<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1998
REGISTRATION NO. 333-53393
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GLOBAL CROSSING LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
BERMUDA 4813 NOT APPLICABLE
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
</TABLE>
---------------
WESSEX HOUSE
45 REID STREET
HAMILTON HM12, BERMUDA
(441) 296-8600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CT CORPORATION
1633 BROADWAY, 23RD FLOOR
NEW YORK, NEW YORK 10019
(212) 479-8200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<S> <C> <C>
D. RHETT BRANDON, ESQ. JAMES C. GORTON, ESQ. ROGER KIMMEL, ESQ.
SIMPSON THACHER & BARTLETT GLOBAL CROSSING LTD. LATHAM & WATKINS
425 LEXINGTON AVENUE 150 EL CAMINO DRIVE, SUITE 885 THIRD AVENUE, SUITE 1000
NEW YORK, NEW YORK 10017 204 NEW YORK, NEW YORK 10022
(212) 455-2000 BEVERLY HILLS, CA 90212 (212) 906-1200
(310) 281-4900
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act of 1933 registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE(3)
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<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share........ 24,150,000 shares $19.00 $458,850,000 $139,045
</TABLE>
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(1) Includes 3,150,000 shares of Common Stock issuable pursuant to a 30-day
option granted to the Underwriters solely to cover over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) $90,910 previously paid on May 22, 1998.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two prospectus cover pages: one to be
used for a prospectus in connection with a United States and Canadian offering
(the "U.S. Prospectus") and one to be used for a prospectus in connection with
a concurrent international offering (the "International Prospectus"). The
International Prospectus will be identical to the U.S. Prospectus except that
it will have a different front cover page and back cover page and a different
section entitled "Underwriting." The front cover page, back cover page, and
"Underwriting" section to be used in the International Prospectus are located
at the end of the U.S. Prospectus and have been labeled "Alternate Page for
International Prospectus."
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 23, 1998
PROSPECTUS
21,000,000 SHARES
GLOBAL CROSSING LTD.
LOGO
COMMON STOCK
-------
Of the 21,000,000 shares of Common Stock, par value $.01 per share, offered
hereby (the "Shares"), 16,800,000 Shares are being offered by the U.S.
Underwriters (as defined herein) in the United States and Canada (the "U.S.
Offering") and 4,200,000 Shares are being offered by the International
Underwriters (as defined herein) in a concurrent international offering outside
the United States and Canada (the "International Offering" and, collectively
with the U.S. Offering, the "Offerings"), subject to transfers between the U.S.
Underwriters and the International Underwriters (collectively, the
"Underwriters"). The Price to Public and Underwriting Discount per Share will
be identical for the U.S. Offering and the International Offering. See
"Underwriting." The closings of the U.S. Offering and the International
Offering are conditioned upon each other.
Of the 21,000,000 Shares offered hereby, 18,950,000 Shares are being sold by
Global Crossing Ltd., a Bermuda company ("GCL" or the "Issuer" and, together
with its subsidiaries, "Global Crossing" or the "Company"), and 2,050,000
Shares are being sold by certain selling shareholders (the "Selling
Shareholders"). See "Principal and Selling Shareholders." The Company will not
receive any proceeds from the sale of the Shares by the Selling Shareholders.
Prior to the Offerings, there has been no public market for the Common Stock
of the Issuer. It is currently estimated that the Price to Public will be
between $17 and $19 per share. See "Underwriting" for information relating to
the factors considered in determining the Price to Public. Upon completion of
the Offerings, purchasers of Shares in the Offerings will own approximately
10.41% (11.79% if the Underwriters' over-allotment options are exercised in
full) and existing shareholders will own 89.59% (88.21% if the over-allotment
options are exercised in full) of the outstanding Common Stock. See "Principal
and Selling Shareholders."
Application has been made to have the Common Stock listed on the Nasdaq Stock
Market's National Market (the "Nasdaq National Market") under the symbol
"GBLXF" and listed supplementally on the Bermuda Stock Exchange.
-------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED
HEREBY.
-------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNTS AND COMMISSIONS(1) COMPANY (2) SHAREHOLDERS
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<S> <C> <C> <C> <C>
Per Share $ $ $ $
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Total(3) $ $ $ $
</TABLE>
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(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of
1933. See "Underwriting."
(2) Before deducting expenses estimated at $2,400,000 payable by the Company.
(3) The Company has granted to the U.S. Underwriters and the International
Underwriters 30-day options to purchase up to an aggregate of 3,150,000
additional shares of Common Stock at the Price to Public, less
Underwriting Discounts and Commissions, solely to cover over-allotments,
if any. If the Underwriters exercise such options in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively.
See "Underwriting."
-------
The Shares are offered subject to receipt and acceptance by the Underwriters,
to prior sale and to such Underwriters' right to reject any order in whole or
in part and to withdraw, cancel or modify the offer without notice. It is
expected that delivery of the Shares will be made at the offices of Smith
Barney Inc. at 333 West 34th Street, New York, New York 10001 or through the
facilities of The Depository Trust Company (the "Depository") on or about
, 1998.
-------
Joint Book-Running Managers
SALOMON SMITH BARNEY MERRILL LYNCH & CO.
-------
CIBC OPPENHEIMER
DEUTSCHE BANK SECURITIES
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
The date of this Prospectus is , 1998.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE
COMMON STOCK, EFFECTING SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION OF
A PENALTY BID, DURING AND AFTER THE OFFERINGS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
THIS PROSPECTUS HAS BEEN FILED WITH THE REGISTRAR OF COMPANIES IN BERMUDA
PURSUANT TO PART III OF THE COMPANIES ACT, 1981 OF BERMUDA AND THE BERMUDA
MONETARY AUTHORITY ("BMA") HAS GIVEN ITS CONSENT TO THE ISSUE AND TRANSFER OF
UP TO 24,150,000 SHARES OF COMMON STOCK. IN ACCEPTING THE PROSPECTUS FOR
FILING, THE REGISTRAR OF COMPANIES ACCEPTS NO RESPONSIBILITY FOR THE FINANCIAL
SOUNDNESS OF ANY PROPOSALS OR FOR THE CORRECTNESS OF ANY STATEMENTS MADE OR
OPINIONS EXPRESSED WITH REGARD TO THEM. APPROVALS OR PERMISSIONS RECEIVED FROM
THE BMA DO NOT CONSTITUTE A GUARANTEE BY THE BMA AS TO THE PERFORMANCE OF THE
COMPANY OR ITS CREDIT WORTHINESS. ACCORDINGLY, IN GIVING SUCH APPROVALS OR
PERMISSIONS, THE BMA SHALL NOT BE LIABLE FOR THE PERFORMANCE OR THE DEFAULT OF
THE COMPANY OR FOR THE CORRECTNESS OF ANY OPINIONS OR STATEMENTS EXPRESSED IN
THIS PROSPECTUS.
THE BERMUDA STOCK EXCHANGE TAKES NO RESPONSIBILITY FOR THE CONTENTS OF THIS
DOCUMENT, MAKES NO REPRESENTATIONS AS TO ITS ACCURACY OR COMPLETENESS AND
EXPRESSLY DISCLAIMS ANY LIABILITY WHATSOEVER FOR ANY LOSS HOWSOEVER ARISING
FROM OR IN RELIANCE UPON ANY PART OF THE CONTENTS OF THIS DOCUMENT.
i
<PAGE>
SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES
The Issuer is organized pursuant to the laws of Bermuda. In addition,
certain of the directors and officers of the Issuer reside outside the United
States and a substantial portion of the assets of the Issuer are located
outside the United States. As a result, it may be difficult for investors to
effect service of process within the United States upon such persons or to
realize against them in courts of the United States upon judgments of courts
of the United States predicated upon civil liabilities under the United States
federal securities laws. The Company has been advised by its legal counsel in
Bermuda, Appleby, Spurling & Kempe, that there is doubt as to the enforcement
in Bermuda, in original actions or in actions for enforcement of judgments of
United States courts, of liabilities predicated upon U.S. federal securities
laws, although Bermuda courts will enforce foreign judgments for liquidated
amounts in civil matters subject to certain conditions and exceptions.
----------------
In this Prospectus, references to "dollars" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements that include, among
others, statements concerning the Company's plans to effect the design,
construction, and operations of, and sales of capacity on, its planned
telecommunications systems, expectations as to funding its future capital
requirements and other statements of expectations, beliefs, future plans and
strategies, anticipated developments and other matters that are not historical
facts. Management cautions the reader that these forward-looking statements
are subject to risks and uncertainties that could cause actual events or
results to differ materially from those expressed or implied by the
statements. The most important factors that could prevent the Company from
achieving its goals include, but are not limited to, failure by the Company
to: (i) complete its systems within currently estimated time frames and
budgets, (ii) sell capacity on its systems, (iii) make a successful transition
from a system development to an operating company and (iv) effectively compete
in the context of a rapidly evolving market characterized by intense price
competition and unpredictable levels of demand for telecommunication capacity.
