periods ended November
30, 1999 and 1998 is unaudited. These unaudited financial statements reflect all
adjustments which are in the opinion of management necessary to a fair statement
of the results for the interim periods presented; all such adjustments are of a
normal recurring nature.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared by management in accordance
with Canadian generally accepted accounting principles consistently applied
within the framework of the accounting policies described below. The policy with
respect to accounting for income taxes described below differs from that used in
the preparation of the consolidated financial statements of Shaw Communications
Inc.
REVENUE RECOGNITION
FiberLink provides telecommunication services to its customers and earns
both recurring and installation revenues. Recurring revenues are recognized on a
monthly basis as the services are provided to customers. Unearned recurring
revenues are deferred and recognized as earned. Revenues earned on installation
contracts are recorded when the installation of an operational link is
F-6
67
SHAW FIBERLINK LTD. -- FIBERLINK DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
completed unless such revenues exceed the related direct cost of the
installation in which case the excess is recognized over the contract period.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is recorded on a
straight-line basis over the estimated useful lives of the assets as follows:
<Table>
<Caption>
ASSET ESTIMATED USEFUL LIFE
----- ---------------------
Towers and headends................................... 10 years
Distribution network.................................. 10 years
Subscriber equipment.................................. 15 years
Computer equipment and software....................... 4 years
Other equipment....................................... 4-10 years
</Table>
INCOME TAXES
The liability method of tax allocation is used in accounting for income
taxes. Under this method, future tax assets and liabilities are determined based
on differences between the financial reporting and tax bases of assets and
liabilities, and measured using the substantially enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Valuation
allowances are established when necessary to reduce future income tax assets to
the amount expected to be realized.
SEGMENTED INFORMATION
FiberLink's business of providing local high speed telecommunications and
Internet access services is one operating segment.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the year.
Actual results could differ from those estimates.
F-7
68
SHAW FIBERLINK LTD. -- FIBERLINK DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
<Table>
<Caption>
AUGUST 31,
NOVEMBER 30, -----------------------------------------------
1999 1999 1998
---------------------- ---------------------- ----------------------
ACCUMULATED ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION COST DEPRECIATION
------- ------------ ------- ------------ ------- ------------
(UNAUDITED) (THOUSANDS OF CANADIAN DOLLARS)
Towers and headends.... $60,901 $11,612 $55,060 $10,163 $35,206 $5,649
Distribution network... 2,945 467 2,945 394 2,463 123
Subscriber equipment... 25,657 2,327 21,546 1,934 12,734 790
Computer equipment and
software............. 1,440 465 1,395 377 777 106
Other equipment........ 3,156 806 3,094 700 2,615 334
------- ------- ------- ------- ------- ------
$94,099 $15,677 $84,040 $13,568 $53,795 $7,002
------- ------- ------- ------- ------- ------
NET BOOK VALUE......... $78,422 $70,472 $46,793
--------- --------- ---------
--------- --------- ---------
</Table>
Labour and other costs attributable to construction and installation are
capitalized as part of towers and headends. For the three months ended November
30, 1999 the amount capitalized was $1,818,000 (unaudited) (August 31, 1999 --
$5,641,000; 1998 -- $4,200,000).
4. INCOME TAXES
Future income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Division's future tax liabilities and assets are as follows:
<Table>
<Caption>
AUGUST 31,
NOVEMBER 30, -----------------
1999 1999 1998
------------ ------- -------
(THOUSANDS OF
(UNAUDITED) CANADIAN DOLLARS)
FUTURE TAX LIABILITIES:
Property and equipment.................................... (7,844) $(6,590) $(1,026)
------- ------- -------
FUTURE TAX ASSETS:
Non-capital losses carried forward........................ 13,257 12,236 6,639
Valuation allowance....................................... (5,413) (5,646) (5,613)
------- ------- -------
7,844 6,590 1,026
------- ------- -------
NET FUTURE TAXES.......................................... -- -- --
======= ======= =======
</Table>
F-8
69
SHAW FIBERLINK LTD. -- FIBERLINK DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Division has incurred losses for income tax purposes that are available
to be applied against future years' taxable income expiring as follows:
<Table>
<Caption>
(THOUSANDS OF
CANADIAN DOLLARS)
-----------------
2002.................................................... $ 1,143
2003.................................................... 2,459
2004.................................................... 6,019
2005.................................................... 8,652
2006.................................................... 8,918
Period ending November 30, 2007 (unaudited)............. 2,268
-------
$29,459
=======
</Table>
Differences between income taxes calculated at Canadian statutory rates and
the income tax provision made in the Divisional accounts are as follows:
<Table>
<Caption>
THREE MONTHS
ENDED
NOVEMBER 30, YEAR ENDED AUGUST 31,
------------- -------------------------------
1999 1998 1999 1998 1997
----- ----- ------- --------- ---------
(UNAUDITED) (THOUSANDS OF CANADIAN DOLLARS)
Income taxes (recovery) at Canadian statutory
rates...................................... $ (30) $(116) $ (41) $(1,608) $(1,165)
Differences from statutory rates relating to:
Large corporations tax....................... 25 23 92 50 25
Benefit of tax losses not recognized......... 30 116 33 1,612 1,118
Other, including items not deductible for tax
purposes................................... -- -- 8 (4) 47
----- ----- ----- ------- -------
INCOME TAX PROVISION......................... $ 25 $ 23 $ 92 $ 50 $ 25
===== ===== ===== ======= =======
</Table>
The components of the income tax provision are as follows:
<Table>
<Caption>
THREE MONTHS
ENDED
NOVEMBER 30, YEAR ENDED AUGUST 31,
------------ -----------------------
1999 1998 1999 1998 1997
---- ---- ----- ----- -----
(THOUSANDS OF
(UNAUDITED) CANADIAN DOLLARS)
Current................................................ $25 $23 $92 $50 $25
Future................................................. -- -- -- -- --
--- --- --- --- ---
$25 $23 $92 $50 $25
=== === === === ===
</Table>
5. FINANCIAL INSTRUMENTS
Financial instruments recognized in the balance sheets have fair values
approximating their carrying values.
