<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the
[_] Definitive Proxy Statement Commission Only (as Permitted by
Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Under Rule 14a-12
EXODUS COMMUNICATIONS, INC.
(Name of Registrant as Specified in Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Common
stock, par value $0.01 per share, of GlobalCenter Holding Co.
(2) Aggregate number of securities to which transaction applies:
233,500,000 shares of common stock of GlobalCenter Holding Co.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): The filing
fee of $299,814 was calculated pursuant to Rule 0-11(c)(1) of the
Securities Exchange Act, by multiplying the value of GlobalCenter
Holding Co. common stock to be received by Exodus Communications, Inc.
in the transaction by 1/50 of 1%. The value of the GlobalCenter Holding
Co. common stock was determined to be $1,499,070,000 in accordance with
Rule 0-11(a)(4) of the Exchange Act based on the book value of $6.42
per share computed as of September 30, 2000.
(4) Proposed maximum aggregate value of transaction: $1,499,070,000
(5) Total fee paid: $299,814
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[EXODUS LOGO]
Exodus Communications, Inc.
Proxy Statement
-------------------------
Special Meeting of Stockholders
January 9, 2001
Santa Clara, California
<PAGE>
[LOGO]
EXODUS COMMUNICATIONS, INC.
2831 Mission College Boulevard
Santa Clara, California 95054
December 7, 2000
Dear Exodus Stockholder,
The board of directors of Exodus, after careful consideration, has approved
a merger between a wholly owned subsidiary of Exodus and GlobalCenter Holding
Co. The board of directors believes that this proposed merger will accelerate
the pace of Exodus' global expansion and enhance its position as a leader in
complex Web hosting and managed services.
We believe that combining Exodus and GlobalCenter, two leading Web hosting
providers, will enhance Exodus' global data center infrastructure, strengthen
Exodus' customer support, sales and professional services infrastructure,
expand Exodus' customer base and improve Exodus' competitive position in the
complex Web hosting space. In addition, we believe the merger will give Exodus
a strong presence in Asia, a broader geographic presence and a stronger
worldwide network.
If the merger is completed, GlobalCenter will become a wholly owned
subsidiary of Exodus. At the completion of the merger, Exodus will issue shares
of Exodus common stock to GlobalCenter's sole shareholder, Global Crossing
GlobalCenter Holdings, Inc. In exchange, Exodus will receive all of the issued
and outstanding shares of GlobalCenter common stock. In addition, each
outstanding option to purchase GlobalCenter common stock, as well as certain
other options to purchase shares of Global Crossing Ltd. common stock, will be
converted into the right to purchase shares of Exodus common stock. The number
of shares that Exodus will issue will be determined under a formula at the time
the merger is completed. If the merger had been completed on September 28,
2000, the day Exodus announced the proposed merger, Exodus would have issued a
total of 99,517,700 shares to Global Crossing GlobalCenter Holdings, Inc. in
the merger, which would represent approximately 19% of the outstanding shares
of Exodus after the merger.
We are very enthusiastic about the merger. The merger cannot be completed,
however, unless a majority of the stockholders present in person or by proxy
and entitled to vote at the Exodus special meeting of stockholders approves the
issuance of Exodus common stock in the merger.
This document provides you with detailed information about the proposed
merger. We strongly encourage you to read this document carefully, including
the description of risks related to the merger beginning on page 17.
The board of directors is seeking your approval to allow Exodus to issue
shares of its common stock in connection with the merger. Whether or not you
plan to attend the special meeting, please complete, date, sign and promptly
return the accompanying proxy in the enclosed postage-paid envelope so that
your shares are represented at the meeting.
We believe this merger will offer Exodus significant opportunities to expand
our business in exciting new ways. We urge you to vote FOR the issuance of
Exodus common stock in the merger.
Sincerely,
Ellen M. Hancock
Chairman and Chief Executive Officer
This proxy statement is dated December 7, 2000 and is first being mailed to
stockholders of Exodus on or about December 7, 2000.
<PAGE>
[LOGO]
EXODUS COMMUNICATIONS, INC.
2831 Mission College Boulevard
Santa Clara, California 95054
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Our Stockholders:
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of Exodus
Communications, Inc., a Delaware corporation, will be held at the Company's
executive offices at 2831 Mission College Boulevard, Santa Clara, CA 95054 at
10:00 a.m., Pacific Time on January 9, 2001, for the following purposes:
1. Approval of the issuance of shares of Exodus common stock in the merger of a
wholly owned subsidiary of Exodus, with and into GlobalCenter Holding Co.,
in exchange for all of the issued and outstanding shares of GlobalCenter
Holding Co. The merger agreement relating to the proposed merger is included
as Annex A to the attached proxy statement.
2. To transact other business as may properly come before the special meeting
or any adjournments or postponements of the special meeting.
These items of business are described in the attached proxy statement. Only
stockholders of record at the close of business on November 30, 2000, the
record date, are entitled to notice of, and to vote at, the special meeting and
any adjournments or postponements of the special meeting.
The merger cannot be completed unless the holders of a majority of the
shares of Exodus common stock represented in person or by proxy at the meeting
approve the issuance of common stock in the merger.
Your vote is very important. Whether or not you plan to attend the special
meeting, please complete, sign and date the enclosed proxy card and promptly
return it in the enclosed postage-paid envelope. Your proxy may be revoked at
any time before it is voted by signing and returning a later dated proxy with
respect to the same shares, by filing with the Secretary of Exodus a written
revocation bearing a later date or by attending and voting at the special
meeting.
By Order of the Board of Directors,
Adam W. Wegner
Senior Vice President, Legal and
Corporate Affairs,
General Counsel and Secretary
Santa Clara, California
December 7, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 1
SUMMARY................................................................... 3
The Companies........................................................... 3
Reasons for the Merger.................................................. 4
Opinions of Financial Advisors.......................................... 4
Accounting Treatment of the Merger...................................... 4
Overview of the Merger Agreement........................................ 5
Related Agreements...................................................... 7
Management Following the Merger......................................... 7
Exodus' Selected Historical Consolidated Financial Information.......... 8
GlobalCenter Holding Co.'s Selected Historical Financial Information.... 10
Exodus' Selected Unaudited Pro Forma Combined Condensed Financial
Information............................................................ 12
Comparative Historical and Unaudited Pro Forma Per Share Data........... 14
Market Price and Dividends.............................................. 15
FORWARD-LOOKING STATEMENTS................................................ 16
RISKS RELATED TO THE MERGER............................................... 17
THE SPECIAL MEETING....................................................... 23
Date, time, place and purpose of the Exodus special meeting............. 23
Record date, outstanding shares and quorum.............................. 23
Vote required, effect of abstentions and broker non-votes............... 23
Share ownership of management and certain stockholders.................. 23
Expenses of proxy solicitation.......................................... 23
Voting of proxies....................................................... 24
No appraisal rights..................................................... 24
Recommendation of the Exodus board...................................... 24
THE MERGER AND RELATED TRANSACTIONS....................................... 25
Background of the Merger................................................ 25
Reasons for the Merger.................................................. 27
Recommendation of the Exodus Board...................................... 29
Opinions of Financial Advisors.......................................... 29
Regulatory Matters...................................................... 35
Accounting Treatment.................................................... 35
No Appraisal Rights..................................................... 35
THE MERGER AGREEMENT...................................................... 36
Conversion of GlobalCenter Stock and Options............................ 36
Conditions to the Merger................................................ 38
No Other Negotiations................................................... 40
Exodus Acquisitions..................................................... 41
Termination............................................................. 41
Indemnification......................................................... 42
Covenants............................................................... 43
Representations and Warranties.......................................... 44
Possible Tax Refund to Global Crossing NA............................... 45
THE RELATED AGREEMENTS.................................................... 46
The Network Services Agreements......................................... 46
Joint Venture Agreement................................................. 47
Registration Rights Agreement, Stockholder Agreement and Other
Agreements............................................................. 48
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
EXODUS COMMUNICATIONS, INC. UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS..................................................... 51
Unaudited Pro Forma Combined Condensed Financial Statements............. 52
Unaudited Pro Forma Combined Condensed Statements of Operations......... 53
Notes to Unaudited Pro Forma Combined Condensed Financial Statements.... 54
BUSINESS OF GLOBALCENTER.................................................. 56
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF GLOBALCENTER............................................... 62
DIRECTORS OF EXODUS AFTER THE MERGER...................................... 70
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 73
INDEPENDENT ACCOUNTANTS................................................... 75
LEGAL MATTERS............................................................. 75
SUBMISSION OF STOCKHOLDER PROPOSALS....................................... 75
WHERE YOU CAN FIND MORE INFORMATION....................................... 75
FINANCIAL STATEMENTS OF GLOBALCENTER...................................... F-1
ANNEX A Agreement and Plan of Merger...................................... A-1
ANNEX B Opinion of Donaldson, Lufkin & Jenrette Securities Corporation.... B-1
ANNEX C Opinion of Goldman, Sachs & Co.................................... C-1
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why is Exodus proposing the merger?
A: The board of directors of Exodus believes that the merger is in the best
interests of Exodus stockholders because it will accelerate the pace of
Exodus' global expansion and enhance its position as a leader in complex Web
hosting and managed services. The Exodus board believes that the combined
company will be more competitive in the market and enhance the future value
of the shares held by Exodus stockholders.
Q: What are the effects of the merger on me as a stockholder of Exodus?
A: Exodus stockholders will continue to own their shares of Exodus common stock
after the merger. There will be no change in the number of shares of Exodus
common stock held by current Exodus stockholders as a result of the merger.
The number of shares that Exodus will issue in the merger will be determined
under a formula at the time the merger is completed. If the merger had been
completed on September 28, 2000, the day Exodus announced the proposed
merger, Exodus would have issued a total of 99,517,700 shares to Global
Crossing GlobalCenter Holdings, Inc. in the merger, which would represent
approximately 19% of the outstanding shares of Exodus after the merger.
Q: What stockholder approvals are needed?
A: The affirmative vote of a majority of the quorum at the special meeting is
required to approve the issuance of Exodus common stock in the merger. Each
holder of Exodus common stock is entitled to one vote per share. As of
November 30, 2000, the record date, Exodus directors and executive officers
and their affiliates owned approximately % of the outstanding shares of
Exodus common stock.
Q: What constitutes a quorum?
A: The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares entitled to vote on the record date will constitute a
quorum, permitting the meeting to conduct its business. Proxies received but
marked as abstentions and broker non-votes will be included in the
calculation of the number of shares considered to be present at the meeting
and will have the same effect as votes against the issuance of Exodus stock
in the merger.
Q: Does the board of directors recommend voting in favor of the merger?
A: Yes. After careful consideration, Exodus' board of directors recommends that
its stockholders vote in favor of the issuance of Exodus common stock in the
merger.
Q: Are there risks I should consider in deciding whether to vote for the
merger?
A: Yes. In evaluating the merger, you should carefully consider the factors
discussed in the section entitled "Risks Related to the Merger" beginning on
page 17.
Q: What do I need to do now?
A: Please carefully consider the information contained in this proxy statement
and respond by completing, signing and dating your proxy card and returning
it in the enclosed postage paid envelope as soon as possible so that your
shares will be counted at the special meeting of Exodus stockholders.
Alternatively, you may attend the special meeting and vote your shares in
person rather than signing and mailing in your proxy card.
1
<PAGE>
Q: Do I need to attend the meeting?
A: No. You can vote by completing, signing and dating your proxy card and
returning it in the enclosed postage-paid envelope. Exodus anticipates that
most stockholders will not attend the meeting in person. In addition, most
of the directors and executive officers of Exodus, Global Crossing and
GlobalCenter are not expected to attend.
Q: What if I don't vote?
A: If you respond and do not indicate how you want to vote, your proxy will be
counted as a vote in favor of the issuance of Exodus common stock in the
merger. If you respond and abstain from voting, your proxy will have the
same effect as a vote against the issuance of Exodus common stock in the
merger. If you do not respond, your vote will not be counted.
Q: Can I change my vote after I have delivered my proxy?
A: Yes. You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of three ways. First, you can revoke
your proxy by sending written notice to the Secretary of Exodus before the
meeting. Second, you can send the Secretary of Exodus a later-dated signed
proxy card before the meeting. And third, if you are a holder of record, you
can attend the meeting in person and vote.
If your shares are held in an account at a brokerage firm or bank, you
should contact your brokerage firm or bank to change your vote.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares only if you provide instructions on how to
vote by following the information provided to you by your broker.
Q: When do you expect the merger to be completed?
A: We are working towards completing the merger in January 2001. Exodus, Global
Crossing and GlobalCenter have obtained all required regulatory approvals
and, other than contractual conditions remaining to be satisfied or waived,
only Exodus stockholder approval remains as a closing condition to the
merger. We hope to complete the merger as soon as practicable following
stockholder approval of the issuance of the shares in the merger.
Q: Whom should I call with questions?
A: If you have additional questions about the merger or would like additional
copies of this document, you should contact:
Exodus Communications, Inc.
Investor Relations
2831 Mission College Blvd.
Santa Clara, CA 95054
(408) 346-2200
2
<PAGE>
SUMMARY
This summary highlights selected information in this proxy statement. It
does not contain all of the information that is important to you. We urge you
to read carefully this entire proxy statement and the other documents that we
refer to, for a more complete understanding of the merger and the related
transactions. In particular, you should read the documents attached to this
proxy statement, including the merger agreement and the opinions of Exodus'
financial advisors, which are attached as Annexes A, B and C. In addition, we
incorporate by reference important business and financial information about
Exodus into this proxy statement. You may obtain the information incorporated
by reference without charge by following the instructions in the section
entitled "Where You Can Find More Information" that begins on page 75 of this
proxy statement.
The Companies
Exodus Communications, Inc.
2831 Mission College Boulevard
Santa Clara, California 95054
(408) 346-2200
Nasdaq stock symbol: EXDS
Exodus Communications, Inc. is a leading provider of complex Internet
hosting for enterprises with mission-critical Internet operations. We offer
sophisticated system and network management solutions, along with professional
services, to provide optimal performance for customers' Web sites. Exodus
delivers its services from geographically distributed, state-of-the-art
Internet Data Centers that are connected through a high performance dedicated
and redundant backbone network. Our tailored solutions are designed to
integrate with existing enterprise systems architectures and to enable
customers to outsource the monitoring, administration and optimization of their
equipment, applications and overall Internet operations. As of September 30,
2000, we had over 3,700 customers under contract and managed over 62,000
customer servers worldwide. As of that date, we operated 22 Internet Data
Centers located in Atlanta, Austin, Boston, Chicago, Frankfurt, Los Angeles,
New York, Seattle, Silicon Valley, Washington, D.C., London, Tokyo and Toronto.
Our customers represent a variety of industries, ranging from leading Internet
companies to major enterprise customers, including Yahoo!, Inktomi, Adidas,
Nikko Soloman Smith Barney, Starbucks, U.S. News and World Report, Oracle
Business Online and Oracle Managed Services and Loreal.
We expanded our solutions and services by acquiring providers of Internet
technologies--Arca Systems in October 1998, American Information Systems in
February 1999, Cohesive Technology Solutions in July 1999, Service Metrics in
November 1999, Global OnLine Japan in December 1999, KeyLabs, Inc. in February
2000, Network-1 Professional Services Division in February 2000 and Grenville
Consulting UK Limited in August 2000. We also completed an equity investment in
Mirror Image Internet, Inc. in April 2000.
The information on our Web site is not part of this proxy statement. Exodus
Communications, Exodus, CyberCabinet, CyberRack, Multipath Site, Multipath Net,
SystemHealth Monitoring and Virtual Data Center are trade names and trademarks
of Exodus. This proxy statement may also include trade names and trademarks of
other companies. Unless the context otherwise requires, the terms "we," "us,"
"our" and Exodus refer to Exodus Communications, Inc., a Delaware corporation.
3
<PAGE>
GlobalCenter Holding Co.
141 Caspian Court
Sunnyvale, California 94089
(408) 543-4700
GlobalCenter Holding Co., a Delaware corporation, is an indirect wholly
owned subsidiary of Global Crossing North America, Inc. and a direct wholly
owned subsidiary of Global Crossing GlobalCenter Holdings, Inc. Global Crossing
North America, Inc., which we refer to in this proxy statement as Global
Crossing NA, is itself an indirect wholly owned subsidiary of Global Crossing
Ltd., a Bermuda company whose shares are listed on the New York Stock Exchange.
GlobalCenter Inc. is a Delaware corporation and a direct wholly owned
subsidiary of GlobalCenter Holding Co. Please see the chart on page 6. For
purposes of discussing the business and operations to be acquired by Exodus in
the merger described in this proxy statement, we will refer to GlobalCenter
Holding Co. and GlobalCenter Inc. collectively as GlobalCenter. When we refer
to Global Crossing in this proxy statement, we mean Global Crossing Ltd. and
its subsidiaries other than GlobalCenter.
GlobalCenter is a leading provider of Internet infrastructure services
incorporating complex Web hosting, IP network services, hardware and software
procurement and installation, content distribution, integration and management
services, systems applications, and professional services. As of September 30,
2000, GlobalCenter provided services to over 600 customers, including large,
well-established enterprises and newer Internet companies, including Akamai,
Encyclopedia Britannica, Microsoft bCentral, NBCi, Novell, Viacom and ZDNet.
As of September 30, 2000, GlobalCenter operated 11 data centers
strategically located near major business centers in northern and southern
California, New York City, Washington D.C., London, and Melbourne. In addition,
as of that date, GlobalCenter was developing nine data centers in the United
States, Europe and the Asia-Pacific region, bringing the total gross square
footage of GlobalCenter's data centers to approximately one million.
The information on GlobalCenter's Web site is not part of this proxy
statement. "GlobalCenter" and the GlobalCenter logo are service marks or
registered service marks of GlobalCenter.
Reasons for the Merger (see page 27)
The Exodus board of directors believes that the merger will benefit Exodus
by accelerating the pace of Exodus' global expansion and enhance its position
as a leader in complex Web hosting and managed services.
Opinions of Financial Advisors (see page 29)
In deciding to approve the merger, the board of directors considered, among
other things, the opinions of its financial advisors, Donaldson Lufkin and
Jenrette Securities Corporation, dated September 27, 2000, and Goldman Sachs &
Co., dated September 28, 2000, to the effect that as of those dates the
exchange ratio was fair from a financial point of view to Exodus. The full text
of each opinion, which sets forth procedures followed, assumptions made,
matters considered and limitations on the review undertaken in connection with
the opinion, is attached as Annex B and Annex C to this proxy statement. We
urge you to read the opinions in their entirety.
Accounting Treatment of the Merger
Exodus intends to account for the merger as a purchase transaction. This
means that for financial accounting purposes, Exodus will allocate the value of
the shares it is issuing to the fair value of the assets of GlobalCenter,
including goodwill and other intangible assets.
4
<PAGE>
Overview of the Merger Agreement (see page 36)
Effects of the merger. The merger agreement provides for the merger of
Einstein Acquisition Corp., a wholly owned subsidiary of Exodus, into
GlobalCenter Holding Co. GlobalCenter Holding Co. will be the surviving
corporation of the merger and become a wholly owned subsidiary of Exodus. As a
result of the merger, Global Crossing GlobalCenter Holdings, Inc., the parent
corporation of GlobalCenter Holding Co., will become a stockholder of Exodus.
See the chart on page 6.
Conversion of GlobalCenter common stock. When the merger is completed, the
shares of common stock of GlobalCenter Holding Co. outstanding immediately
before the merger will be converted into and exchanged for shares of our common
stock. The number of shares of Exodus common stock to be issued in the merger
will be determined by multiplying the number of shares of GlobalCenter common
stock by an exchange ratio. The exchange ratio will be determined under a
formula and will depend upon a number of factors, including the average prices
of Exodus and Global Crossing Ltd. common stock over the ten trading days
ending two days before the completion of the merger. If the merger had been
completed on September 28, 2000, the day Exodus announced the proposed merger,
Exodus would have issued a total of 99,517,700 shares to Global Crossing
GlobalCenter Holdings, Inc. in the merger, which would represent approximately
19% of the outstanding shares of Exodus after the merger.
Assumption of Options. When the merger is completed, each option to purchase
shares of common stock of GlobalCenter Inc. will be assumed by Exodus. In
addition, some employees of GlobalCenter have options to purchase shares of
common stock of Global Crossing Ltd. Some of these Global Crossing Ltd. options
convert by their terms upon a merger into options to purchase shares of
GlobalCenter Inc. common stock. Exodus will assume the Global Crossing Ltd.
options that convert into GlobalCenter Inc. options. The Global Crossing Ltd.
options held by GlobalCenter employees that do not convert into GlobalCenter
Inc. options will, if vested, remain unchanged and if unvested, will be
cancelled upon the completion of the merger. Exodus will grant new options to
purchase Exodus common stock to replace these cancelled Global Crossing Ltd.
options. The adjustments to the GlobalCenter Inc. options to be assumed in the
merger are more fully described in this proxy statement under the section
entitled "The Merger Agreement--Conversion of GlobalCenter Stock and Options".
When the merger will become effective. The merger will become effective as
provided in the certificate of merger filed with the Secretary of State of the
State of Delaware. The closing will occur at a date and time agreed upon by the
parties promptly after all conditions to closing have been satisfied or waived.
We are working towards completing the merger in January 2001.
5
<PAGE>
The organization of the companies before and after the merger is illustrated
below:
[GRAPHIC OF ORGANIZATION OF THE COMPANIES BEFORE THE MERGER AND AFTER THE
MERGER]
6
<PAGE>
Conditions to the merger. The completion of the merger depends on a number
of conditions being satisfied, including the following:
. approval of the issuance of Exodus common stock in the merger by the
Exodus stockholders;
. the absence of any law, order or injunction prohibiting completion of
the merger; and
. at the closing, the representations and warranties of each of Exodus and
GlobalCenter Holding Co. shall be true in all material respects and each
of Exodus and GlobalCenter Holding Co. shall have performed their
respective covenants in the merger agreement.
In addition, Exodus, Global Crossing NA, Global Crossing GlobalCenter
Holdings, Inc., Global Center Holding Co. and Global Center Inc. must satisfy
other conditions before completion of the merger. Each of the conditions to the
merger may be waived by the company entitled to assert the condition.
Termination of the merger agreement. Exodus and GlobalCenter Holding Co. can
mutually agree to terminate the merger agreement without completing the merger.
Either Exodus or GlobalCenter Holding Co. can terminate the merger agreement if
any of the following events occur:
. all conditions to closing have not been satisfied before March 31, 2001,
or in limited circumstances, May 31, 2001 other than as a result of a
breach by the terminating party;
. if the other party has breached any of its representations, warranties
or covenants and the breach would cause the party to fail to satisfy a
closing condition and the party has not cured the breach within ten
days; or
. if there is a final order, decree or ruling which would make the merger
illegal or otherwise prohibit the completion of the merger.
Indemnification. Global Crossing NA has agreed to indemnify Exodus and its
affiliates and employees from any claims incurred because of a breach of any
representation, warranty or covenant made by GlobalCenter in the merger
agreement and liabilities relating to assets of Global Crossing NA, Global
Crossing GlobalCenter Holdings, Inc. and GlobalCenter not used in
GlobalCenter's business on the date of the merger agreement. Global Crossing NA
will have no obligation to indemnify unless the aggregate amount of all claims
exceeds $33 million and will not be obligated to indemnify for more than $660
million. Global Crossing NA and Exodus have also agreed to indemnify each other
for specified tax liabilities.
Management Following the Merger
The current directors and executive officers of Exodus will continue to be
the directors and executive officers of Exodus after the merger. At the
completion of the merger, Exodus will appoint one additional director to be
designated by an affiliate of Global Crossing.
Related Agreements (see page 46)
There are additional agreements related to the merger agreement, including:
. Network Services, Marketing and Cooperation Agreements with Global
Crossing Ltd. and Asia Global Crossing Ltd., a company affiliated with
Global Crossing Ltd. and GlobalCenter Holding Co.;
. Joint Venture Agreement with Asia Global Crossing Ltd.;
. Stockholder Agreement;
. Registration Rights Agreement;
. Transition Agreement; and
. Noncompetition agreements between Exodus, GlobalCenter Holding Co. and
various GlobalCenter employees.
7
<PAGE>
Exodus' Selected Historical Consolidated Financial Information
The following selected historical consolidated financial data has been
derived from our historical financial statements, and should be read together
with those financial statements and related notes that are incorporated by
reference in this proxy statement.
The consolidated statement of operations data and statement of cash flows
data for the years ended December 31, 1995 and 1996 and the consolidated
balance sheet data as of December 31, 1995, 1996 and 1997 are derived from
audited financial statements that are not included in this document. The
consolidated statement of operations data and statement of cash flows data for
the years ended December 31, 1997, 1998 and 1999 and the consolidated balance
sheet data as of December 31, 1998 and 1999 are derived from audited financial
statements that are incorporated by reference into this document. The
consolidated statement of operations data and statement of cash flows data for
the nine months ended September 30, 1999 and 2000 and the consolidated balance
sheet data as of September 30, 2000 are derived from unaudited financial
statements that are incorporated by reference into this document.
In the following tables and in this document, "EBITDA" represents earnings
(loss) before net interest expense, income taxes, depreciation, amortization
(including amortization of deferred stock compensation) and other noncash
charges, including fixed asset write-offs. EBITDA should not be used as an
alternative to operating loss or net cash provided by (used for) operating
activities, investing activities or financing activities, each as measured
under accounting principles generally accepted in the United States of America.
In addition, EBITDA may not be comparable to other similarly titled information
from other companies. However, our management believes that EBITDA is an
additional meaningful measure of performance and liquidity. With respect to the
caption entitled "Deficiency of earnings available to cover fixed charges,"
earnings consist of loss before provision for income taxes plus fixed charges.
Fixed charges consist of interest charges and amortization of debt issuance
cost and discount or premium related to indebtedness, whether expensed or
capitalized, and that portion of rental expense we believe to be representative
of interest. The "EBITDA" and "Deficiency of earnings available to cover fixed
charges" data is unaudited.
8
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
------------------------------------------------ ---------------------
1995 1996 1997 1998 1999 1999 2000
------- ------- -------- -------- ---------- -------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues................ $ 1,408 $ 3,130 $ 12,408 $ 52,745 $ 242,140 $140,754 $ 543,331
Cost of revenues........ 1,128 2,990 16,868 61,578 197,231 118,827 378,101
------- ------- -------- -------- ---------- -------- -----------
Gross profit............ 280 140 (4,460) (8,833) 44,909 21,927 165,230
Operating expenses:
Marketing and sales.... 1,056 2,734 12,702 29,034 75,809 42,473 123,315
General and
administrative........ 427 1,056 5,983 16,058 42,951 25,548 97,498
Product development.... 70 444 1,647 3,507 8,869 5,641 10,573
Amortization of
goodwill and
intangible assets..... -- -- -- 141 9,438 5,597 25,412
Merger costs........... -- -- -- -- 5,058 -- --
------- ------- -------- -------- ---------- -------- -----------
Total operating
expenses.......... 1,553 4,234 20,332 48,740 142,125 79,259 256,798
------- ------- -------- -------- ---------- -------- -----------
Operating loss..... (1,273) (4,094) (24,792) (57,573) (97,216) (57,332) (91,568)
Interest and other
income (expense):
Interest and other
income.............. -- 68 193 7,157 15,928 10,625 47,571
Interest and other
expense............. (38) (107) (699) (16,900) (49,035) (30,669) (135,129)
------- ------- -------- -------- ---------- -------- -----------
Total interest and
other expense,
net............... (38) (39) (506) (9,743) (33,107) (20,044) (87,558)
------- ------- -------- -------- ---------- -------- -----------
Net loss........... (1,311) (4,133) (25,298) (67,316) (130,323) (77,376) (179,126)
Cumulative dividends
and accretion on
redeemable
convertible
preferred stock....... -- -- (1,413) (2,014) -- -- --
------- ------- -------- -------- ---------- -------- -----------
Net loss attributable to
common stockholders.... $(1,311) (4,133) $(26,711) $(69,330) $ (130,323) $(77,376) $ (179,126)
======= ======= ======== ======== ========== ======== ===========
Basic and diluted net
loss per share......... $ (0.06) $ (0.13) $ (0.87) $ (0.28) $ (0.39) $ (0.23) $ (0.45)
======= ======= ======== ======== ========== ======== ===========
Shares used in computing
basic and diluted net
loss per share......... 21,048 30,624 30,856 251,616 335,848 331,948 398,512
======= ======= ======== ======== ========== ======== ===========
Consolidated Statement
of Cash Flows Data:
Net cash provided by
(used for) operating
activities............. $ (461) $(3,116) $(15,518) $(47,312) $ (46,726) $(68,542) $ 38,754
Net cash used for
investing activities... (69) (3,877) (23,864) (92,757) (390,614) (235,134) (1,042,139)
Net cash provided by
financing activities... 692 10,545 45,937 285,814 1,296,745 319,632 1,260,801
Depreciation and
amortization........... 65 461 3,429 13,024 50,881 28,383 117,030
Capital expenditures.... 69 3,499 22,489 44,564 283,468 160,624 767,744
Other Data:
EBITDA.................. $(1,208) $(3,633) $(20,274) $(41,945) $ (44,738) $(27,994) $ 30,513
Deficiency of earnings
available to cover
fixed charges.......... (1,311) (4,133) (25,298) (67,316) (130,323) (77,376) (179,126)
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------- September 30,
1995 1996 1997 1998 1999 2000
------- ------ --------- -------- --------- -------------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and cash
equivalents............ $ 163 3,715 $ 10,270 $156,015 1,015,960 $1,246,550
Restricted cash
equivalents and
investments............ -- 378 1,753 45,614 35,390 73,051
Working capital
(deficiency)........... (1,170) 1,892 (3,707) 124,636 946,798 901,806
Total assets............ 840 8,289 40,973 298,798 1,742,890 3,655,352
Equipment loans, line of
credit facilities,
capital lease
obligations,
convertible
subordinated notes and
senior notes, less
current portion........ 141 1,449 15,135 227,284 1,574,727 2,562,729
Total stockholders'
equity (deficit)....... (1,140) (5,234) (30,600) 24,277 17,615 567,644
</TABLE>
9
<PAGE>
GlobalCenter Holding Co.'s Selected Historical Financial Information
The table below provides selected historical consolidated financial data of
GlobalCenter Holding Co., a wholly owned, indirect subsidiary of Global
Crossing Ltd. GlobalCenter Holding Co. derived the consolidated statement of
operations and the assets and liabilities data below for the three-month period
ended December 31, 1999, the nine-month period ended September 30, 1999 and the
years ended December 31, 1998 and 1997 from consolidated financial statements
audited by Arthur Andersen LLP, independent public accountants. The financial
data as of September 30, 2000 and for the nine months ended September 30, 2000
are derived from GlobalCenter Holding Co.'s unaudited consolidated financial
statements. GlobalCenter Holding Co. has made adjustments, consisting of normal
recurring adjustments, which in the opinion of GlobalCenter Holding Co.'s
management are necessary for a fair presentation of its financial position as
of September 30, 2000 and the results of its operations for the nine months
ended September 30, 2000. Results of operations for the nine months ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the full year or for any future period.
GlobalCenter Inc. was acquired by Frontier Corporation in February 1998 in a
pooling-of-interests merger transaction. On September 28, 1999, Global Crossing
Ltd. acquired Frontier Corporation in a merger transaction. For financial
reporting purposes, the merger with Global Crossing Ltd. was deemed to have
occurred on September 30, 1999. In connection with the merger, the assets and
liabilities of GlobalCenter Inc. were adjusted to their respective fair values
under the purchase method of accounting. We have included the assets and
liabilities of GlobalCenter Inc. and the related consolidated results of
operations for periods prior to October 1, 1999 under the heading
"Predecessor," and of GlobalCenter Holding Co. for periods subsequent to
September 30, 1999 under the heading "GlobalCenter." The effects of the fair
value adjustments to GlobalCenter Holding Co.'s assets and liabilities from the
merger, including amortization of goodwill and other intangibles, are shown in
the GlobalCenter Statement of Operations Data and Balance Sheet and Other Data.
Depreciation, amortization and certain other line items included in the
operating results, and property, equipment and goodwill balances included in
the balance sheet of GlobalCenter Holding Co. are not directly comparable
between periods because the GlobalCenter Holding Co. results after September
30, 1999 include the effects of purchase accounting adjustments related to the
merger with Global Crossing Ltd., while prior periods do not. For this and
other reasons, the selected consolidated historical financial data provided
below should be read in conjunction with the Consolidated Financial Statements
of GlobalCenter Holding Co. and related notes and with "Management's Discussion
and Analysis of Financial Condition and Results of Operations of GlobalCenter",
each of which appears elsewhere in this proxy statement.
10
<PAGE>
<TABLE>
<CAPTION>
Predecessor GlobalCenter GlobalCenter
--------------------------------- ------------ -------------
Unaudited
Year Ended Nine Months Three Months Nine Months
December 31, Ended Ended Ended
------------------ September 30, December 31, September 30,
1997 1998 1999 1999 2000
-------- -------- ------------- ------------ -------------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues:
Service revenues....... $ 6,511 $ 19,600 $ 29,951 $ 17,753 $ 97,774
Equipment revenues..... 1,228 3,640 17,228 5,971 38,821
-------- -------- -------- -------- ---------
Total revenues....... 7,739 23,240 47,179 23,724 136,595
Costs and expenses:
Cost of service
revenues.............. 5,257 14,804 36,451 17,328 93,026
Cost of equipment
revenues.............. 995 3,208 15,573 5,365 36,986
Sales and marketing.... 1,966 8,948 9,531 6,088 25,213
General and
administrative........ 2,044 4,694 6,897 3,067 44,294
Depreciation and
amortization.......... 912 4,023 4,242 1,913 16,236
Amortization of
intangibles........... 325 1,294 974 74,270 222,810
Merger costs........... -- 2,060 -- -- --
-------- -------- -------- -------- ---------
Total costs and
expenses............ 11,499 39,031 73,668 108,031 438,565
-------- -------- -------- -------- ---------
Operating loss.......... (3,760) (15,791) (26,489) (84,307) (301,970)
Other income (expense),
net.................... 45 55 (44) 114 (229)
-------- -------- -------- -------- ---------
Loss from continuing
operations before
income taxes........... (3,715) (15,736) (26,533) (84,193) (302,199)
Income tax benefit...... 941 4,911 9,742 5,038 33,189
-------- -------- -------- -------- ---------
Net loss from continuing
operations............. (2,774) $(10,825) (16,791) (79,155) (269,010)
Loss from discontinued
operations, net of
income tax benefit..... (10,638) (13,380) (16,985) (15,188) --
-------- -------- -------- -------- ---------
Net loss............. $(13,412) $(24,205) $(33,776) $(94,343) $(269,010)
======== ======== ======== ======== =========
Consolidated Operating
Data:
Cash (used in) operating
activities............. $ (3,147) $ (5,752) $(10,057) $ (8,171) $ (64,142)
Cash (used in) investing
activities............. (1,285) (28,978) (20,871) (52,771) (213,329)
Cash provided by
financing activities... $ 4,933 $ 69,324 $ 81,355 $ 90,760 $ 284,265
</TABLE>
<TABLE>
<CAPTION>
Predecessor GlobalCenter
--------------- ------------------------
As of December 31, Unaudited
-------------------------- September 30,
1997 1998 1999 2000
------- ------- ---------- -------------
($ in thousands)
<S> <C> <C> <C> <C>
Balance Sheet and Other Data:
Goodwill and intangibles, net........ $ 8,764 $ 7,470 $1,411,130 $1,188,320
Total assets......................... 18,172 76,319 1,563,578 1,639,665
Total liabilities.................... 2,578 12,085 65,233 129,606
Shareholder's equity................. 15,594 64,234 1,498,345 1,510,059
Total liabilities and shareholder's
equity.............................. $18,172 $76,319 $1,563,578 $1,639,665
Number of data centers............... 2 6 8 11
Data center gross square footage..... 23,000 72,000 238,000 441,000
</TABLE>
11
<PAGE>
Exodus' Selected Unaudited Pro Forma Combined Condensed Financial Information
The Selected Unaudited Pro Forma Combined Condensed Financial Information is
presented for illustrative purposes only and is not necessarily indicative of
the combined results of operations for future periods or the results of
operations that actually would have been realized had Exodus, Cohesive
Technology Solutions, Inc. and its Subsidiaries and GlobalCenter been combined
companies during the specified periods. For purposes of discussing the business
and operations acquired by Exodus, we will refer to Cohesive Technology
Solutions, Inc. and its subsidiaries collectively as Cohesive.
The Selected Unaudited Pro Forma Combined Condensed Financial Information is
qualified in its entirety by reference to, and should be read in conjunction
with, the consolidated financial statements and related notes thereto of Exodus
and the historical consolidated financial statements and related notes thereto
of Cohesive, which are incorporated by reference into this document, and the
historical consolidated financial statements and related notes thereto of
GlobalCenter and the Unaudited Pro Forma Combined Condensed Financial
Statements of Exodus, which are included elsewhere in this document.
The Selected Unaudited Pro Forma Combined Condensed Statement of Operations
Data for the Year Ended December 31, 1999 gives effect to the merger between
Exodus and Cohesive and to the merger between Exodus and GlobalCenter as if
both mergers had taken place on January 1, 1999. The Selected Unaudited Pro
Forma Combined Condensed Statement of Operations Data for the Nine Months Ended
September 30, 2000 gives effect to the merger between Exodus and GlobalCenter
as if it had taken place on January 1, 2000. The Selected Unaudited Pro Forma
Combined Condensed Balance Sheet Data gives effect to the GlobalCenter
acquisition as if it had taken place on September 30, 2000.
The Selected Unaudited Pro Forma Combined Condensed Financial Information
has been prepared on the basis of assumptions described in the notes to the
Unaudited Pro Forma Combined Condensed Financial Statements included elsewhere
in this document. In the opinion of management, all adjustments necessary to
present fairly this Selected Unaudited Pro Forma Combined Condensed Financial
Information have been made.
12
<PAGE>
The pro forma financial statements should be read in conjunction with the
audited consolidated financial statements and notes of Exodus and the audited
financial statements and notes of Cohesive and GlobalCenter, which are
incorporated by reference into this document or included elsewhere in this
document.
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December September
31, 1999 30, 2000
----------- -----------
(in thousands except
per share data)
<S> <C> <C>
Unaudited Pro Forma Combined Condensed Statement of
Operations Data:
Total revenues...................................... $ 342,234 $ 679,926
Cost and expenses:
Cost of revenues.................................. 297,152 519,478
Marketing and sales............................... 95,022 148,528
General and administrative........................ 59,985 146,663
Product development............................... 8,869 10,573
Amortization of goodwill and other intangible
assets........................................... 1,008,123 768,061
Acquisition-related charges....................... 5,058 --
----------- -----------
Total cost and expenses......................... 1,474,209 1,593,303
Operating loss.................................. (1,131,975) (913,377)
Interest expense, net............................... (35,066) (87,787)
----------- -----------
Loss from continuing operations before taxes.... (1,167,041) (1,001,164)
Income tax benefit.................................. 450 --
----------- -----------
Loss from continuing operations attributable to
common stockholders............................ $ 1,166,591 $(1,001,164)
=========== ===========
Basic and diluted loss per share from continuing
operations......................................... $ (2.37) $ (1.82)
=========== ===========
Share used in computing basic and diluted net loss
per share from continuing operations............... 450,247 511,311
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
September
30, 2000
----------
<S> <C>
Unaudited Pro Forma Combined Condensed Balance Sheet Data:
Cash and cash equivalents.......................................... $1,257,760
Restricted cash equivalents........................................ 73,051
Working capital (deficiency)....................................... 847,832
Property and equipment, net........................................ 1,620,595
Total assets....................................................... 9,920,935
Equipment loans and capital lease obligations, less current
portion........................................................... 64,173
Convertible subordinated notes..................................... 562,494
Senior notes....................................................... 1,936,062
Total stockholders' equity......................................... 6,692,644
</TABLE>
13
<PAGE>
Comparative Historical and Unaudited Pro Forma Per Share Data
The following table sets forth selected historical per share data of Exodus
and combined per share data on an unaudited pro forma basis after giving effect
to the merger on a purchase accounting basis. The information presented in this
table is derived from the financial information of Exodus and GlobalCenter
Holding Co. and is only a summary. This data should be read in conjunction with
the Selected Historical Financial Information and separate historical
consolidated financial statements of Exodus and GlobalCenter Holding Co.
included elsewhere in or incorporated by reference into this proxy statement.
This table is not necessarily indicative of the results of future operations of
Exodus or actual results that would have occurred if the merger had taken place
prior to the period indicated. See "Where You Can Find More Information" on
page 75.
<TABLE>
<CAPTION>
Historical Pro Forma
Exodus Combined
---------- ---------
<S> <C> <C>
Book value per share:
September 30, 2000.................................... $ 1.34 $12.47
Basic and diluted net income (loss) per share:
Nine months ended September 30, 2000.................. $(0.45) $(1.82)
Year ended December 31, 1999.......................... $(0.39) $(2.37)
</TABLE>
To assist you in understanding the table above, we used the following
methods:
. We computed historical book value per share by dividing Exodus' total
stockholders' equity as of September 30, 2000 by the number of common
shares outstanding as of that date.
. We computed the pro forma combined book value per share amounts by
dividing pro forma stockholders' equity, including pro forma
adjustments, by the pro forma number of shares of Exodus common stock
which would have been outstanding had the merger been completed as of
September 30, 2000 without including outstanding options. For more
detailed information, refer to the Exodus Unaudited Pro Forma Combined
Condensed Financial Statements on page 51.
. We computed the pro forma combined basic and diluted net loss per share
using the weighted average number of shares of common stock outstanding
after the issuance of Exodus common stock to acquire the outstanding
shares of GlobalCenter Holding Co. common stock.
. We excluded dilutive options from the computation during these loss
periods as their effect is anti-dilutive.
14
<PAGE>
Market Price and Dividends
The following table sets forth the high and low closing prices per share of
Exodus common stock for the periods indicated, as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Year Ending December 31, 2000
Fourth Quarter (through November 30, 2000) $ $
Third Quarter................................................. 68.44 37.00
Second Quarter................................................ 70.81 29.00
First Quarter................................................. 86.66 43.19
Year Ended December 31, 1999
Fourth Quarter................................................ $45.91 $15.52
Third Quarter................................................. 21.70 13.45
Second Quarter................................................ 14.99 7.67
First Quarter................................................. 9.38 3.77
Year Ended December 31, 1998
Fourth Quarter................................................ $ 4.17 $ 1.21
Third Quarter................................................. 3.05 1.06
Second Quarter................................................ 2.99 1.91
First Quarter (commencing March 19, 1998)..................... 1.79 1.70
</TABLE>
On November 30, 2000, there were shares of Exodus common stock
outstanding which were held of record by stockholders and there were
233,500,000 shares of GlobalCenter Holding Co. common stock outstanding which
were held of record by one shareholder, Global Crossing GlobalCenter Holdings,
Inc.
Exodus has never declared or paid any cash dividends on its common stock.
Exodus currently intends to retain any earnings for use in its business and
does not anticipate paying any cash dividends in the foreseeable future.
GlobalCenter Holding Co. has never paid cash dividends on its common stock and
does not anticipate that any cash dividends will be paid on its common stock in
the foreseeable future.
15
<PAGE>
FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission encourages companies to disclose
forward-looking information so that investors can better understand a company's
future prospects and make informed investment decisions. This proxy statement
contains such forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of
1933, as amended and Section 21E of the Securities and Exchange Act of 1934, as
amended. These statements may be made directly in this proxy statement and they
may be made a part of this proxy statement by reference to other documents
filed with the Securities and Exchange Commission and incorporated by reference
into this proxy statement. These statements may include statements regarding
the period following completion of the merger.
Words such as "expects," "anticipates," "intends," "plans," "believes,"
"seeks," "estimates," variations of these words and similar expressions are
intended to identify these forward-looking statements. In particular,
statements regarding expected strategic benefits, advantages and other effects
of the merger described in "Summary--Reasons for the Merger" and "The Merger
and Related Transactions--Reasons for the Merger" and elsewhere in this
document are forward-looking statements. All forward-looking statements are
management's present expectations of future events and are subject to a number
of factors and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements. In addition
to the risks related to the businesses of Exodus and GlobalCenter, the factors
discussed under "Risks Related to the Merger," among others, could cause actual
results to differ materially from those described in the forward-looking
statements. We make no representation as to whether any projected or estimated
financial information contained in any forward-looking statements will be
obtained and stockholders are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date of this proxy
statement or the date of the document incorporated by reference in this proxy
statement. Exodus is not under any obligation, and expressly disclaims any
obligation, to update or alter any forward-looking statements, whether as a
result of new information, future events or otherwise.
16
<PAGE>
RISKS RELATED TO THE MERGER
In addition to the other material contained in or incorporated by reference
into this proxy statement, you should carefully consider the following risk
factors in evaluating whether or not to approve the issuance of Exodus common
stock in the merger.
If Exodus and GlobalCenter cannot effectively integrate their operations and
infrastructure, the potential benefits of the proposed merger will not be
realized.
An important reason for the proposed merger is that it is expected to allow
Exodus to utilize GlobalCenter facilities and employees to provide an enhanced
level of services in connection with Exodus' Web hosting and managed and
professional services operations. To do so, Exodus and GlobalCenter will have
to integrate their Internet protocol networks and management teams as well as
their managed and professional services operations. If this integration effort
is not successful, then results of operations could be adversely affected,
employee morale could decline, key employees could leave and customers could
cancel existing orders or choose not to place new ones. In addition,
difficulties or delays in the integration of the network and call center
operations of Exodus and GlobalCenter could disrupt customer service after the
merger. Until GlobalCenter's existing customers have had the opportunity to
determine how well the combined companies will operate, they might cancel
existing orders or delay placing new ones. If Exodus' operations after the
merger do not meet the expectations of GlobalCenter's or Exodus' existing
customers, then these customers might reduce their future orders or cease doing
business with us altogether.
The market price of Exodus common stock is highly volatile and could decline as
a result of the proposed merger.
In the past, Exodus common stock has experienced substantial price
volatility. This volatility might occur in the future, which could cause your
Exodus common stock to be worth less after the merger than before the merger.
Volatility can occur particularly as a result of quarter-to-quarter variations
in the actual or anticipated financial results of Exodus, its customers or
competitors, and announcements by Exodus or its competitors regarding new
products and services introductions. In addition, the market price of Exodus
common stock can fluctuate due to price and volume fluctuations in the stock
market, especially those that have affected the market price of technology
stocks in general and Internet stocks in particular.
In addition, the market price of Exodus common stock might decline
significantly as a result of the proposed merger if:
. Exodus does not experience the benefits of the merger as quickly as
anticipated, or at all, or the costs of or operational difficulties
arising from the merger are greater than anticipated;
. the impact of the merger on Exodus' financial results is not in line
with the expectations of financial analysts; or
. margins on professional services decline because of competitive or other
factors or because the anticipated shift of the total mix of business
toward managed and professional services does not materialize.
The business of Exodus and GlobalCenter could suffer due to announcement of the
proposed merger.
The announcement of the proposed merger may increase the likelihood of a
number of changes to the businesses of Exodus or GlobalCenter. These potential
changes include:
. loss of key management, development or other personnel of Exodus and/or
GlobalCenter;
. cancellation or decline in the rate of orders for Exodus' or
GlobalCenter's products or services or deterioration of Exodus' or
GlobalCenter's customer relationships;
17
<PAGE>
. delays in product development or development of new service
capabilities; and
. loss of key strategic relationships, joint marketing arrangements and
key business partners.
Changes in the business of Exodus and GlobalCenter pending the merger could
have a material impact on the business of Exodus after the merger. Even if the
merger is not completed, Exodus could be harmed by the expectation of these
changes and restoring Exodus's business to its pre-announcement value could
take a long time and be costly.
GlobalCenter's historical financial information may not be representative of
its results going forward.
Global Crossing did not account for GlobalCenter and GlobalCenter was not
operated as a separate, standalone entity for the periods presented in this
proxy statement. GlobalCenter's consolidated historical financial statements
have been extracted from the consolidated financial statements of Global
Crossing Ltd. using the historical results of operations and historical bases
of the assets and liabilities of the GlobalCenter Web hosting and Internet
infrastructure services businesses that were transferred to GlobalCenter.
GlobalCenter's costs and expenses include allocations of infrastructure costs
associated with its use of or benefit from centralized corporate services,
including:
. information technology;
. real estate;
. accounting, tax and treasury;
. human resources;
. legal; and
. sales and marketing.
Accordingly, the consolidated historical financial information GlobalCenter
has included in this proxy statement does not necessarily reflect what
GlobalCenter's financial position, results of operations and cash flows would
have been had GlobalCenter been a separate, standalone entity during the
periods presented. As a result, this consolidated historical financial
information is not necessarily indicative of the future financial results of
GlobalCenter.
The merger could result in the loss of employees at Exodus and GlobalCenter
before and after completion of the merger.
Whether or not the merger occurs, Exodus and GlobalCenter may not be able to
retain some of their key employees. Employees of a company are often uncertain
as to their future employment during the time after the company enters into a
merger agreement and before the merger is completed. Although incentives
provided by Exodus and GlobalCenter during this period may mitigate this
effect, it is possible that employees will seek employment elsewhere. After the
merger, integration of the businesses of Exodus and GlobalCenter could result
in changes in the culture and operations of the companies that could cause the
combined company to lose key employees. The success of the combined company
will depend upon its ability to attract and retain highly skilled technical,
managerial, sales and marketing personnel, particularly additional management
in the areas of application integration and technical support. In particular,
the loss of key employees at any GlobalCenter regional office could adversely
impact GlobalCenter's overall financial results, which could have a negative
impact on the operating results of Exodus after the merger. Competition for
such personnel is intense. After the merger, Exodus may not be able to hire or
retain the necessary personnel to integrate GlobalCenter with Exodus and
implement its business strategy, or may need to pay higher compensation for
employees than it currently expects.
18
<PAGE>
If members of GlobalCenter's management leave, the potential benefits of the
merger may not be realized.
GlobalCenter has hired most of its senior management within the last year.
As a result, GlobalCenter's management team has worked for GlobalCenter for
only a brief time. In addition, many members of GlobalCenter's senior
management will benefit significantly from the full acceleration of vesting for
their GlobalCenter options as a result of the merger. Success of the merger
will depend, in significant part, on the continued services of GlobalCenter's
senior management personnel and of its key technical and sales personnel. If
members of GlobalCenter's current management were to terminate their employment
with GlobalCenter, the ability of Exodus to manage GlobalCenter's business and
workforce after the merger would be harmed and GlobalCenter's operations could
be disrupted. GlobalCenter does not have employment agreements for any
GlobalCenter employees other than Mr. Hindery, its Chairman and Chief Executive
Officer. Although GlobalCenter's Chief Executive Officer and other members of
the GlobalCenter management team will be subject to noncompetition agreements
with Exodus and GlobalCenter after the merger, these agreements may not result
in the retention of any members of the management of GlobalCenter for any
significant period of time. A loss of any member of GlobalCenter's management
could defer or prevent Exodus from realizing the benefits that it anticipates
from the merger.
The merger could harm key customer third party and relationships.
The proposed merger could harm the present and potential relationships of
Exodus and GlobalCenter with customers and other third parties with whom they
do business. For example, the continuance of GlobalCenter's customer
relationships is generally based on continued customer goodwill and
satisfaction rather than long-term orders or other contractual commitments.
Customers might postpone or cancel sales orders for Web hosting and/or managed
and professional services if they perceive that customer services and support
would decline as a result of the merger. Any changes in customer relationships
could harm the combined company's business. GlobalCenter's customers and other
third parties may, in response to the announcement of the merger, delay or
defer decisions concerning using GlobalCenter as their service provider.
GlobalCenter could experience a decrease in expected revenue as a consequence
of uncertainties associated with the merger.
The costs associated with the merger may be higher than expected, which could
harm the financial results of the combined company and cause a decline in the
value of Exodus common stock.
Exodus and GlobalCenter estimate that they will incur total direct
transaction costs of approximately $31 million associated with the merger.
Exodus expects to incur additional costs associated with consolidation and
integration of operations. These costs cannot be estimated accurately at this
time. If the total costs of the merger and related consolidation and
integration exceed estimates, or if the costs of the merger exceed the benefits
of the merger, the financial results of the combined company would suffer. Any
shortfall in anticipated operating results could cause the market price of
Exodus common stock to decline. In addition, the market price of Exodus common
stock could decline immediately, and perhaps significantly, if Exodus does not
experience business benefits as quickly or in as great an amount as expected by
securities analysts.
The acquisitions that Exodus has recently completed may increase the
integration difficulties associated with the proposed merger with GlobalCenter.
The challenges of integrating the operations of Exodus and GlobalCenter will
be increased by ongoing efforts associated with the continuing integration of
other recent acquisitions by Exodus. In October 1998, Exodus acquired Arca
Systems, a provider of advanced network and system security consulting
services. In February 1999, Exodus acquired American Information Systems, a
provider of co-location, Web hosting and professional services in the Chicago
metropolitan area. In July 1999, Exodus acquired Cohesive Technology Solutions,
a technology professional services organization with expertise in networking,
Web applications and technology solutions. In November 1999, Exodus acquired
Service Metrics, an Internet monitoring applications and services company. In
December 1999, Exodus acquired Global OnLine Japan, an Internet solutions
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provider in the Japanese market. In February 2000, Exodus acquired KeyLabs,
Inc., a provider of e-business testing services. In February 2000, Exodus
acquired the Professional Services Division of Network-1 Solutions, Inc. to
strengthen Exodus' capabilities in network security design consulting. In April
2000, Exodus completed an investment in and entered into a commercial
relationship with Mirror Image Internet, Inc. to help enhance its managed
services platform by improving its content distribution offering. In August
2000, Exodus acquired Grenville Consulting UK Limited, a professional services
organization based in the UK. Exodus anticipates that in the future it will
continue to consider other acquisitions of businesses to expand its business
and to acquire complementary technologies and personnel. The integration of
multiple organizations requires a substantial amount of management resources
and attention. These acquisitions, as well as other potential future
acquisitions, will require Exodus to manage and integrate the acquired
businesses and their personnel, which may be located in diverse geographic
locations, and will also require Exodus to develop and market services to new
markets with which Exodus may not be familiar. Failure of Exodus to integrate
and manage acquired businesses successfully and to retain their employees and
customers, and to address new markets associated with the acquired businesses
successfully, would harm its business and increase the difficulties associated
with the integration of the operations of GlobalCenter.