See "Risk Factors."
ii
<PAGE>
SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and financial information
appearing elsewhere in this Prospectus. For a discussion of certain factors to
be considered in connection with an investment in the Shares, see "Risk
Factors." Unless the context otherwise requires, the term "Company" means GCL
and all of its direct and indirect subsidiaries. A glossary of relevant terms
used in the telecommunications business is included at the end of this
Prospectus.
THE COMPANY
Global Crossing is the world's first independent provider of global Internet
and long distance telecommunications facilities and services utilizing a
network of undersea digital fiber optic cable systems and associated
terrestrial backhaul capacity. As such, the Company believes it is the first to
offer "one-stop shopping" for its customers to multiple destinations worldwide.
The Company operates as a "carriers' carrier", providing tiered pricing and
segmented products to licensed providers of international Internet and
telecommunications services. Capacity on the Company's network is offered to
all customers on an open, equal access basis. The first four cable systems
under development by the Company, together with associated terrestrial backhaul
capacity, will form a state-of-the-art interconnected worldwide high capacity
undersea fiber optic network (the "Global Crossing Network"): Atlantic Crossing
("AC-1"), a system connecting the United States and Europe; Pacific Crossing
("PC-1"), a system connecting the United States and Asia; Mid-Atlantic Crossing
("MAC"), a system connecting the eastern United States and the Caribbean; and
Pan American Crossing ("PAC"), a system connecting the western United States,
Central America and the Caribbean. The undersea component of the Global
Crossing Network initially totals approximately 51,000 km. The Company is in
the process of developing several new cable systems and evaluating other
business development opportunities which will complement the Global Crossing
Network.
Global Crossing's business is designed to meet the varying needs of the
global carrier market. The Company offers customers the ability to purchase
capacity on demand, thereby (i) eliminating their need to commit the
substantial capital which would otherwise be required to build undersea cable
capacity and (ii) decreasing the risks associated with forecasting their future
capacity requirements. Compared with traditional undersea cable systems, the
Company offers more comprehensive, flexible and low-cost purchasing
alternatives designed to meet current market requirements of international
carriers, including direct international city-to-city connectivity, the ability
to purchase capacity annually and discounts based upon aggregate volume
purchased on the Global Crossing Network.
The Global Crossing Network is being engineered and constructed to allow
multiple upgrades to its initial circuit capacity at a fraction of the original
network cost. The Company is focusing on expanding the products and services it
offers to customers in order to increase revenues and profits. The Company
anticipates that its future revenues, beyond the sale of the initial capacity
of its first four cable systems, will derive from several sources, including
system upgrades, additional undersea cable projects, the development or
purchase of additional terrestrial fiber capacity and the introduction of new
services.
In addition to the undersea segments of the Global Crossing Network, the
Company has made and expects to continue to make acquisitions of terrestrial
fiber capacity which complement its core undersea cable business and which
address customer demands for global city-to-city connectivity. Global Crossing
intends to pursue such connectivity in approximately 50 of the largest
metropolitan communications markets worldwide. Once completed, the undersea
segments of the Global Crossing Network, in combination with the Company's
investments in terrestrial fiber capacity, will form an integrated worldwide
network with multiple access points offering low-cost wholesale capacity.
1
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY CERTAIN FACTORS RELATING TO
AN INVESTMENT IN THE SHARES. These risk factors include (i) the Company's
limited operating history, (ii) its leverage and substantial future capital
requirements, (iii) risks relating to the completion of the Company's planned
cable systems and the achievement of its sales and marketing objectives and
(iv) the highly competitive nature of the international telecommunications
industry. See "Risk Factors."
MARKET OPPORTUNITY
The Global Crossing Network is being developed to capitalize on certain
trends in the international telecommunications industry:
Rapid Growth of International Internet and Telecommunications Traffic. While
international voice traffic from 1996-2000 is expected to grow at a rate of 13%
annually, international data traffic growth is expected to significantly
outpace voice traffic growth. The key factors that are expected to drive the
tremendous growth in telecommunications traffic are the (i) increasing use of
broadband applications such as the Internet, video conferencing and corporate
intranets, (ii) globalization of commerce and (iii) general decline in
international tariffs. In addition, improvements in "last mile" technology,
such as xDSL and cable modems, are contributing to the significant increase in
the number of subscribers using such bandwidth-intensive applications.
Impact of Global Deregulation. The continued deregulation of the global
telecommunications industry has significantly increased in the number of
competitors, including traditional carriers, wireless operators, ISPs and new
local exchange service providers, due in large part to: (i) privatization
activity globally and (ii) the ability of new entrants to effectively compete.
This change in the global competitive landscape is generating significant
demand for broadband telecommunications capacity as carriers seek to secure
sufficient capacity for their expansion plans.
Shortage of Available Capacity. The Company believes that while there has
been a significant increase in the demand for global telecommunications
capacity, there has not been a corresponding growth in the number of new
international transport facilities. Furthermore, the construction of competing
undersea cable systems will be limited in the near future due to barriers to
entry, including (i) extensive construction lead times, (ii) the limited number
of major undersea cable supply and construction companies, (iii) the limited
number of qualified and experienced undersea cable personnel and (iv)
significant capital requirements.
Increasing Challenges for Consortia Systems. Historically, the planning and
ownership of undersea cable systems was conducted through large consortia
typically led by the monopoly telecommunications providers. Global Crossing
believes that the consortium approach is becoming less effective as (i)
carriers increasingly view capital investments in capacity to be a suboptimal
utilization of resources, (ii) international deregulation leads to direct
competition among consortia members, (iii) new entrant competition makes
capacity requirements increasingly difficult to predict and (iv) rapid
technological change creates difficulties in the ability of carriers to
accurately forecast telecommunications traffic growth.
Acceptance of Privately Sponsored Cable Systems. Carriers have responded
positively to the Company's ability to offer (i) capacity as and when needed
without incurring significant initial capital investments, (ii) a wide range of
purchasing options, (iii) state-of-the-art system quality combined with cost-
effective high quality operations, administration and maintenance support and
(iv) the absence of direct competition with its customers.
2
<PAGE>
BUSINESS STRATEGY
Global Crossing's mission is to create the world's first independent global
fiber optic network designed to offer the highest quality city-to-city
communications connectivity among approximately 50 of the largest metropolitan
markets worldwide. The principal elements of the Company's business strategy
include:
Create a Worldwide Network. Upon completion, the currently announced undersea
segments of the Global Crossing Network will directly connect Asia, North
America, Europe, Central America and the Caribbean through the major
transoceanic routes utilizing state-of-the-art technology. To increase the
attractiveness of the Global Crossing Network, the Company is making selective
wholesale acquisitions of terrestrial fiber capacity, thereby providing
customers low cost global city-to-city connectivity. The Company also intends
to actively pursue additional opportunities for the expansion of the Global
Crossing Network, including complementary businesses and facilities.
Maintain Position as a Leading Wholesale Service Provider. Global Crossing is
the world's first independent provider of global Internet and long distance
telecommunications facilities and services utilizing a network of undersea
digital fiber optic cable systems and associated terrestrial backhaul capacity.
The Company's products are segmented to meet the varying needs of the global
carrier market, with shore-to-shore capacity, city-to-city capacity and network
purchasing options. Global Crossing also offers a combination of volume-based
purchasing flexibility.
Utilize State-of-the-Art Technology. The Global Crossing Network is being
engineered and constructed using the latest undersea cable technology which the
Company believes will (i) provide a cost advantage over existing alternatives,
(ii) make it more reliable than competing systems, (iii) allow the Company to
offer substantially more capacity than existing cable systems and (iv) enable
the capacity of each of the Company's cable systems to be upgraded rapidly at a
fraction of the initial system cost.
Maintain Position as Low-Cost Provider. Global Crossing believes that its
low-cost position results from a combination of (i) low sales and marketing and
general and administrative costs, (ii) ownership of state-of-the-art
facilities, resulting in lower operating and maintenance costs, and (iii)
leveraging the Company's strong position in the undersea fiber optic facilities
market to obtain low-cost terrestrial connectivity between cable landing
stations and major telecommunications sites.
Provide "One-Stop" Sales and Service. Global Crossing plans to offer one-stop
sales and service to customers worldwide. The Company's 18 marketing
professionals located in its headquarters in Bermuda and in major cities
throughout the world facilitate the sales of its telecommunications capacity
and increase market awareness and name recognition. In addition, Global
Crossing is developing a centralized operations, administration and maintenance
support system to serve the entire Global Crossing Network. Through such
integrated customer support, the Company will enable customers to have a single
point of contact regarding capacity sales and service on the Global Crossing
Network.