F-9
70
SHAW FIBERLINK LTD. -- FIBERLINK DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CREDIT RISK
At November 30, 1999 (unaudited), approximately 34% of the accounts
receivable represents amounts due from five customers (August 31, 1999 -- 55%
from six customers; 1998 -- 45% from six customers).
Revenues from customers (excluding related parties described in note 6)
which exceed ten percent of total revenues for the year are as follows:
<Table>
<Caption>
THREE MONTHS
ENDED YEAR ENDED AUGUST 31,
NOVEMBER 30, ---------------------
1999 1999 1998 1997
------------ ----- ----- -----
(THOUSANDS OF
(UNAUDITED) CANADIAN DOLLARS)
Customer A................................................ 7% 11% 17% 26%
Customer B................................................ 5% 8% 11% 7%
</Table>
6. RELATED PARTY TRANSACTIONS
(a) The Division provides high speed Internet services to Shaw
Communications Inc. In 1998 and 1997, the divisions of Shaw Communications Inc.
negotiated rates and margins on these services which are reflected in the
accounts. Subsequent to 1998, the FiberLink Division only passed along to Shaw
Communications Inc. the external costs incurred by the Division to provide these
services to Shaw Communications Inc. Intercompany revenues, expenses and margins
reflected in these financial statements for the provision of Internet services
to Shaw Communications Inc. are as follows:
<Table>
<Caption>
THREE MONTHS
ENDED
NOVEMBER 30, YEAR ENDED AUGUST 31,
--------------- ----------------------
1999 1998 1999 1998 1997
------ ------ ------ ------ ----
(THOUSANDS OF
(UNAUDITED) CANADIAN DOLLARS)
Revenues........................................ $2,691 $1,242 $6,627 $3,090 $985
Cost of sales................................... 2,691 1,242 6,627 2,115 153
------ ------ ------ ------ ----
Margin.......................................... $ -- $ -- $ -- $ 975 $832
====== ====== ====== ====== ====
</Table>
(b) These Divisional financial statements reflect corporate allocations
from Shaw Communications Inc. for administrative and technical services provided
to the Division of $534,000 and $400,000 respectively for the three months ended
November 30, 1999 and $85,000 and $225,000 for 1998 (unaudited) (August 31, 1999
-- $340,000 and $900,000 respectively; 1998 -- $180,000 and $900,000
respectively; 1997 -- $90,000 and $24,000 respectively). Allocation of
administrative and technical charges are based on the estimated level of
services provided to the Division in proportion to Shaw Communications Inc.'s
total costs, a method of allocation management believes to be reasonable. Of the
corporate allocations from Shaw Communications Inc., $574,000 have been
reflected in selling, general and administrative expenses and $360,000 has been
capitalized to towers and headends in the three months ended November 30, 1999
and $107,000 and $203,000 respectively for 1998 (unaudited) (see note 3) (August
31, 1999 -- $430,000 and $810,000 respectively; 1998 -- $270,000 and $810,000
respectively; 1997 -- $92,000 and $22,000 respectively).
(c) The Division utilizes certain distribution network assets owned by Shaw
Communications Inc. (see note 1) in the provision of services to its customers.
These Divisional financial statements reflect
F-10
71
SHAW FIBERLINK LTD. -- FIBERLINK DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
corporate allocations for the utilization of the distribution network assets of
$1,648,000 for the three months ended November 30, 1999 and $1,259,000 for 1998
(unaudited) (August 31, 1999 -- $5,649,000; 1998 -- $4,394,000; 1997 --
$3,073,000). The allocation of these corporate charges is based upon FiberLink's
estimated proportion of Shaw Communications Inc.'s annual depreciation charge
related to these distribution network assets. Management believes this method of
allocation to be reasonable.