The number of shares of Exodus common stock to be issued in the merger will
vary depending upon a number of factors, and could increase substantially,
which would increase the dilutive affect of the merger to the Exodus
stockholders.
The number of shares that Exodus will be issue in the merger will be
determined under a formula at the time the merger is completed. If the merger
had been completed on September 28, 2000, the day Exodus announced the proposed
merger, Exodus would have issued a total of 99,517,700 shares to Global
Crossing GlobalCenter Holdings, Inc. in the merger, which would represent
approximately 19% of the outstanding shares of Exodus after the merger. This
estimate is based upon application of the merger conversion formula to
information as of September 28, 2000 and on the assumptions stated on pages 36
and 37 under the heading "The Merger Agreement--Conversion of GlobalCenter
Stock and Options." This estimate is an example only. If there is a substantial
increase in the market price of Global Crossing Ltd. common stock before the
merger, the number of shares of Exodus common stock issued in the merger would
increase substantially. Exodus will not seek further approval of its
stockholders if the number of shares of Exodus common stock to be issued in the
merger differs materially from the estimates shown in this proxy statement.
Stockholders are urged to obtain recent market quotations for Exodus common
stock before they vote.
The merger will decrease the ownership interests of the current Exodus
stockholders.
Based upon the assumptions provided in this proxy statement on pages 36 and
37 under the heading "The Merger Agreement--Conversion of GlobalCenter Stock
and Options," Exodus estimates that, it would have issued a total of 99,517,700
shares to Global Crossing GlobalCenter Holdings, Inc. in the merger which would
represent approximately 19% of the outstanding shares of Exodus after the
merger. This represents substantial dilution of the ownership interests of the
current stockholders of Exodus compared to their ownership interests in Exodus
before the merger. The issuance of additional shares of Exodus common stock
upon exercise of the stock options being assumed and issued by Exodus in the
merger and stock options that Exodus may grant to GlobalCenter's workforce
after the merger will result in further dilution to the current stockholders of
Exodus.
As a result of the merger, Global Crossing GlobalCenter Holdings, Inc., an
indirect wholly owned affiliate of Global Crossing Ltd., will have a
substantial ownership interest in Exodus.
Global Crossing GlobalCenter Holdings, Inc. and Global Crossing Ltd. have
agreed that they and their affiliates will vote their shares of Exodus common
stock either as directed by Exodus or in the same proportion as the other
Exodus stockholders until the earlier of five years after the merger or the
time that their collective percentage ownership of Exodus is reduced to below
10%. This agreement does not, however, apply to a proposal relating to a change
in control of Exodus. In addition, Global Crossing GlobalCenter has the right
to designate one nominee for election to the Exodus board of directors for as
long as it and its affiliates own a total of at least 10% of the Exodus common
stock outstanding. As a result of these agreements, Global
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Crossing GlobalCenter or its affiliates would be able to substantially
influence the management of Exodus. In addition, Global Crossing GlobalCenter
will have substantial influence over the outcome of a stockholder vote on any
matter relating to a change in control of Exodus. Thus, actions might be taken
even if other stockholders of Exodus oppose them.
Substantial future sales of Exodus common stock by Global Crossing and its
affiliates could cause the price of Exodus common stock to decline.
Based upon the assumptions provided in this proxy statement on pages 36 and
37 under the heading "The Merger Agreement--Conversion of GlobalCenter Stock
and Options," Exodus estimates that, immediately after the merger, it would
have issued a total of 99,517,700 shares to Global Crossing GlobalCenter
Holdings, Inc. in the merger which would represent approximately 19% of the
outstanding shares of Exodus after the merger. All of the shares of Exodus
common stock issued at the completion of the merger will be restricted shares.
Exodus has agreed to register these shares for resale within four months after
the merger and to keep the registration statement effective until the
registered shares are sold or until Global Crossing GlobalCenter and its
affiliates own less than 3% of the Exodus common stock outstanding. Global
Crossing and its affiliates have agreed not to sell their shares for one year
after the first anniversary of the closing of the merger except under limited
circumstances. From the first to the fifth anniversaries of the closing of the
merger, Global Crossing and its affiliates have agreed not to transfer their
Exodus shares except in underwritten offerings and other sales pursuant to
their registration rights or pursuant to Rule 144, or under limited
circumstances similar to those during the first year after the closing of the
merger. The market price of Exodus common stock could decline as a result of
sales by Global Crossing and its affiliates of a large number of shares of
Exodus common stock in the market or the perception that these sales could
occur.
Our ability to expand our network is unproven and will require substantial
financial, operational and management resources.
To satisfy customer requirements, we must continue to expand and adapt our
network infrastructure. We are dependent on MCI WorldCom, Qwest, Global
Crossing and other telecommunications providers for our network capacity. In
the future, we intend to rely more heavily on one provider, Global Crossing
Ltd., and will become more dependent on Global Crossing Ltd. and its affiliates
for network operations and services. The expansion and adaptation of our
telecommunications infrastructure will require substantial financial,
operational and management resources as we negotiate telecommunications
capacity with network infrastructure suppliers. Due to the limited deployment
of our services at comparable levels of scale to date, our ability to connect
and manage substantially larger number of customers at high transmission speeds
is unknown. We have yet to prove our network's ability to be scaled up to
higher customer levels while maintaining superior performance. Furthermore, it
may be difficult for us to increase quickly our network capacity in light of
current necessary lead times within the industry to purchase circuits and other
critical items. If we fail to achieve or maintain high capacity data
transmission circuits, customer demand could diminish because of possible
degradation of service. In addition, as we upgrade our telecommunications
infrastructure to increase bandwidth available to our customers, we expect to
encounter equipment or software incompatibility which may cause delays in
implementation.
GlobalCenter has a limited operating history and its business model is still
evolving, which makes it difficult to evaluate GlobalCenter, its prospects and
the benefits of the merger to Exodus.
GlobalCenter's limited operating history makes evaluating its business
operations and its prospects difficult. GlobalCenter's range of service
offerings has changed since its inception and its business model is still new
and developing. GlobalCenter recently began offering a wider range of
applications and professional services. Because many of these services are new,
GlobalCenter cannot be sure that customers will buy them. As a result, the
revenue and income potential of its business is unproven.
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Exodus and GlobalCenter have a history of significant losses and we expect
these losses to continue for the foreseeable future, which makes the business
of the combined company increasingly difficult to evaluate.
Exodus' limited operating history and heavy losses make evaluating our
business operations and our prospects difficult. We began offering server
hosting and Internet connectivity services in late 1995, opened our first
dedicated Internet Data Center in August 1996 and introduced managed services
in 1997 and professional services in 1998. Due to our short operating history,
our business model is still evolving. We have incurred operating losses each
fiscal quarter and year since 1995. We have experienced negative cash flows
from operations in each fiscal quarter from 1995 through March 31, 2000. For
the quarters ended June 30, 2000 and September 30, 2000, we achieved positive
cash from operations; however, there is no assurance that positive cash flows
from operations will continue or increase in future periods. Our accumulated
deficit was approximately $407.3 million at September 30, 2000.
GlobalCenter also has experienced significant losses and negative cash flows
from operations in the past. GlobalCenter's net loss from continuing operations
was $269.0 million for the nine months ended September 30, 2000, $79.2 million
for the three months ended December 31, 1999, $16.8 million for the nine months
ended September 30, 1999, $10.8 million for the year ended December 31, 1998
and $2.8 million for the year ended December 31, 1997. While GlobalCenter's
revenues have grown in recent periods, this growth may not continue.
We anticipate continuing to make significant investments in new Internet
Data Centers and network infrastructure, product development, sales and
marketing programs and personnel. We believe that we will continue to
experience net losses on a quarterly and annual basis for the foreseeable
future. We may also use significant amounts of cash and/or equity to acquire
complementary businesses, products, services or technologies. Although we have
experienced significant growth in revenues in recent periods, this growth is
not necessarily indicative of future operating results, and this growth will
likely decrease. It is possible that we may never achieve profitability on a
quarterly or annual basis.
Exodus and GlobalCenter both provide service level commitments to their
customers, so any significant degradation in service to their customers could
force Exodus to reduce its prices enough to harm the business and financial
results of Exodus.
Both Exodus' and GlobalCenter's customer contracts provide service level
agreements related to the continuous availability of its data center and
network services. Exodus' and GlobalCenter's commitments are generally limited
to a credit consisting of reduction in monthly charges for disruptions in
Internet transmission services. If Exodus or GlobalCenter incurs significant
service degradation in connection with system downtime, Exodus will be forced
to reduce its charges and its business and financial results would be harmed.
As customers outsource more mission-critical operations to the combined
company, Exodus risks increased liability claims and customer dissatisfaction
if its systems fail to meet its customers' expectations.
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THE SPECIAL MEETING
Date, time, place and purpose of the Exodus special meeting
The special meeting of stockholders of Exodus will be held at the Company's
executive offices at 2831 Mission College Boulevard, Santa Clara, CA 95054 at
10:00 a.m., Pacific Time on January 9, 2001. At the meeting, Exodus
stockholders will be asked:
1. To approve the issuance of shares of Exodus common stock in the merger.
The merger agreement is attached as Annex A to this proxy statement.
2. To transact other business as may properly come before the special
meeting or any adjournments or postponements of the special meeting.
Record date, outstanding shares and quorum
The Exodus board of directors has fixed the close of business on November
30, 2000, as the record date for determining which stockholders are entitled to
vote at the special meeting. Only holders of record of Exodus common stock at
the close of business on the record date are entitled to notice of and to vote
at the meeting. As of the close of business on the record date, there were
shares of Exodus common stock outstanding and entitled to vote, held of
record by approximately stockholders. Exodus has been informed that there
are in excess of beneficial owners of shares of its common stock. The
presence in person or by proxy at the meeting, of the holders of a majority of
the shares entitled to vote on the record date will constitute a quorum,
permitting the meeting to conduct its business. Proxies received but marked as
abstentions and broker non-votes will be included in the calculation of the
number of shares considered to be present at the meeting.
Vote required, effect of abstentions and broker non-votes
Approval of the issuance of shares in the merger requires the affirmative
vote of a majority of a quorum at the special meeting. Holders of Exodus common
stock are entitled to one vote for each share held as of the record date.
Abstentions and broken non-votes will have the same effect as votes against the
issuance of the Exodus stock in the merger.
Share ownership of management and certain stockholders
On the record date, directors, executive officers and affiliates of Exodus
as a group beneficially owned shares of Exodus common stock. Such
shares constituted approximately % of all of the outstanding Exodus common
stock, as of the record date.
Expenses of proxy solicitation
Exodus will pay the expenses of soliciting proxies for the meeting.
Following the original mailing of the proxies and other soliciting materials,
Exodus or its agents may also solicit proxies by mail, telephone, telegraph or
in person. Exodus has retained Skinner and Company to aid in the solicitation
of proxies and to verify records relating to the solicitation. Skinner and
Company will receive customary fees and expense reimbursement for these
services. Exodus estimates these fees and expenses to be approximately $7,500.
Following the original mailing of the proxies and other soliciting materials,
Exodus will request that brokers, custodians, nominees and other record holders
of Exodus shares forward copies of the proxy and other soliciting materials to
persons for whom they hold shares. In these cases, Exodus will reimburse the
record holders for their reasonable expenses if they ask Exodus to do so.
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Voting of proxies
The proxy accompanying this proxy statement is solicited on behalf of our
board of directors for use at the special meeting. Please complete, date and
sign the accompanying proxy and promptly return it in the enclosed envelope or
otherwise mail it to us. All properly signed proxies that we receive prior to
the vote at the meeting and that are not revoked will be voted at the meeting
according to the instructions indicated on the proxies or, if no direction is
indicated, to approve the issuance of Exodus stock in the merger. A proxy may
be revoked by any of the following methods:
. a written instrument delivered to Exodus stating that the proxy is
revoked;
. a subsequent proxy that is signed by the person who signed the earlier
proxy and is presented at the special meeting; or
. attendance at the special meeting and voting in person.
Please note, however, that if a stockholder's shares are held of record by a
broker, bank or other nominee and that stockholder wishes to vote at the Exodus
meeting, the stockholder must bring to the special meeting a letter from the
broker, bank or other nominee confirming that stockholder's beneficial
ownership of the shares.
Exodus' board of directors does not know of any matter to be presented for
action at the meeting. If any other matters are properly brought before the
meeting, the persons named in the proxies will have discretion to vote on those
matters in accordance with their best judgment.
No appraisal rights
Holders of Exodus common stock are not entitled to dissenters' rights or
appraisal rights with respect to the merger.
Recommendation of the Exodus board
After careful consideration, the Exodus board of directors determined that
the terms of the merger agreement and the merger are fair to, and in the best
interests of, the stockholders of Exodus and approved the merger agreement and
the merger. The Exodus board of directors recommends that the stockholders of
Exodus vote "FOR" the issuance of shares of Exodus common stock in the merger.
All of the Exodus directors who considered the merger concurred in this
determination and recommendation.
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THE MERGER AND RELATED TRANSACTIONS
Background of the Merger
On June 26, 2000, Ms. Ellen Hancock, Chairman and Chief Executive Officer,
and Mr. Richard Stoltz, former Chief Financial Officer and Special Advisor,
Strategy and Finance of Exodus and Thomas Weisel of Thomas Weisel Partners, met
with Mr. Leo Hindery, Chairman and Chief Executive Officer of
GlobalCenter Inc., and began exploratory discussions regarding the possibility
of a strategic transaction between Exodus and GlobalCenter, including a
combination of the two companies. At the conclusion of this meeting, the
parties agreed to meet four days later for further discussions.
On June 30, 2000, representatives of Exodus, Thomas Weisel Partners and
GlobalCenter met to discuss the principal terms under which the parties might
consider a merger between the two companies. At this meeting the parties
discussed potential approaches to valuation of the companies and other issues
surrounding the transaction.
On July 3, 2000, representatives of Exodus, Thomas Weisel Partners,
GlobalCenter and Global Crossing Ltd. met at the offices of GlobalCenter's
legal counsel to discuss the principal terms of a potential merger. On the same
day, Exodus management received an initial draft of a proposed Merger Agreement
from representatives of GlobalCenter.
Between July 4 and July 14, 2000, representatives of Exodus, Thomas Weisel
Partners, Goldman Sachs, GlobalCenter and Global Crossing Ltd. and their
respective legal counsel continued to meet to discuss and negotiate the
principal terms of the potential merger and the valuation of the two companies.
In addition, the parties began discussions and drafting of a network services
agreement and related transactions. During this period, Exodus and its legal
and financial advisors conducted a business, legal and financial due diligence
review of GlobalCenter and Global Crossing Ltd. and its legal and financial
advisors conducted a business, legal and financial review of Exodus. On July 6
and 7, 2000 senior management of Exodus, GlobalCenter and Global Crossing Ltd.
met to discuss the proposed valuation for the potential merger and additional
transaction terms proposed by Exodus.
On July 10, 2000, the finance committee of the board of directors of Exodus
met to evaluate the potential merger of the two companies. On July 11, 2000,
the Exodus board of directors met and heard presentations by Exodus management
on the potential GlobalCenter merger. After its discussions, the board
authorized Exodus management to continue negotiations with GlobalCenter but to
pursue a lower valuation for the transaction. The board further advised Exodus
management to continue to explore alternative strategic opportunities with
other third parties.
On July 11, 2000, Ms. Hancock and Mr. Joseph Stockwell of Exodus met with
Mr. Hindery and Mr. David Walsh of Global Crossing Ltd., and representatives
from Morgan Stanley, advisor to GlobalCenter, to discuss additional terms of
the agreements. On July 12, 2000, representatives of Exodus and Global Crossing
met to discuss the major points of the proposed merger agreement and other
proposed commercial arrangements. On July 13, 2000, GlobalCenter delivered a
GlobalCenter disclosure schedule to Exodus' legal counsel.
On July 14, 2000, the Global Crossing Ltd. board of directors met and
approved the terms of the proposed merger. Also on this date, the Exodus board
of directors met and discussed the terms of the proposed merger. Following this
meeting, Exodus proposed to GlobalCenter Holding Co. and Global Crossing Ltd. a
lower price for GlobalCenter Holding Co. in the proposed merger. GlobalCenter
Holding Co. and Global Crossing Ltd. rejected the price proposal and
negotiations between the parties were suspended.
Between July 18 and July 22, 2000, Exodus management conferred with its
legal and financial advisors, including representatives of Donaldson Lufkin &
Jenrette and Goldman Sachs, as to potential counteroffers to GlobalCenter and
Global Crossing Ltd. On July 22, 2000, Exodus delivered a revised merger
proposal to
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Mr. Hindery as well as a revised offer letter on July 25, 2000. Between July 23
and July 27, 2000, representatives of the two parties met to discuss the
revised terms of the potential merger proposed by Exodus. On July 26, 2000,
Mr. R. Marshall Case, Chief Financial Officer of Exodus, and Mr. Hindery
discussed via conference call a commercial arrangement between the two
companies for network services as well as other issues. On July 28, 2000 legal
counsel for Exodus delivered a revised merger agreement to GlobalCenter and
Global Crossing Ltd.
On August 1, 2000, Mr. Case informed Mr. Hindery by telephone that Exodus
was interested in pursuing a transaction with GlobalCenter under the terms
originally proposed on July 22. Mr. Hindery rejected these terms as a basis for
the transaction and expressed his intention to pursue alternative transactions
with other companies. By letter dated August 1, 2000 to Ms. Hancock, Mr.
Hindery confirmed GlobalCenter's rejection of Exodus' offer, and discussions
between the two companies were suspended again. Exodus management subsequently
informed the finance committee of the Exodus board of directors that the two
companies had ceased negotiations.
During the period between August 1 and the end of August, Exodus management
pursued discussions with another company regarding a potential strategic
transaction which ultimately did not come to fruition.
On September 1, 2000, Mr. Hindery contacted Ms. Hancock to renew discussions
between the companies. The following day, representatives of the parties met at
the offices of Exodus' legal counsel to discuss open issues in the merger
document and ancillary agreements. On September 7, 2000, Exodus' legal counsel
delivered a revised merger proposal to GlobalCenter and Global Crossing Ltd.,
on which GlobalCenter and Global Crossing Ltd. management and legal counsel
provided comments. The following day, Exodus management and its advisors
delivered a revised merger proposal to GlobalCenter and Global Crossing Ltd.
based on these comments.
On September 14, 2000, representatives of Donaldson Lufkin & Jenrette, spoke
via telephone with Mr. Gary Winnick, the Chairman of the Board of Global
Crossing Ltd., and Mr. Tom Casey, at that time the Vice Chairman of the Board
of Global Crossing Ltd., about the major outstanding issues of the proposed
transaction. On September 16, Mr. Casey contacted Mr. Case of Exodus for
further negotiations on these points. By telephone on September 21, 2000, Ms.
Hancock and Mr. Casey discussed the price collar mechanism for the merger.
Exodus' legal counsel subsequently delivered a revised merger proposal to
GlobalCenter and Global Crossing Ltd.
On September 23, 2000, Exodus senior management and its advisors delivered
to GlobalCenter and Global Crossing Ltd. a document outlining the major terms
of the transaction. After review of this document, the parties reached
tentative agreement on all major terms. The following day, Exodus' legal
counsel delivered a revised set of transaction agreements, based on the agreed
upon terms, to GlobalCenter and Global Crossing Ltd.
Between September 25 and 28, 2000, representatives of Exodus, GlobalCenter
and Global Crossing Ltd. met at the offices of Exodus' legal counsel to
negotiate the final terms of the merger agreement and the networking and joint
venture agreements. During this period, Exodus and its legal and financial
advisors conducted a business, legal and financial due diligence review of
GlobalCenter and Global Crossing and its legal and financial advisors conducted
a business, legal and financial review of Exodus. On September 26, Exodus
management presented to the finance committee of Exodus' board of directors the
revised agreements and each of Donaldson Lufkin & Jenrette and Goldman Sachs
delivered presentations regarding the fairness from a financial point of view
to Exodus of the proposed exchange ratio and merger consideration. The finance
committee of Exodus' board of directors recommended the transactions to the
Exodus board of directors. The following day, September 27, 2000, the board of
directors of Exodus met and approved the merger and the board of directors of
Global Crossing Ltd. met and approved the merger. On September 28, 2000,
Exodus, GlobalCenter and Global Crossing Ltd. signed the completed transaction
documents and issued a joint press release announcing the transaction.
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Reasons for the Merger
The Exodus board of directors has approved the merger agreement. It has
deemed the merger advisable and determined that the terms of the merger
agreement are fair and in the best interests of Exodus and its stockholders.
During the course of its deliberations, the board considered a number of
factors, with the assistance of management and its financial and other
advisors. The following discussion of the factors considered by the Exodus
board in making its decision is not intended to be exhaustive, but includes all
material factors considered by the Exodus board of directors.
The Exodus board of directors believed that the proposed merger would
accelerate the pace of Exodus' global expansion and enhance its position as a
leader in managed services and complex Web hosting. The board considered the
following factors to be reasons that the merger would be beneficial to Exodus
and its stockholders:
. combining two leading Web hosting providers with similar scale,
businesses and organizational models and focused on providing hosting
solutions for enterprises worldwide;
. enhancing Exodus' global Internet Data Center infrastructure, resulting
in significant scale and time-to-market advantages in space-constrained
locations. The combined company would have, as of June 30, 2000, 32
Internet Data Centers, with approximately 2.6 million gross square feet,
approximately 4,000 customers, and strategic partnerships with Cisco,
Compaq, Dell, Inktomi, Microsoft, Oracle, Softbank and Sun Microsystems;
. supporting Exodus' long-term needs through global network access
arrangements with Global Crossing Ltd. and Asia Global Crossing. The
benefits to Exodus of this network arrangement with Global Crossing
include:
. preferred pricing on network services and assets, to help Exodus'
network services remain price competitive;
. Exodus' Internet Data Centers would be more closely integrated into
Global Crossing's advanced international Internet Protocol network,
providing Exodus with superior network quality of service;
. local fiber capabilities that would enhance network control;
. strengthening Exodus' customer support, sales and professional services
infrastructure;
. expanding the customer base, to which Exodus can offer its comprehensive
and expanding suite of managed hosting services;
. giving Exodus a strong presence in Asia, and an enhanced ability to
provide complex Web hosting and managed services in Asia. Specifically,
through the formation and operation of a joint venture between Exodus
and Asia Global Crossing, Exodus will acquire an interest in Internet
Data Centers and other assets, management and technical talent, network
resources and joint venture relationships in Asia;
In the course of its deliberations the Exodus board of directors also
considered a number of additional factors relevant to the merger, including:
. the financial condition, results of operations, business and prospects
of Exodus and GlobalCenter before and after giving effect to the merger;
. current financial market conditions and historical market prices, market
volatility and trading information with respect to Exodus common stock;
. reports from management and from legal, accounting and financial
advisors as to the results of their due diligence investigation of
GlobalCenter;
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. financial analyses and pro forma and other information with respect to
the companies presented by Donaldson Lufkin and Jenrette, Goldman Sachs
and Thomas Weisel Partners to the Exodus board of directors;
. the terms of the merger agreement, including the parties'
representations, warranties and covenants, and the condition to their
respective obligations;
. historical information regarding Exodus' and GlobalCenter's businesses,
prospects, financial performance and condition, operations, technology,
management and competitive position, including public reports concerning
results of operations during the most recent fiscal year and fiscal
quarter;
. a comparison of comparable merger transactions;
. the potential and timing for Exodus to develop assets similar to those
it would acquire in the merger, and the possibility of acquiring them
from third parties;
. the technical expertise and experience of GlobalCenter's employees;
. the depth of experience of the combined management; and
. the impact of the merger on Exodus' customers and employees.
The Exodus board of directors also identified and considered a number of
potentially negative factors in its deliberations concerning the merger,
including but not limited to:
. the risk that the potential benefits sought in the merger, including
network cost savings and operating efficiencies, might not be fully
realized;
. the risk of disruption of sales or existing customer relationships as a
result of uncertainties created by the announcement of the merger and
the integration of the companies operations;
. the risk that commitments by Exodus to expansion in Asia and to the
network agreements with Global Crossing will prevent Exodus from taking
advantage of alternative opportunities that may arise in the future;
. the challenges of integrating the management teams, strategies, cultures
and organizations of the companies;
. the risk that despite the efforts of the combined company, key
management and other personnel might not remain employed by the combined
company;
. the risk that certain key employees of GlobalCenter that are parties to
change of control agreements will leave the combined company upon any
triggering of such change of control agreements, and the costs resulting
from such departures;
. the effect of the public announcement of the merger and the possibility
that the merger might not be consummated on (a) demand for Exodus's
services, its relationships with strategic partners, operating results
and its stock price and (b) Exodus' ability to attract and retain key
management and marketing, sales, technical and other personnel;
. costs expected to be incurred in connection with the merger, including
future merger-related costs and potential costs of combining operations
or related to GlobalCenter contractual obligations;
. the increased cash needs of the combined company, which will be more
difficult for Exodus to meet than its capital needs as without the
combination;
. the adverse impact to the net income of the combined company due to the
amortization of goodwill and other intangibles in light of the impact of
purchase accounting for the merger;
. the substantial costs and related charges to be incurred in connection
with the merger, including costs of integrating the businesses and
transaction expenses arising from the merger; and
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. other applicable risks described in the section of this proxy statement
entitled "Risks Related to the Merger."
. risk that operations of GlobalCenter at close may not be as expected
because of the difficulty in accessing them separately from Global
Crossing.
The Exodus board of directors believed that these risks were outweighed by
the potential benefits of the merger.
The foregoing discussion is not exhaustive of all factors considered by the
Exodus board of directors. Each member of the Exodus board may have considered
different factors, and the Exodus board of directors evaluated these factors as
a whole and did not quantify or otherwise assign relative weights to factors
considered. In addition, the Exodus board of directors did not reach any
specific conclusion with respect to each of the factors considered, or any
aspect of any particular factor. Instead, the Exodus board conducted an overall
analysis of the factors described above, including thorough discussions with
Exodus' management and legal, financial and accounting advisors. In considering
the factors described above, individual members of the Exodus board may have
given different weight to different factors. The Exodus board of directors
evaluated these factors as a whole and believed the factors supported its
determination to approve the merger. After taking into consideration all of the
factors set forth above, Exodus' board of directors concluded that the merger
was in the best interests of Exodus and its stockholders and that Exodus should
proceed with the merger.
Recommendation of the Exodus Board
After careful consideration, the Exodus board of directors determined that
the terms of the merger agreement and the merger are fair to, and in the best
interests of, the stockholders of Exodus and approved the merger agreement and
the merger. The Exodus board of directors recommends that the stockholders of
Exodus vote "FOR" the issuance of shares of Exodus common stock pursuant to the
merger agreement. All of the Exodus directors who considered the merger
concurred in the foregoing determination and recommendation.
Opinions of Financial Advisors
The full text of each of the DLJ opinion, dated September 27, 2000, and the
Goldman Sachs opinion dated September 28, 2000 is attached as Annex B and C
respectively to this proxy statement. The summaries of the DLJ and Goldman
Sachs opinions set forth in this proxy statement are qualified in their
entirety by reference to the full text of each of the DLJ and Goldman Sachs
opinions. Holders of Exodus common stock are urged to read the DLJ and Goldman
Sachs opinions carefully and in their entirety for the procedures followed,
assumptions made, other matters considered and limits of the review by DLJ and
Goldman Sachs in connection with their opinions.
DLJ and Goldman Sachs have both acted as financial advisor to Exodus in
connection with the merger. In their roles as financial advisors to Exodus,
each of DLJ and Goldman Sachs were asked by Exodus to render an opinion to the
Exodus board as to the fairness of the exchange ratio, from a financial point
of view, to Exodus. On September 27, 2000, at a meeting of the Exodus board
held to evaluate the merger, each of DLJ and Goldman Sachs delivered to the
Exodus board an oral opinion, subsequently confirmed by delivery of a written
opinion, to the effect that, as of the date of the opinion and based on and
subject to the assumptions, limitations and qualifications stated in the
opinion, the exchange ratio was fair, from a financial point of view, to
Exodus.
DLJ is an internationally recognized investment banking firm that has
substantial experience in the Internet infrastructure sector and in providing
strategic advisory services. DLJ was not retained as an advisor or agent to the
stockholders of Exodus or any other person. As part of its investment banking
services, DLJ is regularly engaged in the valuation of businesses and
securities in connection with mergers, acquisitions, underwritings,
29
<PAGE>
sales and distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. DLJ has performed investment
banking and other services for Exodus in the past and has been compensated for
such services, including acting as its co-lead manager in two high yield
financings and in two issuances of convertible notes, as well as acting as its
financial advisor in connection with its acquisition of Cohesive Technology
Solutions, Inc. In addition, DLJ has performed investment banking and other
services for Global Crossing Ltd. and its affiliates in the past, including
acting as its co-lead manager in a previously proposed initial public offering,
and received usual and customary underwriter's compensation in connection with
such offerings. Except as set forth in the following paragraph, Exodus did not
impose any restrictions or limitations upon DLJ with respect to the
investigations made or the procedures followed by DLJ in rendering its opinion.
In arriving at its opinion, DLJ reviewed the draft dated September 26, 2000
of the merger agreement; annual reports to stockholders and annual reports on
Form 10-K of Exodus for the two years ended December 31, 1999; certain interim
reports to stockholders and quarterly reports on Form 10-Q of Exodus; certain
other communications from Exodus to its stockholders; certain internal
financial analyses and forecasts for GlobalCenter prepared by the management of
GlobalCenter; and certain internal financial analyses and forecasts for Exodus
and GlobalCenter prepared by the management of Exodus (the "Forecasts"),
including certain cost savings and operating synergies projected by the
management of Exodus to result from the merger. DLJ also has held discussions
with members of the senior management of Exodus and GlobalCenter regarding
their assessment of the strategic rationale for, and the potential benefits of,
the merger and the past and current business operations, financial condition
and future prospects of Exodus and GlobalCenter and of the combined business
consisting of Exodus and GlobalCenter. In addition, DLJ has reviewed the
reported price and trading activity for Exodus common stock, which like many
Internet-related stocks has been and is likely to continue to be subject to
significant short-term price and trading volatility, compared certain financial
and stock market information for Exodus with similar information for certain
other companies the securities of which are publicly traded, reviewed the
financial terms of certain recent business combinations in the Internet
infrastructure industry specifically and in other industries generally and
performed such other financial studies and analyses as DLJ considered
appropriate for the purposes of rendering its opinion.
In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available
to it from public sources, that was provided to it by Exodus, GlobalCenter or
their respective representatives, or that was otherwise reviewed by DLJ. In
particular, DLJ relied upon the estimates of the management of Exodus of the
cost savings and operating synergies achievable as a result of the merger and
on its discussion of such synergies with the management of GlobalCenter. With
respect to the Forecasts referred to above, DLJ relied on representations that
the Forecasts have been reasonably prepared on the basis reflecting the best
currently available estimates and judgments of the management of Exodus as to
the future operating and financial performance of Exodus and GlobalCenter. DLJ
also assumed that the network services agreement and the joint venture
agreement to be entered into by Exodus, Global Crossing Ltd. and Asia Global
Crossing Ltd. in connection with the merger will have neither a positive nor
negative effect on Exodus from a financial point of view. DLJ did not assume
any responsibility for making any independent evaluation of any assets or
liabilities or of the network services agreement or the joint venture agreement
or for making any independent verification of any of the information reviewed
by us. DLJ relied as to certain legal matters on advice of counsel to Exodus.
The DLJ opinion is necessarily based on economic, market, financial and
other conditions as they exist on, and on the information made available to DLJ
as of the date of its opinion. DLJ states in its opinion that, although
subsequent developments may affect its opinion, DLJ does not have any
obligation to update, revise or reaffirm its opinion. DLJ expressed no opinion
as to the prices at which Exodus common stock will actually trade at any time.
The DLJ opinion does not address the relative merits of the merger, the network
services agreement, the joint venture agreement and the other business
strategies being considered by the Exodus board, nor does it address the Exodus
board's decision to proceed with the merger. The DLJ opinion does not
constitute a recommendation to any stockholder as to how such stockholder
should vote their shares of Exodus common stock in connection with the proposed
transaction.
30
<PAGE>
Goldman Sachs, as part of its investment banking services, is continually
engaged in the valuation of businesses and their securities in connection with
mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. Goldman Sachs is familiar with Exodus having provided certain
investment banking services to Exodus from time to time, including having acted
as lead manager in the initial public offering of 4,500,000 shares of Exodus
common stock in March 1998; lead manager on a private offering of $200 million
principal amount of 11 1/4% Senior Notes of Exodus, due 2008, in June 1998;
lead manager on a private offering of $200 million principal amount of 5%
Convertible Subordinated Notes of Exodus, due 2006, in February 1999; lead
manager on a private offering of $75 million principal amount of 11 1/4% Senior
Notes of Exodus, due 2008, in June 1999; financial advisor to Exodus in
connection with the acquisition of Service Metrics Inc. in November 1999; lead
manager on a private offering of $400 million principal amount of 4 3/4%
Convertible Subordinated Notes of Exodus due 2008, in December 1999; manager on
a private offering of $500 million aggregate principal amount of 10 3/4% Senior
Notes of Exodus, including co-manager of principal amount of 125 million of 10
3/4% Senior Notes of Exodus, due 2009, and lead-manager of $375 million
principal amount of 10 3/4% Senior Notes of Exodus, due 2009, in December 1999;
financial advisor to Exodus in connection with the acquisition of a minority
equity interest in Mirror Image Internet, Inc. in April 2000; co-lead manager
on a private offering of $1 billion principal amount of 11 5/8% Senior Notes of
Exodus, due 2010, in June 2000; and co-lead manager on an offering of 200
million principal amount of 11 3/8% Senior Notes of Exodus, due 2010, in June
2000; and having acted as Exodus' financial advisor in connection with, and
having participated in certain of the negotiations leading to, the merger
agreement. Goldman Sachs has also provided certain investment banking services
to Global Crossing Ltd., including having acted as co-manager in the initial
public offering of 21,000,000 shares of Global Crossing Ltd. common stock;
financial advisor to Global Crossing Ltd. in connection with its acquisition of
Racal Telecommunications Limited in October 1999; co-manager on a private
offering of $500 million principal amount of 7% Convertible Preferred Stock of
Global Crossing Ltd., due 2049, in December 1999; co-manager on a private
offering of $1 billion principal amount of 6 3/8% Convertible Preferred Stock
of Global Crossing Ltd., due 2049, in November 1999; co-books and co-lead
manager in the public offering of 43,000,000 shares of Global Crossing common
stock in April 2000; co-books and co-lead manager on a public offering of $1
billion liquidation preference of 6 3/4% Convertible Preferred Stock of Global
Crossing Ltd., due 2012, in April 2000; and co-lead manager in the initial
public offering of 53,000,000 shares of Class A Common Stock of Asia Global
Crossing, Ltd. Goldman, Sachs & Co. provides a full range of financial advisory
and securities services and, in the course of its normal trading activities,
may from time to time effect transactions and hold positions in securities,
including derivative securities, of GlobalCenter, Global Crossing Ltd. and Asia
Global Crossing Ltd., for its own account and the accounts of customers. In
addition, Goldman Sachs had previously received shares of Class C Common Stock
of Asia Global Crossing Holdings in connection with certain advisory services
provided to Asia Global Crossing Holdings, which shares were converted into a
number of shares of Asia Global Crossing Class A Common Stock based on a
percentage of the total enterprise value of Asia Global Crossing at the time of
Asia Global Crossing's initial public offering. Goldman Sachs may provide
investment banking services to Global Crossing Ltd. and its subsidiaries in the
future.
In connection with their opinion, Goldman Sachs reviewed, among other
things, the merger agreement, the stockholder agreement, the network services
agreement, the joint venture agreement, the registration rights agreement,
annual reports to stockholders and annual reports on Form 10-K of Exodus and of
Global Crossing for the two years ended December 31, 1999; certain interim
reports to stockholders and quarterly reports on Form 10-Q of Exodus and of
Global Crossing; the registration statement on Form S-3 of Global Crossing
dated April 19, 2000; the registration statements on Form S-1 of Exodus, dated
March 18, 1998, and of Global Crossing dated May 22, 1998; the amended
preliminary proxy statement filed with respect to GlobalCenter on August 7,
2000; the audited financial statements for GlobalCenter as at and for the
twelve-month periods ended December 31, 1999, 1998 and 1997 and unaudited
financial statements for GlobalCenter at and for the three-month period ended
March 31, 2000; certain other communications from Exodus and Global Crossing to
their respective stockholders; certain internal financial analyses and
forecasts for GlobalCenter prepared by the management of GlobalCenter; the
Forecasts, including certain cost savings and operating synergies projected by
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<PAGE>
the management of Exodus to result from the transaction contemplated by the
merger agreement, the stockholders agreement, the network services agreement,
the joint venture agreement and the registration rights agreement, referred to
as the Synergies. Goldman Sachs also held discussions with members of the
senior management of Exodus and Global Crossing regarding their assessment of
the strategic rationale for, and the potential benefits of, the transaction
contemplated by the stockholders agreement, network services agreement, joint
venture agreement, registration rights agreement and merger agreement and the
past and current business operations, financial condition and future prospects
of Exodus and GlobalCenter. In addition, Goldman Sachs reviewed the reported
price and trading activity for Exodus common stock, which like many Internet-
related stocks has been and is likely to continue to be subject to significant
short-term price and trading volatility, compared certain financial stock
market information for Exodus and certain financial information for
GlobalCenter with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the Internet infrastructure industry
specifically and in other industries generally and performed such other studies
and analyses as Goldman Sachs considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information discussed with or reviewed by it and assumed
such accuracy and completeness for purposes of rendering its opinion. In that
regard, Goldman Sachs assumed with the consent of the Exodus board that the
Forecasts, including the Synergies, were reasonably prepared on a basis
reflecting the best currently available estimates and judgments of Exodus and
that the Forecasts will be realized in the amounts and time periods
contemplated thereby. In addition, Goldman Sachs did not make an independent
evaluation or appraisal of the assets and liabilities of Exodus or GlobalCenter
or any of their subsidiaries and Goldman Sachs was not furnished with any such
evaluation or appraisal. Goldman Sachs' advisory services and the Goldman Sachs
opinion were provided for the information and assistance of the Exodus board in
connection with its consideration of the transaction contemplated by the merger
agreement and the Goldman Sachs opinion does not constitute a recommendation as
to how any holder of Exodus common stock should vote with respect to such
transaction.
The Goldman Sachs opinion only addresses the fairness from a financial point
of view of the exchange ratio to Exodus and Goldman Sachs did not opine upon
the other contractual and governance terms contained in the joint venture
agreement, the network services agreement, the registration rights agreement,
the stockholder agreement and the merger agreement nor on the ongoing
commercial relationship contemplated by the network services agreement and the
joint venture agreement.
Summary of Financial Analyses Performed by Exodus' Financial Advisors
The following is a summary of the financial analyses used by DLJ and Goldman
Sachs in connection with providing their opinions to the Exodus board.
Comparable Public Companies Analysis. The financial advisors analyzed the
enterprise value of GlobalCenter based on the market values and trading
multiples of the following six publicly traded companies:
. Data Return Corp.
. Digex
. Digital Island
. Globix Corp.
. Navisite, Inc.
. USInternetworking, Inc.
For each comparable public company listed above, the financial advisors
analyzed the equity and the enterprise values as of September 25, 2000 and the
enterprise value as a multiple of its estimated revenue for calendar years 2000
and 2001. The revenue estimates for calendar years 2000 and 2001 were based on
publicly
32
<PAGE>
available estimates from equity research analysts. From this analysis, the
financial advisors developed enterprise valuation multiples ranging from 7.5 to
28.0 times revenue for the calendar year 2000. The financial advisors also
derived enterprise valuation multiples ranging from 3.4 to 12.8 times revenue
for the calendar year 2001.
Precedent Merger and Acquisition Transactions Analysis. Using public
information, the financial advisors reviewed the purchase prices and implied
transaction multiples paid in the following selected transactions, which the
financial advisors deemed comparable to an acquisition of GlobalCenter:
. Verio/NTT Communications
. Concentric Network/Nextlink
. AboveNet/Metromedia Fiber Network
In examining these acquisitions, the financial advisors calculated the
enterprise value of the acquired company implied by each of these transactions
as a multiple of the annualized revenues based on the last publicly announced
quarter prior to the announced transaction ("LQA") and as a multiple of the
revenues based on the last four publicly announced quarters prior to the
transaction ("LTM"). The financial advisors' analysis of these comparable
acquisitions yielded multiples ranging from 14.5 to 67.1 times revenue for LQA
and 17.4 to 83.3 times revenue for LTM.
Pro Forma Accretion/Dilution Analysis. The financial advisors compared the
projected revenue and earnings before interest, tax, depreciation and
amortization ("EBITDA") generated per dollar of enterprise value of Exodus for
the fiscal years ending December 31, 2001 and December 31, 2002 on a stand-
alone basis to the projected pro forma revenue and EBITDA generated per dollar
of enterprise value for the same period of the combined company after the
merger. This measure is analogous to earnings per share for those financial
items that occur prior to interest charges. The revenue and EBITDA per dollar
of enterprise value for Exodus and GlobalCenter were provided by Exodus
management and included operating efficiencies expected to be achieved as a
result of the merger. As set forth in the table below, this analysis indicated
that the transaction was expected to have an accretive effect on the projected
revenue and EBITDA per dollar of enterprise value for the periods indicated
below.
<TABLE>
<CAPTION>
Fiscal Year
Ending
December
31,
-----------
2001E 2002E
----- -----
<S> <C> <C>
Revenue
Accretion/(Dilution) at the bottom of the collar................. 2.5% 0.8%
Accretion/(Dilution) at the mid-point of the collar.............. 3.5% 1.8%
Accretion/(Dilution) at the top of the collar.................... 5.3% 3.5%
EBITDA
Accretion/(Dilution) at the bottom of the collar................. 2.7% 3.0%
Accretion/(Dilution) at the mid-point of the collar.............. 3.7% 4.0%
Accretion/(Dilution) at the top of the collar.................... 5.5% 5.8%
</TABLE>
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<PAGE>
Contribution Analysis. The financial advisors analyzed the relative
contributions from Exodus and GlobalCenter to the pro forma combined revenue
and EBITDA for the calendar years 2001 through 2004 and the relative enterprise
valuations (calculated as the equity value plus debt minus cash, marketable
securities and investments) of Exodus and GlobalCenter over the same period.
GlobalCenter revenue and EBITDA estimates for calendar years 2001 through 2004
were based on financial projections prepared by the Exodus management and
included operating efficiencies expected to be achieved as a result of the
merger.
<TABLE>
<CAPTION>
% Revenue
Contribution
--------------
Exodus Company
------ -------
<S> <C> <C>
2001E......................................................... 79.9% 20.1%
2002E......................................................... 81.2% 18.8%
2003E......................................................... 79.1% 20.9%
2004E......................................................... 78.2% 21.8%
</TABLE>
<TABLE>
<CAPTION>
% EBITDA
Contribution
--------------
Exodus Company
------ -------
<S> <C> <C>
2001E......................................................... 79.7% 20.3%
2002E......................................................... 79.5% 20.5%
2003E......................................................... 72.3% 27.7%
2004E......................................................... 68.8% 31.2%
</TABLE>
<TABLE>
<CAPTION>
% Enterprise
Value
--------------
Exodus Company
------ -------
<S> <C> <C>
2001E......................................................... 81.3% 18.7%
2002E......................................................... 80.5% 19.5%
2003E......................................................... 80.0% 20.0%
2004E......................................................... 79.9% 20.1%
</TABLE>
No company or transaction used in the above analyses is directly comparable
to Exodus or GlobalCenter or the contemplated merger.
The summary set forth above does not purport to be a complete description of
the analyses performed by the financial advisors. Instead, it describes in
summary form the material elements of the presentation the financial advisors
made to the Exodus board on September 27, 2000 in connection with the
preparation of their opinions.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances. Therefore, such
an opinion is not readily susceptible to summary description. Each of the
analyses was carried out to provide a different perspective on the transaction
and to add to the total mix of information available. DLJ and Goldman Sachs did
not form a conclusion as to whether any individual analysis, considered by
itself, supported or failed to support an opinion as to the fairness from a
financial point of view. Rather, in reaching their conclusions, DLJ and Goldman
Sachs considered the results of the analyses in light of each other and
ultimately rendered its opinion based on the results of all these analyses
taken as a whole. DLJ and Goldman Sachs did not place particular reliance or
weight on any individual analysis, but instead concluded that their analyses,
taken as whole, supported their determination. Accordingly, notwithstanding the
separate factors summarized above, DLJ and Goldman Sachs have indicated to
Exodus that they believe that the analyses must be considered as a whole and
that selecting portions of the analyses and of the factors considered by them,
without considering all such analyses and factors, could create an incomplete
or misleading view of the process underlying its opinion. The analyses
performed by DLJ and Goldman Sachs are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable
than suggested by such analyses.
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<PAGE>
Exodus agreed to pay each of DLJ and Goldman Sachs a fee of $10,000,000 upon
consummation of the merger. In addition, Exodus has agreed to reimburse DLJ and
Goldman Sachs for their reasonable out-of-pocket expenses including attorneys'
fees and disbursements incurred in connection with the services provided by
DLJ and Goldman Sachs and to indemnify and hold harmless each of DLJ and
Goldman Sachs and certain related parties from and against certain liabilities
and expenses, including certain liabilities under the federal securities laws,
incurred in connection with each of their engagements with Exodus.
Regulatory Matters
The merger may be reviewed by the Department of Justice and the Federal
Trade Commission to determine whether it complies with applicable antitrust
laws. Under the provisions of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, the merger may not be consummated until Exodus and Global
Crossing Ltd. furnish information to the Department of Justice and the FTC and
the specified waiting period requirements of the HSR Act have been satisfied.
Exodus and Global Crossing Ltd. furnished the appropriate information and
received early termination of the waiting period under the HSR Act effective
October 31, 2000.
At any time, however, the Department of Justice, the FTC, state attorneys
general, foreign regulatory agencies or a private person or entity could
challenge the merger under the antitrust laws and seek, among other things, to
enjoin the merger, to cause Exodus to divest itself of significant assets of
Exodus and GlobalCenter, or to impose conditions on Exodus with respect to the
business operations of the combined companies. Based on information available
to them, Exodus and Global Crossing Ltd. believe that the merger does not
violate federal, state or foreign antitrust laws.
Exodus and GlobalCenter each conduct operations in foreign countries where
regulatory filings may be required as a result of the merger. Exodus and Global
Crossing Ltd. will make filings as they determine are necessary or appropriate.
Exodus and GlobalCenter are aware of no other material governmental or
regulatory approvals required for consummation of the merger, other than
compliance with the United States federal and state securities laws.
Accounting Treatment
The merger will be accounted for as a purchase transaction for financial
accounting purposes in accordance with accounting principles generally accepted
in the United States. Under this method of accounting, Exodus will allocate the
value of the stock, including stock options, that it is issuing in the merger
to the fair value of the assets it acquires, including goodwill and other
intangible assets. The purchase price allocation is subject to revision when
Exodus obtains additional information concerning asset valuation. Exodus
anticipates that the value it will allocate to goodwill and other intangible
assets will be approximately $5.333 billion. This amount will be amortized over
the next seven to ten years, depending on the particular asset. This
amortization will reduce Exodus' earnings during those years.
No Appraisal Rights
Holders of Exodus common stock are not entitled to dissenters' rights or
appraisal rights with respect to the merger or any other proposals to be
considered at the meeting.
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<PAGE>
THE MERGER AGREEMENT
This section summarizes the material provisions of the merger agreement and
related transactions. The following is not, however, a complete statement of
all the provisions of the merger agreement. Detailed terms and conditions are
contained in the merger agreement, a copy of which is attached to this document
as Annex A and is incorporated into this document by reference. For a complete
presentation of this information, please read the full text of the merger
agreement.
When the merger is completed, GlobalCenter Holding Co. will be a wholly-
owned subsidiary of Exodus and Global Crossing GlobalCenter Holdings, Inc., the
parent corporation of GlobalCenter Holding Co., will be a stockholder of
Exodus. See the chart on page 6.
Conversion of GlobalCenter Stock and Options
Conversion of Common Stock
When the merger is completed, each share of common stock of GlobalCenter
Holding Co. will be converted into and exchanged for shares of Exodus common
stock. The number of shares of Exodus common stock to be issued at the
completion of the merger will be based on an exchange ratio that will depend on
a number of different factors, including:
. the number of shares of GlobalCenter Holding Co. common stock
outstanding;
. the exercise price and number of shares of Global Center Inc. common
stock subject to options outstanding, including the Global Crossing Ltd.
options that convert into GlobalCenter Inc. options;
. the exercise price and number of shares subject to the Global Crossing
Ltd. options being cancelled and replaced in connection with the merger;
. the average price of Exodus common stock over the ten trading days
ending two days before the completion of the merger, subject to a
minimum price of $56.41 and a maximum price of $65.55; and
. the average price of Global Crossing Ltd. common stock over the ten
trading days ending two days before completion of the merger.
The chart below illustrates how the exchange ratio may be affected by
changes in the average stock prices of Exodus and Global Crossing Ltd.:
<TABLE>
<CAPTION>
Exodus Stock Price
--------------------------------------------------
$29.4375 the $60.3375 the
Exodus closing $56.41 Exodus price $65.55
price on low end assuming the high end
Global Crossing Ltd. Stock November 16, of the merger closed of the
Price 2000 collar September 28, 2000 collar
-------------------------- -------------- ------- ------------------ --------
<S> <C> <C> <C> <C>
$10.00...................... .4586 .4586 .4288 .3947
$15.50, the Global Crossing
Ltd. stock price on
November 16, 2000.......... .4579 .4579 .4281 .3940
$22.00...................... .4569 .4569 .4272 .3932
$29.3875, the Global
Crossing Ltd. price
assuming the merger closed
September 28, 2000......... .4559 .4559 .4262 .3923
</TABLE>
This table assumes the following:
. there will be 233,500,000 shares of GlobalCenter Holding Co. common
stock outstanding at the completion of the merger;
. there will be options outstanding at the completion of the merger to
purchase 31,157,118 shares of GlobalCenter Holding Co. common stock,
including the Global Crossing Ltd. options that convert into
GlobalCenter Inc. options;
36
<PAGE>
. the aggregate proceeds from the exercise of all GlobalCenter Inc.
options and Global Crossing Ltd. assumed options will be $285,286,782;
and
. the aggregate proceeds from the exercise of all Global Crossing Ltd.
cancelled options will be $58,900,719.
Exchange Ratio
The exchange ratio used to determine how many shares of Exodus common stock
will be issued is calculated with the following formula:
($6.525 billion + A - (B X C - D)) / E
exchange ratio =
(233,500,000 + F + G)
A= the aggregate proceeds from the exercise of all of the GlobalCenter Inc.
options and the Global Crossing Ltd. assumed options.
B= the average closing price per share as quoted on the Nasdaq National
Market of Global Crossing Ltd. common stock for the ten trading days
ending two days prior to the completion of the merger.
C= the total number of shares of Global Crossing Ltd. stock issuable
pursuant to the Global Crossing Ltd. cancelled options.
D= the aggregate proceeds from the exercise of all of the Global Crossing
Ltd. cancelled options.
E= the average closing price per share of Exodus common stock for the ten
trading days ending two days prior to the completion of the merger;
however, if the average price is less than $56.41, E will equal $56.41
and if the average price is over $65.55, E will equal $65.55.
F= the total number of shares of GlobalCenter Inc. common stock issuable
under the Global Crossing Ltd. assumed options.
G= the total number of shares of GlobalCenter Inc. common stock deemed to
be issuable under the GlobalCenter Inc. assumed options.
Assumption of GlobalCenter Options
When the merger is completed, each option to purchase shares of GlobalCenter
Inc. common stock will be assumed by Exodus and converted into an option to
purchase a number of shares of Exodus common stock equal to the number of
shares of GlobalCenter Inc. common stock subject to the option before
completion of the merger, multiplied by the exchange ratio. The post-merger
exercise price of each converted GlobalCenter option will be its pre-merger
exercise price divided by the exchange ratio.
As of September 27, 2000, there were outstanding options granted under the
GlobalCenter Management Stock Plan to purchase 25,616,795 shares of
GlobalCenter Inc. common stock with a weighted average exercise price per share
of $7.46.
Assumption of Global Crossing Options
Options granted under the Global Crossing Ltd. 1998 Stock Incentive Plan are
generally exercisable for shares of Global Crossing Ltd. However, under the
terms of the Global Crossing Ltd. 1998 Stock Incentive Plan and the applicable
option agreements, immediately prior to the completion of the merger, certain
of these outstanding options to purchase shares of Global Crossing Ltd. common
stock will be converted into options to purchase shares of GlobalCenter Inc.
common stock. At the completion of the merger, each of these options held by an
employee of GlobalCenter will be assumed by Exodus and be converted into an
option to purchase a number of shares of Exodus common stock equal to the
number of shares of GlobalCenter Inc. common stock subject to the option before
completion of the merger, multiplied by the exchange ratio. The post-merger
exercise price of each converted Global Crossing Ltd. option will be $17.00
divided by the exchange ratio.
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<PAGE>
As of September 27, 2000, there were outstanding options granted under the
Global Crossing Ltd. 1998 Stock Incentive Plan to purchase 2,934,493 shares of
Global Crossing Ltd. common stock that will be converted prior to the merger
into options to purchase 5,540,323 shares of GlobalCenter Inc. common stock
with an exercise price per share of $17.00.
Issuance of Exodus Options for Cancelled Global Crossing Options
Except for the options granted under the Global Crossing Ltd. 1998 Stock
Incentive Plan described above that will be assumed by Exodus,
. all outstanding options to purchase shares of Global Crossing Ltd.
common stock granted to GlobalCenter employees under the Global Crossing
Ltd. 1998 Stock Incentive Plan that are vested at the time of the
completion of the merger will not be converted into Exodus options and
will continue to be options to purchase shares of Global Crossing Ltd.
common stock; and
. at the completion of the merger, all outstanding options to purchase
shares of Global Crossing Ltd. common stock granted to GlobalCenter
employees under the Global Crossing Ltd. 1998 Stock Incentive Plan that
are unvested at the time of the completion of the merger will be
cancelled and new Exodus options will be granted to the former option
holders.
