Vultures in the ...



Sightings from The Catbird Seat

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March 1, 2008

Pacific LightNet being sold
to investor group

By Rick Daysog, Honolulu Advertiser

Pacific LightNet Inc., a home-grown telecommunications company, is being sold to a group of local and Mainland investors.

In a Feb. 15 filing, Pacific LightNet asked the state Public Utilities Commission to approve the sale of its stock to SK Telecom Holdings LP.

The price was not disclosed.

Pacific LightNet said the buyers plan to keep its local management team and are looking to retain all 95 employees.

The company added that the deal will not affect rates for its business and residential customers.

"We're very excited to be able to have a group of investors on board who are committed to growing the company," said Pat Bustamante, Pacific LightNet's president.

"We're very enthused about what lies ahead."

Pacific LightNet is a Hawai'i-based company that provides local dial-up high-speed Internet and long-distance services. The company has 25,000 business customers and more than 6,000 Internet subscribers.

SK Telecom Holdings, which is not affiliated with the SK Telecom that is part of the South Korean conglomerate SK Group, is a Los Angeles company that includes private equity investors Peter and Robert Seidler.

The Seidlers, who are related to former Los Angeles Dodgers owner Peter O'Malley, are the founders of Seidler Equity Partners, which focuses on fast-growing, mid-sized companies.

The group also includes several local investors, said Bustamante. He declined to disclose their names.

Pacific LightNet said the deal will enhance its ability to win government contracts. Pacific LightNet currently has foreign investors, and as such faces a number of obstacles when bidding on government work.

Pacific LightNet's owners include NextNet Investments LLC of Washington state and Tomen Corp., which is controlled by Japan-based conglomerate Toyota Tsusho Corp.

Tomen and NextNet formed Pacific LightNet in 2001 when they acquired the assets of bankrupt GST Telecom Hawaii.

According to Pacific LightNet's PUC filing, Tomen is selling its stake because parent Toyota is looking to transition out of its U.S. investments. Through an irrevocable proxy, Tomen has the power to vote and transfer Pacific LightNet shares owned by NextNet.


From Wikipedia:


Pacific LightNet is a locally-owned, facilities-based CLEC, providing both voice and data services to its customers in Hawaii. At the core of its products and services is a 10,000 fiber mile submarine and terrestrial fiber optic network connecting the state’s six major islands, the first and only of its kind. Linked to all major submarine cable landing stations throughout Hawaii, the network provides capacity and services to the mainland and the Pacific Rim.

Pacific LightNet provides both local and long distance phone service, dial-up and broadband Internet access through wireless or DSL, VoIP, and collocation.


Pacific LightNet can trace its beginnings back to 1986, previously Tel-Net Hawaii and then GST Hawaii. GST Hawaii was the first company in the state to receive authority to provide local exchange service in competition with GTE Hawaiian Tel (September 1996).

GST Hawaii operated as a subsidiary of GST Corporate through May 2000. On May 12, 2000, citing market conditions, massive debt and the inability to raise additional capital, GST Corporate filed for bankruptcy. In January of 2001, Time Warner Telecom purchased significantly all the assets of GST Corporate except for the Hawaiian operation and 12 fibers on parts of the Hawaii Inter-island Fiber Network (10,000 miles of submarine and terrestrial fiber linking the 6 major islands)

As one of the secured creditors, Tomen America (now owned by Toyota) looked to longtime associate John Warta and his NextNet Investments to turn around the struggling Hawaiian operation. Tomen provided the assets and NextNet provided the management expertise.

On March 27, 2001, Tomen and NextNet took over operational control of GST Hawaii as Pacific LightNet, Inc (PLNI). As part of this transaction, PLNI also agreed to purchase Hawaii OnLine (HOL), at the time Hawaii’s largest ISP, as part of the overall transaction. When the transaction was closed on October 11, 2001, Tomen and NextNet became the two joint owners of the company.