7. COMMITMENTS
The Division has various long-term operating lease agreements for the use
of transmission facilities and premises in each of the next five years as
follows:
<Table>
<Caption>
(THOUSANDS OF
CANADIAN DOLLARS)
-----------------
2000.................................................... $ 9,501
2001.................................................... 7,690
2002.................................................... 6,590
2003.................................................... 6,342
2004.................................................... 691
Thereafter.............................................. 721
-------
$31,535
=======
</Table>
8. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
9. STATEMENTS OF CASH FLOWS
Additional disclosures with respect to the Statements of Cash Flows are as
follows:
(i) Changes in non-cash working capital balances related to operations
include the following:
<Table>
<Caption>
THREE MONTHS
ENDED
NOVEMBER 30, YEAR ENDED AUGUST 31,
---------------- -------------------------------
1999 1998 1999 1998 1997
------ ------- --------- -------- --------
(UNAUDITED) (THOUSANDS OF CANADIAN DOLLARS)
Accounts receivable......................... $1,072 $ (744) $(5,148) $ (90) $ (22)
Prepaids and other.......................... 106 (253) (224) (45) 68
Accounts payable and accrued liabilities.... (69) (6,040) (5,639) 5,733 110
Income taxes payable........................ (24) (21) (32) (37) 898
Unearned revenues........................... (57) 70 1,169 136 10
------ ------- ------- ------ ------
$1,028 $(6,988) $(9,874) $5,697 $1,064
====== ======= ======= ====== ======
</Table>
F-11
72
SHAW FIBERLINK LTD. -- FIBERLINK DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ii) Interest and income taxes paid
Shaw Communications Inc. does not allocate interest on debt to Shaw
FiberLink Ltd. and the Division does not have any separate legal existence for
purposes of remitting income taxes. Accordingly, amounts included in these
Divisional statements for taxes represent allocations only and are included in
changes in advances to and from Shaw FiberLink Ltd.
10. UNITED STATES ACCOUNTING PRINCIPLES
The financial statements of the Division are prepared in Canadian dollars
in accordance with accounting principles generally accepted in Canada ("Canadian
GAAP"). No additional adjustments have been identified in order to present these
financial statements in accordance with accounting policies generally accepted
in the United States ("U.S. GAAP"). The following disclosure would be required
in order to present these financial statements in accordance U.S. GAAP.
Recent developments
The Financial Accounting Standards Board in the United States issued a
pronouncement entitled "Accounting for Derivative Instruments and Hedging
Activities" which the Division is required to adopt in the year ending August
31, 2001. The impact of this pronouncement on these financial statements has not
been determined.
11. SUBSEQUENT EVENT
On December 22, 1999, Shaw Communications Inc. and Shaw FiberLink Ltd.
entered into an asset purchase and subscription agreement ("Purchase Agreement")
with GT Group Telecom Inc. ("GT"). This transaction closed on February 16, 2000.
Under the Purchase Agreement, Shaw FiberLink Ltd. sold to GT all of the property
and assets of FiberLink used in connection with the high speed data and
competitive access business and granted to GT an indefeasible right to use the
distribution network assets owned by Shaw Communications Inc. (see notes 1 and
6). The assets sold include equipment, computer hardware, fixed assets,
replacement parts, operational contracts, equipment contracts, supply contracts,
interconnect agreements, co-location agreements, customer contracts, software
licenses, broadband wireless licenses, vehicles, intellectual property, permits,
prepaid expenses, goodwill related to the FiberLink assets and certain other
fiber assets. Under the Indefeasible Right to Use agreement, GT was granted an
indefeasible right to use certain specifically identified existing fibers in the
fiber optic cable networks of Shaw Communications Inc. for 60 years. In
addition, Shaw FiberLink Ltd. granted GT an indefeasible right to use fibers to
be built over the next three years in mutually agreed regions.
Consideration for this transaction amounts to $760 million, consisting of
$360 million in cash, and sufficient series B first preference shares of GT to
provide Shaw FiberLink Ltd. with a 28.5% fully diluted interest in GT, subject
to adjustments for certain GT transactions relating to financing and employee
options and warrants.
F-12
73
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated statement of
operations is based on the historical financial statements of GT Group Telecom
Inc. ("Group Telecom") and the historical financial statements of Shaw FiberLink
Ltd. -- FiberLink Division ("Shaw FiberLink") prepared to give effect to Group
Telecom's acquisition of the business of Shaw FiberLink and the grant, by Shaw
FiberLink, of an indefeasible right to use certain identified fibers in the
fiber optic cable networks of Shaw Communications Inc. ("Shaw Communications")
to Group Telecom. The pro forma financial statements give effect to financing
required to complete the acquisition, consisting of senior bank debt of $220
million and additional financing of $140 million in debt and share purchase
warrants.
The unaudited pro forma condensed consolidated statements of operations for
the year ended September 30, 2000 gives effect to such transactions as if they
occurred at the beginning of the year then ended. The pro forma adjustments are
described in the accompanying notes and are based upon available information and
certain assumptions that management believes are reasonable.
The pro forma statements do not purport to represent what the Company's
results of operations would actually have been had these transactions in fact
occurred on such dates or to project the Company's results of operations for any
future date or period. The pro forma financial statements should be read in
conjunction with the consolidated financial statements and related notes and
Item 5 of our annual report on Form 20-F presented elsewhere in, or incorporated
by reference into, this prospectus.