Each new Exodus option granted to GlobalCenter employees will continue to have
the same vesting schedule as the Global Crossing Ltd. option it replaces. Each
new Exodus option will be an option to purchase a number of shares of Exodus
common stock equal to the number of shares of Global Crossing Ltd. common stock
subject to the option multiplied by the quotient obtained by dividing the
average closing price per share of Global Crossing Ltd. common stock for the
ten trading days ending two days before the merger by the average closing price
per share of Exodus common stock for the same time period. The post-merger
exercise price of each new Exodus option will be its pre-merger exercise price
multiplied by the quotient obtained by dividing the average closing price per
share of Exodus common stock for the ten trading days ending two days before
the merger by the average closing price per share of Global Crossing Ltd.
common stock for the same time period. All other terms of the new Exodus
options will be as set forth in the Exodus 1998 Equity Incentive Plan or the
Exodus 1999 Stock Option Plan, as in effect at the completion of the merger and
the applicable stock option agreement under which the new Exodus options are
granted.
As of September 27, 2000, there were outstanding unvested options under the
Global Crossing Ltd. 1998 Stock Incentive Plan to purchase 1,537,877 shares of
Global Crossing Ltd. common stock with a weighted average exercise price per
share of approximately $27.41 and commitments to grant options to purchase
364,000 shares of Global Crossing Ltd. common stock at exercise prices not yet
determined that will be replaced with new Exodus options. In addition, Global
Crossing Ltd. may grant additional options under the Global Crossing Ltd. 1998
Stock Incentive Plan to GlobalCenter employees to purchase up to 250,000 shares
of Global Crossing Ltd. common stock prior to the completion of the merger.
Exodus has agreed to file a registration statement on Form S-8 within two
business days after the completion of the merger covering the shares of Exodus
common stock issuable upon exercise of the options that will be assumed or
issued by it as a result of the merger.
Conditions to the Merger
Conditions to Obligations of Both Parties
Neither Exodus nor GlobalCenter is obligated to complete the merger unless
various conditions are satisfied or waived, including:
. approval of the issuance of Exodus common stock in the merger by the
Exodus stockholders;
. the absence of any law, order or injunction prohibiting completion of
the merger;
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. receipt from each applicable governmental authority of all approvals,
waivers and consents under antitrust laws; and
. Amendment No. 2 to the Exodus Stockholder Rights Agreement must be
effective;
. the agreements relating to the merger, including the stockholder
agreement, the registration rights agreement, the network services
agreements, the joint venture agreement and the transition agreement
must be effective and any transactions contemplated by these agreements
must be in effect.
Conditions to Obligations of GlobalCenter
Global Crossing NA, Global Crossing GlobalCenter Holdings, Inc. and
GlobalCenter are not obligated to complete the merger unless various
conditions are satisfied or waived, including:
. the representations and warranties of Exodus in the merger agreement
shall be true and correct as of the date of the agreement and as of the
time of completion of the merger, disregarding any qualifications as to
materiality or material adverse effect, except for:
. any representations that are expressly made as of an earlier date,
which must be true and correct as of the earlier date; and
. any failure of representations and warranties to be true that would
not be expected to have a material adverse effect on Exodus or on
Exodus' ability to complete the merger;
. Exodus shall have performed and complied in all material respects with
all covenants, obligations and conditions of the merger agreement
required to be performed and complied with by Exodus as of the
completion of the merger;
. Global Crossing NA shall have received a written opinion from its
counsel that the merger will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code;
. Global Crossing NA and its affiliates shall have been released from any
guarantees of GlobalCenter and its affiliates under their leases and
Exodus shall have assumed the guarantees under such leases or shall have
indemnified Global Crossing NA from all liabilities under the
guarantees; and
. no material adverse effect to Exodus shall have occurred and be
continuing.
Conditions to Obligations of Exodus
Exodus is not obligated to complete the merger unless various conditions
are satisfied or waived, including:
. the representations and warranties of GlobalCenter in the merger
agreement shall be true and correct as of the date of the agreement and
as of the time of completion of the merger, disregarding any
qualifications as to materiality or material adverse effect, except for:
. any representations that are expressly made as of an earlier date,
which must be true and correct as of the earlier date; and
. any failure of representations and warranties to be true that would
not be expected to have a material adverse effect on GlobalCenter or
on GlobalCenter's ability to complete the merger;
. GlobalCenter shall have performed and complied in all material respects
with all covenants, obligations and conditions of the merger agreement
required to be performed and complied with by GlobalCenter as of the
completion of the merger;
. Exodus shall have received a written opinion from its counsel that the
merger will constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code;
. no material adverse effect to GlobalCenter shall have occurred and be
continuing;
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. the Chief Executive Officer of GlobalCenter and each person who reports
directly to the Chief Executive Officer shall have signed noncompetition
agreements;
. Exodus and Global Crossing NA or one of its affiliates shall have
entered into agreements to sublease to the surviving corporation in the
merger, or obtain the necessary rights for the surviving corporation
with respect to any real property used by GlobalCenter and its
subsidiaries as a data center as of the completion of the merger; and
. there shall not be pending any action before any agency, court or
tribunal against GlobalCenter, any of its subsidiaries or any of their
properties or any of their officers or directors that would reasonably
be expected to have a material adverse effect on GlobalCenter unless
Global Crossing NA affirmatively agrees to indemnify Exodus against
claims relating to the action.
Material adverse effect in the merger agreement means any event, change,
violation, inaccuracy, circumstance or effect that is materially adverse to the
financial condition, properties, assets, business or prospects of a party and
its direct and indirect subsidiaries, taken as a whole, except that it does not
include:
. changes in general economic conditions or conditions in the industry in
which Exodus and GlobalCenter operate which generally affect industry
participants;
. changes after the date of the merger agreement in generally accepted
accounting principles;
. the announcement of the merger agreement and the transactions; or
. changes in the trading prices of the capital stock of Exodus or Global
Crossing Ltd.
No Other Negotiations
The merger agreement contains detailed provisions prohibiting Exodus from
seeking a transaction regarding the acquisition of Exodus. Under these "non
solicitation" provisions, Exodus has agreed that before the special meeting,
neither Exodus nor any of its affiliates will knowingly solicit or knowingly
initiate discussions or negotiations with or provide any non-public information
to any person or group concerning any acquisition proposal. In addition,
neither Exodus nor any of its affiliates will authorize or permit any of its
officers, directors, employees, representatives or agents to do any of the
actions listed above.
Acquisition proposal means any proposal or offer with respect to:
. a merger, reorganization, share exchange, consolidation, business
combination, recapitalization or similar transaction involving Exodus
and any person where the shares of Exodus voting stock before the
transaction will not represent a majority of the voting stock after the
transaction;
. the acquisition of a material portion of the assets of Exodus and its
subsidiaries taken as a whole;
. the acquisition of securities of Exodus that would result in any person
beneficially owning 30% or more of the voting power of Exodus;
. the adoption by Exodus of a plan of liquidation or the declaration or
payment of an extraordinary dividend; or
. the repurchase by Exodus or any of its subsidiaries of more than 20% of
the outstanding shares of Exodus common stock.
The merger agreement does not, however, prevent Exodus from doing any of the
following in response to an acquisition proposal that was not solicited or
initiated by Exodus:
. furnishing information to any person pursuant to a confidentiality
agreement substantially the same as the confidentiality agreement
entered into between Exodus and GlobalCenter; and
. participating in discussions and negotiations regarding such proposal or
offer.
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The merger agreement also does not prevent Exodus from taking and disclosing
to Exodus stockholders a position contemplated by Rules 14d-9 and 14e-2 under
the Securities and Exchange Act of 1934 regarding any tender or exchange offer.
Exodus has agreed in the merger agreement to promptly notify GlobalCenter if
Exodus or any of its subsidiaries or affiliates receives an acquisition
proposal and to provide GlobalCenter the information and documents necessary to
enable GlobalCenter to fully understand the potential impact of the acquisition
proposal on the completion of the merger, provided GlobalCenter agrees to keep
the information confidential. Exodus has also agreed to request that the party
making an acquisition proposal publicly support the merger with GlobalCenter
and not require the cancellation, termination, abandonment or modification of
the merger or the other transactions contemplated by the merger.
Exodus Acquisitions
The merger agreement contains detailed provisions restricting Exodus'
ability to acquire other companies before completion of the merger. Under these
provisions, Exodus has agreed that before the completion of the merger, Exodus
will not acquire a substantial portion of the assets or stock of any business
or any corporation or other entity if:
. the acquisition is for more than $750 million;
. the acquisition requires the vote of Exodus stockholders and that
stockholder vote will be held before the stockholder meeting to approve
the merger; and
. the acquisition is conditioned on
. the cancellation, termination, abandonment or modification of the
merger or any of the related agreements;
. the Exodus board recommending against the issuance of the Exodus
common stock in the merger; or
. the Exodus stockholders voting against approval of the merger.
Termination
The merger agreement may be terminated at any time prior to the completion
of the merger, whether before or after approval of the merger by the Exodus
stockholders:
. by the mutual written consent of Exodus and GlobalCenter;
. by either Exodus or GlobalCenter, if the merger has not been completed
by March 31, 2001 or, in limited circumstances, May 31, 2001, except
that a party may not terminate the merger agreement if that party's
action or failure to act resulted in the merger not being completed;
. by Exodus if:
. GlobalCenter has breached any representation, warranty, obligation
or agreement in the merger agreement and the breach would cause
GlobalCenter to fail to satisfy a closing condition, and the breach
is not cured within ten days, except that Exodus cannot terminate
the merger agreement if it is at that time in material breach; or
. if the stockholders of Exodus fail to approve the issuance of Exodus
stock in the merger;
. by GlobalCenter if:
. Exodus has breached any representation, warranty, obligation or
agreement in the merger agreement and the breach would cause Exodus
to fail to satisfy a closing condition, and the breach is not cured
within ten days or within 30 days if the breach is curable but not
reasonably curable within ten days, except that GlobalCenter cannot
terminate the merger agreement if it is at that time in material
breach;
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. if the stockholders of Exodus fail to approve the issuance of Exodus
stock in the merger;
. if the board of directors of Exodus withholds, withdraws, amends or
modifies its recommendation to the stockholders of Exodus in this
proxy statement; or
. if Exodus or any of its officers, directors, employees or agents
knowingly breach portions of the merger agreement relating to
acquisitions of Exodus or by Exodus; and
. by either Exodus or GlobalCenter, if a governmental authority has issued
a final, non-appealable order, decree or ruling, or taken any other
action, that would permanently restrain, enjoin or otherwise prohibit
the merger.
Termination of the merger agreement will generally terminate the obligations
of the parties to perform their covenants in the merger agreement, except that
the parties must continue to comply with various miscellaneous provisions,
including continuing mutual confidentiality.
Termination Fees
Exodus has agreed in the merger agreement to pay GlobalCenter a termination
fee after GlobalCenter terminates the merger agreement in the following amounts
and under the following circumstances:
. The termination fee will be $65 million if the Exodus board changes its
recommendation to the Exodus stockholders because a third party offers
to acquire Exodus and GlobalCenter terminates the merger agreement
before the special meeting. Exodus will pay an additional $235 million
as part of the termination fee, at the time of the acquisition of Exodus
by a third party if Exodus is subsequently acquired or agrees to be
acquired within one year after GlobalCenter terminates the merger
agreement.
. The termination fee will be $300 million if the Exodus stockholders do
not approve the issuance of Exodus common stock in the merger after a
third party offers to acquire Exodus and GlobalCenter terminates the
merger agreements, and if:
. Exodus is acquired within one year after termination of the merger
agreement;
. Exodus agrees to be acquired within one year after termination of the
merger agreement and is acquired; or
. Exodus is acquired or agrees to be acquired by another party within
six months after GlobalCenter terminates the merger agreement.
Indemnification
Global Crossing NA's Obligation to Indemnify
Global Crossing NA has agreed to indemnify Exodus and its subsidiaries and
affiliates and their employees, agents and representatives from:
. any claims, liabilities or damages incurred by reason of the breach of
any representation, warranty or covenant made by GlobalCenter in the
merger agreement; and
. from any liabilities relating to assets of Global Crossing NA, Global
Crossing GlobalCenter Holdings, Inc. and GlobalCenter not used in
GlobalCenter's business and not included in its assets on the date of
the merger agreement.
Global Crossing NA will not have any obligation to indemnify Exodus or any
other person indemnified under the merger agreement until the aggregate amount
of all claims against Global Crossing NA exceeds $33 million. The maximum
amount for which Global Crossing NA is obligated to indemnify Exodus is
$660 million.
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Survival of Representations, Warranties and Covenants
Most representations, warranties and covenants of Exodus and GlobalCenter in
the merger agreement will remain in full force for one year after the
completion of the merger . However, to pursue a claim for a violation of the
GlobalCenter representations, warranties and covenants, Exodus must give notice
of the claim to Global Crossing NA on or prior to the first anniversary of the
completion of the merger.
Covenants
Conduct of Business of GlobalCenter
GlobalCenter agreed in the merger agreement to conduct its business in the
ordinary course before the completion of the merger and will not take a variety
of actions that could affect its business without the prior consent of Exodus.
For instance until the termination of the merger agreement or completion of the
merger, GlobalCenter will not:
. borrow any money in excess of $500,000 or guarantee any indebtedness or
issue or sell any debt securities in excess of $500,000 or guarantee any
debt securities of others or options, warrants, calls or other rights to
acquire any debt securities of other parties;
. amend the certificate of incorporation or bylaws of GlobalCenter Holding
Co. or any of its subsidiaries;
. declare or pay any dividends on or make other distributions on its
capital stock, other than in connection with a stock split, or
repurchase any shares of its capital stock;
. waive any stock repurchase rights, accelerate, amend or change the
vesting of options or other rights or pay cash in exchange for any
options or similar rights or increase or accelerate the compensation,
severance or fringe benefits of any current or former director or
employee of GlobalCenter or adopt any new GlobalCenter employee benefit
plan;
. issue, deliver, pledge or sell or authorize or propose the issuance,
delivery, pledge or sale of, or purchase or propose the purchase of, any
shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue any
such shares or other convertible securities, other than in connection
with the merger or pursuant to the merger agreement;
. materially reduce the aggregate amount of insurance coverage provided by
existing insurance policies;
. enter into or amend any agreements pursuant to which any other party is
granted exclusive marketing or other material exclusive rights of any
type with respect to any of its material products or technology or with
respect to any market segment or geographic area, or enter into any
noncompetition, nonsolicitation or similar agreement materially
restricting the rights of GlobalCenter or its subsidiaries;
. acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, any material business
or any corporation, entity or other business organization or division
thereof or sell, lease, license, contractually encumber or otherwise
dispose of any of its properties or assets which are material,
individually or in the aggregate, to GlobalCenter's business except for
sales of products and services in the ordinary course, or sales of
obsolete or unused equipment or other assets;
. enter into materially amend or terminate any material joint venture
agreements;
. enter into any tax sharing or tax allocation agreements or engage in any
tax restructuring transactions or other transactions designed primarily
for tax purposes;
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. enter into any material joint development agreements that are not
terminable on thirty days notice or that give third parties joint or
exclusive ownership of the intellectual property of GlobalCenter;
. modify, amend or terminate any contract to which GlobalCenter or any
subsidiary thereof is a party or waive, release or assign any material
rights or claims in a manner that would reasonably be expected to have a
material adverse effect on GlobalCenter, or enter into any material
contract having terms that are not in the ordinary course and consistent
with past practice; or
. materially revalue any assets of GlobalCenter or change accounting
methods.
Global Crossing NA has also agreed to do the following before completion of
the merger:
. make capital expenditures required to continue GlobalCenter's business
as conducted on the date of the merger agreement and manage
GlobalCenter's working capital accounts in the ordinary course and
consistent with past practice; and
. cause intercompany and third party indebtedness of GlobalCenter and its
subsidiaries for borrowed money or guarantees by GlobalCenter or any of
its subsidiaries of any third party indebtedness to be settled or
otherwise terminated.
Exodus Covenants
Exodus agreed in the merger agreement to conduct its business in the
ordinary course before the completion of the merger and will not take a variety
of actions that could affect its business without the prior consent of
GlobalCenter. For example, until the termination of the merger agreement or the
completion of the merger, each of Exodus and its subsidiaries will not:
. amend its certificate of incorporation or bylaws;
. declare or pay any dividends on or make other distributions on its
capital stock, other than in connection with a stock split, or
repurchase any shares of its capital stock; or
. effect or attempt or propose to effect any amendment to the Exodus
Rights Agreement in a manner adverse to Global Crossing NA, Global
Crossing GlobalCenter Holdings, Inc. or GlobalCenter Holding Co. except
as contemplated by the merger agreement.
In addition, Exodus made covenants that apply at or after the completion of
the merger, including:
. Exodus will take all actions to appoint to its board of directors one
individual designated by an affiliate of Global Crossing; and
. subject to specified conditions, Exodus will generally indemnify the
current and former directors and officers of GlobalCenter for claims
arising prior to the completion of the merger.
Representations and Warranties
The merger agreement contains various representations and warranties of
Global Crossing NA and GlobalCenter Holding Co., including representations and
warranties as to:
. GlobalCenter's due organization, valid existence and good standing and
its corporate power and authority to own and operate its properties and
carry on its business;
. GlobalCenter's power and authority to enter into and perform under the
merger agreement and ancillary agreements;
. GlobalCenter's capitalization and the ownership of GlobalCenter capital
stock;
. the third party consents required for the merger and the absence of
conflict between (a) the merger agreement and ancillary agreements and
(b) GlobalCenter's corporate documents and applicable law;
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. the absence of pending or threatened litigation against GlobalCenter;
. the accuracy of GlobalCenter's financial statements;
. GlobalCenter's timely filing of tax returns and GlobalCenter's
liabilities for taxes;
. the absence of certain changes with respect to GlobalCenter since March
31, 2000, the date of GlobalCenter's audited balance sheet;
. GlobalCenter's material contracts and GlobalCenter's compliance with the
terms of these contracts;
. GlobalCenter's ownership of intellectual property and the absence of
infringement of third party intellectual property rights by
GlobalCenter;
. GlobalCenter's compliance with all applicable laws, including
employment, health and safety, environmental, export and immigration
laws and regulations;
. title to and sufficiency of GlobalCenter's assets;
. GlobalCenter's relationships with its customers; and
. brokers fees or finders fees.
The merger agreement contains representations and warranties of Exodus as
to:
. Exodus' due organization, valid existence and good standing and Exodus'
corporate power and authority to own and operate its properties and
carry on its business;
. Exodus' corporate power and authority to enter into and perform under
the merger agreement and ancillary agreements;
. the absence of conflict between (a) the merger agreement and ancillary
agreements and (b) the corporate documents of Exodus and agreements and
laws applicable to Exodus;
. the documents filed by Exodus with the Securities and Exchange
Commission;
. Exodus' capitalization;
. the third party consents required for the merger and the absence of
conflict between (a) the merger agreement and ancillary agreements and
(b) Exodus' corporate documents and applicable law;
. the absence of pending or threatened litigation against Exodus;
. the accuracy of Exodus' financial statements;
. Exodus' timely filing of tax returns and Exodus' liabilities for taxes;
. the absence of certain changes with respect to Exodus since June 30,
2000;
. brokers fees or finders fees; and
. the approval of the merger by Exodus' board.
Possible Tax Refund to Global Crossing NA
Exodus has agreed to pay to Global Crossing NA an amount equal to any refund
of any pre-closing taxes of GlobalCenter Holding Co. and its subsidiaries.
Management Following the Merger
The current directors and executive officers of Exodus will continue to be
the directors and executive officers of Exodus after the Merger. At the
completion of the merger, Exodus will appoint one additional director to be
designated by an affiliate of Global Crossing.
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THE RELATED AGREEMENTS
The Network Services Agreements
At the same time as the signing of the merger agreement, Exodus signed a
Network Services, Marketing and Cooperation Agreement with Global Crossing Ltd.
and a similar agreement with Asia Global Crossing Ltd. Except as indicated
below, each of these agreements has a ten year term.
The Network Services Agreement with Global Crossing Ltd.
Under the Network Services, Marketing and Cooperation Agreement with Global
Crossing Ltd., Exodus committed to purchase at least 50% of its network needs
for all areas of the world other than Asia from Global Crossing Ltd. In
addition, Global Crossing Ltd. agreed to use Exodus as its exclusive provider
of Internet Web hosting services for a period of two years after the completion
of the merger.
During the term of this network services agreement, Global Crossing Ltd. and
its controlled affiliates will make their telecommunications services available
to Exodus and its controlled affiliates, other than the company formed pursuant
to the joint venture agreement described below, on an equal access basis. Also
during the term of this network services agreement, Exodus agreed to promote
Global Crossing Ltd. as its primary provider of network services for its
network operations, and Exodus will, during the term of the agreement, purchase
at least 50% of its future network services requirements from Global Crossing
Ltd. except in limited circumstances. Subject to limited exceptions, for two
years after the completion of the merger, Global Crossing has agreed not to
engage in or own, manage or control an entity involved in Internet Web-hosting.
In addition, Global Crossing Ltd. and Exodus have agreed under the network
services agreement, that Global Crossing Ltd. may resell Exodus services.
"Network services" means capacity and/or connectivity both fixed and usage
based, including local and long haul private line ATM and Frame and IP
services, such as managed IP services and IP transit (other than certain
existing and future short term transit arrangements), but excluding paid
peering.
Usage Credit. As part of the network services agreement, Global Crossing
Ltd. agreed to grant Exodus a credit of $100,000,000 to be applied against
purchases of assets or services under the network services agreements with
either Global Crossing Ltd. or Asia Global Crossing Ltd. provided that Exodus
applies no more than $25,000,000 against purchases under the Asia Global
Crossing network services agreement. Up to $50 million of this credit may be
applied in 2001, after the merger is completed, and the remainder may be
applied after January 1, 2002.
Network Arrangements. Global Crossing Ltd. has committed to create a new
network for Exodus in order to more easily scale the Network Services available
to Exodus and its controlled affiliates to meet anticipated future demands. The
new network will consist of a 2.5 GB/s, wavelength based, intra-region network,
which will be upgraded as soon as reasonably practicable to 10 GB/s.
Termination. If the merger agreement is terminated prior to the completion
of the merger, then Global Crossing Ltd. or Exodus may terminate the network
services agreement.
If the merger agreement is terminated prior to the completion of the merger,
under circumstances that do not lead to a termination fee payment by Exodus
pursuant to the merger agreement, Exodus is entitled to receive from Global
Crossing Ltd. a $50,000,000 credit to be applied against purchases of assets
and services by Exodus from Global Crossing Ltd. for payments due after January
1, 2001.
The Network Services Agreement with Asia Global Crossing Ltd.
Under the Network Services, Marketing and Cooperation Agreement with Asia
Global Crossing Ltd., Exodus committed to purchase from Asia Global Crossing
Ltd. at least 60% of its network needs within the
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Territory and to provide Asia Global Crossing Ltd. with the opportunity to
provide 67% of Exodus' network needs within the Territory and Asia Global
Crossing Ltd. agreed to use Exodus as its exclusive provider of Internet Web-
Hosting services in the Territory for a period of two years following the
closing of the merger. "Territory" in this networking services agreement
includes parts of Asia and the Pacific Rim not including Australia or New
Zealand.
During the term of the network services agreement, Asia Global Crossing Ltd.
and its controlled affiliates will make all Asia Global Crossing Ltd.
telecommunications services available to Exodus and its controlled affiliates,
including the joint venture company, on an equal access basis. Exodus will
promote Asia Global Crossing Ltd. as its primary provider of Network Services
for its network operations; and Exodus and its controlled affiliates will,
during the term of the agreement, purchase at least 60% of its Network Services
requirements in the Territory from Asia Global Crossing Ltd., provided that
before completion of the merger this percentage will be 50%. In addition,
Exodus will give Asia Global Crossing Ltd. the opportunity to provide at least
67% of Exodus' Network Services requirements in the Territory from Asia Global
Crossing Ltd. and Exodus will use reasonable efforts consistent with its
business objectives to exceed this 67% commitment. Asia Global Crossing Ltd.
and Exodus have also agreed, under the network services agreement, that Asia
Global Crossing Ltd. may resell Exodus services.
Network Arrangements. Asia Global Crossing Ltd. has committed to extend the
broadband telecommunications system within each city served by the Asia Global
Crossing Ltd. network to provide connectivity between the Asian joint venture
company Internet Data Centers and the Asia Global Crossing Ltd. network in
order to enable Exodus to meet anticipated future demands. The new network will
consist of a 2.5 GB/s, wavelength based, intra-region network, which will be
upgraded as soon as reasonably practicable to 10 GB/s.
Termination. If the merger agreement is terminated prior to completion of
the merger, then Asia Global Crossing Ltd. or Exodus may terminate the network
services agreement.
Joint Venture Agreement
Exodus and Asia Global Crossing Ltd. have agreed to form a company under the
laws of Bermuda or another mutually agreed jurisdiction to provide complex Web
hosting and managed services in Asia. The shares of Exodus Asia-Pacific Ltd.
will be owned 67% by Exodus and 33% by Asia Global Crossing Ltd. The board of
the joint venture will be comprised of six directors. Four members of the board
will be appointed by Exodus and two members will be appointed by Asia Global
Crossing Ltd. This joint venture may be terminated by the mutual agreement of
all the shareholders.
The business of the joint venture will be identical to Exodus' existing Web
hosting business and managed services made available to its customers. The
territory covered by the joint venture is limited to parts of Asia and the
Pacific Rim, not including Australia and New Zealand and, subject to certain
limited exceptions, will be the shareholders' exclusive means of conducting
business in the territory.
Capital contributions will be in cash and in kind. Cash contributions in the
aggregate amount of up to $750 million may be required during first three years
as follows:
. Initial Capital Subscription. At the completion of the merger or at a
later date agreed by the parties, Exodus and Asia Global Crossing Ltd.
will contribute $67 million in cash and $33 million in cash,
respectively.
. Funding Obligation--First 3 Years. By simple majority vote, the board of
the joint venture may require subscriptions for additional shares
according to pro-rata equity interests, up to an aggregate additional
amount of (1) $250 million, including the $100 million initial cash
capital subscription, during the first year, (2) $250 million during the
second year, and (3) $250 million during the third year, each such
period being measured from the completion of the merger.
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. The board of the joint venture may require funding for the venture
beyond the obligations outlined above. However, funding obligations
greater than an aggregate of $750 million during the first three years
require unanimous shareholder approval.
In addition, Exodus will contribute its interest in Exodus Japan and Asia
Global Crossing Ltd. will contribute its interests in GlobalCenter Japan and
Hutchison Global Crossing, or the fair market value equivalent up to a maximum
of $25 million, which is a Web hosting joint venture in Hong Kong.
A shareholder's joint venture interest may be assigned to an affiliate who
becomes a party to the joint venture agreement, provided that the transferring
shareholder will remain liable as the primary obligor. Other than permitted
transfers to affiliates, a shareholder in the joint venture may not dispose of
its interest without the unanimous consent of the board during the first five
years of the joint venture. However, if a shareholder intends to sell any part
of its interest in the joint venture, the other shareholders have a right to
purchase the interest or to require that the sale include a pro rata portion of
their interests in the joint venture as well.
After three years Asia Global Crossing Ltd. may require the joint venture to
effect a qualified initial public offering, which is an underwritten, firm
commitment public offering of the shares of the joint venture in the United
States where the joint venture receives net cash proceeds of at least $35
million; however the, offering may be delayed for up to one year if such delay
is reasonably prudent as a result of market conditions.
Registration Rights Agreement, Stockholder Agreement and Other Agreements
Registration Rights Agreement
Global Crossing Ltd. and its subsidiaries will be entitled to offer for sale
the shares of Exodus common stock acquired by Global Crossing in the merger
pursuant to a shelf registration statement that Exodus has agreed to file with
the SEC within four months of the closing of the merger. Exodus will use its
best efforts to cause the registration statement to be declared effective by
the SEC within six months after the closing of the merger, and to keep it
effective until all of the registrable shares are sold or Global Crossing Ltd.,
Global Crossing GlobalCenter Holdings, Inc. and their subsidiaries own in the
aggregate less than three percent of the outstanding common stock of Exodus.
Global Crossing may sell shares pursuant to an underwritten public offering by
Exodus by giving Exodus 30 days prior written notice. In order for Global
Crossing to make any such demand, the minimum aggregate total gross proceeds
from the sale of the registrable shares to the investors must equal or exceed
$10,000,000 and must total at least 500,000 shares for each such underwritten
demand. Global Crossing may not exercise more than one underwritten demand in
any six-month period. Global Crossing may sell registrable shares other than
pursuant to an underwritten public offering under the shelf registration
statement, by delivering a resale notice of the number of registrable shares
such investor proposes to sell, transfer or otherwise dispose of. Global
Crossing may also piggyback onto registration statements filed by Exodus any
registrable shares held by it in the event that Exodus sells its shares in an
underwritten offering with a "road show."
Exodus has agreed to pay all expenses of the registrations and offerings,
except that Global Crossing Ltd., Global Crossing GlobalCenter Holdings, Inc.
and their subsidiaries have agreed to pay any brokerage and sales commissions
and any transfer taxes relating to the sale or disposition of the registrable
shares.
Global Crossing shall have the right to select the lead managing underwriter
of an underwritten offering, which must be an investment banking firm of
nationally recognized standing reasonably satisfactory to Exodus. Exodus
management will participate in customary road show meetings reasonably
requested (and reasonable in scope in light of the size of the offering) upon
reasonable prior notice by the lead managing underwriter of an offering. If the
lead managing underwriter of an underwritten offering advises of a limitation
on the size of the offering due to market conditions, Exodus and Global
Crossing will include in such offering Global Crossing of shares which, in the
opinion of the lead managing underwriter can be sold. Exodus and Global
Crossing each
48
<PAGE>
have indemnification and contribution obligations to each other for material
misstatements and omission attributable to them with respect to any
registration statement filed with the SEC.
Stockholder Agreement
When the merger is completed, an affiliate of Global Crossing will have the
right to appoint one designee to the Exodus board of directors for so long as
Global Crossing Ltd., Global Crossing GlobalCenter Holdings, Inc. and their
subsidiaries own in the aggregate at least 10% of the outstanding voting stock
of Exodus. Any such nominee must be approved by the Exodus board of directors
which approval will not be withheld unless, based on the advice of counsel,
such approval would be inconsistent with the fiduciary obligations of the
directors.
Global Crossing will, except in a few circumstances, vote its shares of
Exodus stock at Global Crossing's option either as recommended by the Exodus
board or in the same proportion as all votes cast by disinterested
stockholders. These voting obligations generally will continue until the
earlier of
. five years after the closing of the merger,
. Global Crossing owns less than 10% of the voting stock of Exodus, or
. there is a change of control of Exodus.
While Global Crossing is under these obligations to Exodus relating to the
voting of its Exodus shares, Global Crossing may not increase its percentage
ownership of outstanding Exodus voting stock by more than 1%. The restrictions
on Global Crossing's acquisition of additional shares of Exodus common stock
are suspended or terminated if certain events relating to an actual or
potential change of control of Exodus occur.
For one year after the completion of the merger, Global Crossing has agreed
not to transfer its Exodus shares except under limited circumstances such as
transfers among affiliates and limited "cashless collar" hedging transactions.
From the first to the fifth anniversaries of the closing of the merger, Global
Crossing has agreed not to transfer its Exodus shares except in underwritten
offerings and other sales pursuant to their registration rights, pursuant to
Rule 144, in private sales or under limited circumstances similar to those
during the first year after the completion of the merger.
Exodus shall indemnify Global Crossing and its subsidiaries and any
controlling person of Global Crossing Ltd. from damages resulting from any of
them being deemed to be a controlling person of Exodus under the securities
laws and for any act or omission of Exodus.
Transition Agreement
After the completion of the merger, Global Crossing will continue to provide
to Exodus and GlobalCenter all services provided to GlobalCenter and its
subsidiaries during the six months prior to the closing of the merger. The
parties may specify at any time any services to be provided in a statement of
work to be attached to the transition agreement. The price paid for such
services shall be equal to a third party quote for the same bundle of services.
Services will be performed on these terms for one year or a later time
specified in the statement of work for the particular service.
Noncompetition Agreements
At the completion of the merger, the chief executive officer of GlobalCenter
Holding Co. and each person who reports directly to him will sign
noncompetition agreements. These noncompetition agreements will require, for
two years after the completion of the merger and in the locations where Exodus
or GlobalCenter conducts or is planning to conduct business at the completion
of the merger, that the person signing it will not:
. provide services that compete with Exodus' or GlobalCenter's products,
services or technology in existence at the effective time of the merger;
49
<PAGE>
. be an employee, director, stockholder, owner or consultant of or to, or
otherwise acquire or hold any interest in or otherwise engage in the
providing of service to, any person or entity that is directly
competitive with Exodus or GlobalCenter at the time of the merger; or
. permit the person's name to be used in a business that is directly
competitive with Exodus or GlobalCenter's business at the time of the
merger.
However, the noncompetition agreements permit the person signing it to own a
passive investment of less than 1% of the shares of a publicly held
corporation.
These noncompetition agreements will also require that, for two years after
completion of the merger, the person signing it will not directly or
indirectly solicit the employment or consulting services of any of the
employees or consultants of Exodus or GlobalCenter or attempt to take away
suppliers or customers of Exodus or GlobalCenter.
Each person signing a noncompetition agreement will also agree not to use
or disclose proprietary information of Exodus or GlobalCenter, except as may
be necessary to perform duties as an employee of Exodus or GlobalCenter.
50
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
On July 27, 1999, Exodus completed its acquisition of Cohesive in a
transaction accounted for as a purchase business combination. Exodus issued as
consideration for Cohesive 1,600,796 shares of Exodus common stock, options to
purchase a total of 408,712 shares of Exodus common stock, and $46,530,000 in
cash for a total purchase price of $111,440,000. The pro forma adjustments
related to the Cohesive acquisition that are reflected in the accompanying
Unaudited Pro Forma Combined Condensed Statement of Operations for the Year
Ended December 31, 1999 are based on the value of the tangible and intangible
assets acquired by Exodus as well as management's estimates of the useful lives
of those acquired assets and assumes that the acquisition had taken place on
January 1, 1999.
In February 1998, GlobalCenter completed a merger with Frontier Corporation
in a transaction accounted for as a pooling of interests. On September 28,
1999, Global Crossing Ltd. acquired Frontier Corporation in a merger
transaction accounted for as a purchase. For financial reporting purposes, the
acquisition of Frontier Corporation by Global Crossing Ltd. was deemed to have
occurred on September 30, 1999. The historical consolidated statement of
operations of GlobalCenter for the nine months ended September 30, 1999 are
included under the heading "Predecessor" in the accompanying pro forma
statement of operations for the year ended December 31, 1999. The consolidated
statements of operations of GlobalCenter for the three months ended December
1999 and for the nine months ended September 30, 2000 are included under the
heading "GlobalCenter." In September, 2000, Exodus entered into an agreement to
acquire GlobalCenter in a transaction to be accounted for as a purchase. Based
on the closing price of Exodus' common stock at September 28, 2000, and subject
to adjustment, the GlobalCenter purchase price is estimated to be approximately
$6.160 billion consisting of Exodus common stock valued at approximately $5.730
billion, Exodus stock options valued at approximately $395 million, and merger
related expenses estimated at approximately $35 million. The acquisition is
expected to close in the first quarter of 2001.
The Unaudited Pro Forma Combined Condensed Statement of Operations for the
Year Ended December 31, 1999 gives effect to the merger between Exodus and
Cohesive and to the merger between Exodus and GlobalCenter as if both mergers
had taken place on January 1, 1999. The Unaudited Pro Forma Combined Condensed
Statement of Operations for the Year Ended December 31, 1999 combine Exodus'
audited consolidated statement of operations for the year ended December 31,
1999, Cohesive's unaudited historical statement of operations for the seven-
month period ended July 27, 1999, Predecessor's audited historical consolidated
statement of operations for the period from January 1, 1999 to September 30,
1999, and GlobalCenter's audited historical consolidated statement of
operations for the period from October 1, 1999 to December 31, 1999. The
Unaudited Pro Forma Combined Condensed Statement of Operations for the Nine
Months Ended September 30, 2000 gives effect to the merger between Exodus and
GlobalCenter as if it had taken place on January 1, 2000. The Unaudited Pro
Forma Combined Condensed Statement of Operations for the Nine Months Ended
September 30, 2000 combine Exodus' unaudited consolidated statement of
operations for the nine months ended September 30, 2000 and GlobalCenter's
unaudited consolidated statement of operations for the nine months ended
September 30, 2000. The Unaudited Pro Forma Combined Condensed Balance Sheet
gives effect to the GlobalCenter acquisition as if it had taken place on
September 30, 2000 and combines Exodus' unaudited historical consolidated
balance sheet as of September 30, 2000 and GlobalCenter's unaudited historical
consolidated balance sheet as of September 30, 2000. A condensed balance sheet
of Cohesive as of September 30, 2000 has not been presented since the
acquisition of Cohesive has already been reflected in Exodus' unaudited
historical consolidated balance sheet.
The Unaudited Pro Forma Combined Condensed Financial Statements have been
prepared on the basis of assumptions described in the notes thereto and include
assumptions relating to the allocation of consideration paid for the assets and
liabilities of GlobalCenter based on preliminary estimates of their respective
fair values. The actual allocation of consideration paid for GlobalCenter may
differ from that reflected in the Unaudited Pro Forma Combined Condensed
Financial Statements upon the completion of the GlobalCenter acquisition when
the final valuation and purchase price allocation has been performed. In the
opinion of management, all adjustments necessary to present fairly such
Unaudited Pro Forma Combined Condensed Financial Statements have been made on
the proposed terms and structure of the GlobalCenter acquisition.
51
<PAGE>
EXODUS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
September 30, 2000
(in thousands)
<TABLE>
<CAPTION>
Historical Pro forma
------------------------- --------------------------------
Exodus Global Center Adjustments Combined
---------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents.......... $1,246,550 $ 11,210 $ -- $1,257,760
Accounts receivable,
net.................. 134,417 57,601 -- 192,018
Prepaid expenses and
other current
assets............... 38,219 16,835 -- 55,054
Deferred tax asset.... -- 4,155 (4,155)(a) --
---------- ---------- ---------- ----------
Total current
assets............. 1,419,186 89,801 (4,155) 1,504,832
Property and equipment,
net.................... 1,262,446 358,149 -- 1,620,595
Restricted cash
equivalents............ 73,051 -- -- 73,051
Goodwill and other
intangible assets...... 191,003 1,188,320 4,630,073 (a)(b)(c) 6,009,396
Other assets............ 709,666 3,395 -- 713,061
---------- ---------- ---------- ----------
$3,655,352 $1,639,665 $4,625,918 $9,920,935
========== ========== ========== ==========
Liabilities and
Stockholders' Equity
Current Liabilities:
Current portion of
equipment loans and
line of credit
facilities........... $ 7,149 $ -- $ -- $ 7,149
Current portion of
capital lease
obligations.......... 38,183 -- -- 38,183
Accounts payable...... 324,929 87,082 -- 412,011
Accrued expenses...... 82,063 17,538 -- 99,601
Accrued interest
payable.............. 65,056 -- -- 65,056
Accrued liability,
acquisition costs.... -- -- 35,000 (b) 35,000
---------- ---------- ---------- ----------
Total current
liabilities........ 517,380 104,620 35,000 657,000
Equipment loans and line
of credit facilities,
less current portion... 11,834 -- -- 11,834
Capital lease
obligations, less
current portion........ 52,339 -- -- 52,339
Convertible subordinated
notes.................. 562,494 -- -- 562,494
Senior Notes............ 1,936,062 -- -- 1,936,062
Long-term deferred tax
liabilities............ -- 22,605 (22,605)(a) --
Other non-current
liabilities............ 7,599 2,381 (1,418)(a) 8,562
---------- ---------- ---------- ----------
Total liabilities... 3,087,708 129,606 10,977 3,228,291
Stockholders' equity:
Common stock.......... 424 2,335 5,142 (b)(c) 7,901
Additional paid-in
capital.............. 915,227 1,871,077 4,246,446 (b)(c) 7,032,750
Deferred stock
compensation......... (1,261) -- -- (1,261)
Accumulated deficit... (407,342) (363,353) 363,353(a)(c) (407,342)
Accumulated other
comprehensive
income............... 60,596 -- -- 60,596
---------- ---------- ---------- ----------
Total stockholders'
equity............. 567,644 1,510,059 4,614,941 6,692,644
---------- ---------- ---------- ----------
$3,655,352 $1,639,665 $4,625,918 $9,920,935
========== ========== ========== ==========
</TABLE>
52
<PAGE>
Unaudited Pro Forma Combined Condensed Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
--------------------------------------------------------
Historical Pro forma
----------------------- -----------------------------
Exodus GlobalCenter Adjustments Combined
--------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue................. $ 543,331 $ 136,595 $ -- $ 679,926
Costs and expenses:
Costs of revenue....... 378,101 141,377 (k) -- 519,478
Marketing and sales.... 123,315 25,213 -- 148,528
General and
administrative........ 97,498 49,165 (k) -- 146,663
Product development.... 10,573 -- -- 10,573
Amortization of
goodwill and other
intangible assets..... 25,412 222,810 519,839 (b)(c) 768,061
--------- --------- --------- -----------
Total costs and
expenses.............. 634,899 438,565 519,839 1,593,303
Operating loss......... (91,568) (301,970) (519,839) (913,377)
Other income (expense),
net.................... (229) -- (229)
Interest income
(expense), net......... (87,558) -- -- (87,558)
--------- --------- --------- -----------
Loss from continuing
operations before
taxes.................. (179,126) (302,199) (519,839) (1,001,164)
Income tax benefit...... -- 33,189 (33,189)(e) --
--------- --------- --------- -----------
Loss from continuing
operations............. $(179,126) $(269,010) $(553,028) $(1,001,164)
========= ========= ========= ===========
Basic and diluted loss
per share from
continuing operations.. $ (0.45) $ (1.82)
Shares used to compute
basic and diluted loss
per share from
continuing operations.. 398,512 112,799 (f) 511,311
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1999
----------------------------------------------------------------------------------------------
Historical
--------------------------
Predecessor GlobalCenter
------------- ------------
Nine Months Three Months
Historical Pro Forma Ended Ended
------------------- Exodus/Cohesive September 30, December 31,
Exodus Cohesive Adjustments Combined 1999 1999 Adjustments
--------- -------- ----------- --------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue.......... $ 242,140 $29,191 $ 271,331 $ 47,179 $ 23,724 $ --
Costs and
expenses:
Costs of
revenue........ 197,231 20,896 218,127 54,993 24,032 (k) --
Marketing and
sales.......... 75,809 3,594 79,403 9,531 6,088 --
General and
administrative.. 42,951 5,223 48,174 8,170 3,641 (k) --
Product
development.... 8,869 -- 8,869 --
Amortization of
goodwill and
other
intangible
assets......... 9,438 4,994 3,492 (g) 17,924 974 74,270 914,955 (d)
Merger Costs.... 5,058 -- -- 5,058 -- -- --
--------- ------- ------- --------- -------- -------- ---------
Total costs and
expenses....... 339,356 34,707 3,492 377,555 73,668 108,031 914,955
Operating loss.. (97,216) (5,516) (3,492) (106,224) (26,489) (84,307) (914,955)
Interest and
other income
(expense), net.. (33,107) (565) (1,464)(h) (35,136) (44) 114 --
--------- ------- ------- --------- -------- -------- ---------
Loss from
continuing
operations
before taxes... (130,323) (6,081) (4,956) (141,360) (26,533) (84,193) (914,955)
Income tax
benefit......... -- 450 -- 450 9,742 5,038 (14,780)(e)
--------- ------- ------- --------- -------- -------- ---------
Loss from
continuing
operations..... (130,323) (5,631) (4,956) (140,910) (16,791) (79,155) (929,735)
Cumulative
dividends and
accretion on
redeemable
preferred
stock........... -- (738) 738 (i) -- -- -- --
--------- ------- ------- --------- -------- -------- ---------
Loss from
continuing
operations
attributable to
common
stockholders.... $(130,323) $(6,369) $(4,218) $(140,910) $(16,791) $(79,155) $(929,735)
========= ======= ======= ========= ======== ======== =========
Basic and diluted
loss per share
from continuing
operations...... $ (0.39)
Shares used to
compute basic
and diluted loss
per share from
continuing
operations...... 335,848 1,600 (j) 112,799 (f)
<CAPTION>
Pro Forma
Exodus/GlobalCenter
Combined
-------------------
<S> <C>
Revenue.......... $ 342,234
Costs and
expenses:
Costs of
revenue........ 297,152
Marketing and
sales.......... 95,022
General and
administrative.. 59,985
Product
development.... 8,869
Amortization of
goodwill and
other
intangible
assets......... 1,008,123
Merger Costs.... 5,058
-------------------
Total costs and
expenses....... 1,474,209
Operating loss.. (1,131,975)
Interest and
other income
(expense), net.. (35,066)
-------------------
Loss from
continuing
operations
before taxes... (1,167,041)
Income tax
benefit......... 450
-------------------
Loss from
continuing
operations..... (1,166,591)
Cumulative
dividends and
accretion on
redeemable
preferred
stock........... --
-------------------
Loss from
continuing
operations
attributable to
common
stockholders.... $(1,166,591)
===================
Basic and diluted
loss per share
from continuing
operations...... $ (2.37)
Shares used to
compute basic
and diluted loss
per share from
continuing
operations...... 450,247
</TABLE>
53
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) Unaudited Pro Forma Combined Condensed Balance Sheet
On September 28, 2000, Exodus entered into a merger agreement under which
all of the outstanding capital stock of GlobalCenter is to be exchanged for
approximately $6.160 billion in common stock of Exodus. In addition, Exodus
will assume all outstanding options to purchase common stock of GlobalCenter
Inc. options to purchase common stock of GlobalCrossing Ltd. Exodus will issue
option for Global Crossing Ltd. option. The actual number of Exodus shares to
be issued will depend, among other things, upon the average closing price per
share of Exodus common stock for the ten trading days before and including the
trading day before the closing date.
The pro forma combined condensed balance sheet as of September 30, 2000,
gives effect to the merger as if it had occurred on September 30, 2000.
The following adjustments have been reflected in the unaudited pro forma
combined condensed balance sheet:
(a) To eliminate GlobalCenter's historical goodwill and intangibles, deferred
tax assets and liabilities, and deferred income.
(b) To record the purchase of GlobalCenter by Exodus through the issuance of
Exodus common stock and options and the assumption of GlobalCenter stock
options by Exodus. In accordance with EITF Issue No. 95-19, the value of
Exodus' common stock issued is based on the average closing price of
Exodus' common stock during the period from a few days before through a few
days after September 28, 2000, the hypothetical acquisition date.
Under purchase accounting, the total purchase price will be allocated to
GlobalCenter's tangible and identifiable intangible assets acquired and
liabilities assumed based on their relative fair values. The total purchase
price reflected below is preliminary and is subject to adjustment as defined in
the merger agreement. The purchase price allocation reflected below is
preliminary and is subject to adjustment based on the final valuation of
GlobalCenter upon closing of the merger. The final purchase price allocation is
not expected to be significantly different from the preliminary purchase price
allocation reflected below.
<TABLE>
<S> <C>
Fair value of Common Stock...................................... $5,730,000
Fair value of GlobalCenter stock options assumed................ 364,000
Fair value of Global Crossing Ltd. stock options assumed ....... 26,000
Fair value of Exodus Stock options being issued for Global
Crossing Ltd. ................................................. 5,000
Estimated transaction costs..................................... 35,000
----------
Total purchase price........................................ $6,160,000
==========
Fair value of GlobalCenter's net tangible assets acquired ...... $ 341,607
Goodwill and other intangible assets............................ 5,818,393
----------
Net assets acquired......................................... $6,160,000
==========
</TABLE>
(c) To eliminate GlobalCenter's historical equity balances, reflect the
issuance of Exodus common stock and options and the assumption of
GlobalCenter options and reflect the elimination of the deferred tax
benefit realized by GlobalCenter during the nine months ended September 30,
2000.
The actual allocation of the purchase price will depend upon the composition
of GlobalCenter net assets on the closing date and Exodus' evaluation of the
fair value of the net assets as of the date indicated. Consequently, the actual
allocation of the purchase price could differ from that presented above.
54
<PAGE>
(2) Unaudited Pro Forma Combined Condensed Statements of Operations
The pro forma combined condensed statements of operations give effect to the
merger as if it had occurred at the beginning of the period presented.
The following adjustments have been reflected in the unaudited pro forma
combined condensed statements of operations:
(d) To remove the amortization of historical goodwill and other intangible
assets previously recorded by GlobalCenter and to record the amortization
of goodwill and intangible assets resulting from the allocation of the
GlobalCenter purchase price. The pro forma adjustment assumes other
intangible assets and goodwill will be amortized on a straight-line basis
over an estimate life of three to seven years. The ultimate lives assigned
will be determined at the date of acquisition based on the facts and
circumstances existing at that date.
(e) To remove tax benefit previously recorded by GlobalCenter
(f) To reflect the estimated shares to be issued as consideration for the
GlobalCenter merger based on an average closing price of Exodus common
stock of $60.34 per share.
(g) Adjustment to remove the amortization of historical goodwill and other
intangible assets previously recorded by Cohesive and to record the
amortization of goodwill and intangible assets resulting from the
allocation of the Cohesive purchase price. The pro forma adjustment assumes
goodwill and other intangible assets will be amortized on a straight-line
basis over estimated lives of five to eight years.
(h) To eliminate interest income earned by Exodus on cash paid to Cohesive at
the date of the merger assuming a 5% interest rate which approximates the
Company's actual rate of return during the periods presented.
(i) To remove Cohesive's historical cumulative dividends and accretion on
redeemable preferred stock which are settled in cash at the date of the
merger.
(j) To reflect the shares issued as consideration for the Cohesive merger.
(k) GlobalCenter's depreciation expense has been reclassed to conform with
Exodus' classification.
55
<PAGE>
BUSINESS OF GLOBALCENTER
GlobalCenter's Services
Complex Web Hosting Services
GlobalCenter offers complex Web hosting services designed to enable
businesses to outsource operation of mission-critical Web sites, based on
industry-leading technologies and offering high service level guarantees.
GlobalCenter supports all leading Internet hardware and software systems. This
flexibility enables GlobalCenter's customers to retain control over their
technical solution and to integrate GlobalCenter's services with their existing
information technology architectures. GlobalCenter offers a number of services
to dedicated Web site management customers to ensure ease of implementation,
security, performance and scalability. Specifically, GlobalCenter provides:
. configuration, installation and support of operating systems, including
Unix, Windows NT, Solaris and Linux; hardware platforms, including those
offered by Sun Microsystems, Dell, Cisco, IBM, VA Linux and Compaq;
. installation and maintenance of Web sites on server hardware;
. help desk support 24-hours a day, seven days a week, with access to
certified technical professionals;
. industry and vendor security alerts and maintenance;
. load balancing and geographical distribution of network traffic among
multiple servers and multiple data centers; and
. 24-hours a day, seven days a week, network and system monitoring as well
as physical and remote access to equipment.
Hardware and Software Procurement Services
GlobalCenter has experienced equipment services professionals available to
help make its customers' equipment purchases simple and economical.
GlobalCenter selects and purchases equipment from various manufacturers based
on customer orders and resells the equipment to its customers. GlobalCenter
also arranges for equipment to be shipped directly to a customer's location in
its data centers and installed in the appropriate location. GlobalCenter's
equipment services allow it to move new customers into its data centers more
quickly and efficiently.
IP Network Services
GlobalCenter directly connects its data centers, other than Melbourne, to
Global Crossing's high performance, IP-based fiber-optic backbone network with
transit relationships with certain Internet backbone providers. GlobalCenter's
connectivity arrangements are designed to deliver the scalability, high
availability and performance required for high-volume bandwidth and
application-intensive Internet operations. Since GlobalCenter customers'
Internet operations often experience traffic spikes due to promotions or
events, GlobalCenter typically maintains sufficient excess network capacity to
handle its customers peak traffic needs. Each of GlobalCenter's data centers is
also connected to the communications networks of other major carriers.
Value-Added Applications and Services
GlobalCenter's value-added applications and services enable its customers to
improve the performance, reliability and storage and backup capability of their
Internet operations. GlobalCenter believes these services will become
increasingly important to its customers. GlobalCenter's current services
include the following:
Performance Monitoring Services. GlobalCenter works with Keynote, a provider
of Internet performance measurement, diagnostic and consulting services, to
provide and jointly market Perspective(TM), a service that gives companies
real-time statistics about their Web sites' performance from the viewpoint of
users around the world.
56
<PAGE>
Content Acceleration Services. GlobalCenter is working with Novell to offer
content acceleration in all of our data centers. This service allows us to
ensure significantly better web site performance for our customers both on a
local and global basis. Customers have access to this service on a monthly fee
basis and do not need to make the up front capital costs associated with most
caching solutions available today.
Content Delivery Services. GlobalCenter works with Akamai to offer
FreeFlowSM, a caching service that moves content closer to end users and
intelligently routes requests to multiple servers. As a result, FreeFlow
reduces problems caused by server overloads and network bottlenecks. This
increases peak demand capacity for Web sites, speeds user downloads and
improves overall quality.
Disk Storage Services. GlobalCenter works with StorageNetworks, a storage
services provider, to provide Disk-On-DemandSM, highly scaleable and reliable
on-demand disk storage services that GlobalCenter offers on a usage basis.
Disk-On-Demand gives GlobalCenter customers access to technologically advanced
storage, normally available only to large enterprises, on a cost effective
basis.
Tape Storage Services. GlobalCenter works with ManagedStorage International,
network storage services providers, to provide Tape-On-DemandSM, backup and
disaster recovery services that GlobalCenter offers on a usage basis. Tape-On-
Demand reduces GlobalCenter customers' need to invest in and manage expensive
disaster recovery systems.
Security Services. GlobalCenter's security services are designed to ensure
the security of GlobalCenter customer's Web operations by applying industry
leading security diagnostic tools. Security engineers are located at
GlobalCenter's data centers to deliver security solutions including firewalls,
encryption and authentication.
Testing Services. GlobalCenter's testing services aim to identify problems
that could degrade the expected performance and availability of a customer's
Web operations. For example, GlobalCenter's stress testing services simulate
users accessing a Web site to provide information for isolating problems,
optimizing performance and accelerating the deployment of Web sites.
Professional Services
GlobalCenter's professional services teams consult with customers on a wide
range of issues including Web applications development, Internet connectivity,
server maintenance, performance and site scaling. GlobalCenter believes its
professional services will play an increasingly important role in supporting
the implementation and maintenance of Internet based mission-critical
operations as customers continue to rapidly adopt emerging technologies.
GlobalCenter's professional services currently include system architecture and
design; disaster recovery, migration and capacity planning; database
optimization; and performance tuning. GlobalCenter's sales engineers offer
several services to its customers, including configuring systems and specifying
hardware and software for implementations or upgrades. GlobalCenter assigns
technical account teams, consisting of three to five personnel, to act as
GlobalCenter customers' on-site network and information technology staff.