Leverage Extensive Management Experience. Global Crossing has assembled and
will continue to build a strong management team comprised of executives with
extensive operating experience in the telecommunications industry and the
undersea cable sector. Prior to joining the Company, Jack Scanlon, the
Company's Chief Executive Officer with over 30 years experience in the
telecommunications industry, including 24 years with AT&T and Bell
Laboratories, was President and General Manager of the Cellular Networks and
Space Sector of Motorola, Inc. In addition, William Carter, the Company's
senior executive in charge of system development with over 30 years experience
at AT&T, was formerly the President and Chief Executive Officer of AT&T
3
<PAGE>
Submarine Systems, Inc. ("SSI"), overseeing the research and development,
engineering, implementation and integration of AT&T's international cable and
satellite facilities. Dan J. Cohrs, the Company's Chief Financial Officer, was
formerly Vice President and Chief Planning and Development Officer at GTE
Corporation ("GTE"), where he was responsible for corporate development
activities, including mergers and acquisitions and strategic transactions, as
well as strategic planning and competitive analysis. See "Management."
THE GLOBAL CROSSING NETWORK
As part of Global Crossing's mission to create an integrated global, high
capacity undersea fiber optic cable network, the initial Global Crossing
Network is being engineered and constructed to connect the two most heavily
trafficked international corridors in the world via AC-1 (United States to
Europe) and PC-1 (United States to Asia). Global Crossing plans to interconnect
these systems with two north-south systems (MAC and PAC), directly connecting
Bermuda, the Caribbean, Central America and, through unaffiliated cable
systems, South America. Of the four undersea fiber optic cable systems
currently being constructed by Global Crossing, AC-1, MAC and PAC are wholly-
owned projects, while PC-1 is being constructed through a joint venture with
one or more partners, including Marubeni Corp. of Japan ("Marubeni"). Global
Crossing will initially have approximately a 58% interest in PC-1 and, in
conjunction with Marubeni, will manage its development, sales and operation.
ATLANTIC CROSSING
The Company commenced operations in March 1997, when it contracted for the
construction of AC-1, a 14,000 km digital fiber optic cable system that will
link the United States, the United Kingdom, The Netherlands and Germany. AC-1
commenced service on its United States-United Kingdom segment on May 26, 1998
and the full system, encompassing a self-healing ring, is scheduled for
completion by February 1999.
AC-1 is equipped with state-of-the-art DWDM and the full ring will initially
offer 40 Gbps of service capacity, significantly increasing the existing fiber
optic cable capacity on this transatlantic route. Capacity on AC-1 is
upgradeable to a minimum of 80 Gbps using DWDM technology. The aggregate costs
of AC-1, which are estimated to be approximately $750 million, have been fully
financed prior to the Offerings.
The Company has successfully marketed capacity on AC-1 to licensed
telecommunications providers, including PTTs, Internet service providers and
established and emerging telecommunications companies. As of June 30, 1998, the
Company had entered into capacity purchase agreements and other binding
commitments (collectively, "CPAs") with customers providing for payments to the
Company of approximately $550 million. The Company's AC-1 customers now total
more than 20 carriers, including Deutsche Telekom, GTE, Qwest, Teleglobe,
Swisscom, PTT Telecom BV, Telia AB and a number of emerging telecommunications
companies. The timing of payments by purchasers under CPAs generally depends on
when service commences on the segment or segments of AC-1 on which capacity is
acquired. All of the foregoing payment amounts assume the completion of the
related segment prior to specified dates falling after the scheduled ready-for-
service ("RFS") date for that segment.
Based upon its current expectations regarding sales of capacity on AC-1, the
Company believes that it will develop and eventually construct Atlantic
Crossing-2 ("AC-2"), an additional four fiber pair cable connecting the United
States to Europe. When combined with AC-1, AC-2 would double the capacity that
Global Crossing would be able to offer customers on the transatlantic route.
PACIFIC CROSSING
PC-1, the Company's first undersea fiber optic cable in the Pacific region,
is being developed as a 21,000 km four fiber pair self-healing ring that, upon
completion, will connect California, Washington and two landing
4
<PAGE>
sites in Japan, providing connectivity to other points in Asia through
interconnection with third party cable systems. PC-1 is designed to operate
initially at 80 Gbps of service capacity and to be upgradeable to a minimum of
160 Gbps, using DWDM technology.
In April 1998, the Company executed a contract with TSSL for the construction
of PC-1 (the "PC-1 Contract"), which provides for a system completion date of
Summer 2000 at an aggregate cost of approximately $1.2 billion (excluding
potential future upgrades). Equity investments in PC-1 by Global Crossing and
its partners are currently estimated at $400 million (of which at least $200
million will be provided by the Company), with the remaining $800 million
financed through incurrence of non-recourse indebtedness at the PC-1 level. The
contractual commitment for the financing of such indebtedness was obtained on
May 11, 1998. On July 6, 1998, the Company executed a memorandum of
understanding with DDI Corporation, the second largest telephone company in
Japan, to purchase capacity on PC-1 which, if successfully converted to a CPA,
would represent its first sale to an Asian customer of capacity on this system.
MID-ATLANTIC CROSSING
MAC is being developed as a 9,300 km two fiber pair self-healing ring that,
upon completion, will connect New York, Bermuda, the Caribbean and Florida.
Global Crossing intends that MAC will be connected to AC-1 via its cable
station in Brookhaven, New York, providing connectivity between Europe, the
eastern United States, Bermuda, and the Caribbean and, through interconnection
with third party cable systems, South America. MAC is being designed to operate
initially at 20 Gbps of service capacity and to be upgradeable to a minimum of
40 Gbps using DWDM technology.
In June 1998, the Company executed a contract with Alcatel Submarine Networks
("Alcatel") for the construction of MAC, which provides for a system completion
date of December 1999 at an aggregate cost of approximately $350 million
(excluding potential future upgrades), of which approximately $110 million will
consist of equity contributions by the Company and $240 million is to be
financed through non-recourse indebtedness at the MAC level. The contractual
commitment for the financing of such indebtedness was obtained on June 26,
1998.
PAN AMERICAN CROSSING
PAC is being developed as a 7,000 km two fiber pair cable that, upon
completion, will connect California, Mexico, Panama and the Caribbean. PAC is
being designed to interconnect with PC-1 and with MAC. It is anticipated that
PAC will transverse Panama via an existing terrestrial right-of-way. PAC is
being designed to operate initially at 20 Gbps of service capacity and to be
upgradeable to a minimum of 40 Gbps using DWDM technology.
In July 1998, the Company executed a contract with TSSL for the construction
of this system, which provides for a completion date of February 2000 at a cost
of approximately $475 million (excluding potential future upgrades).
Approximately $165 million will be financed through equity contributions from
the Company and $310 million is to be financed through non-recourse
indebtedness at the PAC level. The contractual commitment for the financing of
such indebtedness was obtained on July 22, 1998.
TERRESTRIAL BACKHAUL SERVICES
In addition to the undersea segments of the Global Crossing Network, the
Company has made and expects to continue to make acquisitions of terrestrial
fiber capacity which complement its core undersea cable business and which
address customer demands for global city-to-city connectivity. The Company has
already entered into contractual arrangements to provide terrestrial backhaul
service between its landing stations in the United States and the United
Kingdom and New York City and London, respectively, as well as other
arrangements to provide backhaul service in Germany and The Netherlands. In
addition, the Company recently entered into an agreement with Qwest
Communications International Inc. ("Qwest") whereby Global Crossing will
receive access to over
5
<PAGE>
25 U.S. metropolitan communications markets on Qwest's terrestrial network.
Through Global Access Limited ("Global Access"), a Japanese telecommunications
carrier owned by Marubeni, the Company will offer backhaul services to PC-1
customers from the Company's Japanese landing stations directly to Tokyo at
prices substantially lower than existing alternatives. The Company is also
currently negotiating with Marubeni to acquire a minority investment in Global
Access, which is constructing a domestic terrestrial fiber optic cable network
connecting the PC-1 cable station with Tokyo, Nagoya and Osaka.
ADDITIONAL NETWORK EXPANSION OPPORTUNITIES
The Company is in the process of developing several new cable systems and
evaluating other business development opportunities which will complement the
Global Crossing Network. There can be no assurance that the Company will
ultimately elect to proceed with such opportunities or, if it elects to do so,
that such opportunities will help the Company achieve and sustain operating
profitability.
ORGANIZATION OF THE COMPANY
<TABLE>
<CAPTION>
Global Crossing Ltd.
Global Crossing Holdings Ltd.
<S> <C> <C> <C> <C>
Global Telesystems Pacific Crossing Mid-Atlantic Crossing Pan American Crossing Development
Holdings Ltd. Holdings Ltd. Holdings Ltd. Holdings Ltd. and Marketing
Activities
AC-1 PC-1 MAC PAC
(Wholly-Owned) (Joint Venture*) (Wholly-Owned) (Wholly-Owned)
</TABLE>
* Approximately 58% interest. All other subsidiaries of the Issuer are wholly-
owned.
The Company's executive offices are located at Wessex House, 45 Reid Street,
Hamilton, Bermuda and its telephone number is (441) 296-8600. The Company's
home page on the Internet is http://www.globalcrossing.bm.