F-13
74
GT GROUP TELECOM INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED) FOR THE YEAR ENDED SEPTEMBER 30, 2000
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
SHAW
GT GROUP FIBERLINK
TELECOM INC. FOUR MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31, PRO FORMA
2000 1999 ADJUSTMENTS NOTES PRO FORMA
------------- ------------ ----------- ------ ---------
REVENUE.......................... $ 73,251 $18,045 -- $ 91,296
COST OF SERVICES................. 51,336 8,872 -- 60,208
--------- ------- -------- ---------
21,915 9,173 -- 31,088
--------- ------- -------- ---------
Selling, general and
administrative expenses........ 100,959 3,933 500 2(iii) 105,392
Amortization..................... 43,055 2,831 3,788 2(i) 55,492
3,620 2(ii)
2,198 2(i)
Charge allocated by Shaw
Communications for use of
distribution network assets.... -- 2,198 (2,198) 2(i) --
Interest and finance items,
net............................ 54,354 -- 7,700 2(iv) 69,576
6,953 2(v)
569 2(vi)
--------- ------- -------- ---------
198,368 8,962 23,130 230,460
--------- ------- -------- ---------
INCOME (LOSS) BEFORE INCOME
TAXES.......................... (176,453) 211 (23,130) (199,372)
PROVISION FOR (RECOVERY OF)
INCOME TAXES................... (38,467) 25 -- (38,442)
--------- ------- -------- ---------
NET INCOME (LOSS) FOR THE YEAR... $(137,986) $ 186 $(23,130) $(160,930)
========= ======= ======== =========
PRO FORMA LOSS PER SHARE......... (1.82)
=========
PRO FORMA WEIGHTED AVERAGE NUMBER
OF COMMON SHARES (IN
THOUSANDS)..................... 88,639
=========
</Table>
See accompanying notes to pro forma condensed consolidated financial
information.
F-14
75
GT GROUP TELECOM INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED) SEPTEMBER 30, 2000
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
The pro forma condensed consolidated statement of operations has been
prepared to give effect to the acquisition of the assets of Shaw FiberLink Ltd.
-- FiberLink Division ("Shaw FiberLink") by GT Group Telecom Inc. ("Group
Telecom") and the grant by Shaw FiberLink of an Indefeasible Right to Use
("IRU") certain specifically identified fibers in the fiber optic cable networks
of Shaw Communications Inc. ("Shaw Communications") to Group Telecom as of
October 1, 1999. The pro forma financial statements give effect to financing
consisting of senior bank debt of $220 million and an additional amount of $140
million representing a portion of the proceeds from the company's issuance of
Units consisting of Senior Discount Notes and Warrants to purchase Class B
Non-Voting Shares. Such proceeds have only been included in these pro-forma
financial statements to the extent of $140 million required to complete the
funding of the acquisition of the business of Shaw FiberLink.
On February 16, 2000, Group Telecom purchased from Shaw Communications Inc.
("Shaw Communications") and Shaw FiberLink Ltd. ("Shaw FiberLink") all of the
property and assets of Shaw FiberLink used in connection with the high-speed
data and competitive access business. Group Telecom and Shaw FiberLink also
entered into an indefeasible right to use agreement which grants the company an
indefeasible right to use certain specifically identified existing fibers in the
fiber optic cable networks of Shaw Communications for 60 years. Certain of the
existing fibers located in New Brunswick Canada under the indefeasible right to
use the agreement will be available for use in 2003. In addition, Group Telecom
will receive an indefeasible right to use fibers to be built over the next three
years in mutually agreed regions (refer to note 3 in the audited consolidated
financial statements of Group Telecom).
The pro forma condensed consolidated statement of operations for the year
ended September 30, 2000 is based on the audited consolidated statement of
operations of Group Telecom for the year ended September 30, 2000 and the
unaudited statement of operations of Shaw FiberLink for the four months ended
December 31, 1999, as Group Telecom and Shaw FiberLink had non-coterminous
year-ends.
A pro forma condensed consolidated balance sheet has not been prepared as
the acquisition of Shaw FiberLink is reflected in the audited consolidated
balance sheet of Group Telecom as at September 30, 2000.
The pro forma condensed consolidated statements do not purport to represent
what Group Telecom's results of operations would actually have been, had these
transactions in fact occurred on such dates or to project Group Telecom's
results of operations for any future date or period. The pro forma condensed
consolidated statement of operations should be read in conjunction with the
consolidated financial statements and related notes of Group Telecom and Shaw
FiberLink, including the descriptions of significant accounting policies, and
Item 5 of our annual report or Form 20-F presented elsewhere in, or incorporated
by reference into, this prospectus.
2. PRO FORMA ASSUMPTIONS
The pro forma condensed consolidated statement of operations gives effect
to the above acquisition as if it had occurred effective October 1, 1999.
(i) The additional amortization expense relates to the increase of $429
million in property, plant and equipment and is based on the estimated useful
life of the equipment and the fiber optic networks acquired which are amortized
on a straight line basis over 10 and 20 years respectively.