Customers
GlobalCenter has a large and diverse customer base ranging from large
enterprises to Web-Centric companies. As of September 30, 2000, GlobalCenter
was serving over 600 customers, none of which accounted for 10% or more of its
revenues. The following is a representative list of GlobalCenter's customers as
of September 30, 2000:
<TABLE>
<S> <C> <C>
24/7 Media marchFIRST Red Hat
About.com MatchLogic StorageNetworks
Akamai Microsoft bCentral TalkCity
Cox Interactive Media NBCi Viacom
Encyclopedia Britannica Network Solutions VISA USA
Etoys The New York Times The Washington Post
Google Novell Xdrive
Goto.com Playboy Enterprises Yahoo!
Kmart Bluelight QUOTE.COM ZDNet
</TABLE>
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<PAGE>
GlobalCenter's contracts with customers generally cover its provision of
services for a one to three-year period and may contain, among other things,
various service level agreements. GlobalCenter generally provides customers
with a 99.5% network connectivity uptime guarantee and a 100% facility uptime
guarantee. Pursuant to these service level warranties, customers' monthly fees
are reduced based on the amount of network connectivity downtime and data
center downtime that affects the customer.
Sales
GlobalCenter uses a team approach in selling to prospective customers.
Customer account teams are organized into three units, consisting of account
executives, sales engineers and client services representatives. Account
executives are the team leaders and are primarily responsible for new account
acquisitions and maintenance of the strategic relationships with GlobalCenter
customers. Sales engineers support the account executives by providing pre-
sales technical support, including customer site architecture and design.
Client services representatives are responsible for the day-to-day account
management and for marketing additional services to existing customers.
GlobalCenter's domestic sales force is located in six geographic regions of
the United States centered around existing and planned data centers. As of
September 30, 2000, GlobalCenter had 140 employees engaged in sales and sales
support.
Customer Service
GlobalCenter is committed to providing superior customer service by
understanding the business objectives and technical requirements of its
customers and by fulfilling their needs on an individual basis. Working closely
with its customers, GlobalCenter seeks to optimize the performance of their
Internet operations, minimize downtime, resolve problems that may arise, and
make appropriate adjustments in services as customer needs change over time. In
order to enhance its customer service delivery and increase operating
efficiencies, GlobalCenter operates a centralized response center which handles
inbound calls, monitoring, and problem resolution for its data centers in the
United States. GlobalCenter also solicits feedback to ensure that it continues
to offer the highest quality of service. GlobalCenter uses advanced software
tools to aid in customer monitoring and service efforts. Many of GlobalCenter's
customer service personnel have been specifically trained and certified by the
vendors of its software tools, including Sun Microsystems, Microsoft, Oracle
and Computer Associates.
GlobalCenter also provides customer service and technical support during the
installation phase, including a transition team and project management support.
In addition, GlobalCenter provides system integration services between the
customer's Internet site and legacy systems. After installation, primary
customer support is coordinated through GlobalCenter's network control centers.
These centers are operated 24 hours a day, seven days a week by engineers who
monitor site and network operations, and coordinate teams to solve problems
that arise. GlobalCenter's customer service personnel are also available to
assist customers whose operations require specialized procedures.
GlobalCenter employs network engineers and systems administrators who work
with customers to design and maintain their Internet operations. GlobalCenter's
network engineers and system administrators are trained specialists who support
Windows NT, Linux, Solaris and other UNIX platforms. They are also trained to
support routers and switches of most major equipment manufacturers. They also
serve as the second level of support for customer issues that cannot be
resolved by GlobalCenter's network control centers.
Data Center Infrastructure
GlobalCenter's data centers are built to specifications that deliver high
standards in security, reliability and redundancy. The physical infrastructure
and security controls of GlobalCenter's data centers have been
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<PAGE>
designed to support rigorous requirements for complex Web hosting.
Specifically, GlobalCenter's data centers offer the following major physical
benefits to its customers:
. multi-level physical security;
. multi-redundant utilities and environmental controls; and
. network connectivity.
Multi-level physical security. Based upon their technical and security
requirements, customers can select from racks in common areas, highly secure
cabinets, enclosed cage facilities or private vaults. GlobalCenter has
implemented robust security systems, which include biometric hand scanners,
security verification, guards, cameras, bullet proof glass, round-the-clock
monitoring and mantrap areas.
Multi-redundant utilities and environmental controls. GlobalCenter's data
centers have power systems that include redundant connections to the power
utilities, back up power supplies and diesel generators that can run for days
without refueling if needed. Laser detection, inert gas and dry pipe sprinkler
systems protect GlobalCenter customers' equipment from fire and inadvertent
water damage. Cooling and environmental controls for each data center are
designed to monitor and ensure proper temperature and humidity. GlobalCenter's
data centers are also constructed with raised floors and seismically braced
racks.
Network Connectivity. GlobalCenter's data centers are connected to the
Internet through network points of presence within the centers. These points of
presence provide high-performance, reliable networking connectivity to the
Internet for GlobalCenter customers. Telecommunications circuits enter the data
centers through multiple points from diverse service providers. Multiple points
of presence ensure continued operation of service without degradation in the
unlikely event of a cable cut or local carrier network outage. All but one of
GlobalCenter's data centers are located directly on Global Crossing's
international Internet protocol-based fiber optic network for high bandwidth
worldwide connectivity and scale. Each of GlobalCenter's data centers has
access to the communications networks of other major carriers.
Competition
The market for Web hosting and for other Internet infrastructure services is
highly competitive and there are few substantial barriers to entry.
GlobalCenter's current and potential competitors in the market include Web
hosting service providers, Internet service providers, commonly known as ISPs,
telecommunications companies and large information technology outsourcing
firms. GlobalCenter's competitors may operate in one or more of these areas.
Many of GlobalCenter's competitors have substantially greater resources,
more customers, greater name recognition and more established relationships in
the industry than it does. As a result, these competitors may be able to
develop and expand their applications and service offering more quickly, devote
greater resources to the marketing and sale of their products and adopt more
aggressive pricing policies. In addition, these competitors have entered and
will likely continue to enter into business relationships to provide additional
services competitive with those GlobalCenter provides. As GlobalCenter moves
toward its goal of becoming a total Internet infrastructure services provider,
the nature of its competition may change in ways GlobalCenter will not
anticipate. GlobalCenter also believes the Web hosting market is likely to
experience consolidation in the near future, which could result in increased
price and other competition that would make it more difficult for GlobalCenter
to compete.
Intellectual Property Rights
GlobalCenter relies on a combination of copyright, trademark, service mark
and trade secret laws and contractual restrictions to establish and protect
certain of its proprietary rights. GlobalCenter has no patented technology that
would bar competitors from its market. Despite GlobalCenter's efforts to
protect its proprietary
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<PAGE>
rights, unauthorized parties may attempt to copy or otherwise obtain and use
its data or technology. In addition, the laws of various foreign countries may
not protect its products, services or intellectual property rights to the same
extent as do the laws of the United States.
GlobalCenter does not currently rely in a material way on technologies
licensed form third paries, but GlobalCenter expects that, as GlobalCenter
continues to offer new services through partnerships with third parties, its
reliance on licensed technology will grow. These licenses may not be available
to GlobalCenter on commercially reasonable terms or at all. The inability to
use such technology could require GlobalCenter to obtain substitute technology
of lower quality or performance standards or at greater cost, which could harm
its business.
Other parties may claim that GlobalCenter has infringed their proprietary
rights. Such claims, whether or not meritorious, may require GlobalCenter to
expend significant financial and managerial resources, result in injunctions
against it, or impose damages GlobalCenter must pay. GlobalCenter may need to
obtain licenses from third parties who allege that it has infringed their
rights, but such licenses may not be available on terms acceptable to
GlobalCenter or at all.
Government Regulation
GlobalCenter is not currently subject to direct United States federal, state
or local or international government regulation, other than regulations
applicable to businesses generally. There is currently only a small body of
laws and regulations directly applicable to access to or commerce on the
Internet.
Due to the increasing popularity and use of the Internet, it is likely a
number of laws and regulations may be adopted at the federal, state and local
levels in the United States and internationally with respect to the Internet,
covering issues such as user privacy, freedom of expression, pricing,
characteristics and quality of products and services, taxation, advertising,
intellectual property rights, information security and the convergence of
traditional telecommunications services with Internet communications. For
example, the European Union recently enacted privacy regulations. The United
States Congress has recently considered enacting Internet laws regarding
privacy, copyrights taxation and the transmission of sexually explicit
materials. The Federal Trade Commission has recently commenced investigations
of the practices of certain Internet companies relating to privacy and consumer
protection laws. The adoption of any such laws or regulations might decrease
the growth of the Internet, which in turn could decrease the demand for
GlobalCenter's services or increase the cost of doing business or in some other
manner harm its business. In addition, applicability to the Internet of
existing laws governing areas such as property ownership, copyrights and other
intellectual property issues, taxation, libel, on-line contract enforcement,
obscenity and personal privacy is uncertain. The vast majority of such laws
were adopted prior to the advent of the Internet and related technologies and,
as a result, do not contemplate or address the unique issues of the Internet
and related technologies.
Employees
As of September 30, 2000, GlobalCenter employed approximately 720 full-time
employees. None of GlobalCenter's employees is covered by a collective
bargaining agreement. GlobalCenter believes that its employee relations are
good.
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<PAGE>
Properties
GlobalCenter's executive offices are located in Sunnyvale, California and
consist of approximately 54,000 square feet that are leased pursuant to an
agreement that expires in July 2005. Space leased and occupied for data centers
covers an aggregate of approximately one million gross square feet.
GlobalCenter leases facilities in the following cities:
<TABLE>
<CAPTION>
Lease
City and State Expiration
-------------- ----------
<S> <C>
Amsterdam, Netherlands*...................................... October 2015
Anaheim, California.......................................... April 2009
Ann Arbor, Michigan, Office.................................. November 2005
Chicago Illinois, Sales Office............................... April 2005
Chicago, Illinois*........................................... December 2009
Dublin, Ireland*............................................. October 2025
Frankfurt, Germany*.......................................... October 2020
Herndon, Virginia, Sales Office.............................. June 2006
Herndon, Virginia............................................ May 2015
Herndon, Virginia............................................ March 2009
Irvine, California, Sales Office............................. May 2003
Irvine, California*.......................................... August 2017
London, England.............................................. March 2014
London, England.............................................. March 2014
London, England, Sales Office (Stratton House)............... December 2009
London England, Office (Lower Thames Street)................. April 2016
Melbourne, Australia......................................... October 2001
Mountain View, California.................................... October 2000
Munich, Germany*............................................. July 2019
New York, New York (60 Hudson)............................... October 2001
New York, New York (111 8th Ave., 2nd Floor)................. July 2014
New York, New York (111 8th Ave., 15th Floor Sales Office)... December 2009
New York, New York (111 8th Ave., 3rd Floor)................. September 2008
New York, New York (111 8th Ave., 15th Floor Office)......... September 2008
New York, New York*.......................................... August 2015
Paris, France, Sales Office.................................. July 2009
Paris, France*............................................... September 2012
Sunnyvale, California, Office (Geneva Drive)................. June 2005
Sunnyvale, California, Office (Caspian Court)................ July 2009
Sunnyvale, California, Office (Gibraltar).................... November 2010
Sunnyvale, California........................................ November 2001
Sunnyvale, California........................................ November 2011
Sunnyvale, California........................................ August 2008
Sunnyvale, California*....................................... March 2015
Sydney, Australia*........................................... November 2009
Waltham, Massachusetts*...................................... August 2018
</TABLE>
--------
* GlobalCenter's data centers in these locations are under development and are
not yet operational.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF GLOBALCENTER
The following discussion of our financial condition and results of
operations should be read in conjunction with the selected consolidated
historical financial data and consolidated financial statements and the related
notes included elsewhere in this proxy statement. This discussion contains
forward-looking statements that involve risks and uncertainties. Actual results
may differ materially from those anticipated in these forward-looking
statements.
Overview
GlobalCenter Inc. was acquired by Frontier Corporation in February 1998 in a
pooling-of-interests transaction. On September 28, 1999, Global Crossing Ltd.
acquired Frontier Corporation in a merger transaction. For financial reporting
purposes, the Global Crossing merger with Frontier Corporation was deemed to
have occurred on September 30, 1999. In connection with the merger, the assets
and liabilities of GlobalCenter were adjusted to their respective fair values
under the purchase method of accounting. As a result of this acquisition, the
fair value of goodwill and other intangibles directly related to GlobalCenter
was determined to be approximately $1.5 billion. The goodwill and other
intangible assets are being amortized on a straight-line basis over five years.
GlobalCenter expects annual amortization of the existing goodwill and other
intangibles to be approximately $297 million in the future.
GlobalCenter Holding Co. is an indirect wholly owned subsidiary of Global
Crossing Ltd., formed in April 2000 to hold the investment in GlobalCenter Inc.
and all of its subsidiaries. Ownership of GlobalCenter Inc. was transferred to
GlobalCenter Holding Co. from another Global Crossing subsidiary. In accordance
with transfers between entities under common control, the transfer was made at
book value and the accompanying financial information reflects the transfer as
of October 1, 1999. GlobalCenter included the assets and liabilities of
GlobalCenter Inc. and the related consolidated results of operations for
periods prior to October 1, 1999 under the heading "Predecessor," and the
consolidated results of GlobalCenter Holding Co. for periods subsequent to
September 30, 1999 under the heading "GlobalCenter." Depreciation, amortization
and certain other line items included in the operating results of GlobalCenter
are not directly comparable to Predecessor because the periods after September
30, 1999 include the effects of purchase accounting adjustments related to the
merger with Global Crossing, while prior periods do not.
Historically, GlobalCenter operated an Internet Service Provider, or ISP,
business in addition to its Web hosting and related services. Effective March
31, 2000, the ISP business was sold to Global Crossing Internet Dial-Up, Inc.,
a wholly owned subsidiary of Global Crossing Ltd. The sale was made at the net
book value of the ISP assets on March 31, 2000. In connection with this
transaction, the GlobalCenter financial statements reflect the financial
position and results of operations of the ISP business as discontinued
operations for all periods presented.
GlobalCenter obtains the majority of its network access from third party
telecommunications providers based on agreements with market-based pricing
terms. Some of those third party agreements required price escalation or
contract renegotiation in the event of unequal traffic flows. GlobalCenter also
obtained some of its network access from Frontier Corporation prior to October
1999. After the acquisition of Frontier Corporation on September 30, 1999,
GlobalCenter has obtained substantially all of its network access from Global
Crossing.
Since October 1, 1999, GlobalCenter has received administrative services
from Global Crossing that include information systems support, tax services,
payroll and benefit administration and certain other accounting and
administrative services. From March 1, 1998 through September 30, 1999,
Frontier Corporation provided these services to GlobalCenter. Its costs for
these services were based on total actual costs allocated to GlobalCenter using
bases that management considered reasonable given the nature of the costs and
the usage by GlobalCenter.
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<PAGE>
It typically takes GlobalCenter at least nine months after a data center
site is leased to construct the data center facility, install equipment and
telecommunications infrastructure and to hire operations and sales personnel.
As a result, GlobalCenter makes a large capital investment and incurs
significant start-up costs before generating customer revenues at any new data
center. Start-up costs are expensed as incurred. GlobalCenter expects a new
data center to incur losses for a year or longer until reaching break-even
utilization. Largely as a result of these costs, GlobalCenter has experienced
operating losses and negative cash flows from operations in each annual period.
GlobalCenter's net losses from continuing operations were $269.0 million for
the nine months ended September 30, 2000, $79.2 million for the three months
ended December 31, 1999, $16.8 million for the nine months ended September 30,
1999, $10.8 million for the year ended December 31, 1998 and $2.8 million for
the year ended December 31, 1997.
GlobalCenter's service revenues consist of fees from customers for Web
hosting, IP network services, content distribution, systems applications and
professional services. GlobalCenter typically provides its services under one-
to-three year contracts with minimum customer commitments for connectivity and
services. Service revenues are recognized as the services are provided. Service
revenues also include fees for equipment installation. GlobalCenter's equipment
revenues consist of revenue derived from the resale to its customers of
computers, computer peripherals and networking equipment which GlobalCenter
buys from third parties upon receipt of a customer order. GlobalCenter assists
its customer with equipment selection, procurement and installation to
facilitate and accelerate the customer's entry into the data center. Equipment
revenues are recognized when equipment installation in a data center is
complete. Equipment that has been purchased on behalf of customers but not yet
transferred to the customer or installed is recorded as equipment held for
resale.
Cost of service revenues is comprised of telecommunication costs for the
backbone network and costs for connectivity to other networks and
telecommunications providers. Other expenses in cost of service revenues
include salaries, benefits, rent and other expenses for operation of
GlobalCenter's data centers, customer service and network engineering
personnel. Cost of equipment revenues is the cost of third-party equipment sold
to GlobalCenter's customers.
GlobalCenter's sales and marketing expenses consist of salaries,
commissions, benefits and other expenses for direct sales, sales support,
product marketing and public relations personnel, as well as costs associated
with marketing programs, collateral material and corporate marketing
activities, including public relations.
GlobalCenter's general and administrative expenses consist of payroll and
benefit administration, information systems services, accounting and back
office support, headquarters facility costs, executive salaries and other
general and administrative costs, including GlobalCenter's allocation of
corporate administrative services. Since October 1, 1999, Global Crossing has
provided payroll and benefits administration, purchasing and certain other
accounting and corporate administrative services.
Depreciation and amortization expenses consist of depreciation of leasehold
improvements and network infrastructure improvements, furniture and
amortization of capital lease equipment.
Income taxes have been calculated on a pro rata basis. GlobalCenter's
benefit for income taxes is based on the increase or decrease in tax liability
of the Global Crossing NA, formerly Frontier Corporation, consolidated tax
group resulting from the inclusion of items in the Global Crossing NA
consolidated tax return which are attributable to GlobalCenter.
Results of Operations
Nine Months Ended September 30, 2000 compared with the Nine Months Ended
September 30, 1999
Revenues. GlobalCenter's total revenues increased 190% to $136.6 million for
the nine months ended September 30, 2000 from $47.2 million for the nine months
ended September 30, 1999, as a result of increase
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<PAGE>
in service revenues and equipment revenues. Service revenues increased 226% to
$97.8 million for the nine months ended September 30, 2000 from $30.0 million
for the nine months ended September 30, 1999. The growth in GlobalCenter's
service revenue was primarily the result of opening new data centers, adding
new customers and services, and increasing revenues from existing customers.
GlobalCenter's equipment revenues increased 125% to $38.8 million for the nine
months ended September 30, 2000 from $17.2 million for the nine months ended
September 30, 1999. Equipment revenues increased primarily because more
customers in its new data centers chose to purchase their equipment from
GlobalCenter rather than directly from a third party vendor.
Cost of Revenues. Cost of service revenues increased 155% to $93.0 million
for the nine months ended September 30, 2000 from $36.5 million for the
comparable period in 1999. This increase was primarily due to increased network
usage by GlobalCenter's customers, and rent and facilities costs for the
addition and expansion of its data centers. Cost of service revenues decreased
as a percentage of service revenue from 122% in the nine months ended September
30, 1999 to 95% in the nine months ended September 30, 2000 primarily due to
better utilization of network capacity.
Cost of equipment revenues increased 137% to $37.0 million for the nine
months ended September 30, 2000 from $15.6 million for the nine months ended
September 30, 1999, due to increased equipment sales. The cost of equipment, as
a percentage of equipment revenues, increased to 95% during the nine months
ended September 30, 2000 from 90% during the nine months ended September 30,
1999, as a result of competitive price pressure in the market.
Sales and Marketing. Sales and marketing expenses increased 165% to $25.2
million for the nine months ended September 30, 2000 from $9.5 million for the
comparable period in 1999. The increase is primarily a result of having
additional direct sales and marketing personnel and other sales and marketing
expenses in connection with new data centers and expanding operations and
services. As a percent of total revenue, sales and marketing expenses decreased
from 20% in the nine months ended September 30, 1999 to 18% in the nine months
ended September 30, 2000 due to the increase in revenues.
General and Administrative. GlobalCenter's total general and administrative
expenses increased 542% to $44.3 million for the nine months ended September
30, 2000 from $6.9 million for the same period in 1999, primarily because it
hired additional management and administrative personnel to support expanding
operations. General and administrative expenses as a percent of total revenue
increased from 15% in the first nine months of 1999 to 32% in the first nine
months of 2000 primarily due to the increase in personnel and related costs to
support its growth between comparison periods.
General and administrative expenses for the nine months ended September 30,
2000 include $4.8 million for payroll and benefits administration, purchasing
and other accounting and corporate services provided by Global Grossing. From
March 1, 1998 through September 30, 1999, Frontier Corporation provided these
services and corporate administration to GlobalCenter. Expenses for the nine
months ended September 30, 1999 included $1.7 million for these services.
Depreciation and Amortization. Depreciation and amortization expense
increased 283% to $16.2 million for the nine months ended September 30, 2000
from $4.2 million for the same period of 1999, primarily as a result of the new
data centers and the related leasehold and network investments.
Goodwill and Intangibles Amortization. GlobalCenter recognized amortization
expense of $222.8 million in the nine months ended September 30, 2000 related
to goodwill and intangible assets resulting from Global Crossing Ltd.'s merger
with Frontier Corporation. GlobalCenter also recorded goodwill totaling
approximately $9.1 million in connection with an acquisition completed in
November 1997. The goodwill from this transaction was amortized over a seven-
year period using the straight-line method until Global Crossing's acquisition
of Frontier Corporation in September 1999. GlobalCenter recognized amortization
expense of $1.0 million in the nine months ended September 30, 1999 related to
this goodwill.
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<PAGE>
Income Tax Benefit. GlobalCenter's income tax benefit in the nine months
ended September 30, 2000 and the nine months ended September 30, 1999 reflects
the use of GlobalCenter tax losses in the Global Crossing NA consolidated tax
return.
Loss from Continuing Operations. GlobalCenter's net loss from continuing
operations was $269.0 million for the nine months ended September 30, 2000
compared to $16.8 million for the nine months ended September 30, 1999. The
increase in net loss was primarily due to the difference in goodwill and
intangibles amortization that resulted from Global Crossing's acquisition of
GlobalCenter in September 1999 as part of the Frontier Corporation merger,
increased depreciation and amortization from additions to property and
equipment over the course of the year and operating expenses that are in excess
of revenues.
Pro Forma Year Ended December 31, 1999 Compared with the Year Ended December
31, 1998
For purposes of the following discussion and to provide a meaningful basis
for comparing the year ended December 31, 1999 to the year ended December 31,
1998, we have combined, as shown below and in the selected historical financial
data of GlobalCenter, the operating results of Predecessor for the nine months
ended September 30, 1999 with the operating results of GlobalCenter for the
three months ended December 31, 1999. The pro forma presentation for the year
ended December 31, 1999 includes adjustments for depreciation of property and
equipment and amortization of goodwill and intangibles for the nine months
ended September 30, 1999, resulting from the merger with Global Crossing.
<TABLE>
<CAPTION>
Predecessor GlobalCenter Pro Forma
Nine Months Three Months Twelve
Ended Ended Months Ended
September 30, Pro Forma December 31, December 31,
1999(1) Adjustments 1999(4) 1999
------------- ----------- ------------ ------------
( in thousands)
<S> <C> <C> <C> <C>
Revenues:
Service revenues...... $ 29,951 $ -- $ 17,753 $ 47,704
Equipment revenues.... 17,228 -- 5,971 23,199
-------- --------- -------- ---------
Total revenues...... 47,179 -- 23,724 70,903
-------- --------- -------- ---------
Costs and expenses:
Cost of service
revenue.............. 36,451 -- 17,328 53,779
Cost of equipment
revenue.............. 15,573 -- 5,365 20,938
Sales and marketing... 9,531 -- 6,088 15,619
General and
administrative....... 6,897 -- 3,067 9,964
Depreciation and
amortization......... 4,242 273 (2) 1,913 6,428
Amortization of
intangibles.......... 974 (974) 74,270 297,080
222,810 (3)
-------- --------- -------- ---------
Total costs and
expenses........... 73,668 222,109 108,031 403,808
-------- --------- -------- ---------
Operating Loss.......... (26,489) (222,109) (84,307) (332,905)
Other income (expense),
net.................... (44) -- 114 70
-------- --------- -------- ---------
Loss before income
taxes.................. (26,533) (222,109) (84,193) (332,835)
Income tax benefit...... 9,742 2,115 5,038 16,895
-------- --------- -------- ---------
Loss from continuing
operations............. (16,791) (219,994) (79,155) (315,940)
Loss from discontinued
operations, net of
income tax benefit..... (16,985) -- (15,188) (32,173)
-------- --------- -------- ---------
Net loss................ $(33,776) $(219,994) $(94,343) $(348,113)
======== ========= ======== =========
</TABLE>
--------
(1) This column represents the results of operations of GlobalCenter for the
nine months ended September 30, 1999 prior to Global Crossing's acquisition
of Frontier Corporation.
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<PAGE>
(2) This adjustment reflects the depreciation and amortization of the
approximately $1.7 million increase in the fair value assigned to the
assets acquired over the related book value for the nine months ended
September 30, 1999. GlobalCenter is amortizing this adjustment using the
straight-line method over the average useful life of the underlying assets.
(3) This adjustment reflects the amortization expense of the excess
consideration over the net assets acquired (goodwill) of approximately
$1.48 billion for the nine months ended September 30, 1999. GlobalCenter is
amortizing goodwill and other intangible assets using the straight-line
method over a five year period.
(4) This column represents the historical results of operations of GlobalCenter
for the three months ended December 31, 1999. In connection with Global
Crossing's acquisition of Frontier Corporation in September 1999, the
assets and liabilities of GlobalCenter were adjusted to their respective
fair values under the purchase method of accounting.
Revenues. GlobalCenter's total revenues increased 205% to $70.9 million for
the year ended December 31, 1999 from $23.2 million for the year ended December
31, 1998, as a result of an increase in service revenues and equipment
revenues. Service revenues increased 143% to $47.7 million for the year ended
December 31, 1999 from $19.6 million for the year ended December 31, 1998. The
growth in service revenue was primarily the result of opening new and expanding
existing data centers, adding new customers and services, and increasing
revenues from existing customers. During 1999, GlobalCenter opened two new data
centers and expanded a third. The largest of the new data centers opened at the
end of the fourth quarter of 1999 with sales in this data center commencing in
January 2000.
GlobalCenter's equipment revenues increased 537% to $23.2 million for the
year ended December 31, 1999 from $3.6 million for the year ended December 31,
1998. Equipment revenues increased primarily because more customers in its new
data centers chose to purchase their equipment from GlobalCenter rather than
directly from a third party vendor.
Cost of Revenues. Cost of service revenues increased 263% to $53.8 million
for the year ended December 31, 1999 from $14.8 million for the comparable
period in 1998. This increase was primarily due to increased network usage by
GlobalCenter's customers, and rent and facilities costs for the addition and
expansion of its data centers. Cost of service revenues increased as a
percentage of service revenue from 76% in 1998 to 113% in 1999 primarily due to
the addition of network capacity in advance of its utilization.
Cost of equipment revenues increased 553% to $20.9 million for the year
ended December 31, 1999 from $3.2 million for the year ended December 31, 1998,
due to increased equipment sales. The cost of equipment remained fairly
consistent as a percentage of equipment revenues, increasing to 90% during 1999
from 88% during 1998.
Sales and Marketing. Sales and marketing expenses increased 75% to $15.6
million for the year ended December 31, 1999 from $8.9 million for the
comparable period in 1998. The increase was primarily a result of having
additional direct sales and marketing personnel and other sales and marketing
expenses in connection with new data centers and expanding operations and
services. As a percentage of total revenue, sales and marketing expenses
decreased from 39% in 1998 to 22% in 1999 primarily due to the significant
increase in revenue between comparison periods.
General and Administrative. Since October 1, 1999, Global Crossing has
provided to GlobalCenter support services including information systems
support, tax return preparation and advisory services, payroll and benefits
administration, purchasing and certain other accounting and administrative
services. GlobalCenter paid Global Crossing a monthly fee for these support
services. Expenses for the three months ended December 31, 1999 include $0.9
million for these services. From March 1, 1998 through September 30, 1999,
Frontier Corporation provided these services to GlobalCenter. Expenses for the
nine months ended September 30, 1999 include $1.7 million for these services.
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<PAGE>
GlobalCenter's total general and administrative expenses increased 112% to
$10.0 million for the year ended December 31, 1999 from $4.7 million for the
same period in 1998, primarily because it hired additional management and
administrative personnel to support expanding operations. General and
administrative expenses as a percentage of revenue decreased from 20% to 14%
for the same period primarily due to the significant increase in revenue
between comparison periods.
Depreciation and Amortization. Pro forma depreciation and amortization
expense increased 60% to $6.4 million for the year ended December 31, 1999 from
$4.0 million for the same period in 1998, primarily as a result of the new data
centers and the related leasehold and network investments.
Goodwill and Intangibles Amortization. In connection with the merger with
Frontier Corporation in September 1999, Global Crossing contributed
approximately $1.5 billion of goodwill and intangible assets to GlobalCenter.
The goodwill and identified intangibles are being amortized over a five year
period using the straight-line method. Pro forma amortization for the year
ended December 31, 1999 was $297 million.
GlobalCenter also recorded goodwill totaling approximately $9.1 million in
connection with an acquisition completed in November 1997. The goodwill from
this transaction was amortized over a seven year period using the straight-line
method until the acquisition of Frontier Corporation in September 1999.
Loss from Continuing Operations. GlobalCenter's pro forma net loss from
continuing operations was $315.9 million for the year ended December 31, 1999
compared to $10.8 million for the year ended December 31, 1998. The increase in
net loss was primarily due to the difference in goodwill and intangibles
amortization that resulted from the acquisition of GlobalCenter as part of the
Frontier Corporation merger, increased depreciation and amortization from
additions to property and equipment over the course of the year and operating
expenses that were in excess of revenues.
Loss from Discontinued Operations. During the year ended December 31, 1999,
GlobalCenter reported loss from discontinued operations, net of benefit for
income tax of $32.2 million, resulting from its ISP business.
Year Ended December 31, 1998 Compared With Year Ended December 31, 1997
Revenues. Total revenues increased 200% to $23.2 million for the year ended
December 31, 1998 from $7.7 million for the year ended December 31, 1997.
Service revenues increased 201% to $19.6 million for the year ended December
31, 1998 from $6.5 million for the year ended December 31, 1997. GlobalCenter's
equipment revenues increased from $1.2 million for the year ended December 31,
1997 to $3.6 million for the year ended December 31, 1998, an increase of 196%.
The overall increase in GlobalCenter's revenues was primarily the result of
opening new data center locations, the addition of new customers, equipment
sales to new customers and increased sales to existing customers. During 1998,
GlobalCenter opened four additional data centers. The largest of the new data
centers became operational during the fourth quarter of 1998.
Cost of Revenues. Cost of service revenues increased 182% to $14.8 million
for the year ended December 31, 1998 from $5.3 million for the year ended
December 31, 1997. This increase was due primarily to higher telecommunications
expenses associated with increased volume of usage by customers, the expansion
of GlobalCenter's network and the addition of new data centers, as well as an
increase in the number of network administration and customer support
personnel. Cost of service revenues decreased as a percentage of service
revenues from 81% in 1997 to 76% in 1998 due to the fixed nature of data center
lease and maintenance costs and the increasing revenue for the periods.
Cost of equipment revenues increased 222% to $3.2 million for the year ended
December 31, 1998 from $1.0 million for the year ended December 31, 1997. This
increase resulted from more customers in
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GlobalCenter's new data centers choosing to purchase their equipment from
GlobalCenter rather than directly from a third party vendor.
Sales and Marketing. GlobalCenter's sales and marketing expenses increased
355% to $8.9 million for the year ended December 31, 1998 from $2.0 million for
the year ended December 31, 1997. As a percent of total sales, sales and
marketing expenses increased from 25% in 1997 to 39% in 1998. The increase in
sales and marketing expenses is related to the increase in the number of data
centers.
General and Administrative. GlobalCenter's general and administrative
expenses increased 130% to $4.7 million for the year ended December 31, 1998
from $2.0 million for the year ended December 31, 1997. The increase was a
result of increased personnel costs associated with increasing GlobalCenter's
management, administrative and accounting personnel and processes and related
costs to support the growth in its overall customer base. General and
administrative expense decreased as a percentage of total revenue to 20% for
the year ended December 31, 1998 from 26% for the year ended December 31, 1997
as a result of the increase in revenues.
Depreciation and Amortization. Depreciation and amortization expenses
increased 341% to $4.0 million for the year ended December 31, 1998 from $0.9
million for the year ended December 31, 1997, primarily due to increased
investment in network and data center capacity.
Goodwill and Intangibles Amortization. GlobalCenter recorded goodwill
totaling approximately $9.1 million in connection with an acquisition completed
in November 1997. The goodwill from this transaction was amortized over a seven
year period using the straight-line method.
Merger Costs. In connection with Frontier Corporation's acquisition of
GlobalCenter in February 1998, approximately $2.1 million of merger costs have
been reflected in the accompanying statement of operations for the year ended
December 31, 1998.
Loss from Continuing Operations. GlobalCenter's net loss from continuing
operations was $10.8 million for the year ended December 31, 1998 compared to
$2.8 million for the year ended December 31, 1997. The increase in the level of
net loss was primarily due to operating expenses that were in excess of
revenues and costs related to Frontier Corporation's acquisition of
GlobalCenter in February 1998. Operating expenses increased as a result of the
opening of new data centers.
Loss from Discontinued Operations. During the year ended December 31, 1998,
GlobalCenter reported loss from discontinued operations, net of benefit for
income tax of $13.4 million, resulting from its ISP business.
Liquidity and Capital Resources
To date, GlobalCenter has funded its operations through internally generated
funds and permanent capital contributions from Global Crossing and, prior to
September 30, 1999, from Frontier Corporation.
Net cash used in operating activities was $64.1 million for the nine months
ended September 30, 2000, $18.2 million for the three months ended December 31,
1999, $10.0 million for the nine months ended September 30, 1999, $5.8 million
for the year ended December 31, 1998 and $3.1 million for the year ended
December 31, 1997. Net cash used in operating activities in each of these
periods was primarily the result of operating losses and changes in working
capital.
Net cash used in investing activities was $213.3 million for the nine months
ended September 30, 2000, $52.8 million for the three months ended December 31,
1999, $20.9 million for the nine months ended September 30, 1999, $29.0 million
for the year ended December 31, 1998 and $1.3 million for the year ended
December 31, 1997. Net cash used in investing activities in each of these
periods was primarily the result of capital expenditures for data centers and
their infrastructure, leasehold improvements, furniture and fixtures, and other
equipment.
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Recent Accounting Pronouncement
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, which
is required to be adopted by GlobalCenter in the quarter ending December 31,
2000. SAB No. 101 provides additional guidance on revenue recognition as well
as criteria for when revenue is generally realized and earned. GlobalCenter has
chosen to adopt SAB No. 101 during the quarter ended June 30, 2000. Based on
the guidance provided by SAB No. 101, GlobalCenter has deferred approximately
$1.8 million of revenues as of September 30, 2000 for one-time fees related to
customer installation and set-up. These revenues will be recognized over the
term of the customer contracts, which are generally for a one year term. No
cumulative effect has been recorded for the quarter prior to implementation as
the amount was not material.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of SFAS No. 133, which
deferred the effective date of SFAS No. 133 to fiscal quarters beginning after
June 15, 2000. This statement, as amended by SFAS No. 137 and No. 138,
standardizes the accounting for derivatives and hedging activities and requires
that all derivatives be recognized in the statement of financial position as
either assets or liabilities at fair value. Changes in the fair value of
derivatives that do not meet the hedge accounting criteria are to be reported
in earnings. Management of GlobalCenter expects that the adoption of SFAS No.
133 will not have a material impact on GlobalCenter's financial position,
results of operations or cash flows.
Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risk
As of December 31, 1999, the functional currency of GlobalCenter's current
foreign operations located in Australia and England is the United States
dollar. GlobalCenter's foreign currency transactions are recorded based on
exchange rates at the time these transactions arise. Its existing operations,
assets and liabilities as of December 31, 1999 that are denominated in
currencies other than the United States dollar are not material. As the manager
for most of GlobalCenter's financing activities, Global Crossing uses foreign
currency forward transactions to hedge exposure to foreign currency exchange
rate fluctuations.
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DIRECTORS OF EXODUS AFTER THE MERGER
The current directors and executive officers of Exodus will continue to be
the directors and executive officers of Exodus after the merger.
Upon completion of the merger, the board of directors of Exodus will consist
of eleven members, ten of which are currently directors of Exodus. At the
completion of the merger, Exodus will appoint as a director a designee of an
affiliate of Global Crossing. Thereafter, at each election of directors for as
long as Global Crossing Ltd., Global Crossing GlobalCenter Holdings, Inc. and
their subsidiaries hold in the aggregate at least 10% of the total voting power
of Exodus, an affiliate of Global Crossing shall have the right to designate
one nominee for election to the board of directors.
The following persons are currently directors of Exodus and will continue to
be directors of Exodus after the merger.
<TABLE>
<CAPTION>
Director
Name Age Principal Occupation Since
---- --- -------------------- --------
<S> <C> <C> <C>
Ellen M. Hancock........ 57 Exodus Chairman and Chief Executive Officer 1998
John R. Dougery(1)...... 60 President, Dougery Ventures 1996
Mark Dubovoy(2)......... 54 Managing Director, Leapfrog Ventures 1996
Max D. Hopper(2)(4)..... 66 Chief Executive Officer, Max D. Hopper Associates, Inc. 1998
L. William Krause(2).... 58 President, LWK Ventures 2000
Daniel C. Lynch(3)...... 59 Owner, Lynch Enterprises 1998
Thadeus J.
Mocarski(3)(4)......... 38 Managing Director, Navis Partners, LLC 1997
Naomi O. Seligman(1).... 67 Senior Partner, Cassius Advisors 1999
Dirk A. Stuurop(1)(3)... 52 President, Stuurop & Company 2000
Laura D'Andrea Tyson,
Ph.D.(4)............... 53 Dean of the Walter A. Haas School of Business 2000
</TABLE>
--------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Finance Committee
(4) Member of the Corporate Governance Committee
Each director will hold office until the next Exodus annual meeting of
stockholders and until his or her successor is elected and qualified or until
his or her earlier resignation or removal.
Ellen M. Hancock has served as our Chief Executive Officer since September
1998 and as the Chairman of our board of directors since June 2000. She has
been a director since April 1998. She also served as our President from March
1998 to June 2000 and as the acting Vice President, Marketing of Exodus from
July 1998 to October 1998. From July 1996 to July 1997, she served as Executive
Vice President for Research and Development and Chief Technology Officer of
Apple Computer, Inc. From September 1995 to May 1996, Ms. Hancock served as an
Executive Vice President and Chief Operating Officer of National Semiconductor
Corporation. From 1966 to February 1995, she served in various staff,
managerial and executive positions at International Business Machines
Corporation, most recently as Senior Vice President and Group Executive.
Ms. Hancock is a director of Colgate-Palmolive Company and Aetna Inc. She holds
a B.A. degree in mathematics from The College of New Rochelle and an M.A.
degree in mathematics from Fordham University.
John R. Dougery has served as a director of Exodus since February 1996. He
has been President of Dougery Ventures, a venture capital firm, since January
1998. From 1981 to December 1997, he was a general partner of Dougery & Wilder,
a venture capital firm. Mr. Dougery is a director of Printronix, Inc. Mr.
Dougery holds a B.A. degree in mathematics from the University of California,
Berkeley and an M.B.A. degree from Stanford University.
Mark Dubovoy has served as a director of Exodus since October 1996. He was a
founder and has served as a general partner of Leapfrog Ventures, a venture
capital partnership, since November 1999. He also was a
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founder and has served as a general partner of Information Technology Ventures,
a venture capital partnership, since September 1994. From 1991 to 1994, he was
a general partner of Grace/Horn Ventures, a venture capital partnership. Mr.
Dubovoy is a director of iPrint.com, inc. Mr. Dubovoy holds a B.S. degree in
physics from the National University of Mexico and M.A. and Ph.D. degrees in
physics from the University of California, Berkeley.
Max D. Hopper has served as a director of Exodus since January 1998. Mr.
Hopper has been the Chief Executive Officer of Max D. Hopper Associates, Inc.,
an information services management consulting firm, since 1995. From 1985 to
January 1995, he served in various positions at American Airlines, a subsidiary
of AMR Corporation, most recently as Senior Vice President, Information Systems
and Chairman of the SABRE Group. Mr. Hopper is also a director of Gartner
Group, Inc., US Data Corporation, Accrue Software, Inc., Metrocall, Inc.,
Payless Cashways, Inc. and United Stationers, Inc. He holds a B.S. degree in
mathematics from the University of Houston.
L. William Krause has served as a director of Exodus since June 2000. He has
served as President of LWK Ventures, a private investment company, since
November 1998. From October 1991 to November 1998, Mr. Krause served as
President and Chief Executive Officer of Storm Technology, Inc., a digital
imaging company which filed for protection under federal bankruptcy laws in
November 1998. He served as President and Chief Executive Officer of 3Com
Corporation, a global data networking company, from 1981 to 1990, and as its
Chairman from 1987 until 1993. From 1967 to 1981, Mr. Krause served in various
marketing and general management positions at Hewlett-Packard Company. Mr.
Krause is a director of Pinnacle Systems, Inc., Ramp Networks, Inc. and Sybase,
Inc. He holds a B.S.E.E. degree from the Citadel.
Daniel C. Lynch has served as director of Exodus since January 1998. Mr.
Lynch has been the owner of Lynch Enterprises, a venture capital firm, since
August 1993. From April 1994 to August 1996, he was a director of UUNet
Technologies, Inc., an Internet service provider. From 1991 to August 1993, he
was the Chairman of the Board of Interop, a conference and trade show company,
which he founded and which is now a division of ZD Comdex Forums. Mr. Lynch is
a director and founder of Cybercash, Inc., and Covad Communications Group. He
holds a B.S. degree in mathematics from Loyola Marymount University and an M.A.
degree in mathematics from the University of California, Los Angeles.
Thadeus J. Mocarski has served as a director of Exodus since June 1997.
Since 1994, Mr. Mocarski has been an officer of various entities affiliated
with Navis Partners, LLC, formerly known as Fleet Equity Partners, a private
equity firm, most recently as Managing Director. Prior to joining Navis
Partners, LLC, Mr. Mocarski was an attorney with the law firm of Edwards &
Angell. Mr. Mocarski holds a B.A. degree in economics and government from Colby
College and a J.D. degree from the Washington College of Law.
Naomi O. Seligman has served as a director of Exodus since July 1999. She
was a founder of Cassius Advisors, a management consultancy, where she has been
a senior partner since September 1999. Prior to that, Ms. Seligman had been a
senior partner of the Research Board, a private-sector research institute, from
1971 to 1999. Ms. Seligman is a director of the Dun & Bradstreet Corporation,
Ventro Corporation, Martha Stewart Living Omnimedia, John Wiley & Sons, Inc.
and Sun Microsystems, Inc. She holds a B.A. degree in economics from Vassar
College and an M.B.A. degree from the London School of Economics.
Dirk A. Stuurop has served as a director of Exodus since June 2000. He has
served as President of Stuurop & Company, a private strategic advisory firm,
since October 1999. From 1982 to May 1999, Mr. Stuurop served in various
investment banking positions at Merrill Lynch & Company, most recently as
Chairman, Global Financial Institutions. Mr. Stuurop is a director of
Philadelphia Consolidated Holding Corporation. He holds an M.S. degree in
economics from the University of Groningen (The Netherlands) and an M.B.A. from
the Wharton School of the University of Pennsylvania.
Laura D'Andrea Tyson, Ph.D. has served as a director of Exodus since June
2000. Dr. Tyson is Dean of the Walter A. Haas School of Business, a position
she assumed in July 1998. Previously, she was professor of the Class of 1939
Chair in Economics and Business Administration at the University of California,
Berkeley, a
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position she held from January 1997 to July 1998. Prior to this position, Dr.
Tyson served in the first Clinton Administration as Chairman of the President's
National Economic Council from March 1995 to December 1996 and 16th Chairman of
the White House Council of Economic Advisers from January 1993 to March 1995.
Prior to joining the Clinton Administration, Dr. Tyson was professor of
Economics and Business Administration, Director of the Institute of
International Studies, and Research Director of the Berkeley Roundtable on the
International Economy at the University of California, Berkeley, from July 1979
to January 1993. Dr. Tyson holds a B.A. degree from Smith College and a Ph.D.
degree in economics from the Massachusetts Institute of Technology. Dr. Tyson
is the author of numerous articles on economics, economic policy and
international competition. She is a director of Eastman Kodak Company, Fox
Entertainment Company, Human Genome Sciences, Inc., Morgan Stanley Dean Witter
and SBC Communications.
Compensation of Directors
Exodus directors do not receive cash compensation for their services as
directors but are reimbursed for their reasonable expenses in attending
meetings of the board of directors. Under Exodus' 1998 Directors Stock Option
Plan, each member of the board who is not an employee of Exodus is
automatically granted an option for 80,000 shares upon joining the board, which
vest as to one-third of the total shares on the first anniversary of the date
of grant and then 2.7777% monthly thereafter, provided the optionee is still a
member of the board or a consultant to Exodus. At each annual meeting of
stockholders, each eligible director will automatically be granted an
additional option for 20,000 shares, which vest at a rate of 2.0833% monthly
following the date of grant, provided the optionee is still a member of the
board or a consultant to Exodus.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of September 30,
2000, with respect to the beneficial ownership of our common stock by:
. each stockholder known by us to be the beneficial owner of more than 5%
of our common stock;
. each of our current directors;
. our chief executive officer and the four other most highly compensated
executive officers other than the chief executive officer who were
serving as executive officers as of December 1999; and
. all current directors and executive officers as a group.
The address of each listed stockholder, unless otherwise indicated below, is
c/o Exodus Communications, Inc., 2831 Mission College Boulevard, Santa Clara,
CA 95054. The number and percentage of shares beneficially owned before the
merger are based on 423,783,586 shares of common stock outstanding as of
September 30, 2000. The number and percentage of shares beneficially owned
after the merger are based upon the number of shares of common stock that
Exodus would have issued in the merger if the merger had been completed on
September 28, 2000, the day Exodus announced the proposed merger. If the merger
had been completed on that date, Exodus would have issued a total of 99,517,700
shares to Global Crossing GlobalCenter Holdings, Inc. and the total number of
shares of Exodus common stock outstanding on that date would have been
523,301,286. This estimate is based upon application of the merger conversion
formula to information as of September 28, 2000 and on the assumptions stated
on page 36 under the heading "Conversion of GlobalCenter Stock and Options."
Beneficial ownership is determined under the rules and regulations of the
Securities and Exchange Commission. Shares of common stock subject to options
or convertible notes that are currently exercisable or exercisable within 60
days of September 30, 2000 are deemed to be outstanding and to be beneficially
owned by the person holding such options or convertible notes for the purpose
of computing the percentage ownership of such person but are not treated as
outstanding for the purpose of computing the percentage ownership of any other
person. Except as indicated in the footnotes to this table, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. Entries denoted by an asterisk represent an amount less than
1%.
<TABLE>
<CAPTION>
Percent of
Amount and Nature of Outstanding
Beneficial Ownership Common Stock
--------------------- -------------
Before After Before After
Name and Address of Beneficial Owner Merger Merger Merger Merger
------------------------------------ ---------- ---------- ------ ------
<S> <C> <C> <C> <C>
Global Crossing GlobalCenter Holdings,
Inc.(1).................................. 0 99,517,700 0 19%
FMR Corp.(2).............................. 24,486,876 24,486,876 5.8% 4.7%
Janus Capital Corp.(3).................... 43,338,270 43,338,270 10.2% 8.3%
Ellen M. Hancock(4)....................... 9,457,959 9,457,959 2.2% 1.8%
John R. Dougery(5)........................ 5,816,115 5,816,115 1.4% 1.1%
Richard S. Stoltz(6)...................... 2,389,571 2,389,571 * *
Sam S. Mohamad(7)......................... 973,465 973,465 * *
Herbert A. Dollahite(8)................... 1,007,416 1,007,416 * *
Max D. Hopper(9).......................... 368,985 368,985 * *
Daniel C. Lynch(10)....................... 157,309 157,309 * *
James J. McInerney(11).................... 575,200 575,200 * *
Mark Dubovoy(12).......................... 145,217 145,217 * *
Thadeus J. Mocarski(13)................... 62,083 62,083 * *
Naomi O. Seligman(14)..................... 55,714 55,714 * *
L. William Krause(15)..................... 0 0 0 0
Dirk A. Stuurop(16)....................... 10,000 10,000 * *
Laura D'Andrea Tyson, Ph.D.(17)........... 0 0 0 0
All current executive officers and
directors as a group (18 persons)(19).... 18,752,990 18,752,990 4.3% 3.5%
</TABLE>
--------
(1) The address of Global Crossing GlobalCenter Holdings, Inc. is 141 Caspian
Court, Sunnyvale, CA 94089. The number and percentage of shares
beneficially owned by Global Crossing GlobalCenter
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Holdings, Inc. after the merger is based upon application of the merger
conversion formula to information as of September 28, 2000 and on the
assumptions stated on page 36 under the heading "Conversion of GlobalCenter
Stock and Options."
(2) Based upon a Schedule 13G filed with the Securities and Exchange
Commission on May 10, 2000. Includes 306,492 shares of Common Stock
issuable upon conversion of $1,740,000 principal amount of our 5%
convertible subordinated notes due March 15, 2006, and includes 166,658
shares of Common Stock issuable upon conversion of $5,867,000 principal
amount of our 4.75% convertible subordinated notes due July 15, 2008. The
address of FMR Corp. is 82 Devonshire Street, Boston, MA 02109.
(3) Based upon a Schedule 13G filed with the Securities and Exchange
Commission on June 9, 2000. Includes 40,218 bonds convertible into Exodus
Common Stock at 28.4068 shares per bond. Janus Capital Corporation is a
registered investment adviser which furnishes investment advice to several
investment companies registered under Section 8 of the Investment Company
Act of 1940 and individual and institutional clients. The address of Janus
Capital Corporation is 100 Fillmore Street, Suite 300, Denver, CO 80206-
4923.
(4) Includes 1,165,882 shares held by Ms. Hancock and her husband, 45,596
shares held by the Hancock Foundation Fund, and 5,269,704 shares subject
to options exercisable within 60 days. Ms. Hancock is our Chief Executive
Officer and Chairman.
(5) Includes 3,416,864 shares held in the Dougery Revocable Trust, of which
Mr. Dougery and his wife are the trustees, 1,746,384 shares held by Mr.
Dougery as trustee of three trusts for his children, 404,400 shares held
by Mr. Dougery's wife as trustee for a separate trust, 226,384 shares held
by Dougery Ventures LLC, of which Mr. Dougery is President, and 2,083
shares subject to options exercisable within 60 days. Mr. Dougery is a
director of Exodus.
(6) Includes 305,568 shares held by Goldman Sachs Exchange Funds and 1,835,467
shares subject to options exercisable within 60 days. Mr. Stoltz served as
our Executive Vice President, Finance, Chief Operating Officer and Chief
Financial Officer until January 2000.
(7) Includes 592,637 shares subject to options exercisable within 60 days. Mr.
Mohamad is our President of Worldwide Sales and International Field
Operations.
(8) Includes 409,208 shares subject to options exercisable within 60 days. Mr.
Dollahite is our Executive Vice President, Quality and Service.
(9) Includes 275,417 shares subject to options exercisable within 60 days. Mr.
Hopper is a director of Exodus.
(10) Represents 76,892 shares held in the Lynch Living Trust, of which Mr.
Lynch and his wife are the trustees, and 80,417 shares subject to options
exercisable within 60 days. Mr. Lynch is a director of Exodus.
(11) Includes 559,200 shares subject to options exercisable within 60 days. Mr.
McInerney served as our Executive Vice President, Engineering until April
2000.
(12) Includes 246 shares held by Mr. Dubovoy's son who lives at home and 42,083
shares subject to options exercisable within 60 days. Mr. Dubovoy is a
director of Exodus.
(13) Represents 62,083 shares subject to options exercisable within 60 days.
Mr. Mocarski is a director of Exodus.
(14) Represents 55,417 shares subject to options exercisable within 60 days.
Ms. Seligman is a director of Exodus.
(15) Mr. Krause is a director of Exodus.
(16) Mr. Stuurop is a director of Exodus.
(17) Dr. Tyson is a director of Exodus.
(18) An affiliate of Global Crossing has the right to designate one nominee to
the Exodus board, but no nominee has yet been presented.
(19) Includes 7,404,634 shares subject to options exercisable within 60 days
held by our executive officers and directors.
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INDEPENDENT ACCOUNTANTS
Representatives of KPMG LLP are expected to be present at the special
meeting, will have the opportunity to make a statement at the special meeting
if they desire to do so and are expected to be available to respond to
appropriate questions.
LEGAL MATTERS
The validity of the Exodus common stock issuable in the merger and other
legal matters related to the merger will be passed on by Fenwick & West LLP,
Palo Alto, California. Gibson, Dunn & Crutcher LLP, San Francisco, California,
is acting as counsel for GlobalCenter in connection with legal matters relating
to the merger.
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in Exodus' proxy statement and form of
proxy relating to Exodus' annual meeting of stockholders to be held in 2001
must be received by January 2, 2001. Stockholders wishing to bring a proposal
before the annual meeting for 2001 (but not include it in the Exodus' proxy
materials) must provide written notice of such proposal to the Secretary of
Exodus at the principal executive offices of Exodus no later than April 5,
2001.
WHERE YOU CAN FIND MORE INFORMATION
This proxy statement incorporates documents by reference which are not
presented in or delivered with this proxy statement.
All documents filed by Exodus pursuant to Section 13(a), 13(c) 14, or 15(d)
of the Exchange Act after the date of this proxy statement and before the
special meeting are incorporated by reference into and are deemed to be a part
of this proxy statement from the date of the filing of those documents.
You should rely only on the information contained in this document or that
which we have referred you to. We have not authorized anyone to provide you
with any additional information.