6
<PAGE>
FINANCING PLAN
Of the $750 million in total estimated costs for AC-1, approximately $660
million has been incurred as of June 30, 1998. All future costs with respect to
AC-1 are fully financed with the remaining availability under the existing $482
million credit facility (the "AC-1 Credit Facility") of Atlantic Crossing Ltd.
("ACL").
Global Crossing estimates that the total cost of developing and deploying its
other fiber optic cable systems currently under active development is
approximately $2,025 million, which is comprised of $1,200 million for PC-1,
$350 million for MAC and $475 million for PAC. The Company has obtained
contractual commitments for the debt financing of such systems, which debt
financing will be non-recourse to the Company other than with respect to its
required equity contribution. Based upon executed debt financing commitments,
equity investments in PC-1 by Global Crossing and its partners are currently
estimated at $400 million (of which at least $200 million will be provided by
the Company), with the remaining $800 million of estimated costs expected to be
financed initially through the incurrence of non-recourse indebtedness at the
PC-1 level. With respect to MAC and PAC, based upon executed debt financing
commitments, the Company currently anticipates making investments of
approximately $110 million and $165 million, respectively, with the remaining
$240 million and $310 million, respectively, of estimated costs expected to be
financed initially through the incurrence of non-recourse indebtedness at the
system level. With respect to AC-2 and other network expansion opportunities
currently under evaluation by the Company, it is anticipated that additional
financing will be required. Global Crossing has historically been able to
secure non-recourse indebtedness for its systems for at least 65% of system
costs and intends to finance its future expansion opportunities in a similar
fashion. The actual amounts of the Company's future capital requirements will
depend on certain factors including the cost of developing its cable systems,
the speed of developing its systems and the pricing of the Company's services.
There can be no assurance that financing for such systems will be available to
the Company or, if available, that such financing can be obtained on a timely
basis and on acceptable terms. See "Risk Factors--Substantial Future Capital
Requirements" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
On May 18, 1998, Global Crossing Holdings Ltd. ("GCH"), the direct wholly-
owned subsidiary of GCL, consummated an $800 million private offering (the
"Note Offering") of 9 5/8% Senior Notes Due 2008 (the "GCH Senior Notes"). GCH
utilized approximately $295 million of the net proceeds of the Note Offering to
refinance certain obligations incurred as part of the initial financing of AC-1
(the "Refinancing"). The balance will be utilized to make equity investments in
certain of the Company's systems and for general corporate purposes.
7
<PAGE>
THE OFFERINGS
Common Stock offered by the Company:
U.S. Offering ............
15,160,000 shares
International Offering....
3,790,000 shares
Total (1).................
18,950,000 shares
Common Stock offered by the Selling Shareholders:
U.S. Offering ............
1,640,000 shares
International Offering....
410,000 shares
Total ....................
2,050,000 shares
Common Stock to be
outstanding after the
Offerings (1)(2) .......... 201,688,519 shares
Net Proceeds to the
Company................ Approximately $318.2 million (approximately
$371.5 million if the Underwriters' over-
allotment options are exercised in full).
Nasdaq National Market GBLXF
symbol......................
Use of Proceeds.............
The Company intends to use the net proceeds of
the Offerings as follows: (i) approximately $220
million to make investments in the Global
Crossing Network, (ii) up to $50 million to make
minority investments in telecommunications
companies and Internet service providers, (iii)
up to $25 million to fund the Company's proposed
investment in Global Access Limited and (iv) the
balance for general corporate purposes. The
Company will receive no proceeds from the sale of
Shares by the Selling Shareholders. See "Use of
- -------- Proceeds."
(1) Does not include up to an aggregate of 3,150,000 shares of Common Stock
subject to over-allotment options granted to the U.S. Underwriters and
International Underwriters (see "Underwriting").
(2) After giving effect to the Offerings and the transactions associated
therewith, including a dividend by Global Crossing Ltd., LDC, a Cayman
Island limited duration company ("Old GCL") of 1.5 shares of Common Stock
of GCL for each share of common stock of Old GCL (the "Common Stock
Dividend"), the liquidation of Old GCL (the "Old GCL Liquidation"), the
Advisory Services Agreement Termination (as defined herein) and the TDC
Exchange (as defined herein). See "Certain Transactions" and "Description
of Capital Stock." Based on shares outstanding as of July 13, 1998. Does
not include: (i) 16,607,865 shares of Common Stock reserved for issuance
under the Stock Incentive Plan (see "Management--Stock Incentive Plan");
(ii) 2,696,074 shares of Common Stock reserved for issuance under the GCL
Warrants (see "Description of Capital Stock--Liquidation of Old GCL"); and
(iii) 6,597,227 shares of Common Stock reserved for issuance under the New
PCG Warrants (see "Certain Transactions").
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary data presented below under the captions "Statement of Operations
Data" and "Balance Sheet Data" as of December 31, 1997 and for the period from
March 19, 1997 (date of inception) through December 31, 1997 are derived from
the Consolidated Financial Statements of the Company included herein, which
financial statements are prepared in accordance with United States Generally
Accepted Accounting Principles ("U.S. GAAP") and have been audited by Arthur
Andersen & Co., independent public accountants, as indicated in their report
thereon included elsewhere in this Prospectus. The financial data as of and for
the three months ended March 31, 1998 are derived from unaudited interim
financial statements. The unaudited interim financial statements include all
adjustments, consisting of normal recurring accruals, that management considers
necessary for fair presentation of the financial position as of and results of
operations for these interim periods. Results of operations for the interim
periods are not necessarily indicative of the results of operations for a full
year. The operating data presented below are derived from the Company's
records. The Company is in its development stage; accordingly, financial data
presented herein and elsewhere in this Prospectus is not necessarily indicative
of the financial position or results of operations of the Company in the
future. The information set forth below should be read in conjunction with the
discussion under "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business" and the Consolidated Financial
Statements and the notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE MARCH 19, 1997
THREE MONTHS (DATE OF INCEPTION) TO
ENDED MARCH 31, 1998 DECEMBER 31, 1997
-------------------- ----------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest Income.................... $ 345,834 $ 2,941,352
------------ ------------
Expenses:
Sales and Marketing................ 784,216 1,366,724
General and Administrative......... 2,614,903 1,695,770
Depreciation and Amortization...... 30,367 39,214
Project Evaluation Costs........... 7,047,044 --
------------ ------------
Total Expenses..................... 10,476,530 3,101,708
------------ ------------
Net Loss(1)........................ (10,130,696) (160,356)
Preference Share Non-Cash
Dividends(2)...................... (4,408,230) (12,689,923)
------------ ------------
Net Loss Applicable to Common
Shareholders...................... $(14,538,926) $(12,850,279)
============ ============
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
AS OF MARCH 31, 1998 1997
---------------------------- -------------
AS
HISTORICAL ADJUSTED(3) HISTORICAL
------------ -------------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and Restricted Cash.......... $ 41,918,190 $ 834,999,528 $ 26,727,880
Construction in progress.......... 620,963,878 698,676,666 518,518,509
Investment in Pacific Crossing
Ltd.............................. -- 113,036,783 --
Deferred Finance and
Organizational Costs, Net of
Accumulated Amortization......... 24,974,952 43,085,449 25,934,021
Other Assets...................... 12,764,977 12,764,977 1,015,958
------------ -------------- -------------
Total Assets...................... $700,621,997 $1,702,563,403 $ 572,196,368
============ ============== =============
Long Term Debt and Other
Obligations...................... $463,895,845 $1,113,895,845 $ 315,334,000
GTH Preference Shares............. 95,007,302 -- 90,643,919
Shareholders' Equity:
Common Stock.................... 110 2,016,885 110
Treasury Stock.................. -- (139,773,807) --
Additional Paid-in Capital...... 87,395,845 796,369,289 86,970,845
Deficit Accumulated During the
Development Stage.............. (27,389,205) (144,328,708) (12,850,279)
------------ -------------- -------------
Total Shareholders' Equity........ 60,006,750 514,283,659 74,120,676
------------ -------------- -------------
Total Capitalization.............. $618,909,897 $1,628,179,504 $ 480,098,595
============ ============== =============
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1998
--------------
<S> <C>
OPERATING DATA:
Executed CPAs................................................. $550 million
<CAPTION>
ESTIMATED(4)
--------------
<S> <C>
Route Kilometers.............................................. 51,300
Fiber Kilometers.............................................. 345,200
Estimated System Costs
AC-1 ....................................................... $750 million
Other Projects Under Development............................ $2,025 million
Landing Stations.............................................. 14
</TABLE>
- -------
(1) The Company is in the process of finalizing determination of the fair value
of its Common Stock on the date of its stock grants. On a pro forma basis,
assuming the fair value of the Company's Common Stock were determined to be
the midpoint of the expected pricing range for the Offerings on the dates
of grants which commenced on January 21, 1998, the net loss for the three
months ended March 31, 1998 would increase by $7.4 million. This would have
no effect on the Company's cash flow, total assets, total liabilities or
stockholders equity.