F-15
76
GT GROUP TELECOM INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
(UNAUDITED) SEPTEMBER 30, 2000
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(ii) The additional amortization expense relates to the allocation of the
purchase price of $120 million to goodwill and $29 million to other intangible
assets. The amortization is based on the estimated useful life of 20 years for
goodwill, 10 years for license rights and 3 years for the amount recorded as a
non-compete agreement.
(iii) The increase in selling, general and administration expense is an
annual fiber maintenance fee as set out in the IRU agreement.
(iv) The increase in interest expense is based on the senior bank financing
of $220 million obtained to finance part of the acquisition of Shaw FiberLink.
The interest expense was calculated using an interest rate of 10.50%.
(v) The increase in interest expense is based on additional financing of
$140 million in debt and share purchase warrants. The interest expense was
calculated using an interest rate of 13.25% plus debt discount amortization.
(vi) The deferred financing costs of $14.5 million relating to the debt
issuances described in (iv) and (v) are amortized over the term of the related
debts, assumed to be 7 and 10 years.
3. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GAAP
The pro forma condensed consolidated financial information has been
prepared in accordance with Canadian GAAP which differ in some respects from the
principles and practices that Group Telecom would have followed had the pro
forma financial information been prepared in accordance with U.S. GAAP. Refer to
note 19 of Group Telecom consolidated financial statements for a reconciliation
of differences impacting the Company.
<Table>
Pro forma loss under Canadian GAAP.......................... $(160,930)
Group Telecom adjustments:
Amortization of purchase price adjustment................. (617)
Deferred charges.......................................... (15)
Stock-based compensation.................................. (11,430)
Deferred foreign exchange................................. (1,655)
Recovery of future income taxes........................... 11,055
---------
Pro forma loss under U.S. GAAP.............................. $(163,592)
=========
Pro forma loss per share.................................... (1.85)
=========
Pro forma weighted average number of common shares (in
thousands)................................................ 88,639
=========
</Table>
F-16
77
---------------------------------------------------------
---------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the securities offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
------------------
TABLE OF CONTENTS
<Table>
<Caption>
Page
----
About This Prospectus....................... i
Where You Can Obtain More Information
About Us.................................. i
Forward-Looking Statements.................. ii
Presentation of Our Financial and Other
Information............................... ii
Summary of the Notes........................ 1
Risk Factors................................ 3
Use of Proceeds............................. 12
Ratio of Earnings to Fixed Charges.......... 12
Dividend Policy............................. 12
Capitalization.............................. 13
Business.................................... 14
Description of the Warrants................. 14
Description of the Notes.................... 18
Description of Our Class B Non-Voting
Shares.................................... 53
Plan of Distribution........................ 53
Legal Matters............................... 54
Experts..................................... 54
Registrars and Transfer Agents.............. 54
Enforceability of Civil Liabilities......... 55
Index to Financial Statements............... F-1
</Table>
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
GT Group Telecom Logo
Class B Non-Voting Shares
Warrants to Purchase
Class B Non-Voting Shares
13 1/4% Senior Discount Notes Due 2010
GOLDMAN, SACHS & CO.
---------------------------------------------------------
---------------------------------------------------------
78
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 8. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Canada Business Corporations Act (the "CBCA"), a corporation may
indemnify a present or former director or officer to such corporation or a
person who acts or acted at the corporation's request as a director or officer
of another corporation of which the corporation is or was a shareholder or
creditor, and his heirs and legal representatives, against all costs, charges
and expenses, including an amount paid to settle an action or satisfy a
judgment, reasonably incurred by him in respect of any civil, criminal or
administrative action or proceeding to which he is made a party by reason of his
being or having been a director or officer of such corporation and provided that
the director or officer acted honestly and in good faith with a view to the best
interests of the corporation, and, in the case of a criminal or administrative
action or proceeding that is enforced by a monetary penalty, had reasonable
grounds for believing that his conduct was lawful. Such indemnification may be
made in connection with a derivative action only with court approval. A director
or officer is entitled to indemnification from the corporation as a matter of
right in respect of all costs, charges and expenses reasonably incurred by him
in connection with the defense of a civil, criminal or administrative action or
proceeding to which he is made a party by reason of being or having been a
director or officer of the corporation if he was substantially successful on the
merits and fulfilled the conditions set forth above.
In accordance with the CBCA, the by-laws of the Registrant, a copy of which
is filed as Exhibit 3.2 to this Registration Statement, indemnify a director or
officer of the Registrant, a former director or officer of the Registrant or any
person who acts or acted at the Registrant's request as a director or officer of
a body corporate of which the Registrant is or was a shareholder or creditor and
his heirs and legal representatives against all costs, charges and expenses
including an amount paid to settle an action or satisfy a judgment reasonably
incurred by him in respect of any civil, criminal or administrative action or
proceeding to which he has been made a party by reason of being or having been a
director or officer of the Registrant or such body corporate if (i) he acted
honestly and in good faith with a view to the best interests of the Registrant,
and (ii) in the case of a criminal or administrative action or proceeding that
is enforced by a monetary penalty, he had reasonable grounds for believing that
his conduct was lawful.
The Registrant will also indemnify such directors or officers who have been
substantially successful in the defence of any civil, criminal or administrative
action or proceeding to which he is made a party by reason of being or having
been a director of the Registrant or body corporate against all costs, charges
and expenses reasonably incurred by him in respect of such action or proceeding.