The following documents, which Exodus has filed with the Securities and
Exchange Commission, are incorporated by reference into this proxy statement:
. prospectus filed on February 14, 2000, file number 333-95937;
. annual report on Form 10-K for the year ended December 31, 1999;
. quarterly reports on Form 10-Q for the quarters ended March 31, June 30
and September 30, 2000;
. current reports on Form 8-K filed on April 7, 2000, June 21, 2000, June
30, 2000, September 28, 2000, October 13, 2000, October 20, 2000,
November 3, 2000 and November 13, 2000;
. Form S-4 filed on February 2, 2000;
. the description of Exodus common stock on Form 8-A filed on February 13,
1998 and the description of Exodus' preferred stock purchase rights on
Form 8-A filed on January 29, 1999; and
. all other information that Exodus files with the SEC pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date of this document and prior to the termination of this offering.
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<PAGE>
Any statement contained in a document incorporated by reference or deemed to
be incorporated by reference into this proxy statement will be deemed to be
modified or superceded for purposes of this proxy statement to the extent that
a statement contained in this proxy statement or any other subsequently filed
document that is deemed to be incorporated by reference into this proxy
statement modifies or supercedes the statement. Any statement so modified or
superceded will not be deemed, except as so modified or superceded, to
constitute a part of this proxy statement.
The documents incorporated by reference into this proxy statement are
available from us upon request. We will provide a copy of any and all of the
information that is incorporated by reference in this proxy statement to any
person, without charge, upon written or oral request. If exhibits to the
documents incorporated by reference in this proxy statement are not themselves
specifically incorporated by reference in this proxy statement, then the
exhibits will not be provided. In order to ensure timely delivery of the
documents, you should make your request by , 2000.
Requests for copies of documents should be directed to:
Exodus Communications, Inc.
2831 Mission College Boulevard
Santa Clara, California 95054
Attention: Investor Relations
Telephone: (408) 346-2200
We are currently subject to the informational requirements of the Exchange
Act, and in accordance with the Exchange Act we file reports, proxy statements
and other information with the Securities and Exchange Commission. These
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at:
<TABLE>
<S> <C> <C>
Room 1024 Suite 1400 13th Floor
450 Fifth Street, N.W. Northwest Atrium Center Seven World Trade Center
Judiciary Plaza 500 West Madison Street New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
</TABLE>
Copies of these materials can be obtained at prescribed rates from the
Public Reference Room of the Commission at:
450 Fifth Street, N.W.
Judiciary Plaza
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calling 1-800-SEC-0330.
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76
<PAGE>
GLOBALCENTER HOLDING CO.
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations and Comprehensive Income............. F-4
Consolidated Statements of Shareholder's Equity............................ F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Global Crossing Ltd.:
We have audited the accompanying consolidated balance sheet of GlobalCenter
Holding Co. ("GlobalCenter"), a wholly owned subsidiary of Global Crossing
Ltd., as of December 31, 1999 and of GlobalCenter Inc. ("Predecessor") as of
December 31, 1998, and the related consolidated statements of operations and
comprehensive income, shareholder's equity and cash flows for the periods from
October 1, 1999 to December 31, 1999 ("GlobalCenter period") and from January
1, 1999 to September 30, 1999 and for each of the two years ended December 31,
1998 and 1997 ("Predecessor periods"). These financial statements are the
responsibility of management of GlobalCenter and Predecessor. 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 the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about 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. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the GlobalCenter consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
GlobalCenter as of December 31, 1999 and the results of its operations and its
cash flows for the GlobalCenter period in conformity with accounting principles
generally accepted in the United States. Further, in our opinion, the
consolidated financial statements of Predecessor referred to above present
fairly, in all material respects, the financial position of Predecessor as of
September 30, 1999 and December 31, 1998, and the results of its operations and
its cash flows for the Predecessor periods in conformity with accounting
principles generally accepted in the United States.
San Jose, California
November 1, 2000 ARTHUR ANDERSEN LLP
F-2
<PAGE>
GLOBALCENTER HOLDING CO.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except share and per share data)
<TABLE>
<CAPTION>
Predecessor GlobalCenter
----------- -------------------------
December 31,
---------------------- September 30,
1998 1999 2000
----------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash................................... $ -- $ -- $ 11,210
Accounts receivable, net of allowance
for doubtful accounts of $975, $1,379
and $7,149, respectively.............. 6,492 18,811 57,601
Equipment held for resale.............. 773 6,941 5,287
Prepaid expenses and other current
assets................................ 300 2,825 11,548
Deferred tax asset..................... 2,393 2,926 4,155
-------- ---------- ----------
Total current assets................. 9,958 31,503 89,801
-------- ---------- ----------
Property and equipment, net.............. 30,372 116,315 358,149
Goodwill and intangibles, net............ 7,470 1,411,130 1,188,320
Investment............................... -- -- 3,145
Other assets............................. 221 214 250
Net assets of discontinued operations.... 28,298 4,416 --
-------- ---------- ----------
Total assets......................... $ 76,319 $1,563,578 $1,639,665
======== ========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Current liabilities:
Capital lease obligations.............. $ 404 $ 374 $ --
Accounts payable....................... 5,996 28,046 87,082
Other current liabilities.............. 5,099 8,514 17,538
-------- ---------- ----------
Total current liabilities............ 11,499 36,934 104,620
-------- ---------- ----------
Capital lease obligations, net of current
portion................................. 586 194 --
Long-term deferred tax liability......... -- 27,611 22,605
Other liabilities........................ -- 494 2,381
-------- ---------- ----------
Total liabilities.................... 12,085 65,233 129,606
-------- ---------- ----------
Shareholder's equity:
Common stock, $.01 par value;
300,000,000 shares authorized;
233,500,000 shares issued and
outstanding at December 31, 1998,
December 31, 1999 and September 30,
2000, respectively.................... 2,335 2,335 2,335
Other shareholder's equity............. 120,505 1,590,353 1,871,077
Accumulated net losses................. (58,606) (94,343) (363,353)
-------- ---------- ----------
Total shareholder's equity........... $ 64,234 $1,498,345 $1,510,059
-------- ---------- ----------
Total liabilities and shareholder's
equity.............................. $ 76,319 $1,563,578 $1,639,665
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
GLOBALCENTER HOLDING CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Predecessor GlobalCenter
--------------------------------- --------------------------
Nine Months Three Months Nine Months
Year Ended Ended Ended Ended
December 31, September 30, December 31, September 30,
------------------ ------------- ------------ -------------
1997 1998 1999 1999 2000
-------- -------- ------------- ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Service revenues...... $ 6,511 $ 19,600 $ 29,951 $ 17,753 $ 97,774
Equipment revenues.... 1,228 3,640 17,228 5,971 38,821
-------- -------- -------- -------- ---------
Total revenues...... 7,739 23,240 47,179 23,724 136,595
Costs and expenses:
Cost of service
revenues............. 5,257 14,804 36,451 17,328 93,026
Cost of equipment
revenues............. 995 3,208 15,573 5,365 36,986
Sales and marketing... 1,966 8,948 9,531 6,088 25,213
General and
administrative....... 2,044 4,694 6,897 3,067 44,294
Depreciation and
amortization......... 912 4,023 4,242 1,913 16,236
Amortization of
intangibles.......... 325 1,294 974 74,270 222,810
Merger costs.......... -- 2,060 -- -- --
-------- -------- -------- -------- ---------
Total costs and
expenses........... 11,499 39,031 73,668 108,031 438,565
-------- -------- -------- -------- ---------
Operating loss.......... (3,760) (15,791) (26,489) (84,307) (301,970)
Other income (expense),
net.................... 45 55 (44) 114 (229)
-------- -------- -------- -------- ---------
Loss from continuing
operations before
income taxes........... (3,715) (15,736) (26,533) (84,193) (302,199)
Income tax benefit...... 941 4,911 9,742 5,038 33,189
-------- -------- -------- -------- ---------
Loss from continuing
operations............. (2,774) (10,825) (16,791) (79,155) (269,010)
Loss from discontinued
operations, net of
income tax benefit of
$4,504, $7,146, $9,600,
$8,599 and $0,
respectively........... (10,638) (13,380) (16,985) (15,188) --
-------- -------- -------- -------- ---------
Net loss................ $(13,412) $(24,205) $(33,776) $(94,343) $(269,010)
-------- -------- -------- -------- ---------
Other comprehensive
earnings, net of taxes:
Unrealized holding
losses arising during
period................. -- -- -- -- (4,109)
-------- -------- -------- -------- ---------
Comprehensive loss...... $(13,412) $(24,205) $(33,776) $(94,343) $(273,119)
======== ======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
GLOBALCENTER HOLDING CO.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Common Stock Other Shareholders Equity
------------------ -------------------------------------
Additional Other Total
Paid-In Deferred Comprehensive Accumulated Shareholder's
Shares Amount Capital Compensation Income Net Losses Equity
----------- ------ ---------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Predecessor
Balance at January 1,
1997.................. 178,085,647 $1,781 $ 24,608 $ -- $ -- $ (20,989) $ 5,400
Issuance of common
stock................. 33,080,271 331 8,700 -- -- -- 9,031
Net loss............... -- -- -- -- -- (13,412) (13,412)
Deferred compensation.. -- -- 4,727 (2,766) -- -- 1,961
Acquisition of
Voyager............... 22,334,082 223 9,305 -- -- -- 9,528
Capital contributed by
Frontier Corporation,
net................... -- -- 3,086 -- -- -- 3,086
----------- ------ ---------- ------- ------- --------- ----------
Balance at December 31,
1997.................. 233,500,000 2,335 50,426 (2,766) -- (34,401) 15,594
Net loss............... -- -- -- -- -- (24,205) (24,205)
Deferred compensation.. -- -- -- 948 -- -- 948
Capital contributed by
Frontier Corporation,
net................... -- -- 71,897 -- -- -- 71,897
----------- ------ ---------- ------- ------- --------- ----------
Balance at December 31,
1998.................. 233,500,000 2,335 122,323 (1,818) -- (58,606) 64,234
Net loss............... -- -- -- -- -- (33,776) (33,776)
Deferred compensation.. -- -- -- 711 -- -- 711
Capital contributed by
Frontier Corporation,
net................... -- -- 81,754 -- -- -- 81,754
----------- ------ ---------- ------- ------- --------- ----------
Balance at September
30, 1999.............. 233,500,000 $2,335 $ 204,077 $(1,107) $ -- $ (92,382) $ 112,923
=========== ====== ========== ======= ======= ========= ==========
GlobalCenter
Contribution by Global
Crossing Ltd. ........ -- 2,335 1,499,510 -- -- -- 1,501,845
Net loss............... -- -- -- -- -- (94,343) (94,343)
Capital contributed by
Global Crossing Ltd.,
net................... -- -- 90,843 -- -- -- 90,843
----------- ------ ---------- ------- ------- --------- ----------
Balance at December 31,
1999.................. 233,500,000 2,335 $1,590,353 $ -- $ -- $ (94,343) $1,498,345
----------- ------ ---------- ------- ------- --------- ----------
Unrealized loss on
available for sale
securities, net of
$2,746 tax
(unaudited)........... -- -- -- -- (4,109) -- (4,109)
Net loss (unaudited)... -- -- -- -- -- (269,010) (269,010)
Capital contributed by
Global Crossing Ltd.,
net (unaudited)....... -- -- 284,833 -- -- -- 284,833
----------- ------ ---------- ------- ------- --------- ----------
Balance September 30,
2000 (unaudited)...... 233,500,000 $2,335 $1,875,186 $ -- $(4,109) $(363,353) $1,510,059
=========== ====== ========== ======= ======= ========= ==========
</TABLE>
The accompanying notes are an integrated part of these consolidated financial
statements
F-5
<PAGE>
GLOBALCENTER HOLDING CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Predecessor GlobalCenter
--------------------------------- --------------------------
Nine Months Three Months Nine Months
Year Ended Ended Ended Ended
December 31, September 30, December 31, September 30,
------------------ ------------- ------------ -------------
1997 1998 1999 1999 2000
-------- -------- ------------- ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss............... $(13,412) $(24,205) $(33,776) $ (94,343) $(269,010)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Loss from
discontinued
operations......... 10,638 13,380 16,985 15,188 --
Depreciation and
amortization.......... 912 4,023 4,242 1,913 16,236
Amortization of
intangibles........... 325 1,294 974 74,270 222,810
Deferred income taxes.. (888) (2,049) 983 (2,984) (3,489)
Changes in operating
assets and liabilities
net of the effects of
acquisitions
Accounts
receivable, net.. (949) (4,047) (11,346) (973) (38,790)
Prepaid expenses
and other
assets........... (93) 335 (1,602) (923) (8,759)
Equipment held for
resale........... -- (704) 177 (6,345) 1,654
Accounts payable
and accrued
liabilities...... 320 6,221 13,306 (3,974) (15,206)
-------- -------- -------- ---------- ---------
Net cash used in
operating activities.. (3,147) (5,752) (10,057) (18,171) (52,165)
-------- -------- -------- ---------- ---------
Investing activities:
Purchases of property
and equipment........ (1,853) (28,978) (20,871) (52,771) (203,329)
Purchase of available
for sale
investments.......... -- -- -- -- (10,000)
Cash from
acquisition.......... 568 -- -- -- --
-------- -------- -------- ---------- ---------
Net cash used in
investing activities.. (1,285) (28,978) (20,871) (52,771) (213,329)
-------- -------- -------- ---------- ---------
Financing activities:
Payments on capital
leases and debt...... (90) (2,573) (339) (83) (568)
Proceeds from issuance
of debt.............. 1,937 -- -- -- --
Capital contributions
by Frontier
Corporation/Global
Crossing Ltd., net... 3,086 71,897 81,754 90,843 284,833
-------- -------- -------- ---------- ---------
Net cash provided by
financing activities.. 4,933 69,324 81,415 90,760 284,265
-------- -------- -------- ---------- ---------
Cash used in
discontinued
operations............. (3,086) (35,086) (50,487) (19,818) 4,416
Net increase (decrease)
in cash................ (2,585) (492) -- -- 11,210
Cash at beginning of
period................. 3,077 492 -- -- --
-------- -------- -------- ---------- ---------
Cash at end of period... $ 492 $ -- $ -- $ -- $ 11,210
======== ======== ======== ========== =========
Supplemental schedule on
non-cash activities:
Contribution of
GlobalCenter, net.... $ -- $ -- $ -- $1,451,432 $ --
Assets acquired under
capital leases....... $ 1,031 $ 215 $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
GLOBALCENTER HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization and Operations
GlobalCenter Holding Co. ("GlobalCenter" or the "Company") is a wholly owned
subsidiary of Global Crossing Ltd. ("Global Crossing"). GlobalCenter Holding
Co. owns GlobalCenter Inc. and all of its subsidiaries, including those
operating in Australia and the United Kingdom. GlobalCenter is a provider of
Internet infrastructure solutions, including computer Web hosting, network
connectivity and value added services to enterprises with mission critical
Internet operations. GlobalCenter Holding Co. was incorporated in April 2000
and full ownership of GlobalCenter Inc. was transferred at that time from
another Global Crossing subsidiary. In accordance with accounting standards
applicable to transfers between entities under common control, the transfer was
made at book value and the financial statements reflect the transfer as of
October 1, 1999.
GlobalCenter Inc. was acquired by Frontier Corporation ("Frontier") in
February 1998. Frontier accounted for its acquisition of GlobalCenter Inc.
using the pooling-of-interests method. GlobalCenter Inc. recorded approximately
$2 million of transaction costs related to the merger with Frontier in the year
ended December 31, 1998. On September 28, 1999, Global Crossing acquired
Frontier. For financial reporting purposes, the merger of Global Crossing and
Frontier was deemed to have occurred on September 30, 1999. In connection with
the merger, the assets and liabilities of GlobalCenter were adjusted to their
respective fair values pursuant to the purchase method of accounting. For
periods prior to October 1, 1999, the consolidated assets and liabilities of
GlobalCenter Inc. and the related consolidated results of operations and cash
flows are referred to below as "Predecessor", and for periods subsequent to
September 30, 1999, the consolidated assets and liabilities of GlobalCenter
Holding Co. and the related consolidated results of operations and cash flows
are referred to as "GlobalCenter." GlobalCenter has received assurance from
Global Crossing that Global Crossing intends to provide the necessary funding
to support continued operations of GlobalCenter through at least January 1,
2001.
On April 12, 2000, GlobalCenter entered into an agreement to sell the
Internet Service Provider ("ISP") business segment to Global Crossing Internet
Dial-Up, Inc., a wholly owned subsidiary of Global Crossing, for book value on
the transfer date of March 31, 2000. In connection with this transaction, the
Company's financial statements reflect the financial position and results of
operations of the ISP business as discontinued operations for all periods
presented through December 31, 1999 (the measurement date). For accounting
purposes, the sale was effective March 31, 2000. In connection with the sale of
the ISP business, GlobalCenter agreed to indemnify Global Crossing Internet
Dial-Up, Inc. for any claims prior to the sale in an amount not to exceed the
purchase price. Management does not believe any amounts to be paid under this
indemnity will be material to GlobalCenter's financial statements.
On September 28, 2000, Global Crossing entered into a merger agreement with
Exodus Communications, Inc. ("Exodus"). Under the merger agreement, Exodus will
acquire GlobalCenter. Exodus will issue a number of common equivalent shares
equal to $6.525 billion divided by the average closing price of Exodus stock
prior to closing the transaction, subject to a collar. The merger is subject to
customary regulatory and Exodus' stockholders' approval.
(2) Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include GlobalCenter Holding Co. and
its wholly owned subsidiaries. All significant intercompany transactions have
been eliminated.
F-7
<PAGE>
GLOBALCENTER HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Unaudited Interim Financial Data
The consolidated financial statements for the nine months ended September
30, 2000 and the related amounts in the Notes to Consolidated Financial
Statements are unaudited but, in the opinion of management, reflect all normal
and recurring adjustments necessary for a fair presentation of the results of
those periods. Operating results for the nine months ended September 30, 2000
are not necessarily an indication of the results that may be expected for the
year ended December 31, 2000.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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, as well as the reported amounts of revenue and
expenses during the reporting period. Significant estimates made in preparing
the consolidated financial statements include depreciation and amortization
periods, the allowance for doubtful accounts and income tax valuation
allowances. Actual amounts and results could differ from those estimates.
GlobalCenter's operations and ability to grow may be affected by numerous
factors, including changes in customer requirements, new laws, technological
advances, entry of new competitors and changes in the willingness of Global
Crossing and other potential lenders to finance operations. GlobalCenter cannot
predict which, if any, of these or other factors might have a significant
impact on GlobalCenter in the future, nor can it predict what impact, if any,
the occurrence of these or other events might have on GlobalCenter's
operations.
Property and Equipment, Net
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the property and
equipment, generally two to five years for network and computer equipment, four
years for furniture and fixtures, and seven years for leasehold improvements.
Equipment acquired under capital leases is amortized using the straight-line
method over the shorter of the lease term or the estimated useful life of the
asset. Property and equipment under construction is capitalized and
depreciation commences when the asset is placed in service.
Goodwill and Other Intangibles
Costs in excess of tangible assets acquired and assets assumed are recorded
as goodwill and intangibles. Goodwill and intangibles are amortized on a
straight-line basis over five to seven years.
Investment
As of September 30, 2000, GlobalCenter's investment consisted of a single
investment in marketable equity securities classified as available for sale.
Accordingly, the investment is recorded at its fair value with any unrealized
holding gains or losses reported as other comprehensive income. Any decline in
value, which is other than a temporary decline, will be charged immediately to
earnings in the period in which the impairment occurs. As of September 30,
2000, the Company's investment had a fair value of $3.2 million, a cost basis
of $10 million and an unrealized loss before tax benefit of $6.8 million.
F-8
<PAGE>
GLOBALCENTER HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Impairment of Long-lived Assets
GlobalCenter periodically reviews the carrying amounts of property and
equipment, intangible assets and goodwill to determine whether current events
or changes in circumstances indicate that the carrying amount may not be
recoverable. GlobalCenter recognizes an impairment of long-lived assets when
the net book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. If an impairment adjustment is deemed necessary,
such loss is measured by the amount that the carrying value of such assets
exceeds their fair value. Fair value is based on the expected future discounted
cash flows to be generated from the assets. Considerable management judgment is
necessary to estimate the fair value of assets. Accordingly, actual results
could vary significantly from such estimates. Assets to be disposed of are
carried at the lower of their financial statement carrying amount or fair value
less costs to sell.
Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined by
GlobalCenter using available market information and valuation methodologies.
Considerable judgment is required in estimating fair values. Accordingly, the
estimates may not be indicative of the amounts the Company could realize in a
current market exchange. The carrying amounts for accounts receivable,
construction in progress, investment, accounts payable, accrued liabilities,
and capital leases approximate their fair value.
Equipment Held For Resale
The Company obtains computers, computer equipment, peripherals and
networking equipment from third parties and resells the equipment to its
customers. Equipment that has been purchased on behalf of customers but not yet
transferred to customers or installed is recorded at the lower of cost or net
realizable value as equipment held for resale.
Other Current Liabilities
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
Predecessor GlobalCenter
----------- --------------------
December 31, Unaudited
------------------ September 30,
1998 1999 2000
----------- ------ -------------
(Amounts in thousands)
<S> <C> <C> <C>
Accrued professional fees.................... $1,250 $2,000 $ 2,500
Accrued benefits, compensation and related
taxes....................................... 1,596 3,627 5,209
Deferred income.............................. -- -- 1,773
Other........................................ 2,253 2,887 8,056
------ ------ -------
Total other current liabilities............ $5,099 $8,514 $17,538
====== ====== =======
</TABLE>
Income Taxes
Beginning with the acquisition by Frontier Corporation of GlobalCenter Inc.,
GlobalCenter is included in the consolidated federal income tax return of
Global Crossing North America, Inc. (formerly Frontier Corporation) for federal
and state purposes. The income tax provision for GlobalCenter has been
calculated on a pro rata return basis taking account of the increase or
decrease in the tax liability of the Global Crossing North America, Inc.
consolidated group resulting from the inclusion of GlobalCenter in the Global
Crossing North America, Inc. consolidated tax return.
F-9
<PAGE>
GLOBALCENTER HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock-Based Compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation" permits the use of either a fair value based
method or the method defined in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), to account for stock-
based compensation arrangements. The Company accounts for stock option grants
in accordance with APB 25 and, accordingly, recognizes compensation expense for
stock option grants to the extent that the estimated fair value of the stock
exceeds the exercise price of the option at the measurement date. The
compensation expense is charged against operations ratably over the vesting
period of the options.
Segment Reporting
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for disclosure about operating segments,
products, services, geographic areas and major customers. Following the
treatment of the ISP business segment as discontinued operations, when applying
the management approach defined in SFAS No. 131, GlobalCenter now operates in a
single segment, namely the provision of complex Web hosting, Internet Protocol
network services, content distribution, systems applications and professional
services.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of trade receivables. The concentration of
credit risk is limited due to the large number of customers comprising the
Company's customer base.
Revenue Recognition
Service revenues consist of fees from customers for complex Web hosting,
Internet Protocol network services, content distribution, systems applications
and professional services. Service revenues are recognized as the monthly
service is provided. Service revenues also include fees for equipment
installation.
Equipment revenues consist of revenue derived from the resale of computers,
computer peripherals and networking equipment from third parties. Equipment
revenues are recognized when equipment is delivered to the customer or, if
installation is required, when installation of the equipment is complete.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which is required to be adopted by GlobalCenter in the quarter
ending December 31, 2000. SAB No. 101 provides additional guidance on revenue
recognition as well as criteria for when revenue is generally realized and
earned. GlobalCenter has chosen to adopt SAB No. 101 during the quarter ended
June 30, 2000. Based on the guidance provided by SAB No. 101, GlobalCenter has
deferred approximately $1.8 million of revenues as of September 30, 2000 for
one-time fees related to customer installation and set-up. These revenues will
be recognized over the term of the customer contracts, which are generally for
a one-year term. No cumulative effect has been recorded for the periods prior
to implementation as the amounts were not material.
Cost of Service Revenues
Cost of service revenues is comprised of telecommunications costs for the
network provided by Global Crossing and Frontier and costs for connecting to
other networks and telecommunications providers. Other expenses in cost of
service revenues include salaries, benefits, rents and other expenses for
operation of the data centers, customer service and network engineering
personnel.
F-10
<PAGE>
GLOBALCENTER HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Foreign Currency
As of December 31, 1999, the functional currency of GlobalCenter is the
United States ("U.S.") dollar. The functional currency of GlobalCenter's
foreign operations is also the U.S. dollar. Foreign currency transactions are
recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in the accompanying consolidated statements of operations
as unrealized (based on the applicable period end exchange rate) or realized
upon settlement of the transactions. Foreign currency gains (losses) from our
existing operations were not material in any period presented.
Recent Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of SFAS No. 133", which deferred SFAS No. 133's effective date
to fiscal quarters beginning after June 15, 2000. This statement, as amended by
SFAS No. 137 and No. 138, standardizes the accounting for derivatives and
hedging activities and requires that all derivatives be recognized in the
statement of financial position as either assets or liabilities at fair value.
Changes in the fair value of derivatives that do not meet the hedge accounting
criteria are to be reported in earnings. Management expects that the adoption
of SFAS No. 133 will not have a material impact on its financial position,
results of operations or cash flows.
Vendor Concentration
GlobalCenter relies primarily on Global Crossing for network services
pursuant to a network services agreement. Global Crossing operates its own
global network. If the Global Crossing network experiences disruption or if our
network services agreement with Global Crossing were terminated, GlobalCenter's
business, operating results and financial condition could be materially
adversely affected.
(3) Related Party Transactions
Revenues
During the nine months ended September 30, 2000, GlobalCenter recognized
approximately $2.6 million of revenue for services provided to other Global
Crossing subsidiaries. The Company had no intercompany sales prior to this
period.
Cash Management
Prior to the merger with Frontier, GlobalCenter Inc. maintained its own cash
management function. After the merger with Frontier, Predecessor utilized the
central cash management systems of Frontier. GlobalCenter utilizes the central
cash management of Global Crossing. As a subsidiary of Global Crossing,
GlobalCenter maintains no cash balances and no cash has been allocated to
GlobalCenter in the accompanying consolidated financial statements.
Historically, Global Crossing and Frontier determined the amount of funding
provided to GlobalCenter based on actual cash used for capital and operating
expenses, net of GlobalCenter cash receipts. Such funding has been recorded as
capital contributed by Frontier Corporation/Global Crossing Ltd. in the
accompanying consolidated financial statements. Funds required by GlobalCenter
are subject to the ongoing approval and budgeting processes of Global Crossing.
At September 30, 2000, subsidiaries of GlobalCenter had cash balances of $11.2
million that were not part of the centralized cash management system of Global
Crossing.
F-11
<PAGE>
GLOBALCENTER HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Corporate Allocations
The direct operating expenses of GlobalCenter, such as network costs, are
charged directly to GlobalCenter. GlobalCenter is allocated a portion of
corporate overhead costs. For the year ended December 31, 1997, GlobalCenter
operated on a standalone basis and no corporate allocation costs were recorded
in the statement of operations.
The following table summarizes corporate charges and allocations included in
the accompanying consolidated financial statements.
<TABLE>
<CAPTION>
Predecessor GlobalCenter
-------------------------- --------------------------
Unaudited
Nine Months Three Months Nine Months
Year Ended Ended Ended Ended
December 31, September 30, December 31, September 30,
1998 1999 1999 2000
------------ ------------- ------------ -------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Statement of Operations
caption:
Cost of service
revenues............ $ -- $4,722 $1,978 $10,711
General and
administrative...... 1,284 1,740 867 4,794
------ ------ ------ -------
Total corporate
charges and
allocations....... $1,284 $6,462 $2,845 $15,505
====== ====== ====== =======
</TABLE>
Management believes that the allocation methodologies applied are
reasonable. However, it was not practicable to determine whether the allocated
amounts represent amounts that would have been incurred on a standalone basis.
Management believes that the historical corporate charges and allocations are
comparable to the expected future allocations. Explanations of the composition
and the method of allocation for the above captions are described below.
Cost of Service Revenues
Allocated costs within this caption include the costs of the
telecommunications network provided by Global Crossing or Frontier to
GlobalCenter. These costs were allocated to GlobalCenter based upon circuit
usage, rate and capacity information.
General and Administrative
Allocated costs within this caption include the costs of information systems
services, tax return preparation and advisory services, payroll and benefits
administration, purchasing and certain other accounting and administrative
services. These costs were allocated based upon headcount, square footage and
revenue, depending on the type of cost to be allocated.
Tanning Technology Corporation
The Chief Executive Officer of GlobalCenter was a member of the Board of
Directors of Tanning Technology Corporation ("Tanning"). On February 1, 2000,
GlobalCenter acquired approximately 229,000 shares of Tanning common stock for
an aggregate purchase price of $10 million based on the fair market value of
Tanning's stock on that date. This investment represents approximately 1% of
the outstanding shares of Tanning common stock as of October 27, 2000. In
addition, GlobalCenter and Tanning entered into a preferred marketing agreement
to create, market, sell and deliver combined service offerings to customers and
also entered into an additional arrangement where GlobalCenter has agreed to
pay $10 million for consulting services to be provided by Tanning over a 12-
month period commencing in February 2000.
F-12
<PAGE>
GLOBALCENTER HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(4) Property and Equipment, Net
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Predecessor GlobalCenter
----------- -----------------------
December 31, Unaudited
-------------------- September 30,
1998 1999 2000
----------- -------- -------------
(Amounts in thousands)
<S> <C> <C> <C>
Network and computer equipment......... $13,410 $ 16,200 $ 50,611
Furniture and fixtures................. 307 2,143 8,110
Leasehold improvements................. 2,179 20,759 94,142
------- -------- --------
15,896 39,102 152,863
Accumulated depreciation and
amortization.......................... (5,096) (1,913) (18,149)
------- -------- --------
10,800 37,189 134,714
Construction in progress............... 19,572 79,126 223,435
------- -------- --------
Total property and equipment, net...... $30,372 $116,315 $358,149
======= ======== ========
</TABLE>
Included in property and equipment are assets acquired under capital lease
obligations with an original cost of approximately $1.5 million. Accumulated
amortization on the leased assets was approximately $0.8 million, $1.3 million
and $1.5 million at December 31, 1998 and 1999, and September 30, 2000,
respectively. Interest paid on capital lease obligations is not material to the
consolidated financial statements for all periods presented.
(5) Goodwill and Intangibles, Net
In connection with the acquisition of Frontier Corporation by Global
Crossing Ltd., approximately $1.5 billion of the purchase price was determined
to be the fair value of net assets, goodwill and intangibles related to
GlobalCenter. Approximately $43.9 million was the fair value of the tangible
net assets acquired and liabilities assumed of GlobalCenter at the acquisition
date. The remaining purchase price was assigned to goodwill and intangibles and
a related deferred tax liability. The amounts and estimated lives of the
goodwill and intangibles are as follows:
<TABLE>
<CAPTION>
Unaudited
Estimated December 31, September 30,
Life 1999 2000
--------- ------------ -------------
(Amounts in thousands)
<S> <C> <C> <C>
Customer lists.......................... 5 years $ 78,000 $ 78,000
Goodwill................................ 5 years 1,407,400 1,407,400
---------- ----------
1,485,400 1,485,400
Less: Accumulated amortization.......... (74,270) (297,080)
---------- ----------
Goodwill and intangibles, net........... $1,411,130 $1,188,320
========== ==========
</TABLE>
In October 1997, GlobalCenter Inc. acquired Voyager Networks, Inc.
("Voyager") in a business combination accounted for as a purchase. After
allocation of the purchase price to the tangible and specifically identifiable
intangible assets acquired and liabilities assumed, the excess purchase price
of approximately $9.1 million was allocated to goodwill. The Voyager goodwill
was amortized using the straight-line method over seven years until the
acquisition of Frontier by Global Crossing. As of December 31, 1998, the
accumulated amortization related to the Voyager goodwill was approximately $1.6
million. Pro forma combined
F-13
<PAGE>
GLOBALCENTER HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
revenues and net loss from continuing operations before benefit for income
taxes for the year ended December 31, 1997, assuming Voyager was acquired on
January 1, 1997, was $10.5 million and $4.2 million, respectively.
(6) Income Taxes
The following table shows the principal reasons for the difference between
the effective income tax rate and the U.S federal statutory income tax rate:
<TABLE>
<CAPTION>
Predecessor GlobalCenter
------------------------------- ------------
Year Ended Nine Months Three Months
December 31, Ended Ended
---------------- September 30, December 31,
1997 1998 1999 1999
------- ------- ------------- ------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Federal income tax at
statutory rate (35%)......... $(1,300) $(5,508) $(9,286) $(29,468)
State and local income taxes,
net of federal effect........ (118) 125 (449) (212)
Amortization of goodwill ..... 114 453 341 24,630
Change in valuation allowance
and other estimates.......... 361 -- (361) --
Other differences............. 2 19 13 12
------- ------- ------- --------
Benefit for income taxes...... $ (941) $(4,911) $(9,742) $ (5,038)
======= ======= ======= ========
</TABLE>
The benefit for income taxes consists of the following:
<TABLE>
<CAPTION>
Predecessor GlobalCenter
----------------------------- ------------
Nine Months Three Months
Year Ended Ended Ended
December 31, September 30, December 31,
-------------- ------------- ------------
1997 1998 1999 1999
----- ------- ------------- ------------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Benefit for income taxes from
continuing operations
Current:
Federal....................... $ -- $(3,307) $(10,126) $(1,979)
State and local............... -- -- (514) (133)
----- ------- -------- -------
Subtotal.................... -- (3,307) (10,640) (2,112)
Deferred:
Federal....................... (760) (1,797) 1,074 (2,733)
State and local............... (181) 193 (176) (193)
----- ------- -------- -------
Subtotal.................... (941) (1,604) 898 (2,926)
----- ------- -------- -------
Benefit for income taxes from
continuing operations.......... $(941) $(4,911) $ (9,742) $(5,038)
===== ======= ======== =======
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes.
F-14
<PAGE>
GLOBALCENTER HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is a summary of the significant items giving rise to
components of GlobalCenter's deferred tax assets and liabilities:
<TABLE>
<CAPTION>
Predecessor GlobalCenter
----------- ------------
December 31,
------------------------
1998 1999
----------- ------------
(Amounts in thousands)
<S> <C> <C>
Long-term deferred income tax assets (liabilities)
Intangibles......................................... $ -- $(27,825)
Property and equipment.............................. 221 214
Net operating losses from continuing operations..... 515 1,412
------ --------
736 (26,199)
Less: Valuation allowance............................. (515) (1,412)
------ --------
Net long-term deferred income tax assets
(liabilities).................................... $ 221 $(27,611)
====== ========
Current deferred income tax assets
Accrued benefits and compensation................... $ 688 $ 168
Reserves and allowances............................. 1,594 1,681
Other............................................... 111 1,077
------ --------
Total current deferred income tax assets.......... $2,393 $ 2,926
====== ========
</TABLE>
The Company established a valuation allowance of approximately $1.4 million
as of December 31, 1999 against net operating losses. The valuation allowance
relates to the uncertainty of realizing the full benefit of the net operating
loss carryforwards. In evaluating the amount of valuation allowance needed, the
Company considers the prior operating results and future plans and
expectations. The utilization period of the net operating loss carryforwards
and the turnaround period of other temporary differences are also considered.
The Company's net operating losses begin to expire in 2001. The realization of
the current net deferred income tax asset is dependent on the consolidated
group, of which GlobalCenter is a component, generating taxable income.
Although realization is not assured, management believes it is more likely than
not that the deferred income tax asset at December 31, 1999 will be realized.
The amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of taxable income in future years are
reduced.
(7) Commitments and Contingencies
Lease Commitments
The Company has entered into various lease agreements for office space and
data center facilities. Rent expense was $9.9 million, $2.3 million, $3.7
million, $1.3 million and $1.0 million for the nine months ended September 30,
2000, three months ended December 31, 1999, nine months ended September 30,
1999 and the years ended December 31, 1998 and 1997, respectively. The Company
leases certain electronic and computer equipment under capital lease
arrangements.
F-15
<PAGE>
GLOBALCENTER HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of future minimum lease payments under capital and noncancelable
operating lease agreements as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
(Amounts in
thousands)
<S> <C> <C>
Years ending December 31,
2000.................................................. $423 $ 12,509
2001.................................................. 211 12,133
2002.................................................. -- 12,026
2003.................................................. -- 12,361
2004.................................................. -- 12,843
Thereafter............................................ -- 84,354
---- --------
634 $146,226
========
Less: Amount representing interest...................... (66)
----
Present value of lease payments......................... 568
Current portion of capital leases....................... (374)
----
Noncurrent portion of capital leases.................... $194
====
</TABLE>
It is expected that in the normal course of business, leases that expire
generally will be renewed or replaced by leases on other properties; thus, it
is anticipated that future minimum lease commitments will not be less than the
amount shown for 2000.
Subsequent to December 31, 1999, the Company has entered into a number of
additional operating lease commitments to secure future data center locations.
The aggregate additional commitments as of September 30, 2000 were
approximately $210 million.
Other
Management believes that there are no pending or threatened legal
proceedings that would have a material adverse effect on the Company.
(8) Shareholder's Equity
On September 28, 2000, the shareholders of GlobalCenter Holding Co. and
GlobalCenter Inc. approved an increase in the total number of shares of common
stock with par value of $0.01 to 300,000,000. On September 28, 2000, the
GlobalCenter Holding Co. and GlobalCenter Inc. Board of Directors approved a
stock split, in the form of a stock dividend, of 2,335,000 to 1. Accordingly,
all outstanding shares have been retroactively adjusted to reflect the effect
of the stock dividend.
Management Stock Plan
The Board of Directors and the shareholder of GlobalCenter, Inc. adopted the
GlobalCenter Management Stock Plan ("Management Stock Plan") in January 2000.
The Management Stock Plan was approved by the Global Crossing compensation
committee on March 2, 2000 and by the Global Crossing Board of Directors on
April 12, 2000. The Management Stock Plan provides for grants of stock options
to purchase shares of GlobalCenter Inc. stock and grants restricted shares of
GlobalCenter Inc. stock. Options granted under the Management Stock Plan may be
incentive stock options or non-statutory stock options. The options expire ten
F-16
<PAGE>
GLOBALCENTER HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
years from the date of the grant and vest over a three-year period. The total
number of shares of such GlobalCenter Inc. stock available for grant under the
Management Stock Plan is approximately 27.5 million.
The Management Stock Plan imposes individual limits on the amount of awards
that a participant can receive in any fiscal year. The Management Stock Plan
is administered by the Global Crossing Ltd. compensation committee. The
exercise price per share for a Management Stock Plan option will typically be
the fair market value of GlobalCenter Inc. stock on the date of grant. As of
December 31, 1999, stock options to purchase 14.8 million shares of
GlobalCenter Inc. stock had been approved for grant under the Management Stock
Plan. The weighted average exercise price is $110 million. As of December 31,
1999, no shares of restricted stock have been awarded under the Management
Stock Plan.
As of September 30, 2000, stock options to purchase approximately 25.6
million shares of GlobalCenter Inc. common stock had been approved for grant
under the Management Stock Plan. The aggregate exercise price of such options
is approximately $191 million. Management believes the options were all
granted at the fair market value on date of grant.
Global Crossing Ltd. Stock Option Plans
Employees of GlobalCenter participate in the stock option plans of Global
Crossing. Global Crossing maintains a stock option plan under which options to
acquire shares may be granted to directors, officers, employees and
consultants. Global Crossing accounts for this plan under APB 25, under which
compensation cost is recognized only to the extent that the market price at
that date of grant exceeds the exercise price. Terms and conditions of Global
Crossing options, including exercise price and the period in which options are
exercisable, generally are at the discretion of the compensation committee of
Global Crossing Ltd., however, no options are exercisable more than ten years
after date of grant. Certain employees of GlobalCenter own stock options to
acquire Global Crossing stock.
Prior to its merger with Global Crossing, Frontier maintained stock option
plans for its directors, executives, and certain employees. The exercise price
for options under all Frontier plans was the fair market value of the stock on
the date of the grant. The stock options expire ten years from the date of the
grant and vest over a period from one to three years. The Frontier plans
provided for discretionary grants of stock options which were subject to the
passage of time and continued employment restrictions. In connection with the
Frontier merger, Global Crossing exchanged all of the outstanding Frontier
stock options for Global Crossing stock options which vested immediately at
the date of the merger.
As of December 31, 1999, 2.4 million stock options held by GlobalCenter
employees under the Global Crossings stock option plans are exercisable.
During 1997, GlobalCenter Inc. deferred compensation of $4.7 million which
relates to the difference between the exercise price of the options and the
fair market value at the time of issuance. Related compensation expense of $2
million, $0.9 million, and $0.7 million was recognized in 1997, 1998 and the
nine month period ended September 30, 1999, respectively.
F-17
<PAGE>
GLOBALCENTER HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes the stock option activity of GlobalCenter
employees who hold options under Frontier and Global Crossing stock option
plans:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Predecessor
Outstanding Frontier Corporation options at
January 1, 1997................................ 156,924 $ 1.02
Granted....................................... 1,155,129 5.47
Exercised..................................... 30,616 1.00
Canceled...................................... 157,718 2.17
--------- ------
Outstanding Frontier Corporation options at
December 31, 1997.............................. 1,123,719 5.44
Granted....................................... 910,120 27.90
Exercised..................................... 305,570 1.98
Canceled...................................... 661,427 18.15
--------- ------
Outstanding Frontier Corporation options at
December 31, 1998.............................. 1,066,842 17.71
Granted....................................... 1,528,549 46.43
Exercised..................................... 527,505 19.22
Canceled...................................... 118,577 30.52
--------- ------
Outstanding Frontier Corporation options at
September 30, 1999............................. 1,949,309 $39.04
========= ======
GlobalCenter
Outstanding Global Crossing Ltd. options at
October 1, 1999................................ 1,949,309 $19.04
Granted....................................... 2,131,175 45.00
Exercised..................................... 1,211,355 12.43
Canceled...................................... 343,285 26.25
--------- ------
Outstanding Global Crossing Ltd. options at
December 31, 1999.............................. 2,525,844 22.10
Granted (unaudited)........................... 3,949,756 30.63
Exercised (unaudited)......................... 791,626 15.38
Canceled (unaudited).......................... 1,301,414 31.10
--------- ------
Outstanding Global Crossing Ltd. options at
September 30, 2000 (unaudited)................. 4,382,560 $28.33
========= ======
</TABLE>
As permitted by SFAS No. 123, the employee stock options are being accounted
for under APB 25 and compensation expense is recognized over the vesting period
to the extent that the fair value of the stock on the date the options were
granted exceeded the exercise price. Had compensation cost for the stock-based
compensation plans been determined consistent with the SFAS No. 123 fair value
approach, the impact on Predecessor and GlobalCenter's loss applicable to
common shareholders using the Black-Scholes option valuation model, would be as
follows:
<TABLE>
<CAPTION>
Predecessor GlobalCenter
----------------------------- --------------------------
Unaudited
Year Ended Nine Months Three Months Nine Months
December 31, Ended Ended Ended
--------------- September 30, December 31, September 30,
1997 1998 1999 1999 2000
------- ------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Pro forma net
loss.............. $13,633 $26,147 $42,289 $94,452 $269,060
</TABLE>
F-18
<PAGE>
GLOBALCENTER HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes the significant assumptions used in
developing the pro forma information:
<TABLE>
<CAPTION>
Predecessor GlobalCenter
------------------------------- --------------------------
Unaudited
Year Ended Nine Months Three Months Nine Months
December 31, Ended Ended Ended
---------------- September 30, December 31, September 30,
1997 1998 1999 1999 2000
------- ------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Risk free interest
rate................... 6.2% 5.5% 6.6% 6.6% 6.0%
Volatility factor....... 33.2% 42.0% 40.0% 40.0% 40.0%
Dividend yield.......... -- -- -- -- --
Weighted average life... 4 years 2 years 1 year 3 years 3 years
</TABLE>
The weighted average fair value of the options granted during the years
ended December 31, 1997 and 1998, the nine-month period ended September 30,
1999, the three-month period ended December 31, 1999 and the nine-month period
ended September 30, 2000 is $1.44, $7.72, $4.96, $15.55 and $10.38,
respectively.
(9) Discontinued Operations
As of December 31, 1999, the Company decided to discontinue its ISP
business segment. GlobalCenter entered into an agreement to sell the business
segment to Global Crossing Internet Dial-Up, Inc., a wholly owned subsidiary
of Global Crossing Ltd., for book value on the date of transfer. In connection
with this transaction, the Company's financial statements reflect the
financial position and results of operations of the ISP business as
discontinued operations for all periods presented. For accounting purposes,
the sale was effective March 31, 2000. In connection with the sale of the ISP
business, the Company agreed to indemnify Global Crossing Internet Dial-Up,
Inc. for any claims prior to the sale in an amount not to exceed the purchase
price. Included in the liabilities from discontinued operations in the table
below is an accrual for losses between the measurement date of December 31,
1999 and the disposal date of March 31, 2000 of $6.4 million, net of a
$3.6 million tax benefit. Summary financial information of the ISP business
segment is as follows:
<TABLE>
<CAPTION>
Predecessor GlobalCenter
----------- ------------
As of December 31,
------------------------
1998 1999
----------- ------------
(Amounts in thousands)
<S> <C> <C>
Balance Sheet Data:
Assets............................................ $36,038 $17,546
Liabilities....................................... 7,740 13,130
------- -------
Net assets of discounted operations............... $28,298 $ 4,416
======= =======
</TABLE>
<TABLE>
<CAPTION>
Predecessor GlobalCenter
--------------------------------- ------------
Year Ended Nine Months Three Months
December 31, Ended Ended
------------------ September 30, December 31,
1997 1998 1999 1999
-------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................... $ 16,786 $ 20,183 $ 15,949 $ 4,186
Expenses.................. (31,423) (40,709) (42,534) (17,910)
-------- -------- -------- --------
Operating loss............ (14,637) (20,526) (26,585) (13,724)
Other expenses............ (505) -- -- --
Accrued losses from
measurement date......... -- -- -- (10,063)
-------- -------- -------- --------
Income tax benefit........ 4,504 7,146 9,600 8,599
Loss from discontinued
operations............... $(10,638) $(13,380) $(16,985) $(15,188)
======== ======== ======== ========
</TABLE>
F-19
<PAGE>
GLOBALCENTER HOLDING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(10) Subsequent Events (Unaudited)
Merger Agreement with Exodus
On September 28, 2000, Global Crossing entered into an agreement with Exodus
to merge GlobalCenter Holding Co. into Exodus. The number of shares of Exodus
common stock that will be issued in exchange for all of the outstanding shares
of GlobalCenter Holding Co. is based on a price of $6.5 billion divided by the
average closing price of the Exodus common stock prior to close. The average
closing price of the Exodus common stock is subject to a collar of between
$56.41 and $65.55. The purchase price is also impacted by the number of
outstanding stock options held by GlobalCenter employees prior to close. The
merger is subject to customary regulatory and Exodus stockholders' approval.
At the time of the signing of the merger agreement, Exodus signed a
Networking Services, Marketing and Cooperation Agreement with Global Crossing
and a similar agreement with Asia Global Crossing, Ltd. ("AGC"). AGC is a
publicly traded company with Global Crossing, Softbank Corp. and Microsoft
Corporation as principal shareholders. These agreements commit Exodus to obtain
at least 50% of its network needs for all areas of the world other than Asia
and the Pacific Rim from Global Crossing and at least 60% of its network needs
in Asia and the Pacific Rim, other than Australia and New Zealand, from AGC.
GlobalCenter Asia Joint Venture
In May 2000, GlobalCenter Inc. entered into a Master Joint Venture Agreement
with AGC. The purpose of the joint venture will be to exploit the GlobalCenter
business in Asia.
As part of the proposed merger with Exodus, Exodus agreed to form a joint
venture with AGC to provide complex Web hosting and managed services in Asia.
Exodus will own 67% of the joint venture and Asia Global Crossing will own 33%.
Exodus and AGC will contribute all Asia region Web hosting assets to the joint
venture. AGC will be the primary network provider for the joint venture in
Asia, and Exodus will manage and operate the joint venture.
F-20
<PAGE>
Annex A
EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER
among
Exodus Communications, Inc.,
Einstein Acquisition Corp.,
Global Crossing GlobalCenter Holdings, Inc.,
GlobalCenter Holding Co.,
GlobalCenter Inc.
and
Global Crossing North America, Inc.
dated as of
September 28, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE I THE MERGER.................................................... A-1
1.1 The Merger................................................. A-1
1.2 Closing; Effective Time.................................... A-2
1.3 Effect of the Merger....................................... A-2
1.4 Certificate of Incorporation; Bylaws....................... A-2
1.5 Directors and Officers..................................... A-2
1.6 Effect on Capital Stock.................................... A-2
1.7 Exchange of Certificates................................... A-4
1.8 No Further Ownership Rights in Company Capital Stock....... A-4
1.9 Tax Consequences........................................... A-4
1.10 Exemption from Registration................................ A-4
1.11 Taking of Necessary Action; Further Action................. A-4
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY PARTIES........ A-4
A. Representations and Warranties of the Company.............. A-5
2.1 Organization, Standing and Power........................... A-5
2.2 Capital Structure.......................................... A-5
2.3 Authority.................................................. A-6
2.4 SEC Documents; Financial Statements........................ A-7
2.5 Absence of Certain Changes................................. A-7
2.6 Absence of Undisclosed Liabilities......................... A-8
2.7 Litigation................................................. A-8
2.8 Real Estate; Title to Property............................. A-9
2.9 Intellectual Property...................................... A-9
2.10 Environmental Matters...................................... A-11
2.11 Taxes...................................................... A-12
2.12 Employee Benefit Plans..................................... A-12
2.13 Labor Matters.............................................. A-13
2.14 Compliance With Laws....................................... A-14
2.15 Brokers' and Finders' Fees................................. A-14
2.16 Board and Stockholder Approval............................. A-14
2.17 Information Supplied....................................... A-14
2.18 Agreements and Commitments................................. A-15
2.19 Warranties, Guarantees and Indemnities..................... A-16
2.20 Title to and Condition and Sufficiency of Global Center A-16
Group Assets..............................................
2.21 Customer Relationships..................................... A-16
2.22 Disruptions................................................ A-16
B. Representations and Warranties of GCG...................... A-16
2.23 Authority.................................................. A-16
2.24 Accredited Investor; Investment Intent..................... A-17
C. Representations and Warranties of Global Crossing NA....... A-17
2.25 Global Crossing NA Authority............................... A-17
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EXODUS.................... A-17
3.1 Organization, Standing and Power........................... A-17
3.2 Capital Structure.......................................... A-18
3.3 Authority.................................................. A-18
3.4 SEC Documents; Financial Statements........................ A-19
3.5 Board and Stockholder Approvals............................ A-19
3.6 Absence of Certain Changes................................. A-20
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
3.7 Absence of Undisclosed Liabilities........................ A-20
3.8 Litigation................................................ A-20
3.9 Compliance With Laws...................................... A-20
3.10 Brokers' and Finders' Fees................................ A-20
3.11 Taxes..................................................... A-21
3.12 Board Approval; Section 203 of the DGCL................... A-21
3.13 Opinion of Financial Advisor.............................. A-22
3.14 Required Exodus Vote...................................... A-22
3.15 Exodus Proxy Statement.................................... A-22
3.16 No Business Activities.................................... A-22
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME......................... A-22
4.1 Conduct of Business of the Company and Exodus............. A-22
4.2 Restriction on Conduct of Business of the Company......... A-23
4.3 Restriction on Conduct of Business of Exodus.............. A-24
4.4 Capital Expenditures; Working Capital..................... A-25
4.5 Leases.................................................... A-25
4.6 Disclosures............................................... A-25
4.7 Extinguishments of Debt; No Cash.......................... A-26
4.8 Assumption of Lease Guarantees............................ A-26
4.9 Exodus Acquisitions....................................... A-26
ARTICLE V ADDITIONAL AGREEMENTS........................................ A-27
5.1 Proxy Statement........................................... A-27
5.2 Meeting of Stockholders................................... A-27
5.3 Access to Information..................................... A-28
5.4 Confidentiality........................................... A-28
5.5 Public Disclosure......................................... A-28
5.6 Consents; Cooperation..................................... A-29
5.7 No Solicitation........................................... A-29
5.8 Exodus Board.............................................. A-30
5.9 Assumption of Options..................................... A-30
5.10 Form S-8.................................................. A-32
5.11 Listing of Additional Shares.............................. A-32
5.12 Employees................................................. A-32
5.13 Best Efforts and Further Assurances....................... A-32
5.14 Indemnification of Directors and Officers................. A-32
5.15 Facilities Transition..................................... A-33
5.16 Assumption of Certain Obligations......................... A-33
5.17 Employee Loans; Employee Severance Arrangements........... A-33
5.18 Corporate Documents; Subsidiaries......................... A-33
ARTICLE VI CONDITIONS TO THE MERGER.................................... A-34
6.1 Conditions to Obligations of Each Party to Effect the A-34
Merger...................................................
6.2 Additional Conditions to Obligations of the Company A-34
Parties..................................................
6.3 Additional Conditions to Obligations of Exodus Parties.... A-35
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.......................... A-36
7.1 Termination............................................... A-36
7.2 Effect of Termination..................................... A-37
7.3 Expenses and Termination Fees............................. A-37
7.4 Amendment................................................. A-38
</TABLE>
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<PAGE>
<TABLE>
<C> <S> <C>
7.5 Extension; Waiver........................................ A-38
ARTICLE VIII TAX MATTERS............................................... A-38
8.1 Liability for Taxes...................................... A-38
8.2 Tax Refunds.............................................. A-39
8.3 Amended Returns.......................................... A-40
8.4 Tax Returns.............................................. A-40
8.5 Tax Contest Provisions................................... A-41
8.6 Termination of Tax Allocation Agreements................. A-42
8.7 Assistance and Cooperation............................... A-42
8.8 Preservation of Reorganization Status.................... A-42
ARTICLE IX GENERAL PROVISIONS.......................................... A-42
9.1 Non-Survival at Effective Time........................... A-42
9.2 Notices.................................................. A-43
9.3 Interpretation........................................... A-43
9.4 Counterparts............................................. A-44
9.5 Entire Agreement; Nonassignability; Parties in Interest.. A-44
9.6 Severability............................................. A-44
9.7 Remedies Cumulative...................................... A-44
9.8 Governing Law; Submission to Jurisdiction................ A-44
9.9 Rules of Construction.................................... A-45
9.10 Remedies for Breach...................................... A-45
ARTICLE X INDEMNIFICATION; REMEDIES.................................... A-45
10.1 Global Crossing NA's Obligation to Indemnify............. A-45
10.2 Entitlement to Indemnification; Indemnification Amount; A-45
Double Recovery.........................................