In 2004, PLNI started operating as Pacific LightNet Communications (PLNC) to confirm the fact that the company is in the communications business. PLNC has commercial operations on Kauai, Maui, Molokai, Oahu, Lanai and the Big Island. PLNC has customers ranging from the largest businesses in Hawaii to the smaller ones and includes the hospitality industry, the military, non-profits as well as the high-tech business park on Maui.

In mid-2005, Pacific LightNet Communications ceased using the word "Communications" in its branding. It now known simply as "Pacific LightNet".


From their website:

Pacific LightNet supports
Hawaii Non-Profits

Pacific LightNet assisted fifteen local organizations while awarding more than $40,000 to Hawaii non-profits in 2007. The company`s support was focused upon agencies working in the education, health, and human services fields.

"Pacific LightNet is proud of the role it plays in improving the lives of local families and individuals," said Pat Bustamante, Pacific LightNet President. "We`re committed to serving the communities in which we work and look forward to doing even more in 2008."

Pacific LightNet assisted the following organizations in 2007:

Alu Like
American Heart Association
Goodwill Industries
Hawaii Foodbank
Hawaii International Film Festival
Hawaii Public Radio
Kokua Ohana Koa
Maui Arts and Cultural Center
Miss Hawaii 2007 Scholarship Program
Muscular Dystrophy Association
Na Koa Football Club
Oahu Veterans Center
Pacific Telecommunications Council
Pilot Foundation
Washington Middle School Ohana

June 2, 2000

Objections Filed to GST
Bankruptcy Petition

Ken Branson

WILMINGTON, DEL. - A federal judge today granted GST Telecommunications Inc. and Time Warner Telecom Inc. until June 12 to finalize a bankruptcy sale of all GST's assets to Time Warner Telecom.

The two companies signed a letter of intent on May 17, under which Time Warner Telecom would buy GST's assets for $450 million. GST filed for bankruptcy the same day. The two companies were supposed to present a definitive agreement to U.S. District Court Judge Gregory Sleek in Wilmington, Del., today.

David Heller, the attorney for GST, told the court that the two companies hadn't been able to reach an agreement, and asked for an additional week. Once the court approves such an agreement, it will become the standard by which all future bids for GST's assets will be measured. Heller assured the court, and 30 lawyers assembled in the courtroom, that the bidding process would be open and fair, and that all potential bidders would have access to the same information as Time Warner Telecom, with as much time to consider it.

"As of today, it's open season on this company," Heller said. "We'll entertain all comers."

Many of his hearers are skeptical. After GST filed proposed bidding rules for the court's approval on May 23, creditors, potential bidders, and the U.S. Bankruptcy Trustee all filed formal objections.

AT&T Corp. which describes itself in its objection as a creditor and a possible bidder, says it won't have enough time to perform due diligence by the June 20 bidding deadline GST suggested in its May 23 motion. AT&T also objects to a provision in GST's suggested procedures requiring bidders to buy all GST assets.

That provision is important, because MBN Communications Inc. ( signed a contract to purchase GST's Hawaiian assets for $76 million in April, and asserts the priority of its claim.

Companies that loaned money to GST to buy equipment object that they have no way of knowing whether they could get a better deal than Time Warner Telecom's offer.

NTFC Capital (, for example, also thinks the "accelerated timing" gives Time Warner Telecom an unfair advantage over other bidders, and objects to GST being allowed to decide who is, and is not, a qualified bidder. NTFC claims GST owes it $45 million for hardware purchased since 1996, including eight Nortel Networks DMS-500 switches.

The Official Committee of Unsecured Creditors - a group set up by the court to represent the interests of such creditors - objects that the proposed break-up fee of $13.5 million is too high. Patricia A. Staiano, the federal bankruptcy trustee, agrees and adds in her objection that no break-up fee should be paid at all until a sale has been consummated.

All these issues have been put off until at least the June 12 hearing.

Judge Sleek, in granting a delay until then, indicated that he was sympathetic with the objectors.

"The court had very grave concerns about the objections filed," he said. "Very, very grave concerns."