A policy of directors' and officers' liability insurance is maintained by
the Registrant which insures directors and officers for losses as a result of
claims based upon the acts or omissions as directors and officers of the
Registrant, including liabilities arising under the Securities Act of 1933, and
also reimburses the Registrant for payments made pursuant to the indemnity
provisions under the Act.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers or persons controlling the Registrant pursuant to the foregoing
provisions, the Registrant has been informed that, in the opinion of the U.S.
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
II-1
79
ITEM 9. EXHIBITS
<Table>
*2.1 Asset Purchase and Subscription Agreement dated December 22,
1999 among Shaw Communications Inc., Shaw FiberLink Ltd., GT
Group Telecom Inc. and GT Group Telecom Services Corp.
*2.2 Indefeasible Right of Use Agreement dated February 16, 2000
between Shaw FiberLink Ltd. and GT Group Telecom Inc.
*2.3 Non-competition Agreement in favour of Group Telecom dated
February 16, 2000 among Shaw Communications Inc., Shaw
FiberLink Ltd. and GT Group Telecom Inc.
*2.4 Non-competition Agreement in favour of Shaw dated February
16, 2000 among Shaw Communications Inc., Shaw FiberLink Ltd.
and GT Group Telecom Inc.
*2.5 Transitional Services Agreement dated February 16, 2000
among Shaw Communications Inc., Shaw FiberLink Ltd., GT
Group Telecom Inc. and GT Group Telecom Services Corp.
*2.6 Performance Assurance Agreement dated February 16, 2000
among Shaw Communications Inc., GT Group Telecom Inc. and GT
Group Telecom Services Corp.
+**2.7 Fiber Sale Agreement dated May 24, 2000 among Worldwide
Fiber (F.O.T.S.) Ltd., Worldwide Fiber (F.O.T.S.) No. 3,
Ltd., WFI-CN Fibre Inc. and GT Group Telecom Services Corp.
+**2.8 Capacity Lease Agreement dated May 24, 2000 by and between
Worldwide Fiber Network Services Ltd. and Worldwide Fiber
Network Services, Inc. and GT Group Telecom Services Corp.
and GT Group Telecom Services (USA) Corp.
+**2.9 IRU Agreement dated May 24, 2000 by and between Worldwide
Fiber Network Services, Inc. and GT Group Telecom Services
(USA) Corp.
*3.1 Articles of Incorporation of GT Group Telecom Inc.
*3.2 By-laws of GT Group Telecom Inc.
*4.1 Warrant Agreement dated February 1, 2000 between GT Group
Telecom Inc. and The Chase Manhattan Bank
*4.2 Registration Rights Agreement dated February 1, 2000 among
GT Group Telecom Inc. and Goldman, Sachs & Co., CIBC World
Markets Corp., Credit Suisse First Boston Corporation, RBC
Dominion Securities Corporation, Scotia Capital (USA) Inc.
and TD Securities (USA) Inc.
*4.3 Indenture dated February 1, 2000 between GT Group Telecom
Inc. and The Chase Manhattan Bank
**4.4 First Supplemental Indenture dated July 11, 2000 between GT
Group Telecom Inc. and The Chase Manhattan Bank
*4.5 Exchange and Registration Rights Agreement dated February 1,
2000 among GT Group Telecom Inc. and Goldman, Sachs & Co.,
CIBC World Markets Corp., Credit Suisse First Boston
Corporation, RBC Dominion Securities Corporation, Scotia
Capital (USA) Inc. and TD Securities (USA) Inc.
*4.6 Registration Rights Agreement, as amended and restated,
dated as of February 16, 2000, among GT Group Telecom Inc.,
GT Group Telecom Services Corp., GS Capital Partners III,
L.P., GTT Dutch Investment B.V. and GTT Dutch Group
Investment B.V., Canadian Imperial Bank of Commerce,
National Bank Financial Capital Corp., MGN Opportunity Group
LLC and Shaw FiberLink Ltd.
*4.7 Shareholders Agreement, as amended and restated, dated
February 16, 2000 among GT Group Telecom Inc., GT Group
Telecom Services Corp., GS Capital Partners III, L.P., GTT
Dutch Investment B.V. and GTT Dutch Group Investment B.V.,
Canadian Imperial Bank of Commerce, National Bank Financial
Capital Corp., MGN Opportunity Group LLC, Shaw FiberLink
Ltd. and the parties listed in schedule I thereto.
5.1 Opinion of Torys, Canadian counsel to GT Group Telecom Inc.,
as to the legality of the securities being registered
***5.2 Opinion of Shearman & Sterling as to the legality of the
warrants being registered
</Table>
II-2
80
<Table>
**5.3 Opinion of Shearman & Sterling as to the legality of the
13 1/4% Senior Discount Notes Due 2010 being registered
*10.1 Preference Share Purchase Agreement dated May 7, 1999 among
GT Group Telecom Inc., GS Capital Partners III L.P., DSE Fin
B.V., W9 Blanche Eight 10 B.V., CIBC Capital (SFC) Inc.,
First Marathon Capital Corporation and MGN Group LLC
***10.2 Credit Agreement, as amended and restated, dated February 3,
2000, as amended and restated as of September 29, 2000, with
Lucent Technologies Canada Inc.