(2) The holders of 14% senior increasing rate redeemable exchangeable
preference shares (the "GTH Preference Shares") of Global Telesystems
Holdings Ltd. ("GTH") are entitled to receive cumulative, compounding
dividends at an initial annual rate of 14%. Preference share dividends
include cumulative 14% dividends and amortization of the discount and
issuance costs. All dividends to date have been paid through the issuance
of additional preference shares. The Company has redeemed all of the
outstanding GTH Preference Shares effective as of June 17, 1998.
(3) See the pro forma financial information below for a full description of the
adjustments.
(4) Assumes full completion of AC-1, PC-1, MAC and PAC based upon current
Company estimates, including anticipated financing costs. See "Risk
Factors--Risks Relating to Completing the Company's Cable Systems" and
"Risk of Error in Forward-Looking Statements."
PRO FORMA FINANCIAL INFORMATION
The impact of the Refinancing, the Offerings, the PCG Warrant Conversion (as
defined herein), the Advisory Services Agreement Termination, the TDC
Repurchase and the Old GCL Liquidation have all been reflected in the pro forma
balance sheet as of March 31, 1998. The pro forma statements of operations give
effect to recurring items only. Therefore, the one time charge resulting from
the redemption of GTH Preference Shares, the one time extraordinary loss
resulting from the repurchase of the GTH Senior Notes and the one time charge
resulting from the Advisory Services Agreement Termination have not been
included in the pro forma statements of operations. These transactions have,
however, been disclosed in the footnotes to the pro forma statements of
operations.
PRO FORMA BALANCE SHEET DATA:
<TABLE>
<CAPTION>
HISTORICAL ADVISORY
AS OF PCG SERVICES OLD
MARCH 31, WARRANT AGREEMENT TDC GCL
1998 REFINANCING OFFERINGS(2) CONVERSION(3) TERMINATION(4) REPURCHASE(5) LIQUIDATION(6)
------------ ------------ ------------ ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and Re-
stricted
Cash(7)........ $ 41,918,190 $474,847,338 $318,234,000 $ -- $ -- $ -- $ --
Construction in
Progress....... 620,963,878 -- -- 77,712,788 -- -- --
Investment in
Pacific
Crossing Ltd. . -- -- -- 113,036,783 -- -- --
Deferred Finance
and
Organizational
Costs,
Net of
Accumulated
Amortization... 24,974,952 18,110,497 -- -- -- -- --
Other Assets.... 12,764,977 -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------- -----------
Total Assets.... $700,621,997 $492,957,835 $318,234,000 $190,749,571 $ -- $ -- $ --
============ ============ ============ ============ ============ ============= ===========
Current
Liabilities.... $ 81,712,100 $ (7,328,201) $ -- $ -- $ -- $ -- $ --
Long Term Debt
and Other
Obligations.... 463,895,845 650,000,000 -- -- -- -- --
GTH Preference
Shares(8)...... 95,007,302 (95,007,302) -- -- -- -- --
Shareholders'
Equity:
Common Stock.... 110 -- 189,500 118,559 75,000 108,507 1,525,209
Treasury Stock,
at Cost........ -- -- -- -- -- (139,773,807) --
Additional Paid-
in Capital..... 87,395,845 (34,767,159) 318,044,500 190,631,012 96,925,000 139,665,300 (1,525,209)
Deficit
Accumulated
During the
Development
Stage.......... (27,389,205) (19,939,503) -- -- (97,000,000) -- --
------------ ------------ ------------ ------------ ------------ ------------- -----------
Total
Shareholders'
Equity......... 60,006,750 (54,706,662) 318,234,000 190,749,571 -- -- --
------------ ------------ ------------ ------------ ------------ ------------- -----------
Total
Liabilities and
Shareholders'
Equity......... $700,621,997 $492,957,835 $318,234,000 $190,749,571 $ -- $ -- $ --
============ ============ ============ ============ ============ ============= ===========
<CAPTION>
ADJUSTED
AS OF
MARCH 31,
1998
---------------
<S> <C>
Cash and Re-
stricted
Cash(7)........ $ 834,999,528
Construction in
Progress....... 698,676,666
Investment in
Pacific
Crossing Ltd. . 113,036,783
Deferred Finance
and
Organizational
Costs,
Net of
Accumulated
Amortization... 43,085,449
Other Assets.... 12,764,977
---------------
Total Assets.... $1,702,563,403
===============
Current
Liabilities.... $ 74,383,899
Long Term Debt
and Other
Obligations.... 1,113,895,845
GTH Preference
Shares(8)...... --
Shareholders'
Equity:
Common Stock.... 2,016,885
Treasury Stock,
at Cost........ (139,773,807)
Additional Paid-
in Capital..... 796,369,289
Deficit
Accumulated
During the
Development
Stage.......... (144,328,708)
---------------
Total
Shareholders'
Equity......... 514,283,659
---------------
Total
Liabilities and
Shareholders'
Equity......... $1,702,563,403
===============
</TABLE>
10
<PAGE>
PRO FORMA STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
HISTORICAL AS ADJUSTED HISTORICAL AS ADJUSTED HISTORICAL AS ADJUSTED
FOR THE FOR THE FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
THREE MONTHS THREE MONTHS MARCH 19, 1997 MARCH 19, 1997 MARCH 19, 1997 MARCH 19, 1997
ENDED ENDED (DATE OF INCEPTION) (DATE OF INCEPTION) (DATE OF INCEPTION) (DATE OF INCEPTION)
MARCH 31, MARCH 31, TO DECEMBER 31, TO DECEMBER 31, TO MARCH 31, TO MARCH 31,
1998 1998(9) 1997 1997(9) 1998 1998(9)
------------ ------------ ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Interest
Income(10)..... $ 345,834 $ 7,845,271 $ 2,941,352 $ 26,856,225 $ 3,287,186 $ 34,701,496
------------ ------------ ------------ ------------ ------------ ------------
Expenses:
Interest
expense(11).... 23,234 12,576,640 -- 40,031,418 23,234 52,608,058
Other expenses.. 10,453,296 10,453,296 3,101,708 3,101,708 13,555,004 13,555,004
------------ ------------ ------------ ------------ ------------ ------------
Net Loss before
Non-Recurring
Charges........ (10,130,696) (15,184,665) (160,356) (16,276,901) (10,291,052 (31,461,566)
Preference Share
Dividends...... (4,408,230) -- (12,689,923) -- (17,098,153) --
------------ ------------ ------------ ------------ ------------ ------------
Net Loss
Applicable to
Common
Shareholders
before Non-
Recurring
Charges........ $(14,538,926) $(15,184,665) $(12,850,279) $(16,276,901) $(27,389,205) $(31,461,566)
============ ============ ============ ============ ============ ============
Basic and
diluted net
loss per common
share before
Non-Recurring
Charges........ $ (0.13) $ (0.08) (0.12) (0.08) (0.25) (0.16)
============ ============ ============ ============ ============ ============
Shares used in
computing basic
and diluted net
loss per common
share.......... 110,615,211 201,245,472 110,294,100 200,924,361 110,370,758 201,001,019
============ ============ ============ ============ ============ ============
</TABLE>
(1) As adjusted for the May 18, 1998 issuance of the $800 million 9 5/8%
Senior Notes ("GCH Senior Notes"). This offering resulted in Global
Crossing Holdings Ltd. receiving $771.7 million, net of $28.3 million in
financing fees which have been capitalized as Deferred Finance Costs in
the "As adjusted as of March 31, 1998" column. These net proceeds were
used in part to redeem the GTH Preference Shares ($131.1 million) and to
repurchase the GTH Senior Notes Due 2004 (the "GTH Senior Notes") ($165.8
million). The remaining proceeds ($474.8 million) were invested in cash
and cash equivalents.
As a result of the repurchase of GTH Senior Notes, there was a one time
extraordinary loss of $19.9 million comprised of: (i) a $9.7 million charge
for the tender premium on the GTH Senior Notes and (ii) a write-off of $10.2
million of deferred fees and issue costs associated with the GTH Senior
Notes assuming the GTH Senior Notes had been repurchased as of March 31,
1998. In addition, $6.0 million in accrued interest on the GTH Senior Notes
was assumed to have been repaid and has been deducted from Current
Liabilities in the "Adjusted as of March 31, 1998" column.
As a result of the redemption of the GTH Preference Shares, there was a one
time $34.8 million charge recorded as Additional Paid-in Capital and
comprised of: (i) a $16.1 million charge for the call premium and (ii) a
write-off of $18.7 million of discount and issue costs associated with the
GTH Preference Shares assuming the GTH Preference Shares had been redeemed
as of March 31, 1998. In addition, $1.3 million in accrued dividends on the
GTH Preference Shares were assumed to have been repaid and have been
deducted from Current Liabilities in the "Adjusted as of March 31, 1998"
column.
(2) As adjusted to reflect the net proceeds of the Offerings ($318.2 million)
after deducting underwriting and offering expenses , assuming a Price to
Public per Share of $18, the midpoint of the expected pricing range of the
Offerings.