10.3 Sole Remedy.............................................. A-46
10.4 Claims................................................... A-46
10.5 Survival................................................. A-46
10.6 Satisfaction of Indemnity Obligations.................... A-46
10.7 Adjustment to Purchase Price............................. A-46
</TABLE>
iii
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EXHIBITS
<TABLE>
<S> <C>
Exhibit A--Certificate of Merger
Exhibit B--Form of Indemnification Agreement
Exhibit C--Form of Noncompetition Agreement
Exhibit D--Amendment No. 2 to Rights Plan
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of September 28, 2000, among Exodus Communications, Inc., a Delaware
corporation ("Exodus"), Einstein Acquisition Corp., a Delaware corporation and
a direct, wholly-owned subsidiary of Exodus ("Exodus Merger Sub"), Global
Crossing North America, Inc., a New York corporation ("Global Crossing NA"),
Global Crossing GlobalCenter Holdings, Inc., a Delaware corporation and an
indirect wholly-owned subsidiary of Global Crossing NA ("GCG"), GlobalCenter
Holding Co., a Delaware corporation and an indirect wholly-owned subsidiary of
Global Crossing NA and a wholly-owned subsidiary of GCG (the "Company"), and
GlobalCenter, Inc., a Delaware corporation and a direct wholly-owned subsidiary
of the Company and an indirect wholly-owned subsidiary of Global Crossing NA
("GlobalCenter"). For purposes of this Agreement the term "Exodus Parties"
shall mean Exodus and Exodus Merger Sub, and the term "Company Parties" shall
mean Global Crossing NA, GCG, the Company and GlobalCenter.
RECITALS
A. The Boards of Directors of the Exodus Parties and the Company Parties
believe it is in the best interests of their respective companies and the
stockholders of their respective companies that the Company and Exodus Merger
Sub combine into a single company through the statutory merger of Exodus Merger
Sub with and into the Company (the "Merger").
B. Pursuant to the Merger, among other things, each outstanding share of
common stock, $.01 par value, of the Company ("Company Common Stock") shall be
converted into shares of common stock, $.001 par value, of Exodus ("Exodus
Common Stock"), in the manner set forth herein.
C. The Exodus Parties and the Company Parties desire to make certain
representations, warranties, covenants and other agreements in connection with
the Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under Section 368(a) of the Code.
E. Concurrently with the execution of this Agreement, Exodus, GCG and the
Company are entering into a Stockholder Rights Agreement (the "Stockholder
Agreement"), and a Registration Rights Agreement (the "Registration Rights
Agreement").
NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger.
At the Effective Time (as defined in Section 1.2) and subject to and upon
the terms and conditions of this Agreement, the Certificate of Merger attached
hereto as Exhibit A (the "Certificate of Merger") and the applicable provisions
of the Delaware General Corporation Law ("Delaware Law"), Exodus Merger Sub
shall be merged with and into the Company, the separate corporate existence of
Exodus Merger Sub shall cease and the Company shall continue as the surviving
corporation. The Company as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "Surviving Corporation".
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1.2 Closing; Effective Time.
The closing of the transactions contemplated hereby (the "Closing") shall
take place as soon as practicable following the satisfaction or waiver of each
of the conditions set forth in Article VI hereof, or at such other time as the
parties hereto agree (the "Closing Date"). The Closing shall take place at the
offices of Fenwick & West LLP, Palo Alto, California, or at such other location
as the parties hereto agree. In connection with the Closing, the parties hereto
shall cause the Merger to be consummated by filing the Certificate of Merger,
together with the required officers' certificates, with the Secretary of State
of the State of Delaware in accordance with the relevant provisions of Delaware
Law (the time of effectiveness of the Merger under the Delaware Law being the
"Effective Time").
1.3 Effect of the Merger.
At the Effective Time, the effect of the Merger shall be as provided in this
Agreement, the Certificate of Merger and the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the property, rights, privileges, powers and franchises
of the Company shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company shall become the debts, liabilities and
duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) Certificate of Incorporation. At the Effective Time, the Certificate
of Incorporation of the Company, as in effect immediately prior to the
Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by Delaware Law and such
Certificate of Incorporation.
(b) Bylaws. The Bylaws of Exodus Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 Directors and Officers.
At the Effective Time, the directors of Exodus Merger Sub, as in effect
immediately prior to the Effective Time, shall be the directors of the
Surviving Corporation, until their respective successors are duly elected or
appointed and qualified. The officers of Exodus Merger Sub, as in effect
immediately prior to the Effective Time, shall be the officers of the Surviving
Corporation, until their respective successors are duly elected or appointed
and qualified.
1.6 Effect on Capital Stock.
(a) Company Stock. At the Effective Time, each share of Company Common
Stock issued and outstanding immediately prior to the Effective Time shall
be converted into and exchanged for the right to receive a number of shares
of Exodus Common Stock equal to the Exchange Ratio. The Exchange Ratio will
equal the quotient obtained by dividing (i) the Total Exodus Shares (as
defined below) by (ii) the Total Number of GlobalCenter Securities (as
defined below). Such Exchange Ratio shall be rounded to four decimal
places. The "Total Number of GlobalCenter Securities" shall equal the sum
of (q) the number of shares of Company Common Stock outstanding immediately
prior to the Effective Time, plus (r) the total number of shares of Company
Common Stock issuable or deemed to be issuable under Company Options (as
defined below) and the Global Crossing Assumed Options (as defined below).
As used herein, all references to Exodus Common Stock shall include the
associated stock purchase rights issued pursuant to the Rights Agreement
dated as of January 27, 1999 (the "Rights Agreement", between Exodus and
BankBoston, N.A.I. The "Total Exodus Shares" shall mean that number of
shares of Exodus Common Stock equal to the quotient obtained by dividing
(A) the sum of (i) $6.525 Billion, plus (ii) the aggregate proceeds from
the exercise of all of the Company Options and Global Crossing Assumed
Options, minus (iii) the Global Crossing Canceled Options Money Value (as
defined below), by (B) the
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Final Closing Price (as defined below), rounded to the nearest whole share.
The "Global Crossing Canceled Options Money Value" shall mean (x) the
product of (1) the average closing price per share as quoted on the Nasdaq
National Market of Global Crossing Ltd. (as defined below) common stock for
the ten (10) trading days prior to and including the trading day ending two
days prior to the Closing Date, and (2) the total number of shares of
Global Crossing Ltd. stock issuable pursuant to the Global Crossing
Canceled Options (as defined below), minus (y) the aggregate proceeds from
the exercise of all of the Global Crossing Canceled Options. The "Final
Closing Price" shall mean the average closing price per share as quoted on
the Nasdaq National Market of Exodus Common Stock for the ten (10) trading
days prior to and including the trading day ending two days prior to the
Closing Date; provided that if the Final Closing Price is less than $56.41,
the Final Closing Price shall equal $56.41 and if the Final Closing Price
is greater than $65.55, the Final Closing Price shall equal $65.55.
(b) Company Options and Global Crossing Options. At the Effective Time,
each Company Option (as defined hereinafter) and Global Crossing Assumed
Option (as hereinafter defined) shall be assumed by Exodus in accordance
with Section 5.9(a) and thereafter shall constitute the right to receive
options to purchase such number of shares of Exodus Common Stock as set
forth in Section 5.9(a). At the Effective Time, each Global Crossing
Canceled Option (as defined hereinafter) will be canceled and Exodus will
issue options to purchase shares of Exodus Common Stock (the "New Exodus
Options") in accordance with Section 5.9(b). "Company Options" means all
options outstanding immediately prior to the Effective Time under the
GlobalCenter Management Stock Plan (the "GlobalCenter Stock Option Plan").
"Global Crossing Assumed Options" means the options to purchase 2,934,493
shares of Global Crossing Ltd. (which are deemed to be equivalent to
5,540,323 shares of Company Common Stock) granted pursuant to the Global
Crossing Ltd. 1998 Stock Option Plan (the "Global Crossing Stock Option
Plan" and, together with the GlobalCenter Stock Option Plan, the "Company
Stock Option Plans"). "Global Crossing Canceled Options" means all unvested
options held immediately prior to the Effective Time by Company employees
(other than Leo Hindery) granted pursuant to the Global Crossing Stock
Option Plan, excluding the unvested options included in the definition of
Global Crossing Assumed Options above.
(c) Cancellation of Company Common Stock Owned by the Company. At the
Effective Time, all shares of Company Common Stock that are owned by the
Company as treasury stock, if any, shall be canceled and extinguished
without any conversion thereof.
(d) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted
to reflect fully the effect of any stock split, reverse stock split, stock
dividend (including any dividend or distribution of securities convertible
or exchangeable into Exodus Common Stock or capital stock of the Company),
reorganization, recapitalization or other like change with respect to
Exodus Common Stock or Company Common Stock occurring after the date hereof
and prior to the Effective Time, other than the stock splits or stock
dividends in which the Company will convert each currently outstanding
share of its common stock into 233,500 shares of its common stock and
GlobalCenter will convert each currently outstanding share of its common
stock in to 233,500 shares of its common stock (the "Stock Splits").
(e) Fractional Shares. No fraction of a share of Exodus Common Stock
will be issued, but in lieu thereof, each holder of shares of Company
Common Stock who would otherwise be entitled to a fraction of a share of
Exodus Common Stock (after aggregating all fractional shares of Exodus
Common Stock to be received by such holder) shall receive from Exodus an
amount of cash (rounded to the nearest whole cent) equal to the product of
(i) such fraction, and (ii) the closing price of one share of Exodus Common
Stock on the Nasdaq National Market on the last trading day before the
Effective Time, as reported in the Wall Street Journal.
(f) Exodus Merger Sub. Each share of capital stock of Exodus Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one share of the common stock of the
Surviving Corporation.
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1.7 Exchange of Certificates.
At the Closing, GCG shall surrender to Exodus Merger Sub all outstanding
certificates theretofore representing the Company Common Stock together with
the stock powers duly endorsed in blank and shall thereupon receive in exchange
therefor certificates for Exodus Common Stock as provided in Section 1.6.
1.8 No Further Ownership Rights in Company Capital Stock.
All shares of Exodus Common Stock issued upon the surrender for exchange of
shares of Company Common Stock in accordance with the terms hereof (including
any cash paid in lieu of fractional shares) shall be deemed to have been issued
in full satisfaction of all rights pertaining to such shares of Company Common
Stock, and following the Effective Time there shall be no further registration
of transfers on the records of the Surviving Corporation of shares of Company
Common Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article I.
1.9 Tax Consequences
It is intended by the parties hereto that the Merger shall constitute a
reorganization within the meaning of Section 368(a) of the Code.
1.10 Exemption from Registration.
The shares of Exodus Common Stock to be issued in connection with the Merger
will be issued in a transaction exempt from registration under the Securities
Act of 1933, as amended (the "Securities Act"), by reason of Section 4(2)
thereof.
1.11 Taking of Necessary Action; Further Action.
If, at any time after the Effective Time, any further action is necessary or
desirable to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of the Company, the officers and
directors of the Company and the Surviving Corporation are fully authorized in
the name of their respective corporations or otherwise to take, and will take,
all such lawful and necessary action, so long as such action is not
inconsistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY PARTIES
In this Agreement, any reference to any event, change, condition or effect
being "material" with respect to any entity or group of entities means any
material event, change or condition materially affecting the financial
condition, properties, assets, business or prospects of the consolidated group
of which such entity or group of entities is a part. In this Agreement, any
reference to a "Material Adverse Effect" with respect to any entity or group of
entities means any event, change, violation, inaccuracy, circumstance or effect
that is materially adverse to the financial condition, properties, assets,
business or prospects of such entity and its direct and indirect subsidiaries,
taken as a whole; provided that "Material Adverse Effect" shall not include any
event, change or effect to the extent resulting from (i) changes in general
economic conditions or conditions in the industry in which Exodus and the
Company operate which generally affect industry participants, (ii) changes
after the date of this Agreement in generally accepted accounting principles
("GAAP"), (iii) the announcement of this Agreement and the transactions
contemplated hereby or (iv) changes in the trading prices of any such entity
(or any such entity's parent's) capital stock. In this Agreement, any reference
to a party's "knowledge" means actual knowledge of such party's (and in the
case of the Company, the executive officers
A-4
<PAGE>
of GlobalCenter) executive officers and directors, but in such connection,
such persons shall be deemed to be on notice of such matters as a reasonably
prudent person serving in such capacity as an executive officer or director
would be aware.
A. Representations and Warranties of the Company
Global Crossing NA and the Company jointly and severally represent and
warrant to Exodus as follows:
2.1 Organization, Standing and Power.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of Delaware, and each of its direct and indirect
subsidiaries is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization. The Company and each of its
subsidiaries has the corporate power to own its respective properties and to
carry on its respective business as now being conducted and is duly qualified
to do business and is in good standing in each jurisdiction in which the
failure to be so qualified and in good standing would have a Material Adverse
Effect on the Company. The Company and each of its subsidiaries has made
available true and correct copies of the Certificate of Incorporation and
Bylaws or other charter documents, as applicable, of the Company and its
subsidiaries, each as amended to date and true and complete copies of minute
books of the Company and GlobalCenter for the three year period ending on the
date hereof. Neither the Company nor any of its subsidiaries is in violation
of any of the provisions of its Certificate of Incorporation or Bylaws or
equivalent organizational documents. Except as set forth on Item 2.1 to the
disclosure letter delivered by the Company to Exodus concurrently with the
execution and delivery of this Agreement and referring to the representations
and warranties in this Agreement (the "Company Disclosure Letter"), the
Company does not directly or indirectly own any equity or similar interest in,
or any interest convertible or exchangeable or exercisable for, any equity or
similar interest in, any corporation, partnership, joint venture or other
business association or entity.
2.2 Capital Structure.
(a) As of the Closing Date, after giving effect to the Stock Splits, the
authorized capital stock of the Company will consist of 300,000,000 shares
of Company Common Stock, of which 233,500,000 shares will be issued and
outstanding.
(b) All outstanding shares of Company Common Stock are owned
beneficially and of record by GCG. There are no other outstanding shares of
capital stock or voting securities and no outstanding commitments to issue
any shares of Company capital stock or voting securities, other than
pursuant to the exercise of the Company Options and the Global Crossing
Assumed Options.
(c) All outstanding shares of Company Common Stock are duly authorized,
validly issued, fully paid and non-assessable and are free of any liens or
encumbrances, and are not subject to preemptive rights or rights of first
refusal created by statute, the Certificate of Incorporation or Bylaws of
the Company or any agreement to which the Company is a party or by which it
is bound. All outstanding shares of capital stock of each of the
subsidiaries of the Company are duly authorized, validly issued, fully paid
and non-assessable and are free of any liens or encumbrances, and are not
subject to preemptive rights or rights of first refusal created by statute,
the Certificate of Incorporation or Bylaws or other organizational
documents of such subsidiary or any agreement to which such subsidiary is a
party or by which it is bound. The Company owns, directly or indirectly,
100% of the outstanding stock of each of the subsidiaries listed in Item
2.1 of the Company Disclosure Schedule. On the date hereof, (1) the Company
Options consist of options to purchase 25,616,795 shares of Company Common
Stock granted pursuant to the GlobalCenter Stock Option Plan, (2) the
Global Crossing Assumed Options consist of options to purchase 2,934,493
shares of Global Crossing Ltd., a company organized under the laws of
Bermuda ("Global Crossing Ltd.") (which are deemed to be equivalent to
5,540,323 shares of Company Common Stock) granted pursuant to the Global
Crossing Stock Option Plan, and (3) the Global Crossing Canceled Options
consist of options to purchase 1,898,877 shares of Global Crossing Ltd.
granted or committed to
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<PAGE>
be granted pursuant to the Global Crossing Stock Option Plan. Except for
(i) the rights created pursuant to this Agreement; (ii) the Company
Options, the Global Crossing Assumed Options and the Global Crossing
Canceled Options; and (iii) up to 250,000 additional Global Crossing
Canceled Options to be granted after the date hereof and before Closing;
there are no other options, warrants, calls, rights, commitments or
agreements of any character to which the Company or any of its subsidiaries
is a party or by which they are bound obligating the Company or any of its
subsidiaries to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of capital
stock of the Company or any of its subsidiaries or obligating the Company
or any of its subsidiaries to grant, extend, accelerate the vesting of,
change the price of, or otherwise amend or enter into any such option,
warrant, call, right, commitment or agreement. Other than as expressly
provided per the terms of the Company Options, Global Crossing Assumed
Options or Global Crossing Canceled Options separately listed in and held
by the optionees listed in Item 5.9 of the Company Disclosure Letter, no
person is entitled to the acceleration of vesting of any Company Options,
Global Crossing Assumed Options or Global Crossing Canceled Options in
connection with the Merger or any subsequent termination of such person by
the Company or Exodus.
(d) Except as set forth on Item 2.2 of the Company Disclosure Letter,
there are no contracts, commitments or agreements binding on the Company or
any of its subsidiaries relating to voting, purchase or sale of the
Company's or any of its subsidiaries' capital stock. True and complete
copies of all agreements and instruments relating to or issued under the
Company Stock Option Plans have been made available to Exodus and such
agreements and instruments have not been amended, modified or supplemented,
and there are no agreements to amend, modify or supplement any of such
agreements or instruments in any manner. All outstanding shares of Company
Common Stock and all options granted under the Company Stock Option Plans
were issued or granted in compliance with all applicable federal and state
securities laws.
2.3 Authority.
The Company has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, except for the filing of the
Certificate of Merger, together with the required officers' certificates, with
the Secretary of State of the State of Delaware pursuant to Section 1.2. This
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms. Except as set forth on Item 2.3 to the Company
Disclosure Letter, the execution and delivery of this Agreement by the Company
does not, and the consummation of the transactions contemplated hereby will
not, conflict with, or result in any violation of, or default under (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation under (i) any
provision of the respective Certificate of Incorporation or Bylaws (or other
organizational documents) of the Company or any of its subsidiaries, as
amended, or (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, franchise or license to which the Company or
any of its subsidiaries is a party, or (iii) any statute, law, ordinance, rule,
regulation, judgment, decree, stipulation, settlement, injunction or other
order, whether temporary, preliminary or permanent (each an "Order") binding on
the Company or any of its subsidiaries or any of their respective properties or
assets, which conflict, violation, default, termination, cancellation or
acceleration, with respect to the matters addressed in clause (iii), would have
a Material Adverse Effect on the Company. No consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality ("Governmental Entity") is required by or with respect to the
Company or any of its subsidiaries in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (A) the filing of the Certificate of Merger, together with
the required officers' certificates, as provided in Section 1.2; (B) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state securities laws and the
securities laws of any foreign country; (C) such
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filings as may be required under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended ("HSR"), and the competition rules of the European
Community; and (D) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on the Company and would not prevent or materially alter or delay any of
the transactions contemplated by this Agreement.
2.4 SEC Documents; Financial Statements.
The Company has made available to Exodus the amended preliminary proxy
statement filed with respect to the GlobalCenter group on August 7, 2000 (the
"GlobalCenter Proxy Statement") and, as of the filing date, except as set forth
on Item 2.4 to the Company Disclosure Letter, the GlobalCenter Proxy Statement
complied in all material respects with the requirements of the Exchange Act (as
defined below), and such GlobalCenter Proxy Statement did not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements made therein, in light
of the circumstances in which they were made, not misleading. The GlobalCenter
Proxy Statement includes audited financial statements for the GlobalCenter
group as at and for the twelve-month periods ended December 31, 1999, 1998 and
1997 and unaudited financial statements for the GlobalCenter group at and for
the three-month period ended March 31, 2000 (such financial statements included
in the financial pages of the GlobalCenter Proxy Statement, together with the
unaudited financial statements for the GlobalCenter group at and for the three-
month period ended June 30, 2000, collectively "GlobalCenter Financial
Statements"). The GlobalCenter Financial Statements have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
indicated and with each other. True and accurate copies of the GlobalCenter
Financial Statements (other than those included in the GlobalCenter Proxy
Statement) have been provided to Exodus as Attachment 2.4(b) to Item 2.4 to the
Company Disclosure Letter. The GlobalCenter Financial Statements fairly present
the financial condition and results of operations and (as to those containing
statements of cash flows) cash flow of the GlobalCenter group, as of the dates,
and for the periods, indicated therein, all in conformity with GAAP
consistently applied during the periods involved except as otherwise noted
therein, and subject, in the case of the unaudited interim financial
statements, to the absence of notes and normal year-end adjustments. Except as
set forth on Item 2.4 to the Company Disclosure Letter, the GlobalCenter
Financial Statements at and for the three-month periods ended March 31, 2000
and June 30, 2000 would not differ in any material respect from consolidated
financial statements of the Company at such date and for such period as
prepared in accordance with GAAP. The Company has provided as Attachment 2.4(c)
to Item 2.4 of the Company Disclosure Letter a current accounts receivable
aging report. To the Company's knowledge, the reserves for doubtful accounts
reflected on the GlobalCenter Financial Statements, if any, are reasonably
adequate and in accordance with GAAP. Attachment 2.4(d) to Item 2.4 to the
Company Disclosure Letter contains a summary of the capital expenditures for
the GlobalCenter group for the months of July and August, 2000. Such summary is
fair and accurate in all material respects. Item 2.4 also contains the
GlobalCenter Group's projected total revenue for the quarter ending September
30, 2000 (the "3rd Quarter Projection"). The actual total revenue for the
GlobalCenter group for the quarter ending September 30, 2000 will not be less
than 95% of the 3rd Quarter Projection, subject to customary quarter end and
audit adjustments.
2.5 Absence of Certain Changes.
(a) Except as set forth on Item 2.5 to the Company Disclosure Letter,
from March 31, 2000 (the "Balance Sheet Date") to the date of this
Agreement in the case of clause (i) below and to the date of this Agreement
and to the Closing Date in the case of all clauses except clause (i) below,
the Company and each of its subsidiaries has conducted its business in the
ordinary course consistent with past practice, as modified by the business
strategy described in the GlobalCenter Proxy Statement without regard to
the size of any particular transaction ("Ordinary Course") and there has
not occurred:
(i) any change, event or condition (whether or not covered by
insurance) that has resulted in, or would reasonably be expected to
result in, a Material Adverse Effect to the Company;
(ii) any contingent liability incurred as guarantor or surety with
respect to the obligations of others out of the Ordinary Course;
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(iii) any purchase, license, sale or other disposition, or any
agreement or other arrangement for the purchase, license, sale or other
disposition, of any of the properties, assets or goodwill of Company
out of the Ordinary Course;
(iv) any obligation or liability incurred thereby to any of its
officers, directors, stockholders or affiliates, or any loans or
advances made thereby to any of its officers, directors, stockholders
or affiliates, except Ordinary Course compensation and expense
allowances payable to officers and employees;
(v) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the
Company or any of its subsidiaries or any revaluation by the Company or
any of its subsidiaries of any of their material assets other than as a
result of changes in GAAP;
(vi) any declaration, setting aside or payment of a dividend or
other distribution with respect to the shares of the Company or any of
its subsidiaries, or any direct or indirect redemption, purchase or
other acquisition by the Company or any of its subsidiaries of any of
their shares of capital stock;
(vii) any amendment or change to the Certificate of Incorporation or
Bylaws (or other organizational documents) of the Company or any of its
subsidiaries, except as necessary to effect the Stock Splits;
(viii) any mortgage or pledge of any of the Company's or any of its
subsidiaries' properties or assets or the incurrence of any security
interest, encumbrance or lien of any kind (collectively, a "Lien"),
except Permitted Liens. "Permitted Lien" means (A) mechanics',
carriers', workmen's, warehousemen's, repairmen's or other like liens
arising in the Ordinary Course, (B) liens arising under original
purchase price conditional sale contracts and equipment leases with
third parties entered into in the Ordinary Course, (C) liens for Taxes
and other governmental obligations; and (D) other imperfections of
title, restrictions or encumbrances, if any, which liens, imperfections
of title, restrictions or other encumbrances do not materially impair
the continued use in the business of the respective owner thereof, or
operation of the specific assets to which they relate;
(ix) any obligation or liability contractually incurred by the
Company or one of its subsidiaries other than in the Ordinary Course or
as contemplated by this Agreement or as specifically listed in the
Company's capital expense schedule for the second half of 2000 attached
hereto as Item 2.5(ix) (the "Capital Plan"), which obligation or
liability exceeds $500,000; and
(x) any damage, destruction or loss of any property or asset of the
Company or any of its subsidiaries, which damage, destruction or loss
has resulted in, or would reasonably be expected to result in, a
Material Adverse Effect on the Company.
2.6 Absence of Undisclosed Liabilities.
Neither the Company nor any of its subsidiaries has any material obligations
or liabilities of any nature (matured or unmatured, fixed or contingent) which
are, individually or in the aggregate, of a nature required to be set forth or
provided for on a balance sheet of the Company in accordance with GAAP other
than (i) those set forth or adequately provided for in the balance sheet (the
"Balance Sheet") included in the Financial Statements as of March 31, 2000,
(ii) those incurred in the Ordinary Course since the Balance Sheet Date, and
(iii) those incurred in connection with the execution and performance of this
Agreement.
2.7 Litigation.
There is no private or governmental action, suit, proceeding, claim,
arbitration or investigation (each an "Action") pending or, to the knowledge of
the Company or any of its subsidiaries, threatened before any agency, court or
tribunal, foreign or domestic, against the Company or any of its subsidiaries
or any of their respective properties or any of their respective officers or
directors (in their capacities as such) that would
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reasonably be expected to have a Material Adverse Effect on the Company. As of
the date hereof, there is no Order against the Company or any of its
subsidiaries, or, to the knowledge of the Company or any of its subsidiaries,
any of their respective directors or officers (in their capacities as such),
that would reasonably be expected to have a Material Adverse Effect on the
Company.
2.8 Real Estate; Title to Property.
The Company and its subsidiaries have good and valid title to all of their
respective properties, interests in properties and assets, real and personal,
reflected in the Balance Sheet or acquired after the Balance Sheet Date (except
properties, interests in properties and assets sold or otherwise disposed of
since the Balance Sheet Date in the Ordinary Course), or with respect to leased
properties and assets, valid leasehold interests in, free and clear of all
Liens, except (i) Permitted Liens, (ii) such imperfections of title, liens and
easements as would not have a Material Adverse Effect on the Company, and (iii)
liens securing debt which is reflected on the Balance Sheet. Item 2.8 of the
Company Disclosure Schedule sets forth all real property owned, leased or
otherwise used by the Company or GlobalCenter or any of their subsidiaries
regardless of the party currently named as lessee or sublessee on the
applicable agreement for such space, and such schedule shall include the
addresses of such locations, the name and address of the landlords, if
applicable, and any sublessors, if applicable.
2.9 Intellectual Property.
(a) For purposes of this Agreement, "Intellectual Property" means:
(i) all issued patents, reissued or reexamined patents, revivals of
patents, utility models, certificates of invention, registrations of
patents and extensions thereof, regardless of country or formal name
(collectively, "Issued Patents");
(ii) all published or unpublished nonprovisional and provisional
patent applications, reexamination proceedings, invention disclosures
and records of invention (collectively "Patent Applications" and, with
the Issued Patents, the "Patents");
(iii) all semiconductor topography and mask work rights, including
all rights of authorship, use, publication, reproduction, distribution,
performance transformation, moral rights and rights of ownership of
copyrightable works, semiconductor topography works and mask works, and
all rights to register and obtain renewals and extensions of
registrations, together with all other interests accruing by reason of
international copyright, semiconductor topography and mask work
conventions (collectively, "Copyrights");
(iv) trademarks, registered trademarks, applications for
registration of trademarks, service marks, registered service marks,
applications for registration of service marks, trade names, registered
trade names and applications for registrations of trade names
(collectively, "Trademarks");
(v) all technology, ideas, inventions, designs, proprietary
information, manufacturing and operating specifications, know-how,
formulae, trade secrets, technical data and proprietary processes;
(v) all databases and all collected data and all rights therein
throughout the world;
(vii) all computer software, including all source code, object code
firmware, development tools, files, records and data and all media on
which any of the foregoing is recorded; and
(viii) all URLs, Web addresses and domain names.
(b) The Company and its subsidiaries own, or are licensed or otherwise
possess legally enforceable rights to use, all Intellectual Property,
including without limitation, patents, trademarks, trade names, service
marks, domain names, trade dress, copyrights, copyrightable works, mask
works, hardware, discoveries, databases, systems, networks, documentation,
drawings, research and development, schematics, technology, know-how, trade
secrets, inventions, ideas, algorithms, processes, computer software
programs or applications (in source code and/or object code form), and
proprietary information or material that are used in and material to the
business of the Company or any of its subsidiaries as currently conducted.
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(c) With respect to each item of Intellectual Property incorporated into
any product of Company or its subsidiaries or used in connection with any
service offered or provided by Company or its subsidiaries or otherwise
used in the business of Company or its subsidiaries (except "off the shelf"
or other software widely available through regular commercial distribution
channels at a cost not exceeding $50,000 per copy or seat on standard, non-
negotiated terms and conditions) ("Company Intellectual Property"),
Item 2.9(b) of the Company Disclosure Letter lists as of the date of this
Agreement:
(i) all Patents, all registered Trademarks, and all registered
Copyrights owned by the Company and its subsidiaries, including the
jurisdictions in which each such intellectual property has been issued
or registered or in which any application for such issuance and
registration of a Patent, Trademark or Copyright has been filed.
(ii) the following agreements relating to the products or service
offerings or capabilities of Company and its subsidiaries, including
products or service offerings or capabilities currently under
development (collectively the "Company Services") or other Company
Intellectual Property: all (A) agreements granting any right to
distribute or sublicense any of the Company Services on any exclusive
basis, (B) any exclusive licenses of intellectual property from Company
or any of its subsidiaries, (C) joint development agreements not
terminable within thirty (30) days by either party, and (D) any
agreement by which Company or any of its subsidiaries grants any
ownership right to any Company Intellectual Property owned by Company
or any of its subsidiaries other than nonexclusive software licenses
entered into with customers in the Ordinary Course.
(d) As of the date of this Agreement the Company and its subsidiaries do
not have any licenses, sublicenses and other agreements to which Company or
any of its subsidiaries is a party and pursuant to which Company or any of
its subsidiaries is authorized to use any Company Intellectual Property
owned by any third party (except software or other Intellectual Property
widely available through regular commercial distribution channels or
software or other Intellectual Property that the Company or its
subsidiaries could replace if its rights were terminated without incurring
any additional costs material to the Company.) ("Third Party Intellectual
Property").
(e) To the knowledge of the Company, as of the date of this Agreement,
there is no unauthorized use, disclosure, infringement or misappropriation
of any Company Intellectual Property, including any Third Party
Intellectual Property, by the Company or its subsidiaries or by any other
third party.
(f) Neither Company nor any of its subsidiaries is in breach of any
license, sublicense or other agreement relating to the Company Intellectual
Property.
(g) To the knowledge of the Company, neither Company nor any of its
subsidiaries has infringed, misappropriated or made unlawful use of, is not
currently infringing, misappropriating or making unlawful use of, and has
not received any written notice or written communication alleging or
relating to any actual, alleged, possible or potential infringement,
misappropriation or unlawful use of, any Patents, Copyrights or trade
secrets owned or used by any third party. Without limiting the foregoing,
to the knowledge of the Company the offering and sale of the Company
Services by Company and its subsidiaries does not, the business of Company
and its subsidiaries as conducted as of the date hereof does not, and
Company's and its subsidiaries' use of patents, copyrights or trade secrets
as of the date hereof does not, infringe or violate any Patents, Copyrights
or trade secrets of any other person. There is no proceeding pending or, to
the knowledge of the Company, threatened against the Company or any of its
subsidiaries, nor has any written claim or demand been made against the
Company or any of its subsidiaries, which challenges the legality,
validity, enforceability or ownership of any item of Company Intellectual
Property or Third Party Intellectual Property. As of the date hereof,
neither Company nor any of its subsidiaries has brought a proceeding
alleging infringement of Company Intellectual Property or breach of any
license or agreement involving Patents, Copyrights or trade secrets against
any third party.
(h) All current, and, except as would not have a Material Adverse Effect
on the Company Intellectual Property, former employees engaged in
development of Company Services and products of Company or
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its subsidiaries ("Company Products") have executed and delivered to
Company or one of its subsidiaries an agreement (containing no exceptions
or exclusions from the scope of its coverage other than as set forth in the
standard form) regarding the protection of proprietary information and the
assignment to Company or GlobalCenter of any Intellectual Property arising
from services performed for Company or its subsidiaries by such persons,
the form of which has been supplied to Exodus. All current employees have
executed and delivered to the Company or one of its subsidiaries a non-
disclosure agreement, the form of which has been supplied to Exodus.
(i) Company has taken all commercially reasonable and customary measures
and precautions necessary to protect and maintain the confidentiality of
all Company Intellectual Property (except such Company Intellectual
Property whose value would be unimpaired by public disclosure) and
otherwise to maintain and protect the full value of all Company
Intellectual Property owned by it as of the date of this Agreement.
(j) Neither Company nor any subsidiary is subject to any proceeding or
outstanding decree, order, judgment, or stipulation which is reasonably
likely to affect the validity, use or enforceability of any Company
Intellectual Property or restrict in any manner the use, transfer, or
licensing thereof by Company or any subsidiary.
(k) Except as set out in Item 2.9(k) to the Company Disclosure Letter or
as set forth in GlobalCenter's standard master service agreement, Company
and its subsidiaries have not granted any reseller, distributor, sales
representative, original equipment manufacturer, value added reseller or
other third party any exclusive right to reproduce, manufacture, sell,
license, furnish or distribute any Company Services in any market segment
or geographic location.
2.10 Environmental Matters.
As of the date hereof:
(a) (i) The Company and its subsidiaries comply and have complied with
all applicable Environmental Laws, and possess and comply with and have
possessed and complied with all Environmental Permits, the failure to
comply with which would have a Material Adverse Effect on the Company; (ii)
there are and have been no Materials of Environmental Concern, or other
conditions, at any property owned, operated, or otherwise used by the
Company or any of its subsidiaries now or in the past, or at any other
location, in circumstances that would reasonably be expected to result in a
Material Adverse Effect on the Company.
(b) For purposes of this Agreement, the terms below shall be defined as
follows:
(i) "Environmental Laws" shall mean any and all laws, rules, orders,
regulations, statutes, ordinances, codes, decrees, or other legally
enforceable requirement of any foreign government, the United States,
or any state, local, municipal or other governmental authority,
regulating, relating to or imposing liability or standards of conduct
concerning protection of the environment or of human health, or
employee health and safety.
(ii) "Environmental Permits" shall mean any and all permits,
licenses, registrations, notifications, exemptions and any other
authorization required under any applicable Environmental Law.
(iii) "Materials of Environmental Concern" shall mean any gasoline
or petroleum (including crude oil or any fraction thereof) or petroleum
products, polychlorinated biphenyls, urea-formaldehyde insulation,
asbestos, pollutants, contaminants, radioactivity, and any other
substances defined as hazardous or toxic under any Environmental Law.
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2.11 Taxes.
(a) Except to the extent indicated in Item 2.11, and except as would not
have a Material Adverse Effect on the Company:
(i) all Tax Returns that are required to be filed by or with respect
to the Company and its subsidiaries through the Closing Date have been
or will be duly and timely filed and are or will be accurate, complete
and correct in all material respects;
(ii) all Taxes of the Company and its subsidiaries which are due and
payable have been paid in full, other than Taxes for which a reserve has
been established on the Financial Statements in accordance with GAAP;
(iii) there is no deficiency that has in writing been threatened,
proposed or assessed or any dispute or claim concerning any liability
with respect to Taxes of the Company or its subsidiaries that has been
claimed or raised by any Tax Authority in writing;
(iv) neither the Company nor any of its subsidiaries is now subject
to a claim for the assessment of Taxes nor is the Company or any of its
subsidiaries under examination by any Tax Authority;
(v) no extensions, waivers of statutes of limitation, or consents to
extend the period for assessment or collection have been given by or
requested with respect to any Taxes or Tax Returns of the Company or its
subsidiaries;
(vi) there are no liens with respect to Taxes, other than liens for
Taxes not yet due and payable;
(vii) each of the Company and its subsidiaries has withheld and paid
all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party and the Company and its subsidiaries
have each complied with all reporting requirements with respect to such
Taxes;
(viii) neither the Company nor any of its subsidiaries has (x) any
liability for the Taxes of any person (other than the Company and its
subsidiaries or the members of the federal consolidated group of which
Global Crossing NA is the common parent (the "Global Crossing NA
Group")) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law) or (y) any liability for Taxes
of any person (other than the Company or its subsidiaries) as a
transferee or successor, or by contract (including under any Tax sharing
or Tax allocation agreement); and
(ix) the Company has not filed any elections under Section 341(f) of
the Code.
(b) For purposes of this Agreement, the following terms have the
following meanings: "Tax" (and, with correlative meaning, "Taxes" and
"Taxable") means any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, environmental or windfall profit tax,
custom, duty or other tax, governmental fee or other like assessment or
charge of any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amount imposed by any governmental entity (a
"Tax Authority") responsible for the imposition of any such tax (domestic
or foreign). "Tax Return" shall mean any return, statement, report or form
(including, without limitation, estimated tax returns and reports,
withholding tax returns and reports that are required to be filed with any
Tax Authority).
2.12 Employee Benefit Plans.
(a) Item 2.12 contains a true and complete list of each "employee
benefit plan" (within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and each stock
purchase, stock option, severance, change-in-control, fringe benefit,
bonus, deferred compensation and all other employee benefit plans,
agreements, programs, or policies (i) under which any current or former
employee, director or consultant of the Company or any of its subsidiaries
(the
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"Company Employees") has any current or future right to benefits or (ii)
under which the Company or any of its subsidiaries has any current or
future liability ("Company Plans") in excess of $200,000.
(b) As of the Effective Time, with respect to each Company Plan that
applies to Company Employees, the Company will have made available to
Exodus a current, accurate and complete copy (or, to the extent no such
copy exists, an accurate description) thereof and, to the extent
applicable: (i) any related trust agreement or other funding instrument;
(ii) the most recent determination letter; (iii) any summary plan
description; and (iv) for the two most recent years (A) the Form 5500 and
attached schedules and (B) audited financial statements.
(c) Except as is not material to the Company and its subsidiaries, taken
as a whole, (i) each Company Plan has been established and administered in
accordance with its terms, and in compliance with the applicable provisions
of ERISA, the Code and other U.S. or foreign applicable laws, rules and
regulations; (ii) each Company Plan which is intended to be qualified
within the meaning of Code Section 401(a) has received a favorable
determination letter as to its qualification, and nothing has occurred,
whether by action or failure to act, that is reasonably likely to cause the
loss of such qualification; and (iii) no event has occurred and no
condition exists that would subject the Company, either directly or by
reason of its affiliation with any member of its "Controlled Group" (within
the meaning of Section 414(b), (c), (m) or (o) of the Code), to any tax,
fine, lien, penalty or other liability imposed by ERISA (including Title IV
thereof), the Code or other U.S. or foreign applicable laws, rules and
regulations.
(d) Except as disclosed on Item 2.12, no Company Plan exists that, as a
result solely of the execution of this Agreement or the transaction
contemplated by this Agreement, would result in the payment to any Company
Employee of any money or other property or would result in the increase,
acceleration or provision of any other rights or benefits to any Company
Employee. Each individual who has a contractual agreement providing for a
cash payment to such individual for an excise tax under Code Section 4999
(each, a "Contract Holder") is disclosed on Item 2.12 and each such
individual will sign prior to Closing an Indemnification Agreement
substantially in the form of Exhibit B attached hereto.
(e) In the event a Company Plan that is a group medical, dental, vision
or other health or welfare plan that is fully or partially self-funded is
terminated, any stop-loss coverage relating to such plan will cover all
claims of an individual covered by such Company Plan that are incurred on
or prior to the date such Company Plan is terminated.
(f) Other than as set forth on Item 2.18, no Company Employee is
currently, or will be prior to the Merger, entitled to forgiveness of any
debt owed to the Company.
2.13 Labor Matters.
(a) As of the date hereof, neither the Company nor any of its
subsidiaries is a party to any collective bargaining agreement or other
labor union contract, and neither the Company nor any of its subsidiaries
knows of any activities or proceedings of any labor union in connection
with an attempt to organize any such employees. As of the date hereof,
there is no labor strike, slowdown, work stoppage, lockout or other
material labor controversy in effect or, to the Company's knowledge,
threatened against the Company or any of its subsidiaries. As of the date
hereof, neither the Company nor any of its subsidiaries is a party to, or
otherwise bound by, any consent decree with, or citation by, any Government
agency relating to employees or employment practices.
(b) Except as is not material to the Company and its subsidiaries, taken
as a whole, the Company and its subsidiaries are in compliance with all
applicable laws, agreements and contracts relating to employment,
employment practices, immigration, wages, hours and terms and conditions of
employment, including, but not limited to, employee compensation matters,
and has correctly classified employees as exempt employees and non-exempt
employees under the Fair Labor Standards Act. A list of all employees,
officers and consultants of the Company and their current title and/or job
description and compensation is set forth on Item 2.13(a). Item 2.13(b)
lists each employment contract and consulting
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agreement with the Company or any subsidiary of the Company that is
currently in effect. Other than the Chief Executive Officer of the Company,
whose employment contract has been assumed by Global Crossing Ltd. or a
subsidiary not being acquired hereunder, neither the Company nor any of its
subsidiaries has any employment contracts or consulting agreements (which
do not include option agreements) currently in effect that are not
terminable at will without penalty or payment of compensation (other than
agreements with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions). All employees of the
Company and its subsidiaries are legally permitted to be employed in the
United States of America in their current job capacities and by the Company
and its subsidiaries.
2.14 Compliance With Laws.
Except for noncompliance that would not result in a Material Adverse Effect
on the Company, Company has complied in all material respects, with all
applicable laws, ordinances, regulations and rules, and all orders, writs,
injunctions, awards, judgments and decrees, applicable to Company or its
subsidiaries or to the assets, properties and business thereof, including,
without limitation: (a) all applicable federal and state securities laws and
regulations except as disclosed in Item 2.14 to the Company Disclosure Letter,
(b) all applicable federal, state and local laws, ordinances and regulations,
and all orders, writs, injunctions, awards, judgments and decrees, pertaining
to (i) the sale, licensing, leasing, ownership or management of owned, leased
or licensed real or personal property, products or technical data, (ii)
employment or employment practices, terms and conditions of employment, or
wages and hours and (iii) safety, health, fire prevention, environmental
protection (including toxic waste disposal and related matters), building
standards, zoning or other similar matters, (c) the Export Administration Act
and regulations promulgated thereunder and other laws, regulations, rules,
orders, writs, injunctions, judgments or decrees applicable to the export or
re-export of controlled commodities or technical data, (d) the Immigration
Reform and Control Act and (e) all governmental and nongovernmental regulations
related to the operation and use of the Internet. Except as disclosed in Item
2.14, Company has received all permits and approvals from, and has made all
filings with, third parties, including government agencies and authorities,
that are necessary to the conduct of its business as presently conducted except
where the failure to receive such permit or approval or make such filing would
not have a Material Adverse Effect on Company.
2.15 Brokers' and Finders' Fees.
Neither the Company nor any of its subsidiaries has incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby, except
with respect to any advisor whose fees and expenses will be paid by Global
Crossing NA.
2.16 Board and Stockholder Approval.
The Board of Directors of the Company has (i) approved this Agreement and
the Merger, (ii) determined that the Merger is in the best interests of the
stockholders of the Company and is on terms that are fair to such stockholder
and (iii) recommended that the sole stockholder of the Company approve this
Agreement and the Merger. GCG, as sole stockholder of the Company, has approved
this Agreement and the Merger by unanimous written consent and such consent has
not been withdrawn.
2.17 Information Supplied.
None of the information supplied or to be supplied in writing by the Company
or any of its subsidiaries specifically for inclusion or incorporation by
reference in the proxy statement filed pursuant to SEC Regulation 14A in
connection with the Merger (the "Exodus Proxy Statement") will, when submitted
in the Exodus Proxy Statement to the SEC, when the Exodus Proxy Statement is
first mailed or at the time of the Exodus Stockholder Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
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to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
2.18 Agreements and Commitments.
As of the date hereof, except as disclosed in Item 2.18 to the Company
Disclosure Letter, neither Company nor any subsidiary is a party or subject to
any agreement or contract of the following nature that is material to the
Company:
(a) Any franchise agreement;
(b) Any joint venture contract or arrangement or any other agreement
that involves a sharing of profits with other persons or the payment of
royalties to any other person, excluding non-exclusive software licenses;
(c) Any instrument evidencing indebtedness for borrowed money by way of
direct loan, sale of debt securities, purchase money obligation,
conditional sale, guarantee or otherwise, except for trade indebtedness or
any advance to any employee of Company or any of its subsidiaries incurred
or made in the Ordinary Course, and except as disclosed in the GlobalCenter
Financial Statements;
(d) Any contract containing covenants purporting to limit Company's or
any subsidiary's freedom to compete in any line of business, market or
industry and/or in any geographic area;
(e) Any material agreement entered into outside the Ordinary Course by
Company or its subsidiaries to encumber, transfer or sell rights in or with
respect to any material item of Company Intellectual Property, excluding
non-exclusive software licenses;
(f) Any agreement entered into after the Balance Sheet Date for the sale
or lease of real or tangible personal property outside the Ordinary Course
by the Company involving more than $500,000 per year; and
(g) Any material agreement under which Company or its subsidiaries
provide Internet data center and internet connectivity services that
materially deviates from the GlobalCenter standard master service agreement
(except for any agreements entered into in the Ordinary Course);
(h) Any contract for the employment of any officer, employee or
consultant of Company or any of its subsidiaries or any other type of
contract or commitment with any officer, employee or consultant of Company
or any of its subsidiaries, other than agreements with respect to Company
Options, Global Crossing Assumed Options or Global Crossing Cancelled
Options, that is not immediately terminable by Company or any of its
subsidiaries without cost or other liability; or
(i) any intercompany agreements to which the Company and any of Global
Crossing Ltd. or its subsidiaries (other than the Company and its
subsidiaries) are parties and which relate to research and development
activities.
Except as noted therein, to the Company's knowledge, all agreements,
obligations and commitments disclosed in Item 2.18 to the Company Disclosure
Letter are valid and in full force and effect, except where the failure to be
such would not have a Material Adverse Effect on the Company. Except as noted
in Item 2.18 of the Company Disclosure Letter, as of the date hereof, neither
the Company nor to the Company's knowledge any other party is in breach of or
default under any material term of any such agreement, obligation or commitment
nor has such other party threatened such a breach or default. To the Company's
knowledge, the Company is not a party to any contract or arrangement that would
have a Material Adverse Effect on the Company.
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2.19 Warranties, Guarantees and Indemnities.
Except as disclosed in Item 2.19 to the Company Disclosure Letter, or which
individually or in the aggregate would not be reasonably expected to have a
Material Adverse Effect on the Company, the Company has not provided to its
customers or any third parties (i) any warranties or guarantees regarding the
Company Services; (ii) any rights to obtain refunds with respect to Company
Services or (iii) any indemnities with respect to intellectual property
infringement or Year 2000 compliance, except as provided in the current and
predecessor versions of the Company's standard master service agreement, the
current version of which is attached to Item 2.19.
2.20 Title to and Condition and Sufficiency of GlobalCenter Group Assets.
Except as set forth in Item 2.20 to the Company Disclosure Letter, the
Company or its subsidiaries (the "Group") own or at the Closing will own all
assets owned by Global Crossing Ltd. or any of its subsidiaries and used in the
Group's business as currently conducted. Immediately after the Closing, all
leases and subleases of real property or personal property from Global Crossing
Ltd. to any member of the Group shall remain in effect in accordance with their
respective terms in effect on the date of this Agreement.
2.21 Customer Relationships.
Except as disclosed in Item 2.21 to the Company Disclosure Letter, no
customer accounting for more than five percent (5%) of the Company's revenues
during the quarter ended June 30, 2000 has canceled or otherwise terminated its
relationship with Company prior to the date of this Agreement or threatened in
writing to do so.
2.22 Disruptions.
Except to the extent disclosed on Item 2.22 to the Company Disclosure
Letter, there has not occurred any recurring, material disruptions to network
operations, or any material delays in planned facility or network build out or
construction activities, or any repeated, material performance failures by the
Company, in any such case that have resulted in material, recurring customer
complaints or recurring, material breaches of customer installation
commitments, in each case with respect to the Company.
B. Representations and Warranties of GCG.
2.23 Authority.
GCG has all requisite corporate power and authority to enter into this
Agreement, the Stockholder Agreement (the "Stockholder Agreement") and the
Registration Rights Agreement (the "Registration Rights Agreement" and,
together with the Stockholder Agreement, the "Ancillary Agreements"), and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Ancillary Agreements and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of GCG, except for the filing of the
Certificate of Merger, together with the required officers' certificates, with
the Secretary of State of the State of Delaware pursuant to Section 1.2. Each
of this Agreement and the Ancillary Agreements has been duly executed and
delivered by GCG and constitutes the valid and binding obligation of GCG
enforceable against GCG in accordance with its terms. The execution and
delivery of this Agreement and the Ancillary Agreements by GCG does not, and
the consummation of the transactions contemplated hereby and thereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation under (i) any provision of the
Certificate of Incorporation or Bylaws of GCG, as amended, or (ii) any
mortgage, indenture, lease, contract or other agreement or instrument, permit,
franchise or license to which GCG is a party, or (iii) any Order binding on GCG
or any of its properties or assets, which conflict, violation, default,
termination, cancellation, acceleration would have a Material Adverse Effect on
GCG or would materially adversely effect the ability of GCG to perform its
obligations under this Agreement.
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2.24 Accredited Investor; Investment Intent.
GCG is an "accredited investor" as such term in defined in Regulation D
promulgated under the Securities Act. GCG is aware that none of the shares of
Exodus Common Stock to be received by GCG in the Merger are registered under
the Securities Act or under any state securities laws. GCG is not an
"underwriter," as such term is defined under the Securities Act, with respect
to such shares of Exodus Common Stock and GCG is acquiring the shares of Exodus
Common Stock pursuant to the Merger Agreement solely for its own account for
investment purposes, with no present intention to distribute any such shares of
Exodus Common Stock to any person, and will not sell or otherwise dispose of
shares of Exodus Common Stock except in compliance with the registration
requirements, or in transactions exempt from the registration requirements, of
the Securities Act and the rules and regulations promulgated thereunder, or any
other applicable securities laws.
C. Representations and Warranties of Global Crossing NA.
2.25 Global Crossing NA Authority.
Global Crossing NA has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Global Crossing NA, except for the filing of
the Certificate of Merger, together with the required officers' certificates,
with the Secretary of State of the State of Delaware pursuant to Section 1.2.
This Agreement has been duly executed and delivered by Global Crossing NA and
constitutes the valid and binding obligation of Global Crossing NA enforceable
against Global Crossing NA in accordance with its terms. The execution and
delivery of this Agreement by Global Crossing NA does not, and the consummation
of the transactions contemplated hereby will not, conflict with, or result in
any violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation under (i) any provision of the Certificate of Incorporation or
Bylaws or other charter documents of Global Crossing NA or Global Crossing Ltd.
respectively, as amended, or (ii) any mortgage, indenture, lease, contract or
other agreement or instrument, permit, franchise or license to which Global
Crossing NA or Global Crossing Ltd. is a party, or (iii) any Order binding on
Global Crossing NA or Global Crossing Ltd. or any of their properties or
assets, which conflict, violation, default, termination, cancellation,
acceleration would have a Material Adverse Effect on Global Crossing NA or
Global Crossing Ltd. or would materially adversely effect the ability of Global
Crossing NA to perform its obligations under this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EXODUS
Exodus represents and warrants to the Company as follows:
3.1 Organization, Standing and Power.
Exodus is a corporation duly organized, validly existing and in good
standing under the laws of Delaware, and each of its subsidiaries is in good
standing under the laws of its jurisdiction of organization. Exodus and each of
its subsidiaries has the corporate power to own its properties and to carry on
its respective business as now being conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to
be so qualified and in good standing would have a Material Adverse Effect on
Exodus. Exodus is not in violation of any of the provisions of its Certificate
of Incorporation or Bylaws. Exodus Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of Delaware. Exodus Merger
Sub has the corporate power to own its properties and to carry on its business
as now being conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified and in
good standing would have a Material Adverse Effect on Exodus Merger Sub. Exodus
Merger Sub is not in violation of any of the provisions of its Certificate of
Incorporation or Bylaws or equivalent organizational documents.
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3.2 Capital Structure.
The authorized capital stock of Exodus consists of 1,500,000,000 shares of
Exodus Common Stock, $0.001 par value per share, and 5,000,000 shares of
Preferred Stock, $0.001 par value per share ("Exodus Preferred Stock"), of
which there were issued and outstanding as of the close of business on
September 22, 2000, 421,654,138 shares of Exodus Common Stock, and no shares of
Exodus Preferred Stock. The shares of Exodus Common Stock to be issued in the
Merger in exchange for Company Common Stock or upon the exercise of the assumed
Company Options and the Global Crossing Assumed Options and the New Exodus
Options will be duly authorized, validly issued, fully paid, and non-
assessable. Except for issued and outstanding warrants to purchase an aggregate
total of 346,664 shares of Exodus Common Stock (the "Exodus Warrants"), there
are no other outstanding shares of capital stock or voting securities and no
outstanding commitments to issue any shares of capital stock or voting
securities, other than pursuant to the exercise of options outstanding as of
such date under Exodus's existing employee stock option plans. As of September
22, 2000, 84,006,007 shares are subject to outstanding, unexercised Exodus
Options and 29,812,479 shares are available for issuance under the Exodus Stock
Option Plans. Except for (i) the rights created pursuant to this Agreement,
(ii) outstanding Exodus Options, there are no other options, warrants, calls,
rights, commitments or agreements of any character to which Exodus is a party
or by which it is bound obligating Exodus to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of capital stock of Exodus or obligating Exodus to grant, extend,
accelerate the vesting of, change the price of, or otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement; and
(iii) outstanding Exodus Warrants.