***10.3 Senior Credit Facility dated February 3, 2000, as amended
and restated as of September 29, 2000, among GT Group
Telecom Inc., CIBC World Markets Inc., Goldman Sachs Credit
Partners, Royal Bank of Canada and Toronto Dominion Bank
***10.4 Credit Agreement, dated as of September 29, 2000, with Cisco
Systems Capital Corporation
****12.1 Computation of Ratio of Earnings to Fixed Charges
**21.1 Subsidiaries of GT Group Telecom Inc.
****23.1 Consent of PricewaterhouseCoopers LLP, Chartered Accountants
****23.2 Consent of Ernst & Young LLP, Chartered Accountants
23.3 Consent of Torys (included in Exhibit 5.1)
23.4 Consent of Shearman & Sterling
****24.1 Powers of Attorney (contained on the signature pages of the
Registration Statement)
**25.1 Statement of Eligibility of the Trustee on Form T-1
</Table>
---------------
* Incorporated by reference to the Registrant's Registration Statement on
Form F-1 (File No. 333-11506)
** Incorporated by reference to the Registrant's Registration Statement on
Form F-4 (File No. 333-38058).
*** Incorporated by reference to the Registrant's Registration Statement on
Form F-1 (File No. 333-45378)
**** Previously filed.
+ Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.
ITEM 10. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
II-3
81
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (i) and (ii) above shall not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) As long as the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any financial
statements required by Item 8.A. of Form 20-F at the start of any delayed
offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided that the registrant includes in the prospectus, by means of
a post-effective amendment, financial statements required pursuant to this
paragraph (4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Not withstanding the foregoing, if this registration
statement is on Form F-3, a post-effective amendment need not be filed to
include financial statements and information required by Section 10(a)(3) of the
Act or Item 8.A of Form 20-F if such financial statements and information are
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to section 13 or section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the Form F-3.
(5) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
82
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form F-3 and has duly caused this Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Province of Ontario, Canada, on
this 26th day of September, 2001.
GT GROUP TELECOM INC.
(Registrant)
By: /s/ STEPHEN H. SHOEMAKER
------------------------------------
Name: Stephen H. Shoemaker
Title: Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed by or on
behalf of the following persons in the capacities and on the dates indicated:
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* Chairman and Director September 26, 2001
---------------------------------------------
James G. Matkin
* Director and Chair of Executive September 26, 2001
--------------------------------------------- Committee
James M. Mansour
* Chief Executive Officer and September 26, 2001
--------------------------------------------- Director (principal executive
Daniel R. Milliard officer)
* President, Chief Operating September 26, 2001
--------------------------------------------- Officer and Director
Robert G. Wolfe
* Executive Vice President and September 26, 2001
--------------------------------------------- Chief Financial Officer
Stephen H. Shoemaker (principal financial officer and
principal accounting officer)
Director
---------------------------------------------
Ronald D. Rogers
* Director September 26, 2001
---------------------------------------------
Michael D'Avella
* Director September 26, 2001
---------------------------------------------
George Estey
</Table>
83
<Table>
<Caption>
* Director September 26, 2001
---------------------------------------------
Leo J. Hindery
* Director September 26, 2001
---------------------------------------------
P. Kenneth Kilgour
* Director September 26, 2001
---------------------------------------------
Robert R. Gheewalla
* Director September 26, 2001
---------------------------------------------
Jim Shaw
</Table>
*By: /s/ STEPHEN H. SHOEMAKER
---------------------------------
Stephen H. Shoemaker
Attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned certifies that it is the duly authorized United States
representative of GT Group Telecom Inc. and has duly caused this Amendment No. 1
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Province of Ontario, Canada, on this 26th day
of September, 2001.
GT GROUP TELECOM SERVICES (USA) CORP.
(Authorized U.S. Representative)
/s/ ROBERT G. WOLFE
By:
--------------------------------------
Name: Robert G. Wolfe
Title: President, Chief Operating
Officer and Director
84
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
*2.1 Asset Purchase and Subscription Agreement dated December 22,
1999 among Shaw Communications Inc., Shaw FiberLink Ltd., GT
Group Telecom Inc. and GT Group Telecom Services Corp.
*2.2 Indefeasible Right of Use Agreement dated February 16, 2000
between Shaw FiberLink Ltd. and GT Group Telecom Inc.
*2.3 Non-competition Agreement in favour of Group Telecom dated
February 16, 2000 among Shaw Communications Inc., Shaw
FiberLink Ltd. and GT Group Telecom Inc.
*2.4 Non-competition Agreement in favour of Shaw dated February
16, 2000 among Shaw Communications Inc., Shaw FiberLink Ltd.
and GT Group Telecom Inc.
*2.5 Transitional Services Agreement dated February 16, 2000
among Shaw Communications Inc., Shaw FiberLink Ltd., GT
Group Telecom Inc. and GT Group Telecom Services Corp.