(3) As adjusted for the PCG Warrant Conversion (see "Certain Transactions") to
occur immediately preceding the Offerings. Effective January 21, 1998, the
Company entered into a warrant agreement under which Old GCL acquired the
rights to develop PC-1, MAC and PAC and in return issued warrants
providing PCG the right to purchase a total of 12,302,123 Class B shares
contingent on the Offerings and the achievement of certain performance
levels in the new projects undertaken by the Company. In June 1998 the
achievement of certain performance levels in the new projects undertaken
by the Company were deemed met by the Board of Directors. The amount of
the adjustment to construction in process and investment in Pacific
Crossing Ltd., includes the value of New PCG Warrants which will be issued
when the existing PCG Warrants are exercised.
The costs associated with the PCG Warrants have been attributed on a pro
rata basis to each of the projects for which the rights were obtained. The
portion of the cost related to MAC and PAC ($33 million and $44.7 million,
respectively) have been capitalized as construction in progress. The portion
of the cost related to PC-1 ($113 million) has been capitalized and included
as part of the Company's investment in Pacific Crossing Ltd. since Pacific
Crossing Ltd. is not consolidated.
(4) As adjusted for the Advisory Services Agreement Termination on June 30,
1998. See "Certain Transactions." The Company intends to acquire the
rights of those entitled to fees payable under the Advisory Services
Agreements in consideration for the issuance of Common Stock in the
Company having an aggregate value of $135 million and the cancellation of
approximately $2.7 million owed to the Company under a related advance
agreement. As a result of this transaction, the Company will record a
charge in the amount of approximately $97 million which is discounted from
the $135 million to take into account the non-marketability of the non-
registered common stock issued. This charge is not reflected in the pro
forma statements of operations as it is nonrecurring.
(5) As adjusted for the repurchase of the Company's shares held by
Telecommunications Development Company ("TDC"). See "Certain
Transactions." Prior to the Offerings, the Company will purchase and
reissue all of the shares of Common Stock of the Company held by TDC
(after giving effect to the Common Stock Dividend). The Company will
record the treasury stock at its fair value of $139.7 million.
(6) As adjusted for the Old GCL Liquidation. The Company intends to declare a
dividend of 1.5 shares of Common Stock of the Company for each share of
common stock of Old GCL and then liquidate Old GCL concurrently with the
Offerings.
(7) The majority of restricted cash and cash equivalents appearing in the
"Historical as of March 31, 1998" column are funds which had been reserved
for the purpose of funding future interest payable on the GTH Senior Notes
and the amount appearing in the "As Adjusted as of March 31, 1998" column
includes additional funds reserved for the purposes of funding future
interest payable on the GCH Senior Notes.
(8) The amount in the "Historical as of March 31, 1998" column reflects (i)
$100 million of GTH Preference Shares originally issued, plus (ii) $13.7
million of GTH Preference Shares issued as dividends thereon, less (iii)
$18.7 million, reflecting the unamortized discount and issue costs
associated therewith. The GTH Preference Shares as reflected in the "As
Adjusted as of March 31, 1998" column have been redeemed as described in
Note (1).
(9) The "As Adjusted" columns include the effects of the May 18, 1998 issuance
of the GCH Senior Notes assuming that the GCH Senior Notes had been issued
at the beginning of the period. The net proceeds from this transaction
were used to repurchase the GTH Senior Notes and redeem the GTH Preference
Shares.
The "As adjusted" columns are not adjusted for non recurring items including
the $19.9 million extraordinary loss resulting from the repurchase of the
GTH Senior Notes (as described in Note (1) above), the $34.8 million one
time charge in connection with the redemption of the GTH Preference Shares
(as described in Note (1) above) nor the $97 million one time charge related
to the Advisory Services Agreement Termination (as described in Note (4)
above).
(10) The Company has assumed that any GCH Senior Notes proceeds not used to
redeem the GTH Preference Shares or repurchase GTH Senior Notes were
invested in cash equivalents earning interest income over the entire
period covered by the pro forma statements of operations.
(11) The effect of interest expense resulting from the issuance of the GCH
Senior Notes and the concurrent redemption of the GTH Preference Shares
and repurchase of the GTH Senior Notes has been included in the "As
adjusted" columns of the pro forma statements of operations. The Company
capitalized as construction in progress only the amount of interest that
would be permitted under SFAS 34 had the GCH Senior Notes been outstanding
for the entire periods covered by each of the statements of operations.
The remaining interest costs incurred from the GCH Senior Notes has been
included in the "As adjusted" columns as additional interest expense. The
Company has assumed that for the purposes of the pro forma statements of
operations that the GCH Senior Notes have been outstanding for the entire
periods covered by each of the statements of operations.
11
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully by prospective investors
in evaluating the Company and its business prospects before purchasing the
Shares.
LIMITED OPERATING HISTORY; DEVELOPMENT STAGE COMPANY
The Company was organized in March 1997 and is in the development stage. The
Company's financial information relates to a period in which the Company was
engaged in construction and development of AC-1 and had minimal revenues and
operating costs because the costs of construction have been capitalized. The
Company's operations to date have generated operating losses. The Company had
net losses applicable to common shareholders of approximately $27.4 million
for the period from March 19, 1997 (date of inception) through March 31, 1998,
which consisted primarily of paid in-kind dividends on preference shares.
Global Crossing to date has financed its net losses, debt service, capital
expenditures and other cash needs through the proceeds of sales of common and
preferred equity and the issuance of debt, including non-recourse indebtedness
of ACL. In addition, the Company will require substantial additional capital
in order to carry out its business plan. See "--Substantial Future Capital
Requirements."
The Company's success will substantially depend on sales of capacity upon
its systems. While the Company has been primarily marketing and selling
capacity on AC-1 during its construction period and this activity has resulted
in executed CPAs as of June 30, 1998 to purchase capacity totaling
approximately $550 million, including related sales of terrestrial capacity,
there can be no assurance that the Company will continue to be successful in
selling capacity on AC-1 or its other systems under development. There also
can be no assurance that the Company will be able to realize its business plan
or that such realization will help the Company achieve or sustain operating
profitability or sufficient cash flow to service its indebtedness. See "--
Sales of Capacity; Termination of CPAs," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business."
LEVERAGE
As of March 31, 1998, on a consolidated pro forma basis after giving effect
to the Offerings, the Note Offering and the application of the net proceeds
therefrom, the Company would have had $1,188.3 million of total liabilities,
including approximately $1,118.8 million of senior indebtedness, of which
$305.5 million would have been secured.
The Company's significant debt burden could have important consequences to
the Company, including, but not limited to, the following: (i) the cash
received from operations may be insufficient to meet the principal and
interest payments on the Company's debt as the same become due; (ii) a
significant portion of the Company's cash flow from operations must be used to
service its debt instead of being used in the Company's business; and (iii)
the Company's flexibility to obtain additional financing in the future may be
impaired by the amount of debt outstanding and the restrictions imposed by the
covenants contained in the debt instruments of the Company. See "Description
of Certain Indebtedness."
The ability of the Company to meet its financial obligations will be subject
to financial, business and other factors, many of which are beyond its
control, such as prevailing economic conditions. In addition, the ability of
GCL's operating subsidiaries to pay dividends or to make other payments to GCL
will be restricted by the terms of various credit arrangements expected to be
entered into by such operating subsidiaries, as well as legal restrictions.
The instruments governing existing and future indebtedness contain, or may
contain, covenants that limit the operating and financial flexibility of the
Company. Failure to generate sufficient cash flow may impair the Company's
ability to obtain additional equity or debt financing or to meet its debt
service requirements. In such circumstances, the Company may be required to
renegotiate the terms of the instruments relating to its long term debt or to
refinance all or a portion thereof. There can be no assurance that the Company
would be able to renegotiate successfully such terms or refinance its
indebtedness when required or that satisfactory terms of any such refinancing
would be available. If the Company were unable to refinance its indebtedness
or obtain new
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<PAGE>
financing under these circumstances, it would have to consider other options
such as the sale of certain assets to meet its debt service obligations, the
sale of equity, negotiations with its lenders to restructure applicable
indebtedness or other options available to it under applicable law.
SUBSTANTIAL FUTURE CAPITAL REQUIREMENTS
Global Crossing will require substantial capital investment to pursue the
implementation of its business plan. Because the Company anticipates that each
of its systems will require separate financing in addition to the equity
investment made by the Company in such system, it intends to raise additional
non-recourse debt or equity capital at the system level to meet these
financing requirements. The Company currently estimates that its capital
resources, together with the additional capital that it intends to raise at
the system level, will be sufficient to fund its currently planned systems.