3.3 Authority.
(a) Exodus has all requisite corporate power and authority to enter into
this Agreement and the Stockholder Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Stockholder Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of Exodus, other than the
approval of the issuance of shares of Exodus Common Stock in the Merger by
Exodus stockholders at the Exodus Stockholders Meeting. This Agreement has
been duly executed and delivered by Exodus and constitutes the valid and
binding obligation of Exodus enforceable against Exodus in accordance with
its terms. Except as set forth on Item 3.3 to the disclosure letter
delivered by Exodus to the Company concurrently with the execution and
delivery of this Agreement and referring to the representations and
warranties in this Agreement (the "Exodus Disclosure Letter"), the
execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated hereby will not, conflict with, or result in
any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under (A) any provision
of the Certificate of Incorporation or Bylaws of Exodus, as amended, (B)
any mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise or license to which Exodus or any of its
subsidiaries is a party, or (C) any Order binding on Exodus or its
subsidiaries or their respective properties or assets, which conflict,
violation, default termination, cancellation or acceleration would have a
Material Adverse Effect on Exodus. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity, is required by or with respect to the Exodus Parties
in connection with the execution and delivery of this Agreement by the
Exodus Parties or the consummation by the Exodus Parties of the
transactions contemplated hereby, except for (i) the filing of the
Certificate of Merger, together with the required officers' certificates,
as provided in Section 1.2, (ii) the filing of a Form 8-K with the SEC and
National Association of Securities Dealers ("NASD") within fifteen (15)
days after the Closing Date, (iii) any filings as may be required under
applicable state securities laws and the securities laws of any foreign
country, (iv) such filings as may be required under HSR, (v) the filing
with the Nasdaq National Market of a Notification Form for Listing of
Additional Shares with respect to the shares of Exodus Common Stock
issuable upon conversion of the Company Common Stock in the Merger and upon
exercise of the Company Options and Global Crossing Assumed Options assumed
by Exodus and, if
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necessary, upon exercise of the New Exodus Options, and a Form 10-C, (vi)
the filing of a registration statement on Form S-8 with the SEC, or other
applicable form covering the shares of Exodus Common Stock issuable
pursuant to outstanding Company Options and Global Crossing Assumed Options
assumed by Exodus and, if necessary, pursuant to the New Exodus Options,
(vii) the filing with, and the clearance by the SEC of, the Exodus Proxy
Statement relating to the proposal that the Exodus stockholders approve the
issuance of shares of Exodus Common Stock in the Merger and (viii) such
other consents, authorizations, filings, approvals and registrations which,
if not obtained or made, would not have a Material Adverse Effect on Exodus
and would not prevent, materially alter or delay any of the transactions
contemplated by this Agreement.
(b) Exodus Merger Sub has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Exodus Merger Sub. This Agreement
has been duly executed and delivered by Exodus Merger Sub and constitutes
the valid and binding obligation of Exodus Merger Sub enforceable against
Exodus Merger Sub in accordance with its terms.
3.4 SEC Documents; Financial Statements.
(a) Exodus has filed all required reports, registration statements (with
the prospectus in the form filed pursuant to Rule 424(b) of the Securities
Act), definitive proxy statements, schedules, forms, statements and other
documents required to be filed with the SEC by Exodus since December 31,
1997 (collectively, including all exhibits thereto, the "Exodus SEC
Documents"). In addition, Exodus has made available to the Company all
Exodus SEC Documents filed prior to the date hereof, and will promptly make
available to the Company all exhibits to any additional Exodus SEC
Documents filed prior to the Effective Time. As of their respective filing
dates (and, if amended or superceded by a filing prior to the date of this
Agreement, then on the date of such filing), Exodus SEC Documents complied
as to form in all material respects with the requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Securities
Act and the rules and regulations promulgated thereunder. As of their
respective filing dates (and, if amended or superceded by a filing prior to
the date of this Agreement, then on the date of such filing), none of
Exodus SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances in which
they were made, not misleading.
(b) Certain of the Exodus SEC Documents include audited financial
statements for Exodus as at and for the twelve-month periods ended December
31, 1999, 1998 and 1997 and unaudited financial statements for Exodus at
and for the three month period ended June 30, 2000 (collectively, the
"Exodus Financial Statements"). The Exodus Financial Statements (including
the related notes) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods indicated and with each other. The
Exodus Financial Statements fairly present, in all material respects, the
financial position and results of operations and cashflows of Exodus as of
the dates, and for the periods, indicated therein, all in conformity with
GAAP consistently applied during the periods involved except as otherwise
noted therein, and subject, in the case of the unaudited interim financial
statements, to the absence of notes and normal year-end adjustments.
3.5 Board and Stockholder Approvals.
The Boards of Directors of Exodus and Exodus Merger Sub and Exodus, as the
sole stockholder of Exodus Merger Sub, have approved this Agreement and the
Merger and each of the other transactions and agreements contemplated hereby
and have resolved to recommend that the stockholders of Exodus approve the
issuance of shares of Exodus Common Stock in the Merger.
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3.6 Absence of Certain Changes.
Except as set forth on Item 3.6 to Exodus Disclosure Letter, from June 30,
2000 to the date of this Agreement in the case of clause (a) below and to the
date of this Agreement and to the Closing Date in the case of all clauses
except clause (a) below, Exodus and each of its subsidiaries have conducted
their respective businesses in the Ordinary Course consistent with past
practice and there has not occurred:
(a) any change, event or condition (whether or not covered by insurance)
that has resulted in, or would reasonably be expected to result in, a
Material Adverse Effect with respect to Exodus;
(b) any change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by Exodus or any of its
subsidiaries or any revaluation by Exodus or any of its subsidiaries of any
of its material assets;
(c) any declaration, setting side, or payment of a dividend or other
distribution with respect to the shares of Exodus, or any direct or
indirect redemption, purchase or other acquisition by Exodus of any of its
shares of capital stock;
(d) any amendment or change to the Certificate of Incorporation or
Bylaws of Exodus; or
(e) any mortgage or pledge of any of the properties or assets or Exodus
or any of its subsidiaries or the incurrence of any security interest,
encumbrance or lien of any kind (collectively, a "Lien"), except Liens that
have not resulted in, or that would not reasonably be expected to result
in, a Material Adverse Effect on Exodus.
3.7 Absence of Undisclosed Liabilities.
Neither Exodus nor any of its subsidiaries has any material obligations or
liabilities of any nature (matured or unmatured, fixed or contingent) which
are, individually or in the aggregate, of a nature required to be set forth or
provided for on its balance sheet in accordance with GAAP other than (i) those
set forth or adequately provided for in the balance sheet included in Exodus
SEC Documents as of June 30, 2000, (ii) those incurred in the Ordinary Course
since the date of such balance sheet, and (iii) those incurred in connection
with the execution and performance of this Agreement.
3.8 Litigation.
There is no Action pending or, to the knowledge of Exodus, threatened before
any agency, court or tribunal, foreign or domestic, against Exodus or any of
its subsidiaries or any of their respective properties or any of their
respective officers or directors (in their capacities as such) that would
reasonably be expected to have a Material Adverse Effect on Exodus. As of the
date hereof, there is no Order against Exodus or any of its subsidiaries, or,
to the knowledge of Exodus, any of their respective directors or officers (in
their capacities as such), that would reasonably be expected to have a Material
Adverse Effect on Exodus.
3.9 Compliance With Laws.
Exodus and each of its subsidiaries has complied with, is not in violation
of, and has not received any notices of violation with respect to, any federal,
state, local or foreign statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, except for such
violations or failures to comply as would not be reasonably expected to have a
Material Adverse Effect on Exodus.
3.10 Brokers' and Finders' Fees.
Exodus has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or investment
bankers' fees or any similar charges in connection with this Agreement or any
transaction contemplated hereby, except with respect to Thomas Weisel Partners,
Goldman, Sachs & Co. Inc. and Donaldson, Lufkin & Jenrette whose fees will be
paid by Exodus.
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3.11 Taxes.
Except to the extent indicated in Item 3.11, and except as would not have a
Material Adverse Effect on Exodus:
(a) all Tax Returns that are required to be filed by or with respect to
Exodus and its subsidiaries through the Closing Date have been or will be
duly and timely filed and are or will be accurate, complete and correct in
all material respects;
(b) all Taxes of Exodus and its subsidiaries which are due and payable
have been paid in full, other than Taxes for which a reserve has been
established on the Exodus Financial Statements in accordance with GAAP;
(c) there is no deficiency that has in writing been threatened, proposed
or assessed or any dispute or claim concerning any liability with respect
to Taxes of Exodus or its subsidiaries that has been claimed or raised by
any Tax Authority in writing;
(d) neither Exodus nor any of its subsidiaries is now subject to a claim
for the assessment of Taxes nor is Exodus or any of its subsidiaries under
examination by any Tax Authority;
(e) no extensions, waivers of statutes of limitation or consents to
extend the period for assessment or collection have been given by or
requested with respect to any Taxes or Tax Returns of Exodus or its
subsidiaries;
(f) there are no liens with respect to Taxes, other than liens for Taxes
not yet due and payable;
(g) each of Exodus and its subsidiaries has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder, or
other third party, and Exodus and its subsidiaries have each complied with
all reporting requirements with respect to such Taxes;
(h) neither Exodus nor any of its subsidiaries has (x) any liability for
the Taxes of any person (other than Exodus and its subsidiaries or the
members of the federal consolidated group of which Exodus is the common
parent) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law) or (y) any liability for Taxes of
any person (other than Exodus or its subsidiaries) as a transferee or
successor, or by contract (including, without limitation, under any Tax
sharing or Tax allocation agreement); and
(i) Exodus has not filed any elections under Section 341(f) of the Code.
3.12 Board Approval; Section 203 of the DGCL.
(a) In accordance with Section 203 of the DGCL ("Section 203"), the
Board of Directors of Exodus has, prior to the execution hereof, approved
(i) the execution and delivery by Exodus of this Agreement and the
consummation of the Merger and the other transactions contemplated by this
Agreement and (ii) any transaction that results in any "affiliate" (as
defined in Section 203) or "associate" (as defined in Section 203) of
Global Crossing NA becoming an "interested stockholder" (as defined in
Section 203) by virtue of Global Crossing NA or its affiliate or associate
owning any shares of Exodus acquired pursuant to this Agreement or acquired
after the Closing in compliance with the Stockholders Agreement.
Accordingly, the ownership by Global Crossing NA, its affiliates and its
associates of shares of Exodus acquired pursuant to this Agreement or after
the Closing in compliance with the Stockholders Agreement will not result
in the provisions of Section 203 applicable to a "business combination" (as
defined in Section 203) between such persons (or their affiliates or
associates) and the Company. No state takeover statute or similar statute
or regulation of the State of Delaware or of any other state or
jurisdiction applies to this Agreement, the Merger, or any of the other
transactions contemplated hereby or thereby and no provision of the
certificate of incorporation, by-laws or other governing instruments of
Exodus would, directly or indirectly, restrict or impair the ability of GCG
to vote, or otherwise to exercise the rights of a
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stockholder with respect to, securities of Exodus that may be acquired or
controlled by GCG or permit any stockholder to acquire securities of Exodus
or the Surviving Corporation on a basis not available to GCG in the event
that GCG was to acquire securities of Exodus.
(b) The Board of Directors of Exodus will have, prior to the Closing,
adopted Amendment No. 2 to the Exodus Rights Agreement in substantially the
form set forth as Exhibit D hereto so that the provisions of the Rights
Agreement will not be triggered by the acquisition by Global Crossing NA or
its affiliates or associates of shares of Exodus pursuant to this Agreement
or after the Closing in compliance with the Stockholders Agreement.
3.13 Opinion of Financial Advisor.
Exodus has received the opinion of Goldman, Sachs & Co. Inc. and Donaldson,
Lufkin & Jenrette, dated the date of this Agreement, to the effect that, as of
the date thereof, the Exchange Ratio is fair, from a financial point of view,
to Exodus.
3.14 Required Exodus Vote.
The affirmative approval by vote of a majority of the shares of Exodus
Common Stock voting at a meeting at which a quorum is present, is the only vote
of the holders of any class or series of Exodus securities necessary to approve
the Merger and the other transactions contemplated hereby.
3.15 Exodus Proxy Statement.
The Exodus Proxy Statement will not, on the date it is filed with the SEC or
first mailed to the Exodus stockholders, or at the time of the Exodus
Stockholders Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The Exodus Proxy Statement will comply as to form in
all material respects with the requirements of the Exchange Act and the
Securities Act and the rules and regulations promulgated thereunder.
Notwithstanding the foregoing provisions of this Section 3.15, no
representation or warranty is made by Exodus with respect to statements made or
incorporated by reference in the Exodus Proxy Statement based on information
supplied by the Company Parties in writing specifically for inclusion or
incorporation by reference therein.
3.16 No Business Activities.
Exodus Merger Sub has not conducted any activities other than in connection
with the organization of Exodus Merger Sub, the negotiation and execution of
this Agreement and the consummation of the transactions contemplated hereby.
Exodus Merger Sub has no subsidiaries.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company and Exodus.
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time, the Company
and Exodus agree (except to the extent expressly contemplated by this Agreement
or as consented to in writing by the other party, such consent not to
unreasonably be withheld or delayed), to carry on their respective businesses
and the businesses of their respective subsidiaries in the Ordinary Course
consistent with past practice, as modified by the business strategies described
in the GlobalCenter Proxy Statement (in the case of the Company) or the Exodus
SEC Documents (in the case of Exodus) without regard to the size of a
particular transaction, and to use all reasonable efforts consistent with past
practice and policies to preserve intact their respective present business
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organizations, keep available the services of their respective present officers
and key employees and preserve their respective relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with them, in order to preserve their respective goodwill and ongoing
business; provided, however, that nothing in this Section 4.1 shall restrict
Exodus from engaging in transactions complying with Sections 4.9 or 5.7.
4.2 Restriction on Conduct of Business of the Company.
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time, except as
set forth in Item 4.2 of the Company Disclosure Letter or as expressly provided
for in this Agreement, neither the Company nor any of its subsidiaries shall
do, cause or permit any of the following, without the prior written consent of
Exodus, which consent will not be unreasonably withheld or delayed:
(a) Charter Documents. Cause or permit any amendments to its Certificate
of Incorporation or Bylaws of the Company or any of its subsidiaries,
except as necessary to increase the authorized capitalization of the
Company and GlobalCenter and to effect the Stock Splits;
(b) Dividends; Changes in Capital Stock. Except as necessary to effect
the Stock Splits, declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any
of its capital stock, or split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock, or
repurchase or otherwise acquire, directly or indirectly, any shares of its
capital stock except from former employees, directors and consultants to
the extent permitted or required in accordance with agreements providing
for the repurchase of shares in connection with any termination of service
to it;
(c) Stock Option Plans, Etc. Waive any stock repurchase rights,
accelerate, amend or change the period of exercisability or vesting of
options or other rights granted under its stock plans (other than pursuant
to existing stock option grants) or authorize cash payments in exchange for
any options or other rights granted under any of such plans;
(d) Issuance of Securities. Issue, deliver, pledge or sell or authorize
or propose the issuance, delivery, pledge or sale of, or purchase or
propose the purchase of, directly or through action of Global Crossing Ltd.
or any direct or indirect subsidiary thereof, any shares of its capital
stock or securities convertible into, or subscriptions, rights, warrants or
options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities,
other than (i) the issuance of shares of Company Common Stock pursuant to
the exercise of stock options, warrants or other rights therefor disclosed
in Item 2.2 or Item 5.9 to the Company Disclosure Letter as outstanding as
of the date of this Agreement or issued after the date hereof in compliance
with the terms hereof including Section 4.2(c) hereof and (ii) the issuance
of up to an aggregate of 250,000 additional Global Crossing Cancelled
Options to future employees of the Company;
(e) Exclusive Rights. (A) Enter into or amend any agreements pursuant to
which any other party is granted (i) exclusive marketing or other material
exclusive rights of any type or scope with respect to any of its material
products or technology or with respect to any market segment or geographic
area; (ii) enter into any agreement of the type described in Section
2.9(c)(ii); or (B) enter into any noncompetition, nonsolicitation or
similar agreement materially restricting the rights of the Company or its
subsidiaries;
(f) Dispositions. Sell, lease, license, contractually encumber or
otherwise dispose of any of its properties or assets which are material,
individually or in the aggregate, to the Company's and its subsidiaries'
business, taken as a whole except for (i) sales of products and services in
the Ordinary Course; or (ii) sales of obsolete or unused equipment or other
assets;
(g) Indebtedness. Incur any indebtedness for borrowed money in excess of
$500,000 or guarantee any such indebtedness or issue or sell any debt
securities in excess of $500,000 or guarantee any debt securities of others
or options, warrants, calls or other rights to acquire any debt securities
of other parties; provided, that no such indebtedness or debt securities
shall remain outstanding after the Closing;
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(h) Insurance. Materially reduce the aggregate amount of insurance
coverage provided by existing insurance policies;
(i) Employee Benefit Plans. Other than as permitted in Section 4.2(d)
above, (x) increase or accelerate the compensation or fringe benefits of
any current or former director or employee of the Company (except for
increases in salary or wages in the Ordinary Course consistent with past
practice), (y) grant any severance or termination pay to any current or
former director or employee of the Company except in accordance with
existing severance policies or other agreements or (z) except in accordance
with agreements in effect on the date hereof, and except as expressly
contemplated by this Agreement establish, adopt, enter into, amend,
terminate or accelerate any Company Option, Global Crossing Assumed Option,
Global Crossing Canceled Option, Company Plan or any plan, agreement,
program, policy, trust, or other arrangement that would be a Company Plan
if it were in existence as of the date of this Agreement;
(j) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any material business or any corporation,
partnership, association or other business organization or division
thereof;
(k) Joint Ventures. Enter into, materially amend or terminate any
material joint venture agreements;
(l) Tax Agreements. Enter into any tax sharing or tax allocation
agreements or engage in any tax restructuring transactions or other
transactions designed primarily for tax purposes;
(m) Joint Development Agreements. Enter into any material joint
development agreements that are not terminable on thirty (30) days notice
by either party or that give third parties joint or exclusive ownership of
Company Intellectual Property
(n) Material Contracts. Modify, amend or terminate any contract to which
the Company or any subsidiary thereof is a party or waive, release or
assign any material rights or claims thereunder, in each case, in a manner
that would reasonably be expected to have a Material Adverse Effect on the
Company, or enter into any material contract having terms that are not in
the Ordinary Course and consistent with past practice;
(o) Accounting Practices. Materially revalue any of the assets of the
Company or its subsidiaries or, except as required by GAAP, make any change
in accounting methods, principles or practices; and
(p) Other. Agree in writing or otherwise to take any of the actions
described in Sections 4.2(a) through (o) above.
4.3 Restriction on Conduct of Business of Exodus.
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time, except as
set forth in Item 4.3 of the Exodus Disclosure Letter, or as expressly
provided for in this Agreement, Exodus and its subsidiaries shall not do, or
cause or permit any of the following, without the prior written consent of the
Company, which consent shall not be unreasonably withheld or delayed:
(a) Carter Documents. Cause or permit any amendments to its Certificate
of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock. Declare or pay any dividends on
or make any other distributions (whether in cash, stock or property) in
respect of any of its capital stock, or split, combine or reclassify any of
its capital stock or issue (except a stock split, combination or
reclassification for which the Exchange Ratio would be adjusted as provided
in Section 1.6(d)) or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock,
or repurchase or otherwise acquire, directly or indirectly, any shares of
its capital stock except from former employees, directors and consultants
to the extent required in accordance with agreements providing for the
repurchase of shares in connection with any termination of service to it;
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(c) Exodus Rights Agreement. Effect or attempt or propose to effect any
amendment to the Exodus Rights Agreement in a manner adverse to Global
Crossing NA, GCG or the Company (except for an exclusion of such parties
from the definition of the term "Person" so long as they collectively
beneficially own no more than the Designated Global Crossing Percentage (as
defined in Amendment No. 2 to the Exodus Rights Agreement) of Exodus's
outstanding common stock ); and
(d) Other. Agree in writing or otherwise to take any of the actions
described in Sections 4.3(a) through (c) above.
4.4 Capital Expenditures; Working Capital. During the period from the date
hereof through the Closing Date, Global Crossing NA will make on behalf of the
Company, or will cause the Company to make, all capital expenditures required
by the Company to continue Company operations as presently conducted on the
date hereof and as planned to be conducted through the Closing Date, including
without limitation those capital expenditures set forth in the Capital Plan.
Any material deviations from the Capital Plan or any material changes in the
Capital Plan, or any material failure to make expenditures required by the
preceding sentence, must be approved by Exodus. Prior to the Closing Date,
Global Crossing NA shall (i) fund, or cause to be funded, to the extent not
funded by the Company's cash receipts, the operations of the Company and its
subsidiaries (including capital expenditures pursuant to the Capital Plan) from
the date of this Agreement to the Closing Date in the Ordinary Course and (ii)
cause the Company to, and the Company shall, pay its payables, collect its
receivables, and otherwise manage its working capital accounts, in the Ordinary
Course and consistent with past practice. In the event that non-cash working
capital of the Company is negative immediately prior to the Effective Time,
Global Crossing NA shall contribute to Company sufficient cash to eliminate
such negative working capital account balance as of the Closing. After Closing
the parties will determine the amount of any positive working capital balance
of the Company as of the Effective Time ("Positive WC Amount"). On the first
anniversary of the Closing, Exodus shall pay to Global Crossing NA any Positive
WC Amount. In addition, if at Closing the Company has not spent the full amount
of its Capital Plan during the period covered thereby, Global Crossing NA shall
also pay Exodus at Closing the difference between the amount of capital
expenditures during such period and the Capital Plan amount for the indicated
period. Conversely, if at Closing the Company has spent more than the full
amount of its Capital Plan during the period covered thereby, Exodus shall pay
to Global Crossing NA at Closing the excess of such capital expenditures for
the indicated period over the Capital Plan amount. If during any calendar month
prior to Closing the Company fails to spend the full amount specified in its
Capital Plan for such month, then Global Crossing NA or the Company shall
notify Exodus in writing of such shortfall, the amount thereof, and the reasons
therefore. In the event that the Closing does not occur by December 31, 2000,
the Company shall deliver to Exodus by that date the Company's capital
expenditure plan for the three month period ended March 31, 2001, and
references above to the "Capital Plan" shall apply to this additional capital
plan as well.
4.5 Leases.
The Company shall confer with Exodus before the Company or any of its
subsidiaries enters into any lease in which the landlord does not provide
representations and warranties relating to environmental matters or in which
the landlord does not indemnify the Company and its subsidiaries against
environmental liabilities.
4.6 Disclosures.
Prior to Closing, the Company will provide Exodus with (i) a list of any
material agreements with respect to software, hardware, network and technology
infrastructure, bandwidth and connectivity used in the Company or its
subsidiaries' business as currently conducted which, if terminated, could have
a Material Adverse Effect on the Company and (ii) a list of any royalties, fees
or other payments payable by the Company or its subsidiaries to any Person by
reason of the ownership, use, sale or disposition of any Company Intellectual
Property.
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4.7 Extinguishments of Debt; No Cash.
Global Crossing NA shall cause all intercompany and third party indebtedness
of the Company and its subsidiaries for borrowed money (excluding trade
payables, lease obligations and similar obligations) or guarantees by the
Company or any of its subsidiaries of any third party indebtedness to be
settled or otherwise terminated on or prior to the Closing Date and shall cause
the assets of the Company and its subsidiaries to be released from any such
indebtedness. The Company shall not be required to have any cash at Closing
except as provided in Section 4.4.
4.8 Assumption of Lease Guarantees.
Exodus shall assume, as of the Closing Date, all guarantees by Global
Crossing NA or one of its affiliates of the Company's and its subsidiaries'
performance relating to leases to which the Company or any of its subsidiaries
are a party.
4.9. Exodus Acquisitions.
Without the prior written consent of the Company, prior to the Effective
Time, Exodus shall not acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets or stock of, or by any other
means, any business or any corporation, limited liability company, partnership,
association or other business organization or division thereof (excluding only
for purposes of clause (a) below purchases or other transactions of less than
$750 million in value), or agree to any such transaction (each, an "Exodus
Acquisition"), unless (a) any filing in respect of such Exodus Acquisition
under HSR is made after the earlier of (x) the expiration or termination of all
waiting periods under HSR applicable to the Merger and (y) the 40th day after
the date of this Agreement (the "HSR Exclusivity Period"), provided that if
Exodus does not file its notification and report form under HSR with respect to
the transactions contemplated by the Agreement within ten (10) days after the
date of this Agreement, then the HSR Exclusivity Period will be extended on a
day for day basis for each day after such first ten days until the day Exodus
files such notification request form (provided, that the HSR Exclusivity Period
will not be so extended to the extent that the failure to file on any day is
due to Global Crossing Ltd. not being prepared to file), (b) to the extent the
approval of an Exodus Acquisition requires the approval of Exodus'
stockholders, the stockholder vote for such transaction is not held any earlier
than (but it may be held on the same day and at the same stockholder meeting
as) the stockholder meeting to approve the Merger; and (c) such Exodus
Acquisition is not conditioned on (nor does it require) (x) the cancellation,
termination, abandonment or modification of the Merger or any of the other
transactions contemplated by the Ancillary Agreements or the Commercial
Agreements (as defined in Section 6.1(d)), (y) the Exodus Board recommending
against the approval of issuance of shares in the Merger, or (z) the Exodus
stockholders voting against approval of the Merger. Notwithstanding the first
sentence hereof, if requested by Exodus, the Company will in good faith discuss
permitting Exodus to make an HSR filing in respect of any other business
combination prior to the date Exodus would otherwise be permitted to make such
filing pursuant to this Section 4.9.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement.
As promptly as practicable after the execution of this Agreement, Exodus
shall prepare, with the cooperation of the Company, the Exodus Proxy Statement.
Exodus shall use its best efforts to file the Exodus Proxy Statement with the
SEC as soon as practicable after the date on which the Company provides audited
financial statements of the Company for inclusion in the Exodus Proxy Statement
and shall use its best efforts to clear all SEC comments and mail the Exodus
Proxy Statement to all stockholders of Exodus entitled to receive such notice
under Delaware Law as promptly as possible thereafter. Whenever any event
occurs with respect to the Company or Exodus that is required to be set forth
in an amendment or supplement to the Exodus Proxy Statement, the applicable
party shall promptly inform the other party of such occurrence and cooperate in
mailing to stockholders of Exodus such amendment or supplement. The Exodus
Proxy Statement shall include the recommendation of the Board of Directors of
Exodus that the Exodus stockholders vote in favor of the issuance of shares of
Exodus Common Stock in the Merger and the conclusion of the Board of Directors
that the terms and conditions of the Merger are fair to the stockholders of
Exodus (the "Recommendation"), along with a copy of the written opinion
referred to in Section 3.13; provided, however, that nothing in this Agreement
shall prevent the Board of Directors of Exodus from withholding, withdrawing,
amending or modifying the Recommendation if (i) Exodus receives an unsolicited,
bona fide Third Party Acquisition Proposal (as defined in Section 5.7(b)) that
is conditioned on (or requires) the cancellation, termination, abandonment or
modification of the Merger or any of the other transactions contemplated by the
Ancillary Agreements or the Commercial Agreements (an "Exodus Acquisition
Offer") and such Exodus Acquisition Offer is not withdrawn, (ii) Exodus shall
have provided written notice to the Company advising the Company that Exodus
has received an Exodus Acquisition Offer, specifying all of the material terms
and conditions of such an Exodus Acquisition Offer and identifying the person
or entity making such Exodus Acquisition Offer, (iii) the Board of Directors of
Exodus concludes in good faith, after consultation with its outside legal
counsel and a financial advisor of national standing, that, in light of such
Exodus Acquisition Offer, the withholding, withdrawal, amendment or
modification of the Recommendation is required in order for the Board of
Directors of Exodus to comply with its fiduciary obligations to Exodus'
stockholders under applicable law. Except as provided in the immediately
preceding sentence the Board of Directors of Exodus will not withhold,
withdraw, amend or modify the Recommendation (a "Withdrawal of
Recommendation"). Anything to the contrary contained herein notwithstanding,
Exodus shall not include in the Exodus Proxy Statement any information with
respect to the Company or its affiliates or associates, the form and content of
which information shall not have been approved by the Company prior to such
inclusion (such approval not to be unreasonably withheld or delayed).
5.2 Meeting of Stockholders.
Exodus shall promptly after the date hereof take all action necessary in
accordance with Delaware Law, Nasdaq rules and its Certificate of Incorporation
and Bylaws to convene a meeting of the stockholders of Exodus for the purpose
of approving the issuance of shares of Exodus Common Stock in the Merger
(referred to as the "Exodus Stockholders Meeting") as soon as practicable after
the date that the Exodus Proxy Statement shall be cleared by the SEC for
mailing to the stockholders of Exodus. Exodus shall consult with the Company
regarding the date of or any postponements or adjournments of the Exodus
Stockholders Meeting and, except as provided in the next sentence, shall not
postpone or adjourn Exodus Stockholders Meeting without the consent of the
Company. Notwithstanding the foregoing two sentences, Exodus may adjourn or
postpone the Exodus Stockholders Meeting (i) to the extent necessary to ensure
that any amendment or supplement to the Exodus Proxy Statement required under
the Securities Act due to developments following the initial mailing thereof is
provided to Exodus stockholders in advance of a vote on the Merger (in which
case the Exodus Stockholders Meeting shall be held on the next legally
permissible business day, but in no event more than ten (10) business days
after the originally scheduled date) or (ii) if, as of the originally
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scheduled date and time for the Exodus Stockholders Meeting (as set forth in
the Exodus Proxy Statement), there are insufficient shares of Exodus Common
Stock represented (either in person or by proxy) to constitute the quorum
necessary to conduct the business of the Exodus Stockholders Meeting (in which
case the Exodus Stockholders Meeting shall be adjourned until such quorum is
available, but in no event more than ten (10) business days after the
originally scheduled date). Exodus's obligation to call, give notice of,
convene and hold the Exodus Stockholders Meeting in accordance with this
Section 5.2 shall not be limited to or otherwise affected by the commencement,
disclosure, announcement or submission to Exodus of any Third Party Acquisition
Proposal (as defined in Section 5.7(b)), or by any withdrawal, amendment or
modification of the recommendation of the Board of Directors of Exodus with
respect to the Merger. Exodus shall use its best efforts to solicit from
stockholders of Exodus proxies in favor of the issuance of share of Exodus
Common Stock in the Merger and shall, subject to the Exodus board's fiduciary
duty, take all other action necessary or advisable to secure the vote or
consent of stockholders required to effect the Merger.
5.3 Access to Information.
(a) The Company shall afford Exodus and its accountants, counsel and
other representatives reasonable access during normal business hours during
the period prior to the Effective Time to (i) all of the Company's and its
subsidiaries properties, books, contracts, commitments and records material
to the business of the Company and its subsidiaries, and (ii) all other
information material to the business, properties, personnel of the Company
and its subsidiaries as Exodus may reasonably request. The Company agrees
to provide to Exodus and its accountants, counsel and other representatives
copies of material internal financial statements promptly upon request.
(b) Exodus shall afford the Company and its accountants, counsel and
other representatives access that is reasonable under the circumstances
during normal business hours during the period prior to the Effective Time
to (i) all of the Exodus's and its subsidiaries' properties, books,
contracts, commitments and records material to the business of Exodus and
its subsidiaries, and (ii) all other information material to the business,
properties, personnel of Exodus as the Company may reasonably request.
Exodus agrees to provide to the Company and its accountants, counsel and
other representatives copies of material internal financial statements
promptly upon request.
(c) No information or knowledge obtained in any investigation pursuant
to this Section 5.3 shall affect or be deemed to modify any representation
or warranty contained herein or the conditions to the obligations of the
parties to consummate the Merger.
5.4 Confidentiality.
The parties acknowledge that Exodus and the Company have previously executed
reciprocal non-disclosure agreements dated June 30, 2000 (the "Confidentiality
Agreements"), which Confidentiality Agreements shall continue in full force and
effect in accordance with their respective terms, except that the terms of the
"standstill" agreements contained in each such Confidentiality Agreement shall
terminate at Closing.
5.5 Public Disclosure.
The Company Parties, on the one hand, and Exodus Parties, on the other hand,
will consult with each other before holding any press conferences or analyst
calls and before issuing any press releases or making any public statements
relating to this Agreement or the Merger or any other transaction in which the
other party is engaged. The parties will provide each other the opportunity to
review and comment upon any proposed press release or public statements with
respect to the transactions contemplated by this Agreement, including the
Merger, and shall not issue any such press release or public statements prior
to such consultation, except as may be required by applicable law, court
process or by obligations pursuant to any listing agreement with any national
securities exchange or automated quotation system. The parties agree that the
initial press release or releases to be issued with respect to the transactions
contemplated by this Agreement shall be mutually agreed upon prior to the
issuance thereof.
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5.6 Consents; Cooperation.
(a) Each of Exodus and the Company shall as soon as practicable after
the date of this Agreement, apply for or otherwise seek, and use its best
efforts, subject to Section 5.6(b), to obtain, all consents and approvals
required to be obtained by it as a condition to the Closing of the Merger
under HSR and other Antitrust Laws (as defined below). The Company, in
conjunction with and as reasonably requested by Exodus, shall use
commercially reasonable efforts to obtain all necessary consents, waivers
and approvals under any of its material contracts set forth on Item 2.3 to
the Company Disclosure Letter in connection with the Merger for the
assignment thereof or otherwise. The parties hereto will consult and
cooperate with one another, and consider in good faith the views of one
another, in connection with any analyses, appearances, presentations,
memoranda, briefs, arguments, opinions and proposals made or submitted by
or on behalf of any party hereto in connection with proceedings under or
relating to HSR or any other Antitrust Laws.
(b) Each of Exodus and the Company shall use best efforts to resolve
such objections, if any, as may be asserted by any Governmental Entity with
respect to the transactions contemplated by this Agreement under the HSR,
the Sherman Act, as amended, the Clayton Act, as amended, the Federal Trade
Commission Act, as amended, the competition laws of the European Union, and
any other Federal, state or foreign statutes, rules, regulations, orders or
decrees that are designed to prohibit, restrict or regulate actions having
the purpose or effect of monopolization or restraint of trade
(collectively, "Antitrust Laws"). In connection therewith, if any
administrative or judicial action or proceeding is instituted (or
threatened to be instituted) challenging any transaction contemplated by
this Agreement as violative of any Antitrust Law, each of Exodus and the
Company shall cooperate and use best efforts vigorously to contest and
resist any such action or proceeding and to have vacated, lifted, reversed,
or overturned any Order that is in effect and that prohibits, prevents, or
restricts consummation of the Merger or any such other transactions, unless
by mutual agreement Exodus and the Company decide that litigation is not in
their respective best interests. Each of Exodus and the Company shall use
best efforts to take such action as may be required to cause the expiration
of the notice periods under the HSR or other Antitrust Laws with respect to
such transactions as promptly as possible after the execution of this
Agreement.
(c) Notwithstanding anything to the contrary in Section 5.6(a) or (b),
(i) Exodus shall not be required to (A) take any other action or agree to
any limitation that could reasonably be expected to have a Material Adverse
Effect on Exodus or the Surviving Corporation after the Effective Time or
to (B) divest any of its or its subsidiaries' businesses, product lines or
assets, and (ii) the Company may not agree to divest any of its businesses,
product lines or assets, or to take or agree to take any other action or
agree to any limitation without the consent of Exodus.
5.7. No Solicitation.
(a) Without the prior written consent of the Company, prior to the
Exodus Stockholders Meeting (as defined), neither Exodus nor any of its
affiliates shall, nor shall Exodus or any of its affiliates authorize or
permit any of its or their respective officers, directors, employees,
representatives or agents to, directly or indirectly, knowingly solicit or
knowingly initiate discussions or negotiations with or provide any non-
public information to any person or group concerning any Third Party
Acquisition Proposal; provided, however, that Exodus may, in response to a
Third Party Acquisition Proposal that was not solicited or initiated by
Exodus, (i) furnish information to any such person only pursuant to a
confidentiality agreement substantially in the same form as was executed by
GlobalCenter prior to the execution of this Agreement, and/or (ii)
participate in discussions and negotiations regarding such proposal or
offer; provided, further, that nothing herein shall prevent the Board of
Directors of Exodus from taking and disclosing to Exodus stockholders a
position contemplated by Rules 14d-9 and 14e-2 promulgated under the
Exchange Act with regard to any tender or exchange offer. Exodus shall
promptly (i) notify the Company in the event Exodus or any of its
subsidiaries or other affiliates or any of their respective officers,
directors, employees and agents receives any Third Party Acquisition
Proposal and (ii) from time to time, provide the Company such information
and documents with respect to such Third Party
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Acquisition Proposal as shall be necessary to enable the Company to fully
understand the potential impact of such Third Party Acquisition Proposal on
the timing and certainty of the Closing (if any such impact would be
reasonably likely if Exodus were to agree to or consummate such Third Party
Acquisition Proposal), provided that the Company agrees to keep such
information confidential in accordance with the terms of the
Confidentiality Agreements. Exodus will request that the party making the
Third Party Acquisition Proposal publicly support the Merger and not
require the cancellation, termination, abandonment or modification of the
Merger or any of the other transactions contemplated by the Ancillary
Agreements or the Commercial Agreements, but neither Exodus nor such third
party shall have any liability if the third party refuses to abide by such
request or acts contrary to it.
(b) For the purposes of this Agreement, "Third Party Acquisition
Proposal" means any proposal or offer with respect to: (i) a merger,
reorganization, share exchange, consolidation, business combination,
recapitalization or similar transaction involving Exodus and any person
(which includes a "person" as such term is defined in Section 13(d)(3) of
the Exchange Act) (a "Third Party"), except if the shares of Exodus Common
Stock outstanding immediately prior to such transaction (and any related
transactions) will represent a majority of the voting power of the
outstanding securities of the resulting or surviving corporation or the
parent thereof (in which event such transaction will be deemed to be an
Exodus Acquisition and be subject to Section 4.9, except as otherwise
therein provided); (ii) the acquisition by a Third Party of any material
portion (which shall include thirty percent (30%) or more) of the assets of
Exodus and its subsidiaries taken as a whole; (iii) the acquisition by a
Third Party of securities of Exodus that would result in any person (or the
stockholders of such person) beneficially owning securities representing
thirty percent (30%) of the voting power of Exodus (or the parent entity in
such transaction) other than in connection with a transaction described in
clause (i) above without reference to the exception therefrom; (iv) the
adoption by Exodus of a plan of liquidation or the declaration or payment
of an extraordinary dividend; or (v) the repurchase by Exodus or any of its
subsidiaries of more than twenty percent (20%) of the outstanding shares of
Exodus Common Stock. As used herein, the term "Third Party Acquisition"
means any event described in clause (i), (ii) or (iii) of the definition of
"Third Party Acquisition Proposal".
5.8 Exodus Board.
Exodus shall take all actions, as required by the Stockholder Agreement, to
appoint at Closing one (1) member to its Board of Directors designated by
Global Crossing NA. The person designated by Global Crossing NA will be subject
to the approval of the Board of Directors of Exodus and of the governance or
other nominating committee thereof, which approval will not be withheld unless,
based on advice of counsel, such approval would be inconsistent with the
fiduciary duties of the members of the Board.
5.9 Assumption of Options.
(a) At the Effective Time, each Company Option and Global Crossing
Assumed Option will be assumed by Exodus. Item 5.9 hereto sets forth a true
and complete list as of the date hereof of all holders of the Company
Options and Global Crossing Assumed Options, including the number of shares
of Company Common Stock subject to each such Company Option or, with
respect to the Global Crossing Assumed Options, the number of shares of
Global Crossing Ltd. stock (and deemed number of shares of Company Common
Stock) subject to each such option, whether the option holder is an
employee of the Company, an employee of one of the Company Parties other
than the Company or a consultant to the Company, the exercise or vesting
schedule, acceleration provisions, the exercise price per share and the
term of each such Company Option or Global Crossing Assumed Option. On the
Closing Date, the Company shall deliver to Exodus an updated Item 5.9,
current as of such date. Each Company Option and Global Crossing Assumed
Option so assumed by Exodus under this Agreement shall continue to have,
and be subject to, the same terms and conditions set forth in the
applicable Company Stock Option Plan and the applicable stock option
agreement immediately prior to the Effective Time, except that:
(i) with respect to Company Options, (1) each Company Option will be
exercisable for that number of whole shares of Exodus Common Stock
equal to the product of (A) the number of shares
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of Company Common Stock subject to such Company Option multiplied by
(B) the Exchange Ratio, and rounded to the nearest whole number of
shares of Exodus Common Stock, and (2) the per share exercise price for
the shares of Exodus Common Stock issuable upon exercise of each such
Company Option will be equal to the quotient determined by dividing (x)
the exercise price per share of Company Common Stock at which such
Company Option was exercisable, by (y) the Exchange Ratio, rounded to
the nearest whole cent.
(ii) with respect to Global Crossing Assumed Options, in accordance
with the applicable option agreement, (1) each Global Crossing Assumed
Option will be exercisable for that number of whole shares of Exodus
Common Stock equal to the product of (A) the number of shares of Global
Crossing Ltd. stock subject to such Global Crossing Assumed Option,
multiplied by (B) 1.888, and multiplied by (C) the Exchange Ratio, and
rounded to the nearest whole number of shares of Exodus Common Stock,
and (2) the per share exercise price for the shares of Exodus Common
Stock issuable upon exercise of each such Global Crossing Assumed
Option will be equal to the quotient determined by dividing (x) $17, by
(y) the Exchange Ratio, rounded to the nearest whole cent.
Except as disclosed on Item 5.9, consistent with the terms of the Company
Options and Global Crossing Assumed Options and the respective documents
governing them, the Merger will not terminate any of the Company Options or
Global Crossing Assumed Options.
(b) Immediately following the Closing, Exodus shall grant the New Exodus
Options to purchase Exodus Common Stock to holders of the Global Crossing
Canceled Options. Item 5.9 hereto sets forth a true and complete list as of
the date hereof of all holders of the Global Crossing Canceled Options,
including the number of shares of Global Crossing Ltd. stock subject to
each such option, whether the option holder is an employee of the Company,
an employee of one of the Company Parties other than the Company or a
consultant to the Company, the exercise or vesting schedule, acceleration
provisions, the exercise price per share and the term of each such Global
Crossing Canceled Option. On the Closing Date, the Company shall deliver to
Exodus an updated Item 5.9, current as of such date. Each such New Exodus
Option shall have, and be subject to, the same vesting schedule set forth
in the Global Crossing Stock Option Plan or the applicable stock option
agreement immediately prior to the Effective Time, as disclosed in Item
5.9. All other terms of and conditions of such New Exodus Options shall be
as set forth in the Exodus 1998 Equity Incentive Plan or the Exodus 1999
Stock Option Plan and the applicable stock option agreement immediately
prior to the Effective Time, except that:
(i) Each New Exodus Option shall be exercisable for that number of
whole shares of Exodus Common Stock equal to the product of (A) the
number of shares of Global Crossing Ltd. stock subject to the
applicable Global Crossing Canceled Option, multiplied by (B) the
quotient determined by dividing (x) the average closing price per share
as quoted on the Nasdaq National Market of Global Crossing Ltd. stock
for the ten (10) trading days prior to and including the trading day
ending two days prior to the Closing Date, by (y) the average closing
price per share as quoted on the Nasdaq National Market of Exodus
Common Stock for the ten (10) trading days prior to and including the
trading day ending two days prior to the Closing Date, and rounded to
the nearest whole number of shares of Exodus Common Stock.
(ii) The per share exercise price for shares of Exodus Common Stock
issuable upon exercise of the New Exodus Options will be equal to the
product of (A) the per share exercise price of the applicable Global
Crossing Canceled Option, multiplied by (B) the quotient determined by
dividing (x) the average closing price per share as quoted on the
Nasdaq National Market of Exodus Common Stock for the ten (10) trading
days prior to and including the trading day ending two days prior to
the Closing Date, by (y) the average closing price per share as quoted
on the Nasdaq National Market of Global Crossing Ltd. stock for the ten
(10) trading days prior to and including the trading day ending two
days prior to the Closing Date, rounded to the nearest whole cent.
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5.10 Form S-8.
Exodus agrees to file a registration statement on Form S-8 covering the
shares of Exodus Common Stock issuable upon exercise of the Company Options and
Global Crossing Assumed Options assumed by Exodus and (if necessary) the New
Exodus Options and to cause such Form S-8 to be filed with the SEC on or within
two (2) business days after the Closing Date.
5.11 Listing of Additional Shares.
Prior to the Effective Time, Exodus shall (i) file with the NASDAQ Market a
Notification Form for Listing of Additional Shares with respect to the shares
of Exodus Common Stock issuable upon conversion of the Company Common Stock in
the Merger and upon exercise of the Company Options and the Global Crossing
Assumed Options assumed by Exodus and, if necessary, the new Exodus Options and
(ii) cause such shares of Exodus Common Stock to be authorized for listing on
the NASDAQ National Market.
5.12 Employees.
(a) Exodus shall have established as of the Closing Date compensation
and employee benefit plans or arrangements (or shall have designated
existing plans or arrangements) which provide each Company Employee with
salary, wages, fringe and other benefits which are comparable in the
aggregate to those provided to similarly situated Exodus employees. In
addition, Exodus shall recognize for all purposes under its benefit plans
(other than benefit accrual) service rendered by Company Employees prior to
the Closing Date and recognized by the Company under the Company Plans.
Exodus shall also recognize and give credit for deductibles and copayments
for the fiscal period in which the Closing Date occurs and to waive pre-
existing conditions under the Exodus group health plans to the extent
permitted under such group health plans.
(b) All Company Employees shall as of the Closing Date be fully vested
in their account balances under the Global Crossing 401(k) plan (the
"Global Crossing CODA") and such persons shall be entitled to elect to
either (i) receive an immediate distribution of their account balances in
accordance with the terms of such plan and pursuant to Section
401(k)(l0)(A) (iii) of the Code, (ii) maintain such amounts in the Global
Crossing CODA in accordance with its terms, or (iii) directly roll over
their respective account balances, to an Exodus 401(k) Plan or to an
individual retirement account, in any case pursuant to
Section 401(k)(l0)(A) of the Code.
5.13 Best Efforts and Further Assurances.
Subject to the terms and conditions of this Agreement, each of the parties
to this Agreement shall use its best efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
closing under this Agreement. Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
5.14 Indemnification of Directors and Officers.
Commencing at the Effective Time and for six years thereafter, the Surviving
Corporation and Exodus jointly and severally shall indemnify and hold harmless
all present and former directors or officers of the Company and its
subsidiaries against any costs or expenses (including advancing reasonable
attorneys fees and expenses as incurred, subject to any undertaking to
reimburse such advances required by applicable law), judgments, fines, losses,
claims, damages or liabilities incurred by reason of the fact that he or she is
or was a director or officer of the Company or any of its subsidiaries in
connection with any claim, suit, action, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of matters
existing or occurring at or prior to the Effective Time (excluding any claims
brought by any Company Parties
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other than the Company or its subsidiaries), whether asserted or claimed prior
to, at or after the Effective Time, to the fullest extent now provided in the
Company's certificate of incorporation or by-laws as in effect on the date of
this Agreement, but not to exceed the fullest extent now permitted by Delaware
law.
5.15 Facilities Transition.
Prior to Closing, and subject to more detailed provisions in the Network
Agreement and the Transition Agreement, the parties shall negotiate
arrangements with respect to continuing in place, or transitioning and
terminating, arrangements in place on the date of this Agreement pursuant to
which the Company or its subsidiaries occupy property owned or leased by any of
the other Company Parties.
5.16 Assumption of Certain Obligations.
Prior to the Effective Time, Global Crossing NA shall have entered into an
Indemnification Agreement in substantially the form of Exhibit B hereto with
the Company, Global Center, Exodus and each Contract Holder.
5.17 Employee Loans; Employee Severance Arrangements.
After the date of this Agreement, Company will not establish, adopt or enter
into any loan forgiveness or severance arrangements with or for the benefit of
Company Employees. Global Crossing NA agrees to promptly indemnify and make
whole Exodus and the Company for all expenses and costs related to the
forgiveness of loans to Company Employees occurring at or after the Effective
Time, provided that such loans are made by the Company prior to Closing. Global
Crossing NA agrees to promptly indemnify and make whole Exodus and the Company
for all expenses and costs related to payment of severance benefits to Company
Employees under any severance plan or arrangement of Global Crossing, Ltd. or
any of its direct or indirect subsidiaries in effect prior to the Closing as a
result of actions occurring at or after the Effective Time, including all
severance benefits payable under the Change of Control Severance Plan. The
foregoing indemnification and reimbursement obligations of Global Crossing NA
are not subject to the Threshold limitation set forth in Section 10.1 hereof.
5.18 Corporate Documents; Subsidiaries.
At or prior to the Closing, the Company Parties shall deliver or cause to be
delivered to Exodus: (i) true and complete charter documents of Company and
each of the subsidiaries listed in Item 2.1 of the Company Disclosure Letter;
(ii) true and complete minute books of Company and each of the Company's
subsidiaries; (iii) the original stock certificate(s) representing 100% of the
outstanding securities of Company and each of the Company's subsidiaries. In
addition, effective as of immediately following the Closing, Company shall have
caused each of the directors of each of the Company's subsidiaries to resign
and shall have appointed as directors of each of the Company's subsidiaries the
individuals designated by Exodus.
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ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party to this Agreement to consummate and
effect the Merger and the transactions contemplated hereby shall be subject to
the satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) Stockholder Approval. The issuance of shares of Exodus Common Stock
in the Merger shall have been approved by the requisite vote of Exodus
stockholders under the Nasdaq rules.
(b) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect,
nor any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger, which makes the consummation of the Merger
illegal. In the event an injunction or other order shall have been issued,
each party agrees, subject to the other terms of this Agreement, to use its
best efforts to have such injunction or other order lifted.
(c) Governmental Approval. Exodus and the Company and their respective
subsidiaries shall have obtained from each Governmental Entity all
approvals, waivers and consents, if any, necessary for the consummation of
or in connection with the Merger and the Commercial Agreements (as defined
in Section 6.1(d)below) and the several transactions contemplated hereby
and thereby under Antitrust Laws.
(d) Other Agreements. The Stockholder Rights Agreement, the Registration
Rights Agreement, Amendment No. 2 to the Rights Plan, the Commercial
Agreements and the Transition Agreement shall not have been rescinded and
shall be in full force and effect and any transactions contemplated thereby
to be in effect at Closing shall be in effect. The Network Agreement and
the Joint Venture Agreement shall be referred to herein collectively as the
"Commercial Agreements." The "Network Agreement" shall collectively mean
and refer to that certain Network Services, Marketing and Cooperation
Agreement between Exodus and Global Crossing Ltd. and that certain Network
Services, Marketing and Cooperation Agreement between Exodus and Asia
Global Crossing Ltd.
6.2 Additional Conditions to Obligations of the Company Parties.
The obligations of the Company Parties to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by the Company:
(a) Representations, Warranties and Covenants. (i) The representations
and warranties of Exodus in this Agreement shall be true and correct on and
as of the date of this Agreement (disregarding for this purpose any
materiality or Material Adverse Effect qualifiers in such representations),
and on and as of the Effective Time as though such representations and
warranties were made on and as of each such time, except to the extent that
any representations and warranties expressly relate to an earlier date in
which case such representations and warranties shall be as of such earlier
date, except to the extent that such failure to be true would not be
expected to have a Material Adverse Effect on Exodus or on Exodus's ability
to consummate the Merger and (ii) Exodus Parties shall have performed and
complied in all material respects with all covenants, obligations and
conditions of this Agreement required to be performed and complied with by
Exodus Parties as of the Effective Time.
(b) Certificate of Exodus. The Company shall have been provided with a
certificate executed on behalf of Exodus Parties by an the Chief Executive
Officer of each Exodus Party to the effect set forth in Section 6.2(a).
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(c) Tax Opinion. Global Crossing NA shall have received a written
opinion of its counsel, in form and substance reasonably satisfactory to
it, and dated on or about the Closing Date to the effect that the Merger
will constitute a reorganization within the meaning of Section 368(a) of
the Code, and such opinion shall not have been withdrawn. In rendering such
opinion, counsel shall be entitled to rely upon, among other things,
reasonable assumptions as well as representations of Exodus, the Company
and any applicable Global Crossing Ltd. subsidiary.
(d) Assumption of Guarantees. Global Crossing NA and its affiliates
shall have been released from any guarantees of the Company's and its
subsidiaries' performance under the leases to which the Company or any of
its subsidiaries is a party, and Exodus shall have assumed such guarantees
as of the Closing Date, or (if such guarantees shall not have been released
despite the parties' respective best efforts) Exodus shall have indemnified
Global Crossing NA from any and all liabilities under such guarantees.
(e) No Material Adverse Effect on Exodus. No Material Adverse Effect
with respect to Exodus shall have occurred since the date of this Agreement
and be continuing.
6.3 Additional Conditions to Obligations of Exodus Parties.
The obligations of Exodus Parties to consummate and effect this Agreement
and the transactions contemplated hereby shall be subject to the satisfaction
at or prior to the Effective Time of each of the following conditions, any of
which may be waived, in writing, by Exodus Parties:
(a) Representations, Warranties and Covenants. (i) The representations
and warranties of the Company in this Agreement shall be true and correct
on and as of the date of this Agreement (disregarding for this purpose any
materiality or Material Adverse Effect qualifiers in such representations),
and on and as of the Effective Time as though such representations and
warranties were made on and as of such time, except to the extent that any
representations and warranties expressly relate to an earlier date in which
case such representations and warranties shall be as of such earlier date,
except to the extent that such failure to be true would not be expected to
have a Material Adverse Effect on Company or on Company's ability to
consummate the Merger, and except that, without limiting Section 6.3(g)
below, the condition in this clause 6.3(a)(i) shall not be deemed
unsatisfied as a result of a breach of the representations and warranties
in Section 2.7 as of the Effective Time if such representations and
warranties were true and correct as of the date hereof, and (ii) the
Company Parties shall have performed and complied in all material respects
with all covenants, obligations and conditions of this Agreement required
to be performed and complied with by the Company Parties as of the
Effective Time.
(b) Certificate of the Company Parties. Exodus shall have been provided
with a certificate executed on behalf of the Company Parties by the Chief
Executive Officer of each Company Party to the effect set forth in Section
6.3(a).
(c) Tax Opinion. Exodus shall have received a written opinion of its
counsel, in form and substance reasonably satisfactory to it, and dated on
or about the Closing Date to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and such
opinion shall not have been withdrawn. In rendering such opinion, counsel
shall be entitled to rely upon, among other things, reasonable assumptions
as well as representations of Exodus, the Company and any applicable Global
Crossing Ltd. subsidiary.
(d) Individual Noncompetition Agreements. The Chief Executive Officer of
the Company and each of his direct reports shall have entered into a
noncompetition agreement in the form attached hereto as Exhibit C.
(e) No Material Adverse Effect on Company. No Material Adverse Effect
with respect to Company shall have occurred since the date of this
Agreement and be continuing.