March 30, 2001

Ex-CEO makes comeback with
GST's Hawaii assets

Pacific Business News (Honolulu) - by Terrence Sing

Most CEOs don't get a second chance to run the same company. But former GST Telecommunications Chairman and CEO John Warta -- who was forced to resign by GST's board amid allegations of fraud in 1998 -- has teamed with TM Communications Hawaii LLC to take over the bankrupt company's Hawaii assets.

Warta was later sued by GST along with other top executives. However, legal actions taken against them were eventually dropped or settled out of court. In 1999, a U.S. District Court judge in Washington cleared Warta of any wrongdoing in an additional class action suit brought against him by GST shareholders.

TM Communications Hawaii LLC is the largest secured creditor of GST Telecom Hawaii and a subsidiary of Japanese trading conglomerate Tomen Corp. Last week, the U.S. Bankruptcy Court in Delaware approved the sale of assets of GST Telecom Hawaii and sister company GST Hawaii OnLine to TM Communications Hawaii LLC, for a reported $25 million. The exact dollar value of the sale, however, is unclear since the buyer didn't pay cash but rather canceled its debt against the company as part of the transaction.

Warta says GST Hawaii's operations are valued at about $60 million in terms of physical assets, customer base and staff. The sale is still subject to regulatory approval by the Hawaii Public Utilities Commission and the Federal Communications Commission.

GST Telecom Hawaii, which provides voice and data telecommunications services, was a subsidiary of Vancouver, Wash.-based GST Telecommunications Inc., which filed for Chapter 11 bankruptcy last May amid rising financial difficulties. In January, Time Warner Telecom Inc. bought most of its mainland business for $690 million, leaving the fate of GST Telecom Hawaii and GST Hawaii OnLine to be resolved later.

"One of the biggest issues was that GST Hawaii information was combined with all of GST's operations," explains Warta. "It was hard for a buyer to sort through the maze and figure out all the costs and revenue. Fortunately, many of the people we now have understand the systems and issues GST had and we know how to break them out just for Hawaii. This fortunately gave us a picture of what we were getting. Others just gave up."

There had been rumors Warta was interested in acquiring the Hawaii operations, but until last week's announcement -- made through Honolulu public relations firm Communications Pacific -- they remained unsubstantiated.

TM Communications Hawaii LLC and Warta's firm, Washington-based NextNet Investments LLC, will form a new Hawaii-based company to operate GST Telecom Hawaii and GST Hawaii OnLine under a new name beginning March 27.

GST Telecom Hawaii currently serves 17,000 customers and offers both local and long distance service as well as Internet services. The company also operates its own high-speed fiber-optic cables between the islands. "Our first priority is to make certain we do a better job of taking care of these loyal customers," says Warta, who believes the former owners did not manage the Hawaii operations well.

"I think GST made many mistakes," says Warta. "In fact, the Hawaii operation appears to have been cash-flow break-even for some time. But three years ago they announced they were selling, which stopped the progress that had been made. This was a board decision."


December 25, 1998

GST investment set up
to fail, lawsuit alleges

Portland Business Journal - by Dan McMillan

GST Telecommunications Inc.'s $15 million relationship with Magnacom, a company controlled by GST's former chief executive and board chairman, is again being questioned--this time in a new lawsuit filed by the Vancouver telecommunications company.

The lawsuit portrays dealings between GST and Magnacom as fatally flawed, and alleges that shoddy legal work and lack of oversight all but guaranteed GST would take a bath. In fact, GST wrote off the Magnacom investment and took a $15 million charge against third-quarter earnings following Magnacom's filing for Chapter 11 bankruptcy protection.

John Warta, who ran GST and Magnacom concurrently, has argued that his actions always put GST's interests first. He also said he never received a salary through Magnacom while running GST, and that he abstained from voting on transactions between the firms. Warta was unavailable for comment.

GST last week filed a $250 million-plus malpractice lawsuit against Stephen Irwin and his New York City law firm, Olshan Grundman Frome & Rosenzweig. Irwin is a GST director and former legal counsel. Much of the complaint is a dissection of transactions between GST and Magnacom. Warta is not named in the second lawsuit, but he is a defendant, as is Irwin, in an earlier fraud suit brought against former and current GST directors and officers.