Failure to generate sufficient funds in the future, whether from operations or
by raising additional debt or equity capital, would have a material adverse
effect on the Company's business prospects. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
RISKS RELATED TO COMPLETING THE COMPANY'S CABLE SYSTEMS
The Company's ability to achieve its strategic objectives will depend in
large part upon the successful, timely and cost-effective completion of the
Company's planned cable systems as well as on achieving substantial capacity
sales on these systems once they become operational. The construction of the
Company's systems will be affected by a variety of factors, uncertainties and
contingencies, many of which are beyond the Company's control. There can be no
assurance that each of these systems will be completed at the cost and in the
time frame currently estimated by Global Crossing, or even at all. Although
the Company will be awarding contracts for construction of its systems to
certain suppliers who in most cases are expected to be bound by a fixed-price
construction cost schedule, and to provide guarantees in respect of completion
dates and system design specifications, there can be no assurance that the
actual construction costs or the time required to complete these systems will
not exceed current Company estimates. Such circumstances could have a material
adverse effect on the Company. See "Business--Suppliers."
The successful completion of the Company's cable systems will depend, among
other things, upon the Company's ability to manage their construction
effectively and to obtain all permits and licenses required for construction.
Successful completion will also depend on the timely performance by third-
party contractors of their obligations. There can be no assurance that
construction will be completed as scheduled or that the required permits and
licenses will be obtained. There are a limited number of suppliers with whom
the Company can negotiate these arrangements. There can be no assurance that
the Company will be able to enter into these contracts. Any of the foregoing
may significantly delay or prevent completion of one or more of the Company's
systems, which could have a material adverse effect on the Company.
SALES OF CAPACITY; REALIZATION OF OTHER REVENUES
The ability of the Company to achieve its business objectives will also
depend in large part upon its sales and marketing capabilities. Through its
wholly-owned subsidiary, Global Crossing International, Ltd. ("GCI"), the
Company has assembled a dedicated sales and marketing force and will be
dependent upon the ability of such employees to effectively market and sell
capacity. There can be no assurance that the Company will be able to
effectively sell capacity on its cable systems. Failure of the Company to
effectively sell capacity on its cable systems would have a material adverse
effect on the Company.
The Company's ability to increase revenues and profits will depend in part
on its ability to expand the products and services it offers to customers. The
Company currently believes that potential sources of these revenues include
potential upgrades of the capacity available on its planned systems, the
development of additional subsea cable projects and the provision of
terrestrial backhaul services to customers acquiring capacity on its undersea
cable systems. See "Business." In the event the Company is unable to effect
these upgrades, develop additional cable projects or obtain required
terrestrial backhaul capacity, the Company's ability to increase its revenues
and profits will be adversely affected.
13
<PAGE>
TERMINATION OF CPAS
A purchaser's payment obligation under a CPA for AC-1 terminates with
capacity on any segment other than the United States-United Kingdom segment,
if the RFS date for the full AC-1 system has not occurred by June 30, 1999.
Performance under certain CPAs for AC-1 is also contingent upon the obtaining
and continuance of such approvals, consents, governmental authorizations,
licenses and permits as may be required or reasonably deemed necessary by each
party thereto for performance by such party thereunder and as may be
satisfactory to it. It is expected that CPA's for the Company's other systems
will contain similar provisions. Termination of a substantial number of CPAs
for any of the foregoing reasons would have a material adverse effect on the
Company. See "Business--Sales and Marketing" and "--Summary of Principal Terms
of Standard Contractual Documentation."
COMPETITION
The international telecommunications industry is highly competitive. The
Company faces competition from existing and planned systems along each of its
planned routes and from satellite providers, including existing geosynchronous
satellites and low-earth orbit systems now under construction. On certain
routes, terrestrial cable systems may also compete with the Global Crossing
Network. The Company competes primarily on the basis of price, availability,
transmission quality and reliability, customer service and the location of its
systems. Traditionally, carriers have made substantial long term investments
in ownership of cable capacity, making lower price and superior service less
determinative in convincing such carriers to acquire additional capacity on
the Company's systems than is the case in industries without such long term
relationships. Accordingly, there can be no assurance that the Company will be
able to compete successfully against systems to which prospective customers
have made long term commitments.
The routes underlying Global Crossing's systems are currently served by
several undersea cables as well as satellites. Primary future sources of
competition for the Company may result from, among others, (i) TAT-14, a
transatlantic cable system which is being developed by its consortium members,
(ii) Gemini, a transatlantic cable system being operated and marketed by
WorldCom and Cable & Wireless, (iii) China-US, a transpacific system being
developed as a "private cable system" by fourteen large carriers, including
SBC, MCI, AT&T and Sprint, most of whom have traditionally sponsored
consortium cables and (iv) the Japan-US Cable Network, a transpacific system
being developed by a consortium of major telecommunications carriers including
Worldcom, AT&T, KDD, NTT, Cable & Wireless and GTE. Other regional and global
systems are being considered by developers, including Project Oxygen, a global
system being evaluated by CTR Group, Ltd. The Company believes that the other
planned transatlantic systems would compete directly with AC-1 and the
commitments of the developers of these systems could substantially reduce
these customers' demand for capacity on AC-1. Although the Company believes
that the other planned transpacific systems will not satisfy the demand for
capacity between the United States and Japan and that there is currently
enough demand projected to accommodate all such systems, the other planned
transpacific systems will receive commitments for capacity that PC-1 could
have received in their absence. In addition, the Company may face competition
from existing and planned regional undersea cable systems and satellites on
its MAC and PAC routes, where entrants are vying for purchases from a small
but rapidly growing customer base. See "--Rapidly Changing Industry; Pricing
Uncertainties" and "Business--Competition."
RELATIONSHIP WITH PRINCIPAL SHAREHOLDERS; CONFLICTS OF INTEREST
As of July 13, 1998, Pacific Capital Group, Inc. ("PCG") had a 27.08%
beneficial ownership interest in GCL (after giving effect to the liquidation
of Old GCL). PCG and its affiliates have entered into certain transactions
with the Company in connection with the development by PCG and its affiliates
of several of Global Crossing's systems, including AC-1, PC-1, PAC and MAC,
and the decision by the Board of Directors of GCL to assume the ongoing
development of systems (other than AC-1) from an affiliate of PCG. PCG and its
subsidiaries are controlled by Mr. Gary Winnick, the Co-Chairman of the Board
of Directors of GCL, and several
14
<PAGE>
other officers and directors of GCL are affiliated with PCG. In addition,
through an affiliate, Canadian Imperial Bank of Commerce ("CIBC") had a 24.96%
beneficial ownership interest in GCL (after giving effect to the liquidation
of Old GCL). An affiliate of CIBC is an Underwriter in the Offerings, and CIBC
and its affiliates have also entered into certain financing transactions with
the Company in connection with the development and construction of the
Company's systems. Several members of the Board of Directors of GCL are
affiliated with CIBC. See "Management," "Principal and Selling Shareholders"
and "Certain Transactions."
Upon completion of the Offerings, PCG and CIBC collectively will
beneficially own 47.32% of the outstanding Common Stock (46.59% assuming the
over-allotment option is exercised in full). Accordingly, PCG and CIBC may be
able to determine the vote on matters submitted to a vote of the Company's
stockholders, including the election of directors.
Certain officers and directors of the Company also serve as officers and
directors of other companies and certain officers and directors of the Company
are active investors in the telecommunications industry. See "Management."
Service as a director or officer of the Company and as a director or officer
of another company could create or appear to create conflicts of interest when
the director or officer is faced with decisions that could have different
implications for the Company and such other company. A conflict of interest
could also exist with respect to allocation of time and attention of persons
who are officers of both the Company and another company. The pursuit of these
other business interests could distract these officers and directors from
pursuing opportunities on behalf of the Company. Such conflicts of interest
could have a material adverse affect on the Company.
BENEFICIAL OWNERSHIP BY MANAGEMENT AND AFFILIATES
The Company's executive officers and directors have substantial equity
interests in the Company and have also received amounts from the Company due
to advisory services fees paid to PCG and its affiliates. This advisory fee
arrangement will be terminated prior to the Offerings, with such individuals
receiving Common Stock as a result of such termination, thereby increasing
their significant equity interests in the Company following the Offerings. Set
forth below for each executive officer and director of the Company is the
amount and value of (i) all shares of Common Stock to be sold by such
individual in the Offerings, (ii) all shares of Common Stock to be
beneficially owned by such individual immediately following the Offerings
(determined pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as
amended, except with respect to options, all of which are shown in the column
entitled "Stock Options Held"), (iii) all options to acquire Common Stock held
by such individual, (iv) all warrants held by such individual to purchase
additional Common Stock and (v) all fees paid to such individual indirectly
through the advisory fees paid to PCG. See "Principal and Selling
Shareholders" and "Certain Transactions." The values set forth in the
following table assume a price of $18 per share of Common Stock (the midpoint
of the expected pricing range of the Offerings).
<TABLE>
<CAPTION>
COMMON COMMON STOCK STOCK ADVISORY
STOCK OWNED AFTER WARRANTS OPTIONS SERVICES
INVESTOR TO BE SOLD VALUE OFFERINGS(1) VALUE(1) HELD VALUE HELD VALUE FEES TOTAL VALUE
- -------- ---------- ----------- ------------ ------------ --------- ----- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gary Winnick.... 1,158,636 $20,855,448 46,893,141 $844,076,538 4,626,388 $ -- 900,000 $14,700,000 $ 3,191,630 $882,823,616
Lodwrick M.