*2.6 Performance Assurance Agreement dated February 16, 2000
among Shaw Communications Inc., GT Group Telecom Inc. and GT
Group Telecom Services Corp.
+**2.7 Fiber Sale Agreement dated May 24, 2000 among Worldwide
Fiber (F.O.T.S.) Ltd., Worldwide Fiber (F.O.T.S.) No. 3,
Ltd., WFI-CN Fibre Inc. and GT Group Telecom Services Corp.
+**2.8 Capacity Lease Agreement dated May 24, 2000 by and between
Worldwide Fiber Network Services Ltd. and Worldwide Fiber
Network Services, Inc. and GT Group Telecom Services Corp.
and GT Group Telecom Services (USA) Corp.
+**2.9 IRU Agreement dated May 24, 2000 by and between Worldwide
Fiber Network Services, Inc. and GT Group Telecom Services
(USA) Corp.
*3.1 Articles of Incorporation of GT Group Telecom Inc.
*3.2 By-laws of GT Group Telecom Inc.
*4.1 Warrant Agreement dated February 1, 2000 between GT Group
Telecom Inc. and The Chase Manhattan Bank
*4.2 Registration Rights Agreement dated February 1, 2000 among
GT Group Telecom Inc. and Goldman, Sachs & Co., CIBC World
Markets Corp., Credit Suisse First Boston Corporation, RBC
Dominion Securities Corporation, Scotia Capital (USA) Inc.
and TD Securities (USA) Inc.
*4.3 Indenture dated February 1, 2000 between GT Group Telecom
Inc. and The Chase Manhattan Bank
**4.4 First Supplemental Indenture dated July 11, 2000 between GT
Group Telecom Inc. and The Chase Manhattan Bank
*4.5 Exchange and Registration Rights Agreement dated February 1,
2000 among GT Group Telecom Inc. and Goldman, Sachs & Co.,
CIBC World Markets Corp., Credit Suisse First Boston
Corporation, RBC Dominion Securities Corporation, Scotia
Capital (USA) Inc. and TD Securities (USA) Inc.
*4.6 Registration Rights Agreement, as amended and restated,
dated as of February 16, 2000, among GT Group Telecom Inc.,
GT Group Telecom Services Corp., GS Capital Partners III,
L.P., GTT Dutch Investment B.V. and GTT Dutch Group
Investment B.V., Canadian Imperial Bank of Commerce,
National Bank Financial Capital Corp., MGN Opportunity Group
LLC and Shaw FiberLink Ltd.
</Table>
85
<Table>
<Caption>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
*4.7 Shareholders Agreement, as amended and restated, dated
February 16, 2000 among GT Group Telecom Inc., GT Group
Telecom Services Corp., GS Capital Partners III, L.P., GTT
Dutch Investment B.V. and GTT Dutch Group Investment B.V.,
Canadian Imperial Bank of Commerce, National Bank Financial
Capital Corp., MGN Opportunity Group LLC, Shaw FiberLink
Ltd. and the parties listed in schedule I thereto.
5.1 Opinion of Torys, Canadian counsel to GT Group Telecom Inc.,
as to the legality of the securities being registered
***5.2 Opinion of Shearman & Sterling as to the legality of the
warrants being registered
**5.3 Opinion of Shearman & Sterling as to the legality of the
13 1/4% Senior Discount Notes Due 2010 being registered
*10.1 Preference Share Purchase Agreement dated May 7, 1999 among
GT Group Telecom Inc., GS Capital Partners III L.P., DSE Fin
B.V., W9 Blanche Eight 10 B.V., CIBC Capital (SFC) Inc.,
First Marathon Capital Corporation and MGN Group LLC
***10.2 Credit Agreement, as amended and restated, dated February 3,
2000, as amended and restated as of September 29, 2000, with
Lucent Technologies Canada Inc.
***10.3 Senior Credit Facility dated February 3, 2000, as amended
and restated as of September 29, 2000, among GT Group
Telecom Inc., CIBC World Markets Inc., Goldman Sachs Credit
Partners, Royal Bank of Canada and Toronto Dominion Bank
***10.4 Credit Agreement, dated as of September 29, 2000, with Cisco
Systems Capital Corporation
****12.1 Computation of Ratio of Earnings to Fixed Charges
**21.1 Subsidiaries of GT Group Telecom Inc.
****23.1 Consent of PricewaterhouseCoopers LLP, Chartered Accountants
****23.2 Consent of Ernst & Young LLP, Chartered Accountants
23.3 Consent of Torys (included in Exhibit 5.1)
23.4 Consent of Shearman & Sterling
****24.1 Powers of Attorney (contained on the signature pages of the
Registration Statement)
**25.1 Statement of Eligibility of the Trustee on Form T-1
</Table>
---------------
* Incorporated by reference to the Registrant's Registration Statement on
Form F-1 (File No. 333-11506)
** Incorporated by reference to the Registrant's Registration Statement on
Form F-4 (File No. 333-38058).
*** Incorporated by reference to the Registrant's Registration Statement on
Form F-1 (File No. 333-45378)
**** Previously filed.
+ Confidential material has been omitted and filed separately with the
Securities and Exchange Commission.