According to the lawsuit prepared by Wilson Sonsini Goodrich & Rosati, GST's high-powered Palo Alto, Calif., litigation counsel, GST's investment in Magnacom got off to a bad start when the defendants in the malpractice lawsuit acted as counsel to GST and provided advice to Magnacom. ". . . (R)epresentation of Magnacom violated their obligation of loyalty to GST and compromised all of their advice insofar as it related to GST."

Then, the suit alleges, Warta and Irwin in July 1996 "caused GST to advance approximately $5.9 million to Magnacom" prior to board approval. The money was used as a deposit to acquire licenses totaling $108 million from the Federal Communications Commission. The suit claims the advance was not brought before GST's finance committee until Aug. 1.

At that meeting, another $5.4 million advance to Magnacom was approved. At that point, with $11.3 million advanced to Magnacom, GST fell afoul of rules regarding investments in outside entities, the suit says.

On one hand, GST could not legally advance more than $10 million to Magnacom without owning more than 50 percent of the company, the suit says. On the other hand, rules restricting foreign ownership of FTC licenses meant GST couldn't own more than 25 percent of Magnacom. GST is incorporated in Canada.

Irwin, the suit alleges, did not tell the GST board about the problems. The suit claims Irwin should have told the board to get its money back and not make any additional investments in Magnacom.

"Not surprisingly, in light of Irwin and Olshan's simultaneous but undisclosed representation of Magnacom, Irwin gave exactly the opposite advice," the suit says.

Instead, Irwin told the board they could sidestep the tricky legal issues by characterizing the advances as prepayments for time on a network to be built by Magnacom. He also recommended the board be given an option to acquire 99 percent of Magnacom for a small fee, the suit says.

Both those steps simply placed GST's money in further jeopardy, the suit argues.

The prepayment for services, which ultimately totaled $14.4 million, was a bet that Magnacom would be able to pay the FCC the remaining $102 million for the licenses and build a network costing $200 million to deliver the services, the suit says. "Minimal due diligence would have disclosed that Magnacom did not have anything close to the funds necessary to finance construction of the network," the suit says.

Failure to build the network in a timely fashion, the suit continues, would mean default on the licenses to the FCC.

The option to acquire Magnacom for a nominal fee--Warta said it was $1--was not practical, the suit says. If GST exercised that option, it would likely lose the licenses because of foreign ownership restrictions, the suit says.

According to the suit, the formal agreement between GST and Magnacom was not executed by Irwin until after GST had advanced $14.4 million and the agreement contained no provision for repayment to GST if Magnacom forfeited its licenses or failed to build a network.

As a result, "GST has effectively no recourse against Magnacom and has been damaged in an amount not less than $15 million," the suit says.


# # #







Act 221

Aloha, Harken Energy!

American Savings Bank: Behind the Blinds

Apollo Advisors

Arbitrate This!

Confessions of a Whistleblower

A Connecticut Yankee in King Kamehameha’s Court

The Bankruptcy Buzzards

Birds that Drink from Cesspools

The Blackstone Group

Broken Trust: The Book

Broken Trusts

Buzzards in the Bank of Hawaii

Buzzards of Paradise

Claims By Harmon

Confessions of a Whistleblower

Dirty Money, Dirty Politics & Bishop Estate

Flying High In Hawaii

Global Crossing

Hawaiian Airlines

I Sing the Hawaiian Electric

Investigating Investcorp

The Office of Hawaiian Affairs

Pointing the Finger at WorldPoint

Predators in Paradise

RICO in Paradise

The Indonesian Connection

The Morgan, Lewis & Bockius Report

The Puna Connection

The Rise & Fall of Summit Communications

The Silence of the Whistleblowers

The Sinking of the Ehime Maru

Tracking The Murdoch Flock

Vampires on Gilligan’s Island

Vultures of the Sandwich Isles

Yakuza Doodle Dandies



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Last update March 1, 2008, by The Catbird