(f) Subleases. Exodus and Global Crossing NA (or one of Global Crossing
NA's affiliates) shall have entered into agreements to sublease to the
Surviving Corporation, or obtain the necessary rights for
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the Surviving Corporation with respect to, any real property used by the
Company and its subsidiaries as a data center as of the Closing Date. Each
sublease or license shall be in form and substance customary for the
location. The term of such sublease or license shall be concurrent with the
term of the underlying lease or property right. At least until December 31,
2001, the rental or license fee to be paid by the Surviving Corporation
with respect to such sublease or license shall be equal to the rental or
license fee paid by the Company or the applicable Company subsidiary would
have paid with respect to such real property if there had not been any
change of control of the Company; provided, however, that if a fair market
rental or license payment is required with respect to such sublease or
license by (i) applicable law of the jurisdiction in which the property is
located or (ii) the provisions of the lease or other agreement currently in
effect with respect to such property, then the rental or license payment to
be paid by the Surviving Corporation after the Closing shall be equal to a
fair market rental or license payment; and provided, further, that Exodus
and Global Crossing NA shall use their best efforts to avoid such
adjustment in the rental or license fee. If such adjustment is not
avoidable and the rental or license fee, as so adjusted, represents a
material change from the Company's financial assumptions, then Exodus and
Global Crossing NA shall use their best efforts to agree on appropriate
equitable financial adjustments. If the parties are unable to agree on fair
market rental or license amounts, they shall together choose an independent
appraiser, whose decision shall be binding. After December 31, 2001, any
rental or license fee with respect to any sublease or license contemplated
by this Section 6.3(f) may be raised to fair market value.
(g) Litigation. There shall not be pending, as of the Closing Date, any
Action before any agency, court or tribunal, foreign or domestic, against
the Company or any of its subsidiaries or any of their respective
properties or any of their officers or directors (in their capacities as
such) that would reasonably be expected to have a Material Adverse Effect
on the Company. Notwithstanding the foregoing, if Global Crossing NA
affirmatively agrees to indemnify Exodus against claims relating to such
Action pursuant to Article X without reference to the Threshold limitation
therein, this clause (g) shall not be a condition to the obligations of the
Exodus Parties to consummate and effect this Agreement.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination.
At any time prior to the Effective Time, whether before or after approval of
the matters presented in connection with the Merger by the stockholders of
Exodus, this Agreement may be terminated:
(a) by mutual written consent duly authorized by the Board of Directors
of Exodus and the Company;
(b) by either Exodus or the Company, if the Closing shall not have
occurred on or before March 31, 2001 (the "Final Closing Date")"Final
Closing Date"; provided that the right to terminate this Agreement under
this Section 7.1(b) shall not be available to any party whose action or
failure to act has been the cause or resulted in the failure of the Merger
to occur on or before such date and such action or failure to act
constitutes a breach of this Agreement; and, provided, further, that the
Final Closing Date shall be extended for so long as the parties are in good
faith actively pursuing any required approval or waiver of any Governmental
Entity under the Antitrust Laws, and for ten (10) days after receipt of any
such approval or waiver, but in no event later than May 31, 2001;
(c) by Exodus, if (i) the Company shall breach any representation,
warranty, obligation or agreement hereunder which would cause the Company
to fail to satisfy any condition of Closing set forth in Section 6.3, and
such breach shall not have been cured within ten (10) business days of
receipt by the Company of written notice of such breach (or within thirty
(30) days of such receipt of written notice if the breach is curable but
cannot reasonably be cured within ten business days), provided that the
right to terminate this Agreement by Exodus under this Section 7.1(c)(i)
shall not be available to Exodus in the
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event Exodus is at that time in material breach of this Agreement or (ii)
if at the Exodus Shareholders Meeting the holders of Exodus Common Stock
fail to approve the issuance of shares of Exodus Common Stock in the
Merger;
(d) by the Company, if (i) Exodus shall breach any representation,
warranty, obligation or agreement hereunder which would cause Exodus to
fail to satisfy any condition of Closing set forth in Section 6.2, and such
breach shall not have been cured within ten (10) business days following
receipt by Exodus of written notice of such breach (or within thirty (30)
days of such receipt of written notice if the breach is curable but cannot
reasonably be cured within ten business days), provided that the right to
terminate this Agreement by the Company under this Section 7.1(d) shall not
be available to the Company in the event the Company is at that time in
material breach of this Agreement, (ii) a Withdrawal of Recommendation
shall have occurred or the Board of Directors of Exodus shall have resolved
to effect a Withdrawal of Recommendation, (iii) if at the Exodus
Stockholders Meeting or any adjournment thereof, the holders of Exodus
Common Stock fail to approve the issuance of shares of Exodus Common Stock
in the Merger, or (iv) if Exodus or any of its officers, directors,
employees or agents shall have knowingly breached Section 5.7 or Section
4.9 hereof; or
(e) by either the Company or Exodus, if a Governmental Entity shall have
issued an order, decree or ruling, or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger or the transactions contemplated by the Commercial
Agreements, which order, decree, ruling or other action is final and non
appealable.
7.2 Effect of Termination.
In the event of termination of this Agreement as provided in Section 7.1,
this Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Exodus or the Company Parties or their respective
officers, directors, stockholders or affiliates in respect of any provision of
this Agreement that does not survive such termination, except (subject to
Section 7.3(b)) to the extent that such termination results from the willful
breach by a party hereto of any of its representations, warranties or covenants
set forth in this Agreement; provided, however, that the provisions of Section
5.4 (Confidentiality), Section 7.3 (Expenses and Termination Fees) and this
Section 7.2 and of Article IX shall remain in full force and effect and survive
any termination of this Agreement.
7.3 Expenses and Termination Fees.
(a) Subject to Section 7.3(b), whether or not the Merger is consummated,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, the fees
and expenses of its advisers, accountants and legal counsel) shall be paid
by the party incurring such expense.
(b) In the event that the Company shall, at a time when there is no
breach of this Agreement such as would cause the condition set forth in
Section 6.3(a) hereof to not be satisfied, and prior to approval of the
Merger by Exodus stockholders, terminate this Agreement pursuant to Section
7.1(d)(ii) following the making of an Exodus Acquisition Offer then Exodus
shall promptly (but in no event later then five (5) business days after
such termination) pay to the Company Sixty Five Million Dollars
($65,000,000), and if within one year after such termination a Third Party
Acquisition shall have occurred or Exodus or any of its subsidiaries shall
have entered into an agreement providing for a Third Party Acquisition
which is subsequently consummated, then Exodus shall promptly (but in no
event later than five (5) business days after the consummation of such
Third Party Acquisition) pay to Company the additional amount of Two
Hundred Thirty-Five Million Dollars ($235,000,000). In the event that
Company shall, at a time when there is no breach of this Agreement such as
would cause the condition set forth in Section 6.3(a) hereof to not be
satisfied, terminate this Agreement pursuant to Section 7.1(d)(iii)
following the making of any Exodus Acquisition Offer (which term for
purposes of this Section 7.3(b) also includes any Third Party Acquisition
Proposal that has been publicly disclosed prior to the Exodus Stockholders
Meeting and with respect to which neither the party making that Third Party
Acquisition Proposal nor Exodus has publicly
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disclosed prior to the Exodus Stockholders Meeting that the party making
that Third Party Acquisition Proposal has made an unconditional commitment
to support the Merger and the transactions contemplated by the Ancillary
Agreements and the Commercial Agreements) and, either (A) no later than one
year after such termination the Third Party Acquisition contemplated by
such pending Exodus Acquisition Offer ("Pending Transaction") shall have
occurred or Exodus or any of its subsidiaries shall have entered into an
agreement with respect to the Pending Transaction which is subsequently
consummated, or (B) no later than six months after such termination any
other Third Party Acquisition shall have occurred or Exodus or any of its
subsidiaries shall have entered into an agreement with respect to any other
Third Party Acquisition, then Exodus shall promptly (but in no event later
than five (5) business days after the earlier of the consummation of the
Pending Transaction under clause (A) or the consummation of the Third Party
Acquisition under clause (B)) pay to Company the amount of Three Hundred
Million Dollars ($300,000,000). Any payment pursuant to this Section 7.3(b)
shall be made in immediately available funds by wire transfer to an account
specified by the Company. Such payment will relieve Exodus from any
liability it might otherwise have in accordance with Section 7.2 with
respect to any breach of this Agreement.
7.4 Amendment.
The boards of directors of the parties hereto may cause this Agreement to be
amended at any time by execution of an instrument in writing signed on behalf
of each of the parties hereto.
7.5 Extension; Waiver.
At any time prior to the Effective Time any party hereto may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII
TAX MATTERS
8.1 Liability for Taxes.
(a) Global Crossing NA shall be liable for and indemnify Exodus or the
Company as the case may be, for all Taxes imposed on the Company or its
subsidiaries, or for which the Company or its subsidiaries may otherwise be
liable (including liabilities pursuant to Treasury Regulation Section
1.1502-6(a) or any similar provision of any state, local or foreign law),
for any taxable year or period that ends on or before the Closing Date
(such periods referred to as "Pre-Closing Tax Periods" and Taxes for such
periods referred to as "Pre-Closing Taxes") and, with respect to any
portion of a taxable year or period beginning before and ending after the
Closing Date (such periods referred to as "Straddle Periods" and Taxes for
such periods referred to as "Straddle Taxes"), the portion of such Straddle
Period ending on and including the Closing Date; provided, however, that
Global Crossing NA shall have no obligation to make any payment pursuant to
this Section 8.1, until the amounts that would otherwise be payable
pursuant to this Section 8.1 (apart from this proviso) exceed the reserve
for Taxes on the Financial Statements.
(b) The Company shall be liable for, and Exodus shall indemnify Global
Crossing NA and its affiliates for, all Taxes imposed on Global Crossing NA
or any of its affiliates with respect to the Company or its subsidiaries
for any taxable year or period that begins after the Closing Date (such
periods referred to as "Post-Closing Tax Periods" and such Taxes referred
to as "Post-Closing Taxes") and, with respect to a Straddle Period, the
portion of such Straddle Period beginning after the Closing Date.
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(c) For purposes of this Section 8.1, whenever it is necessary to
determine the liability for Income Taxes of the Company or its subsidiaries
for a portion of a Straddle Period, the determination of the Income Taxes
for the portion of the Straddle Period ending on, and the portion of the
Straddle Period beginning after, the Closing Date, shall be determined by
assuming that the Company and its subsidiaries had a taxable year or period
that ended at the close of the Closing Date. To the extent permitted by
applicable law, the parties agree to elect to treat the Closing Date as the
last day of the taxable year. In the case of a Tax that is not based on net
income, the Tax for the portion of the Straddle Period ending on the
Closing Date shall be the Tax for the Straddle Period multiplied by a
fraction the numerator of which is the number of days in the period on or
before the Closing Date and the denominator of which is the total number of
days in the Straddle Period.
(d) Exodus covenants that it will not cause or permit the Company, its
subsidiaries or any affiliate of Exodus (i) to take any action on the
Closing Date other than in the Ordinary Course, including but not limited
to the distribution of any dividend or the effectuation of any redemption,
that could give rise to any Tax liability or reduce any Tax attribute of
the Global Crossing NA Group or (ii) take any Tax position on any Tax
Return, take any action, omit to take any action or enter into any
transaction that results in any increased Tax liability or reduction of any
Tax attribute of the Global Crossing NA Group in respect of any Pre-Closing
Tax Period or any pre-closing portion of a Straddle Period without the
prior written consent of Global Crossing NA, unless it is required to do so
by law. Exodus agrees that the Global Crossing NA Group shall have no Tax
liability or reduction of any Tax attribute resulting from any prohibited
action described in the preceding sentence and agrees to indemnify and hold
harmless the Global Crossing NA Group against any such Tax and any loss,
liability, claim, damage, expense or Tax for which indemnification is
provided under this Article VIII (as defined below) in connection
therewith.
8.2 Tax Refunds.
(a) Global Crossing NA shall be entitled to any refund of any Pre-
Closing Taxes of the Company and its subsidiaries and any Taxes of the
Company and its subsidiaries for the pre-Closing portion of a Straddle
Period, including, in each case, interest paid thereon. Global Crossing NA
shall have the right to determine whether any claim for refund for such
Taxes shall be made on behalf of Global Crossing NA by the Company and its
subsidiaries. If Global Crossing NA elects to make a claim for refund,
Exodus, the Company and its subsidiaries shall cooperate fully in
connection therewith. Notwithstanding the foregoing, Global Crossing NA
shall not be entitled to make any claim for refund of Taxes which would
materially adversely affect the liability for Taxes of Exodus, the Company
or its subsidiaries for any Post-Closing Tax Period or the portion of a
Straddle Period beginning after the Closing Date without the prior written
consent of Exodus; provided, however, that such consent shall not be
unreasonably withheld and such consent shall not be necessary to the extent
that Global Crossing NA has indemnified Exodus against the effects of any
such claim for refund. Global Crossing NA shall reimburse Exodus and the
Company and its subsidiaries for reasonable out-of-pocket expenses incurred
in providing such cooperation.
(b) If an indemnified party receives a refund or credit of Taxes for
which it has been indemnified pursuant to this Agreement, such indemnified
party agrees to pay to the indemnifying party the amount of such refund or
credit (including any interest received thereon).
(c) Subject to the following sentence and to the extent permitted by
law, Exodus will elect to forego any carrybacks for the Company and its
subsidiaries incurred in any Post-Closing Tax Period. Except as provided in
the following sentence, neither Global Crossing NA nor any of its
affiliates shall be required to pay to Exodus, the Company or its
subsidiaries any refund or credit of Taxes that results from the carryback
to any Pre-Closing Tax Period of any net operating loss, capital loss or
tax credit attributable to the Company or its subsidiaries in any Post-
Closing Tax Period, except that the Company and its subsidiaries that have
not filed consolidated, combined, unitary or similar returns with Global
Crossing NA or any of its affiliates (other than the Company or any of its
subsidiaries) shall be entitled to carry back losses or tax credits from
any such Post-Closing Tax Period to any Pre-Closing Tax Period and to
receive any resulting refund of Taxes including any interest received
thereon, but only if such carryback would not impose a material Tax cost or
otherwise materially adversely affect Global Crossing NA or any of its
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affiliates, unless Exodus has indemnified Global Crossing NA for such
material Tax costs or material adverse affect on an after-tax basis.
Notwithstanding the foregoing sentence, if and to the extent that Exodus is
not permitted by applicable law to forego a carryback, then solely with
respect to such carryback to the extent that Global Crossing NA receives a
refund of Taxes attributable to such carryback from a Post-Closing Tax
Period of the Company and its subsidiaries or for the portion of a Straddle
Period after the Closing Date, Global Crossing NA shall pay to Exodus, net
of any additional costs (other than costs that are indemnified pursuant to
Section 8.2(d) hereof), incurred by or Taxes payable by Global Crossing NA
or any of its affiliates by reason of such carryback, such refund including
any interest received thereon.
(d) If and to the extent that Exodus (i) is not permitted by applicable
law to forego a carryback of any net operating loss, capital loss or tax
credit attributable to the Company or its subsidiaries, (ii) timely
requests in writing that Global Crossing NA obtain a refund with respect to
such carryback, and (iii) indemnifies and holds harmless Global Crossing NA
on an after-tax basis for all costs and expenses incurred in respect of
obtaining such refund, then Global Crossing NA shall take all reasonable
measures to obtain a refund with respect to such carryback; provided,
however, that Global Crossing NA shall have sole discretion with respect to
the manner in which any amended Tax Return shall be prepared and filed.
8.3 Amended Returns.
Without the prior written consent of Global Crossing NA, neither Exodus, the
Company or its subsidiaries, nor any affiliate of Exodus shall (i) make any
election relating to Taxes or (ii) file any amended Tax Returns or propose or
agree to any adjustment of any item with the Internal Revenue Service or any
other Taxing Authority that would have the effect of increasing the liability
for any Taxes or reducing any Tax benefit of Global Crossing NA, the Company or
its subsidiaries for any Pre-Closing Tax Period or Pre-Closing portion of a
Straddle Period. Without the prior written consent of Exodus, Global Crossing
NA shall not file any amended Tax Returns for any Pre-Closing Period that could
have a material adverse affect on the liability of the Company or its
subsidiaries for any Taxes for a Post-Closing Period. Notwithstanding anything
to the contrary herein (except as provided in Section 8.2(d)), in no event
shall Exodus, the Company or any of its subsidiaries or any affiliate of Exodus
have any rights to make any election or file any amended Tax Return, or take
any other action with respect to any consolidated, combined or unitary Tax
Returns of any of the Global Crossing NA Group.
8.4 Tax Returns.
Global Crossing NA shall prepare, or cause to be prepared, and timely file
or cause to be filed when due, including extensions thereof, all Tax Returns
that are required to be filed with respect to the Company and its subsidiaries
for Pre-Closing Tax Periods and shall pay any Taxes due in respect of such Tax
Returns, and, except as specified in the following two sentences, Exodus shall
timely file or cause to be filed when due, including extensions thereof, all
other Tax Returns with respect to the Company and its subsidiaries and shall
timely pay any Taxes due in respect of such Tax Returns. Global Crossing NA in
its sole discretion shall have the right to prepare or cause to be prepared all
consolidated, combined or unitary Tax Returns of any of the Global Crossing NA
Group members for all Tax periods. Global Crossing NA in its sole discretion
shall have the right to prepare and file or cause to be prepared and filed all
Tax Returns that are required to be filed with respect to the Company and its
subsidiaries for any Straddle Period. If Global Crossing NA does not exercise
its rights in the preceding sentence, Exodus shall prepare or cause to be
prepared any Straddle Period Tax Returns that Global Crossing NA does not
prepare. Any such Straddle Period Tax Return (regardless of which party
prepares it) shall be prepared in a manner consistent with past practices and
without a change of any election or accounting method and shall be submitted by
the preparing party to the other party (together with schedules, statements and
supporting documentation) at least twenty (20) days prior to the due date
(including extensions of such Tax Returns). Such other party shall have the
right to review all work papers and procedures used to prepare any such Tax
Return. If such other party, within ten (10) business days after delivery of
any such Tax Return, notifies the preparing party in writing that it objects to
any of the items in such Tax Return, the preparing party shall attempt in good
faith to resolve the dispute and, if they are unable to do so, the
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disputed items shall be resolved (within a reasonable time, taking into account
the deadline for filing such Tax Return) by an internationally recognized
independent accounting firm chosen by and mutually acceptable to both Exodus
and Global Crossing NA. Upon resolution of all such items, the relevant Tax
Return shall be adjusted to reflect such resolution and shall be binding upon
the parties without further adjustment. The costs, fees and expenses of such
accounting firm shall be born equally by Exodus and Global Crossing NA. If
Exodus fails to agree to the selection of an accounting firm within seven (7)
business days, Global Crossing NA has the right to adjust the relevant Straddle
Period Tax Return in the manner it deems appropriate and the Tax Return as so
adjusted shall be binding upon the parties without further adjustment.
8.5 Tax Contest Provisions.
(a) Notice Requirements. Whenever Exodus receives a notice of any
pending or threatened Tax audit or assessment for any Pre-Closing Tax
Period or Straddle Period, Exodus shall promptly inform Global Crossing NA
in writing. Whenever Global Crossing NA receives a notice of any pending or
threatened Tax audit or assessment of Company or its subsidiaries for any
Pre-Closing Tax Period, any Straddle Period, or any Post-Closing Tax
Period, Global Crossing NA shall promptly inform Exodus in writing.
(b) Contests Pertaining to Pre-Closing and Straddle Period Taxes. Global
Crossing NA shall have the right to control, at its own cost, any
proceedings relating to any pending or threatened Tax audit or assessment
for any Pre-Closing Taxes or Straddle Period Taxes of the Company and its
subsidiaries (including any Taxes for which the Company or its subsidiaries
may be liable including any Tax liability pursuant to Treasury Regulation
Section 1.1502-6(a) or any similar provision of any state, local, or
foreign law) and to determine whether and when to settle any such claim,
assessment or dispute. Notwithstanding the foregoing, Global Crossing NA
shall not be entitled to settle, either administratively or after the
commencement of litigation, any claim for Taxes which would materially
adversely affect the liability for Taxes of Exodus, the Company or its
subsidiaries for any period Post-Closing Tax Period or the post-closing
portion of the Straddle Period without the prior written consent of Exodus.
Such consent shall not be unreasonably withheld, and shall not be necessary
to the extent that Global Crossing NA has indemnified Exodus against the
effects of any such settlement.
(c) Contests Pertaining to Post-Closing Taxes. Exodus shall have the
right to control, at its cost, any proceedings relating to any pending or
threatened Tax audit or assessment relating to any Post-Closing Taxes of
the Company and its subsidiaries and to determine whether and when to
settle any such claim, assessment or dispute. Notwithstanding the
foregoing, Exodus shall not be entitled to settle, either administratively
or after the commencement of litigation, any claim for Taxes which would
materially adversely affect the liability for Taxes of Global Crossing NA
without the prior written consent of Global Crossing NA, provided that such
consent shall not be unreasonably withheld.
(d) Contests Pertaining to Both Pre-Closing and Post-Closing Taxes. With
respect to any threatened Tax audit or assessment that covers both one or
more Pre-Closing Tax Periods (or Straddle Periods) and one or more Post-
Closing Tax Periods, the parties shall use reasonable efforts to cause such
proceedings to be bifurcated between the Pre-Closing Tax Periods and Post-
Closing Tax Periods. To the extent that the parties are able to cause such
bifurcation, Sections 8.5(b) and (c) hereof shall govern the control of
such proceedings. To the extent that the parties are unable to cause such
bifurcation, (i) Global Crossing NA and Exodus shall jointly control such
proceedings, (ii) Global Crossing NA shall be entitled to determine whether
and when to settle any claim, assessment, or dispute to the extent it
relates to any Pre-Closing Taxes or Straddle Period Taxes of the Company
and its subsidiaries (including any Taxes for which the Company or its
subsidiaries may be liable including any Tax liability pursuant to Treasury
Regulation Section 1.1502-6(a) or any similar provision of any state,
local, or foreign law), and (iii) Exodus shall be entitled to determine
whether and when to settle any claim, assessment, or dispute to the extent
it relates to any Post-Closing Taxes of the Company and its subsidiaries.
Notwithstanding the foregoing, neither Exodus nor Global Crossing NA shall
be entitled to settle, either administratively or after the commencement of
litigation, any claim for Taxes which would materially adversely affect the
liability for Taxes of the other party without the prior written consent of
the other party, provided that such consent shall not be unreasonably
withheld.
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8.6 Termination of Tax Allocation Agreements.
Any and all Tax allocation or sharing agreements or arrangements (other than
this Agreement), whether or not written, that may have been entered into by and
between Global Crossing NA and its affiliates, on the one hand, and the Company
and its subsidiaries, on the other hand, shall be terminated as to the Company
and its subsidiaries as of the Closing Date, and no payments which are owed by
or to the Company or its subsidiaries pursuant thereto shall be made
thereunder.
8.7 Assistance and Cooperation.
Each of Exodus and Global Crossing NA will provide the other with such
assistance as may reasonably be requested by each of them in connection with
the preparation of any Tax Return, any audit or other examination by any Taxing
Authority, or any judicial or administrative proceedings relating to liability
for Taxes, and each provide the other with any records or information which may
be relevant to such Tax Return, audit or examination, proceedings or
determination. Such assistance shall include making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder and shall include providing copies of any
relevant Tax Return and supporting work schedules. The party requesting
assistance hereunder shall reimburse the other for reasonable expenses incurred
in providing such assistance. Without limiting in any way the foregoing
provisions of Article VIII, Exodus hereby agrees that it will retain, until the
appropriate statutes of limitation (including any extensions) expire, copies of
all Tax Returns, supporting work schedules and other records or information
which it possesses and which may be relevant to such Tax Returns of the Company
or its subsidiaries for all Pre-Closing Tax Periods or any pre-Closing portion
of a Straddle Period. Further, Exodus will not destroy or otherwise dispose of
such records without first providing Global Crossing NA with a reasonable
opportunity to review and copy such records.
8.8 Preservation of Reorganization Status.
Neither the Company Parties nor the Exodus Parties shall take any action
prior to or following the Closing that would cause the merger to fail to
qualify as a "reorganization" within the meaning of Section 368(a) of the Code.
ARTICLE IX
GENERAL PROVISIONS
9.1 Non-Survival at Effective Time.
Each of the representations and warranties set forth in Article II and
Article III and in any certificate delivered pursuant to Section 6.2(b) or
Section 6.3(b) shall survive for the time period set forth in Section 10.5,
after which time they will have no further force and effect. The agreements set
forth in this Agreement shall terminate at the Effective Time, except that the
agreements set forth in Article I, Section 5.4 (Confidentiality), 5.9
(Assumption of Options), 5.10 (Form S-8), 5.12 (Employees), 5.13 (Best Efforts
and Further Assurances), 7.3 (Expenses and Termination Fees), 7.4 (Amendment),
Article VIII, this Article IX and Article X shall survive the Effective Date
and the Closing. The agreements set forth in Article VIII shall survive the
Effective Date and Closing for a period beginning on the date hereof and ending
on the last day of the periods of limitations applicable to any Taxes that are
the subject of a claim under Article VIII.
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9.2 Notices.
All notices and other communications hereunder shall be in writing and shall
be deemed given if delivered personally or by commercial delivery service, or
mailed by registered or certified mail (return receipt requested) or sent via
facsimile (with confirmation of receipt) to the parties at the following
address (or at such other address for a party as shall be specified by like
notice):
(a) if to Exodus or Exodus Merger Sub, to:
Exodus Communications, Inc.
2831 Mission College Blvd.
Attention: General Counsel
Facsimile No.: (408) 346-2201
with a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: David W. Healy
Facsimile No.: (650) 496-1417
(b) if to the Company, GlobalCenter, GCG, Global Crossing NA, to:
Global Crossing Ltd.
360 N. Crescent Drive
Beverly Hills, CA 90210
Attention: General Counsel
Facsimile No.: (310) 385-3700
with copies to:
GlobalCenter Inc.
141 Caspian Court
Sunnyvale, CA
Attention: General Counsel
Facsimile No.: (408) 541-1637
Gibson, Dunn & Crutcher LLP
One Montgomery Street
San Francisco, CA 94104
Attention: Todd H. Baker
Facsimile No.: (415) 986-5309
Simpson Thacher & Bartlett
3373 Hillview Avenue
Suite 250
Palo Alto, CA 94304
Attention: Richard Capelouto
Facsimile No.: (650) 251-5002
9.3 Interpretation.
When a reference is made in this Agreement to Exhibits, such reference shall
be to an Exhibit to this Agreement unless otherwise indicated. The words
"include," "includes" and "including" when used herein shall be deemed in each
case to be followed by the words "without limitation. The phrases "the date of
this Agreement," "the date hereof," and terms of similar import, unless the
context otherwise requires, shall be
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deemed to refer to the date set forth in the preamble paragraph of this
Agreement. References to the "subsidiaries" of a Person shall be deemed to
refer to all of such Person's direct and indirect subsidiaries. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
9.4 Counterparts.
This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement and shall become effective when
one or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
9.5 Entire Agreement; Nonassignability; Parties in Interest.
This Agreement and the documents and instruments and other agreements
specifically referred to herein or delivered pursuant hereto, including the
Exhibits and the Items, including the Company Disclosure Letter and Exodus
Disclosure Letter, (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, except for the Confidentiality Agreement, which shall
continue in full force and effect and except as set forth in Section 9.1, shall
survive any termination of this Agreement or the Closing, in accordance with
its terms (b) are not intended to confer upon any other person any rights or
remedies hereunder, except as set forth in Sections 5.14; and (c) shall not be
assigned by operation of law or otherwise by the Company Parties without the
prior written consent of the Exodus Parties or by the Exodus Parties without
the prior written consent of the Company Parties. Notwithstanding anything
herein to the contrary, in the event that GCG shall transfer, before Closing,
all of the issued and outstanding shares of capital stock of GlobalCenter
Holding to an affiliated entity, then GCG may, without further notice to or
prior written consent of any party, assign all of its rights and obligations
under this Agreement to such affiliated entity.
9.6 Severability.
In the event that any provision of this Agreement, or the application
thereof, becomes or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of this Agreement will continue
in full force and effect and the application of such provision to other persons
or circumstances will be interpreted so as reasonably to effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of such void or unenforceable provision.
9.7 Remedies Cumulative.
Except as otherwise provided herein, any and all remedies herein expressly
conferred upon a party will be deemed cumulative with and not exclusive of any
other remedy conferred hereby, or by law or equity upon such party, and the
exercise by a party of any one remedy will not preclude the exercise of any
other remedy.
9.8 Governing Law; Submission to Jurisdiction.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware (without giving effect to choice of law
principles thereof) applicable to contracts made and to be performed in the
State of Delaware. Each of the parties hereto irrevocably consents to the
exclusive jurisdiction of the Court of Chancery or other courts of the State of
Delaware in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of Delaware for
such persons, and waives and covenants not to assert or plead any objection
which it might otherwise have to such jurisdiction and such process.
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9.9 Rules of Construction.
Each of the parties hereto acknowledges and agrees that such party has been
represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waives the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
9.10 Remedies for Breach.
If any party under this Agreement fails to consummate the transactions
contemplated by this Agreement by its act or failure to act or do any other act
required of such party under this Agreement, then, if the failure continues for
ten business days after notice to the party in default by the non-defaulting
party, such non-defaulting party may institute and maintain a proceeding to
compel the defaulting party's specific performance of this Agreement. The
remedy of specific performance shall be in addition to any and all of the
remedies at law or in equity including, but not limited to, injunctive relief
and an action for damages, to which any party may be entitled.
ARTICLE X
INDEMNIFICATION; REMEDIES
10.1 Global Crossing NA's Obligation to Indemnify.
From and after the Closing Date, Global Crossing NA hereby agrees to defend,
indemnify, and hold harmless the Exodus Parties and their affiliates, and their
respective employees, agents and representatives (collectively, "Exodus
Indemnitees"), from and against any and all actual liabilities, judgments,
damages, claims, demands, costs, expenses (including necessary and reasonable
legal fees and expenses) and losses (each, a "Claim") suffered or incurred by
reason of (i) any representation or warranty made by any Company Party in this
Agreement (other than representations and warranties contained in Section 2.11
of this Agreement) having been untrue when made or deemed made or the breach by
any Company Party of any covenant or agreement made by it herein or (ii) any
liabilities arising from or relating to assets of the Company Parties not used
in the business of the Group and not included in the assets of the Company as
of the date hereof; provided, however, that, except as set forth in Section
5.17 hereto, Global Crossing NA shall have no liability under this Section 10.1
unless and until the aggregate of all Claims of Exodus Indemnitees exceeds $33
million (the "Threshold"), whereafter Global Crossing NA shall be liable for
the amount of all Claims of Exodus Indemnitees up to and including the
Threshold and all Claims of Exodus Indemnitees in excess of the Threshold; and
provided further that Global Crossing NA's aggregate liability pursuant to this
Article X shall not exceed $660 million.
10.2 Entitlement to Indemnification; Indemnification Amount; Double
Recovery.
(a) The Exodus Indemnitees shall be entitled to indemnity under Section
10.1 for any and all Claims for which written notice specifying the Claim
in reasonable detail is given during the period set forth in Section 10.5.
The termination of the representations and warranties contained in this
Agreement shall not affect the rights of any Exodus Indemnitee, to
prosecute to conclusion any Claim resulting from any breach of a
representation or warranty as to which notice is given pursuant to Section
10.4 prior to the termination of such representation or warranty.
(b) The amount of any Claim or Tax (collectively, a "Loss") for which
indemnification is provided under Article VIII or this Article X shall be
net of any amounts actually recovered by the indemnified party under
insurance policies with respect to such Loss and shall be reduced to take
account of any net Tax benefit by the indemnified party arising from the
incurrence or payment of any such Loss.
(c) An Exodus Indemnitee shall not be entitled to a double recovery of
damages under any provision of this Agreement, including the provisions set
forth in Article VIII and this Article X.
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10.3 Sole Remedy.
The indemnification provided in this Article X shall be the sole and
exclusive remedy of any Exodus Indemnitee in respect of the matters addressed
in Section 10.1.
10.4 Claims.
Each indemnified party shall, promptly after receipt of notice of a Claim or
action against such indemnified party in respect of which indemnity may be
sought hereunder, notify the applicable indemnifying party in writing of the
Claim or action. If any such Claim or action shall be brought against an
indemnified party, and it shall have notified the indemnifying party thereof,
unless based on the written advice of counsel to such indemnified party a
conflict of interest between such indemnified party and indemnifying parties
may exist in respect of such Claim, then the indemnifying party shall be
entitled to participate therein, and, to the extent that it wishes, jointly
with any other similarly notified indemnifying party, to assume the defense
thereof. After notice from the indemnifying party to the indemnified party of
its election to assume the defense of such Claim or action in accordance with
the preceding sentence, the indemnifying party shall not be liable to the
indemnified party under this Article X for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof. Any indemnifying party against whom indemnity may be sought under this
Article X shall not be liable to indemnify an indemnified party if such
indemnified party settles such Claim or action without the consent of the
indemnifying party, but such consent shall not unreasonably be withheld. The
indemnifying party may not agree to any settlement of any such Claim or action,
other than solely for monetary damages for which the indemnifying party shall
be responsible hereunder, as a result of which any remedy or relief shall be
applied to or against the indemnified party, without the prior written consent
of the indemnified party, which consent shall not unreasonably be withheld.
This Section 10.4 shall not apply to claims made under Article VIII. In any
action hereunder as to which the indemnifying party has assumed the defense
thereof, the indemnified party shall continue to be entitled to participate in
the defense thereof, with counsel of its own choice, but the indemnifying party
shall not be obligated hereunder to reimburse the indemnified party of the
costs thereof.
10.5 Survival.
The representations and warranties of the Company Parties contained in
Article II (other than those representations set forth in Section 2.11 hereof)
and the representations and warranties of the Exodus Parties contained in
Article III shall each survive for a period of one (1) year following the
Closing Date, at which time they shall terminate and be of no further force and
effect. Any other representations and warranties (including those
representations set forth in Section 2.11 hereof) of any party which may be
contained in this Agreement or in any certificate or instrument delivered
pursuant to this Agreement shall terminate on the Closing Date.
10.6 Satisfaction of Indemnity Obligations.
Global Crossing NA shall satisfy its indemnification obligations under this
Article X by delivery of immediately available funds to an account designated
by Exodus. Notwithstanding any restriction on the sale of shares of Exodus
Common Stock by Global Crossing NA or any of its affiliates contained in any
agreement between Exodus and Global Crossing NA or any such affiliates, Global
Crossing NA or such affiliates may at any time sell a number of shares of
Exodus Common Stock that will yield proceeds in an amount equal to Global
Crossing NA's indemnification obligations pursuant to this Article X or Article
VIII.
10.7 Adjustment to Purchase Price.
Exodus and Global Crossing NA agree to report any indemnification payment
made under Article VIII and this Article X and any payment made pursuant to
Section 4.4 as an adjustment to purchase price, contribution to capital made
immediately prior to the Closing Date, or other non-taxable amount to the
extent that there is substantial authority for such reporting position under
applicable law.
[Signature page follows]
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<PAGE>
IN WITNESS WHEREOF, the Company Parties and Exodus Parties have caused this
Agreement to be executed and delivered by their respective officers thereunto
duly authorized, all as of the date first written above.
Exodus Communications, Inc.
/s/ Ellen M. Hancock
By: _________________________________
Ellen M. Hancock
Chief Executive Officer and
Chairman
Einstein Acquisition Corp.
/s/ Adam W. Wegner
By: _________________________________
Adam W. Wegner
President
GlobalCenter Holding Co.
/s/ Leo J. Hindery, Jr.
By: _________________________________
Leo J. Hindery, Jr.
Chief Executive Officer
Global Crossing North America, Inc.
/s/ Leo J. Hindery, Jr.
By: _________________________________
Leo J. Hindery, Jr.
Global Crossing GlobalCenter
Holdings, Inc.
/s/ Leo J. Hindery, Jr.
By: _________________________________
Leo J. Hindery, Jr.
Chief Executive Officer
GlobalCenter Inc.
/s/ Leo J. Hindery, Jr.
By: _________________________________
Leo J. Hindery, Jr.
Chief Executive Officer
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
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ANNEX B
September 27, 2000
Board of Directors
Exodus Communications Inc.
2831 Mission College Boulevard
Santa Clara, CA 95054
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to Exodus Communications Inc. ("Exodus") of the consideration to be paid
by Exodus pursuant to the terms of the Agreement and Plan of Merger (the
"Agreement") among Exodus, Exodus Acquisition Corp., a wholly owned subsidiary
of Exodus ("Exodus Merger Sub"), Global Crossing North America, Inc. ("Global
Crossing NA"), Global Crossing GlobalCenter Holding Co., a wholly owned
subsidiary of Global Crossing NA ("GCG"), GlobalCenter Holding Co., a wholly
owned subsidiary of Global Crossing NA (the "Company"), and GlobalCenter, Inc.,
a wholly owned subsidiary of the Company ("GlobalCenter"), pursuant to which
Exodus Merger Sub will be merged (the "Merger") at the effective time of the
Merger (the "Effective Time") with and into the Company. The terms and
conditions of the Merger are more fully set out in the Agreement.
Global Crossing NA, GCG, the Company and GlobalCenter each are wholly owned
subsidiaries of Global Crossing Ltd. ("GCL"). In connection with the Merger,
Exodus, GCL and Asia Global Crossing Ltd ("AGC") will enter into (a) a
Networking Services, Marketing and Cooperation Agreement (the "Networking
Agreement") pursuant to which GCL will supply to the Exodus certain services
and (b) a joint venture agreement pursuant to which Exodus and AGC will form a
joint venture in Asia (the "Joint Venture").
Pursuant to the Agreement, each outstanding share of common stock of the
Company, $0.01 par value per share ("Company Common Stock"), will be converted
into the right to receive at the Effective Time a number of shares of common
stock, $0.001 par value per share, of Exodus ("Exodus Common Stock") equal to
the Exchange Ratio. The "Exchange Ratio", which is more fully defined in the
Agreement, will equal $6,525,000,000, divided by the Final Closing Price (as
defined in the Agreement) of Exodus Common Stock, and further divided by the
number of shares of Company Common Stock on a fully diluted basis at the
Effective Time, provided that (a) the Final Closing Price of Exodus Common
Stock used to determine the Exchange Ratio will not be more than $65.55 or less
than $56.40 and (b) the Exchange Ratio is subject to adjustment as set forth in
the Agreement for the aggregate exercise price, as of the Effective Time, of
all outstanding options to purchase Company Common Stock.
In arriving at our opinion, we have reviewed the draft dated September 26,
2000 of the Agreement; Annual Reports to Stockholders and Annual Reports on
Form 10-K of Exodus for the two years ended December 31, 1999; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of Exodus; certain
other communications from Exodus to its stockholders; certain internal
financial analyses and forecasts for the Company prepared by the management of
the Company; and certain internal financial analyses and forecasts for Exodus
and the Company prepared by the management of Exodus (the "Forecasts"),
including certain cost savings and operating synergies projected by the
management of Exodus to result from the Merger. We also have held discussions
with members of the senior management of Exodus and the Company regarding their
assessment of the strategic rationale for, and the potential benefits of, the
Merger and the past and current business operations, financial condition and
future prospects of Exodus and the Company and of the combined business
consisting of Exodus and the Company. In addition, we have reviewed the
reported price and trading activity for Exodus Common Stock, which like many
Internet-related stocks has been and is likely to continue to be subject to
significant short-term price and trading volatility, compared certain financial
and stock market information for Exodus with similar information for certain
other companies the securities of which are publicly traded, reviewed the
financial terms of certain recent business combinations in the Internet
infrastructure industry specifically and in other industries generally and
performed such other financial studies and analyses as we considered
appropriate.
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In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available
to us from public sources, that was provided to us by Exodus, the Company or
their respective representatives, or that was otherwise reviewed by us. In
particular, we have relied upon the estimates of the management of Exodus of
the cost savings and operating synergies achievable as a result of the Merger
and on our discussion of such synergies with the management of the Company.
With respect to the Forecasts referred to above, we have relied on
representations that they have been reasonably prepared on the basis reflecting
the best currently available estimates and judgments of the management of
Exodus as to the future operating and financial performance of Exodus and the
Company. We also have assumed that the Networking Agreement and the Joint
Venture each will have neither a positive nor negative effect on Exodus from a
financial point of view. We have not assumed any responsibility for making any
independent evaluation of any assets or liabilities or of the Networking
Agreement or the Joint Venture or for making any independent verification of
any of the information reviewed by us. We have relied as to certain legal
matters on advice of counsel to Exodus.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which Exodus Common Stock will actually trade at any time. Our
opinion does not address the relative merits of the Merger, the Networking
Agreement, the Joint Venture and the other business strategies being considered
by Exodus's Board of Directors, nor does it address the Board's decision to
proceed with the Merger. Our opinion does not constitute a recommendation to
any stockholder as to how such stockholder should vote on the proposed
transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. DLJ has
performed investment banking and other services for Exodus in the past and has
been compensated for such services, including acting as its co-lead manager in
two high yield financings and in two issuances of convertible notes, as well as
acting as its financial advisor in connection with its acquisition of Cohesive
Technology Solutions, Inc. In addition, DLJ has performed investment banking
and other services for GCL and its affiliates in the past, including acting as
its co-lead manager in the Company's pending initial public offering, and
received usual and customary underwriters compensation in connection with such
offerings.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Exchange Ratio is fair to Exodus from a financial point
of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: _________________________________
Robert G. Mann
Senior Vice President
B-2
<PAGE>
ANNEX C
PERSONAL AND CONFIDENTIAL
September 28, 2000
Board of Directors
Exodus Communications, Inc.
2831 Mission College Boulevard
Santa Clara, CA 95054
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to Exodus Communications, Inc. (the "Company") of the Exchange Ratio (as
defined below) provided for pursuant to the Agreement and Plan of Merger, dated
as of September 28, 2000, among the Company, Exodus Acquisition Corp., a
direct, wholly owned subsidiary of Exodus ("Merger Sub"), Global Crossing North
America Inc. ("Global Crossing NA"), a subsidiary of Global Crossing Ltd.,
Global Crossing GlobalCenter Holdings, Inc., an indirect, wholly owned
subsidiary of Global Crossing NA ("GCG"), GlobalCenter Holding Co., an
indirect, wholly owned subsidiary of Global Crossing NA ("GlobalCenter"), and
GlobalCenter Inc., a direct, wholly owned subsidiary of GlobalCenter (the
"Agreement"), which provides, among other things, for the merger of Merger Sub
into GlobalCenter (the "Merger"). Pursuant to the Merger, GlobalCenter will
become a wholly owned subsidiary of the Company and each outstanding share, par
value $.01 per share (the "GlobalCenter Common Stock"), of GlobalCenter will be
exchanged for a number of shares of common stock, par value $.001 per share
(the "Company Common Stock"), of the Company equal to the Total Exodus Shares
(as defined below) divided by the Total Number of GlobalCenter Securities (as
defined in the Agreement) (the "Exchange Ratio"). Pursuant to the Agreement,
the "Total Exodus Shares" means that number of shares of Exodus Common Stock
equal to the quotient obtained by dividing (A) the sum of (i) $6.525 billion,
plus (ii) the aggregate proceeds from the exercise of all of the Company
Options and Global Crossing Assumed Options (each as defined in the Agreement),
minus (iii) the Global Crossing Cancelled Options Money Value (as defined in
the Agreement), by (B) the average closing price per share, as quoted on the
NASDAQ National Market, of the Company Common Stock for the ten trading days
prior to and including the trading day ending two days prior to the closing
date of the Merger (the "Final Closing Price"), provided that the Final Closing
Price shall not be less than $56.41 or greater than $65.55.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services
to the Company from time to time, including having acted as lead manager in the
initial public offering of 4,500,000 shares of the Company Common Stock in
March 1998; lead manager on a private offering of $200 million principal amount
of 11-1/4% Senior Notes of the Company, due 2008, in June 1998; lead manager on
a private offering of $200 million principal amount of 5% Convertible
Subordinated Notes of the Company, due 2006, in February 1999; lead manager on
a private offering of $75 million principal amount of 11-1/4% Senior Notes of
the Company, due 2008, in June 1999; financial advisor to the Company in
connection with the acquisition of Service Metrics Inc. in November 1999; lead
manager on a private offering of $400 million principal amount of 4-3/4%
Convertible Subordinated Notes of the Company, due 2008, in December 1999;
manager on a private offering of $500 million aggregate principal amount of 10-
3/4% Senior Notes of the Company, including co-manager of principal amount 125
million of 10-3/4% Senior Notes of the Company, due 2009, and lead-manager of
$375 million principal amount of 10-3/4% Senior Notes of the Company, due 2009,
in December 1999; financial advisor to the Company in connection with the
acquisition of a minority equity interest in Mirror Image Internet, Inc. in
April 2000; co-lead manager on a private offering of $1 billion principal
amount of 11-5/8% Senior Notes of the Company, due 2010, in June 2000; and co-
lead
C-1
<PAGE>
Exodus Communications, Inc.
September 28, 2000
Page Two
manager on an offering of 200 million principal amount of 11-3/8% Senior Notes
of the Company, due 2010, in June 2000; and having acted as its financial
advisor in connection with, and having participated in certain of the
negotiations leading to, the Agreement. We also have provided certain
investment banking services to Global Crossing Ltd. ("Global Crossing"), the
parent of GlobalCenter, including having acted as co-manager in the initial
public offering of 21,000,000 shares of Common Stock, par value $0.01 per share
("Global Crossing Common Stock"), of Global Crossing in August 1998; financial
advisor to Global Crossing in connection with its acquisition of Racal
Telecommunications Limited in October 1999; co-manager on a private offering of
$500 million principal amount of 7% Convertible Preferred Stock of Global
Crossing, due 2049, in December 1999; co-manager on a private offering of $1
billion principal amount of 6-3/8% Convertible Preferred Stock of Global
Crossing, due 2049, in November 1999; co-books and co-lead manager in the
public offering of 43,000,000 shares of Global Crossing Common Stock in April
2000; co-books and co-lead manager on a public offering of $1 billion
liquidation preference of 6-3/4% Convertible Preferred Stock of Global
Crossing, due 2012, in April 2000; and co-lead-manager in the pending initial
public offering of 53,000,000 shares of Class A Common Stock, par value $0.01
per share (the "Asia Global Crossing Class A Common Stock"), of Asia Global
Crossing Ltd. ("Asia Global Crossing"), a wholly owned subsidiary of Asia
Global Crossing Holdings Ltd. (a joint venture among Global Crossing, Softbank
Corp. and Microsoft Corporation ("Asia Global Crossing Holdings")). Goldman,
Sachs & Co. provides a full range of financial advisory and securities services
and, in the course of its normal trading activities, may from time to time
effect transactions and hold positions in securities, including derivative
securities, of the Company, Global Crossing and Asia Global Crossing, for its
own account and the accounts of customers. In addition, Goldman, Sachs & Co.
had previously received shares of Class C Common Stock of Asia Global Crossing
Holdings in connection with certain advisory services provided to Asia Global
Crossing Holdings, which shares will convert into a number of shares of Asia
Global Crossing Class A Common Stock based on a percentage of the total
enterprise value of Asia Global Crossing at the time of Asia Global Crossing's
initial public offering. Goldman, Sachs & Co. may provide investment banking
services to Global Crossing and its subsidiaries in the future.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Stockholder Agreement, dated September 28, 2000, among the
Company, Global Crossing and GCG (the "Stockholder Agreement"); the Network
Services, Marketing and Cooperation Agreement, dated September 28, 2000,
between the Company and Global Crossing (the "Network Services Agreement"); the
Joint Venture Agreement, dated September 28, 2000, between the Company and Asia
Global Crossing relating to Exodus Asia-Pacific Ltd. (the "Joint Venture
Agreement"); the Registration Rights Agreement, dated September 28, 2000, among
the Company, Global Crossing and GCG (the "Registration Rights Agreement" and
together with the Agreement, the Stockholder Agreement, the Network Services
Agreement and the Joint Venture Agreement, the "Transaction Agreements");
Annual Reports to Stockholders and Annual Reports on Form 10-K of the Company
and of Global Crossing for the two years ended December 31, 1999; certain
interim reports to stockholders and Quarterly Reports on Form 10-Q of the
Company and of Global Crossing; the Registration Statement on Form S-3 of
Global Crossing dated April 19, 2000; the Registration Statements on Form S-1
of the Company, dated March 18, 1998, and of Global Crossing dated May 22,
1998; the GlobalCenter Financial Statements and GlobalCenter Proxy Statement
(as such terms are defined in the Agreement); certain other communications from
the Company and Global Crossing to their respective stockholders; certain
internal financial analyses and forecasts for GlobalCenter prepared by the
management of GlobalCenter; certain internal financial analyses and forecasts
for the Company prepared by the management of the Company; and certain
financial analyses and forecasts for GlobalCenter prepared by the management of
the Company (the "GlobalCenter Forecasts"), including certain cost savings and
operating synergies projected by the management of the Company to result from
the transaction contemplated by the Transaction Agreements (the "Synergies").
We also have held discussions with members of the senior management of the
Company and GlobalCenter regarding their assessment of the strategic rationale
for, and the potential benefits of, the
C-2
<PAGE>
Exodus Communications, Inc.
September 28, 2000
Page Three
transaction contemplated by the Transaction Agreements and the past and current
business operations, financial condition and future prospects of the Company
and GlobalCenter. In addition, we have reviewed the reported price and trading
activity for the Company Common Stock, which like many Internet-related stocks
has been and is likely to continue to be subject to significant short-term
price and trading volatility, compared certain financial and stock market
information for the Company and certain financial information for GlobalCenter
with similar information for certain other companies the securities of which
are publicly traded, reviewed the financial terms of certain recent business
combinations in the Internet infrastructure industry specifically and in other
industries generally and performed such other studies and analyses as we
considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information discussed with or reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. In that
regard, we have assumed with your consent that the GlobalCenter Forecasts,
including the Synergies, have been reasonably prepared on a basis reflecting
the best currently available estimates and judgments of the Company and that
the GlobalCenter Forecasts will be realized in the amounts and time periods
contemplated thereby. In addition, we have not made an independent evaluation
or appraisal of the assets and liabilities of the Company or GlobalCenter or
any of their subsidiaries and we have not been furnished with any such
evaluation or appraisal. Our advisory services and the opinion expressed herein
are provided for the information and assistance of the Board of Directors of
the Company in connection with its consideration of the transaction
contemplated by the Agreement and such opinion does not constitute a
recommendation as to how any holder of the Company Common Stock should vote
with respect to such transaction.
Our opinion only addresses the fairness from a financial point of view of
the Exchange Ratio to the Company and we are not opining upon the other
contractual and governance terms contained in the Transaction Agreements nor on
the ongoing commercial relationship contemplated by the Network Services
Agreement and the Joint Venture Agreement.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to the
Company.
C-3
<PAGE>
PLEASE VOTE TODAY
The merger cannot be completed unless a majority of the stockholders present
in person or by proxy and entitled to vote at the special meeting approves
the issuance of Exodus common stock in the merger.
[EXODUS LOGO]
<PAGE>
[Description of outside back cover: The Exodus logo appears in the center of
the page. The six pictures described below surround the Exodus logo, forming a
circle. The pictures are listed clockwise, starting from the top of the circle.
1. A picture of an Exodus Response Center, where customer service
professionals manage and resolve customer service requests. The picture
shows ten customer service professionals sitting in front of their
respective computers. In front of the customer service professionals on the
wall are approximately eight large screens showing important network
information.
2. A picture of a person using a computer. The person is looking at the
computer screen with his hand on the mouse. The circular shape of the
graphic cuts out the computer screen so that the content displayed on the
screen cannot be seen.
3. A close-up picture of an Exodus customer service professional in an
Exodus Response Center. The customer service professional is wearing a
telephone headset and is looking at his computer screen which shows
important customer and network information.
4. A picture of an Asian city street at night. There is heavy traffic
pictured on the street. Many tall buildings line the street and most of
these buildings have brightly lit, colorful signs facing the street.
5. A picture of a train station in Europe. The bottom of the picture shows
many people boarding a train. The top of the picture lists different cities
in Europe, such as Zurich, Frankfurt, London and Waterloo, and the
departure times for trains going to these cities.
6. A close-up picture of an index finger touching a key on a computer
keyboard.]
<PAGE>
PROXY
EXODUS COMMUNICATIONS, INC.
Special Meeting of Stockholders - January 9, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints R. Marshall Case and Adam W. Wegner, and each
of them, as proxies of the undersigned, each with full power to appoint his
substitute, and hereby authorizes them to represent and to vote all the shares
of stock of Exodus Communications, Inc. which the undersigned is entitled to
vote, as specified on the reverse side of this card, at the Special Meeting of
Stockholders of Exodus Communications, Inc. (the "Meeting") to be held on
January 9, 2001 at 10:00 a.m., Pacific Time, at Exodus' executive offices, 2831
Mission College Boulevard, Santa Clara, California 95054, and at any adjournment
or postponement thereof.
When this Proxy is properly executed, the shares to which this Proxy relates
will be voted as specified and, IF NO SPECIFICATION IS MADE, WILL BE VOTED FOR
THE PROPOSAL, and this Proxy authorizes the above designated proxies to vote in
their discretion on such other business as may properly come before the Meeting
or any adjournments or postponements thereof to the extent authorized by Rule
14a-4(c) promulgated under the Securities Exchange Act of 1934, as amended.
[See reverse side] (Continued and to be signed on reverse side)
<PAGE>
[X] Please mark vote as in this example
The Board of Directors recommends a vote FOR the following Proposal:
Approval of the issuance of shares of Exodus common stock in the merger of a
wholly owned subsidiary of Exodus with and into GlobalCenter Holding Co., in
exchange for all of the issued and outstanding shares of GlobalCenter Holding
Co.
[ ] For [ ] Against [ ] Abstain
Please sign exactly as your name(s) appear(s) on this Proxy. If shares of
stock are held of record in the names of two or more persons or in the name of
husband and wife, whether as joint tenants or otherwise, both or all of such
persons should sign this Proxy. If shares of stock are held of record by a
corporation, this Proxy should be executed by the president or vice president
and the secretary or assistant secretary. Executors, administrators or other
fiduciaries who execute this Proxy for a deceased stockholder should give their
full title. Please date this Proxy.
[ ] Mark here for address change and note below
Signature:__________________________ Date: _________________
Whether or not you plan to attend the meeting in person, you are urged to
complete, date, sign and promptly mail this Proxy in the enclosed return
envelope so that your shares may be represented at the Meeting.