Cook........... -- $ -- 1,720,391 $ 30,967,038 527,779 $ -- 450,000 $ 7,350,000 $ -- $ 38,317,038
Jack M. Scanlon. -- $ -- -- $ -- -- $ -- 1,800,000 $29,400,000 $ -- $ 29,400,000
Dan J. Cohrs.... -- $ -- -- $ -- -- $ -- 675,000 $ 7,650,000 $ -- $ 7,650,000
David L. Lee.... 324,093 $ 5,833,674 10,060,178 $181,083,204 1,339,741 $ -- 450,000 $ 7,350,000 $ 481,130 $194,748,008
Abbott L. Brown. 243,178 $ 4,377,204 5,663,382 $101,940,876 985,713 $ -- 450,000 $ 7,350,000 $ 320,754 $113,988,834
Barry Porter.... 324,093 $ 5,833,674 9,153,049 $164,754,882 1,311,669 $ -- 450,000 $ 7,350,000 $ 481,130 $178,419,686
James C. Gorton. -- $ -- -- $ -- -- $ -- 750,000 $ 8,500,000 $ -- $ 8,500,000
Jack Finlayson.. -- $ -- -- $ -- -- $ -- 735,000 $ 6,630,000 $ -- $ 6,630,000
K. Eugene
Shutler........ -- $ -- 148,986 $ 2,681,748 -- $ -- 300,000 $ 4,900,000 $ -- $ 7,581,748
Hillel
Weinberger..... -- $ -- 21,330,900 $383,956,200 -- $ -- 60,000 $ 980,000 $ -- $384,936,200
Jay R. Bloom.... -- $ -- 48,550,622 $873,911,196 -- $ -- 60,000 $ 980,000 $ -- $874,891,196
Dean C. Kehler.. -- $ -- 48,550,622 $873,911,196 -- $ -- 60,000 $ 980,000 $ -- $874,891,196
Jay R. Levine... -- $ -- 48,550,622 $873,911,196 -- $ -- 60,000 $ 980,000 $ -- $874,891,196
William D.
Phoenix........ -- $ -- 48,550,622 $873,911,196 -- $ -- 60,000 $ 980,000 $ -- $874,891,196
Bruce Raben..... -- $ -- 48,550,622 $873,911,196 -- $ -- 60,000 $ 980,000 $ -- $874,891,196
Michael R.
Steed.......... -- $ -- 16,591,109 $298,639,962 368,353 $ -- 60,000 $ 980,000 $ 194,696 $299,814,658
</TABLE>
15
<PAGE>
- --------
(1) The amount shown for Mr. Weinberger includes 20,037,585 shares of Common
Stock owned by Continental Casualty Company, an affiliate of Loews/CNA
Holdings Corp. Mr. Weinberger is an officer of Loews/CNA Holdings Corp.
The amounts shown for Messrs. Bloom, Kehler, Levine, Phoenix and Rabin
include 48,639,025 shares of Common Stock owned benefically by CIBC, an
affiliate of their employer, CIBC Oppenheimer Corp. ("CIBC Oppenheimer").
The amount shown for Mr. Steed includes 17,007,831 shares of Common Stock
owned by MRCo, Inc., a wholly-owned subsidiary of Union Labor Life
Insurance Company ("ULLICO") and certain fees paid to ULLICO. Mr. Steed is
an officer of both such companies.
(2) Of the 7,380,000 aggregate shares of Common Stock issuable upon the
exercise of options reflected in the table, options in respect of
2,260,000 shares are exercisable within 60 days of June 30, 1998 and
options in respect of 5,120,000 shares are exercisable, subject to various
conditions, following vesting on various dates through July 2001.
(3) The agreements providing for the payment of advisory services fees to PCG
and its affiliates also provided that varying portions of such fees were
payable to ULLICO, CIBC and Messrs. Winnick, Cook, Brown, Lee and Porter.
The Company and the other parties to these agreements have agreed to
terminate these agreements in connection with the Offerings in
consideration for the issuance, through an affiliate of PCG, to the
persons entitled to receive such fees of shares of Common Stock having an
aggregate value (determined on the basis of the Price to Public per Share
payable in the Offerings) of $135 million and the cancellation of $2.7
million owed to the Company under a related advance agreement. Pursuant to
this termination, shares of Common Stock will be issued to and
beneficially owned by the following persons in the amounts and having the
values (based upon a Price to Public per Share of $18.00) indicated. The
net proceeds from the sale of the Shares to be sold in the Offerings by
Messrs. Winnick, Cook, Lee, Brown and Porter are to be used by such
individuals to fund anticipated income tax liabilities resulting from the
termination of these advisory fee agreements.
<TABLE>
<CAPTION>
RECIPIENT COMMON STOCK VALUE
--------- ------------ ------------
<S> <C> <C>
Gary Winnick (including PCG and PCG Telecom). 3,438,557 $ 61,894,026
CIBC......................................... 707,222 12,729,996
ULLICO....................................... 386,944 6,964,992
Lodwrick M. Cook............................. 321,917 5,794,506
Abbott L. Brown.............................. 721,694 12,990,492
David L. Lee................................. 961,833 17,312,994
Barry Porter................................. 961,833 17,312,994
--------- ------------
Total...................................... 7,500,000 $135,000,000
========= ============
</TABLE>
TRANSITION FROM PROJECT MANAGEMENT TO OPERATING COMPANY
The Company must undergo substantial changes in its operations to transition
from being a development stage company primarily involved in the planning and
development of a major telecommunications infrastructure system to one which
operates, markets, supports and services multiple systems. These changes are
expected to be a significant challenge to the Company's managerial,
administrative and operational resources. The Company is in the process of
expanding the management and operational capabilities necessary for this
transition. The Company's ability to manage this transition successfully will
depend on, among other things: (i) expansion, training and management of its
employee base, including attracting, retaining and motivating highly skilled
personnel; (ii) taking over or outsourcing the Company's customer interface
and operations, administration and maintenance systems; (iii) procuring
terrestrial capacity to provide connectivity to inland cities; and (iv)
control of the Company's expenses. There can be no assurance that the Company
will succeed in developing all or any of these capabilities, and any failure
to do so could have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Management."
RAPID GROWTH IN A CHANGING INDUSTRY; PRICING UNCERTAINTIES
Part of the Company's strategy is to rapidly construct several cable systems
in a short time frame in order to take advantage of the supply and demand
imbalance that currently exists and is projected in the global marketplace.
Each of the Company's currently announced systems is expected to be
operational between 1998 and 2000. As a result of the Company's implementation
of the aggressive timing of its strategy, the Company is experiencing rapid
expansion that management expects will continue for the foreseeable future.
This growth has increased the operating complexity of the Company. At the same
time, the international telecommunications industry is changing rapidly due
to, among other things, regulatory liberalization, privatization of
established carriers, the expansion of telecommunications infrastructure, the
globalization of the world's economies and the
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<PAGE>
changing technology for wireless and satellite communication. Much of the
Company's planned growth is predicated upon the growth in demand for
international telecommunications capacity which will consume the increased
supply of telecommunications capacity from new cables and other technology so
that price declines will not be greater than the price declines anticipated by
the Company in its business plan. There can be no assurance that such
anticipated demand growth will occur.
The undersea fiber optic cable transmission industry has experienced
significant per circuit price declines resulting from technological advances
in fiber optic technology. Recent technological advances have created even
greater per circuit pricing pressure in the industry. A lower than projected
increase in demand or a higher than projected decline in per circuit price
could have a material adverse effect on the Company. There can be no
assurance, even if the Company's projections with respect to such factors are
realized, that the Company will be able to implement its strategy or that its
strategy will be successful in the rapidly evolving telecommunications market.
RAPID TECHNOLOGICAL CHANGE
Recent technological advances, such as the use of DWDM, have greatly
expanded the availability of capacity of new fiber optic cable at constant
construction costs, resulting in a corresponding decrease in the cost per
circuit of capacity. In addition, the introduction of new products or the
emergence of new technologies may enable competitors to install competing
systems at a lower per-circuit cost on routes currently targeted by the
Company or to expand capacity on existing competitive systems, potentially
rendering the Company's systems not cost competitive. While the Company
believes that being the first to market and construct cable systems with
significant capacity on certain routes may prevent competitors from
overbuilding in those situations, Global Crossing cannot predict the behavior
of potential competitors who might otherwise build a system even if it would
be uneconomical for an additional system to be constructed. The Company
believes that for the foreseeable future, technology changes will neither
materially affect the continued use of fiber optic cable nor materially hinder
the Company's ability to deploy the state-of-the-art technology; however, the
effect of such technological changes on the Company's operations cannot be
predicted and could have a material adverse effect on the Company.
OPERATIONS RISKS
Each of Global Crossing's systems will be subject to the risks inherent in a
large-scale, complex undersea fiber optic telecommunications system employing
advanced technology. The operations, administration, maintenance and repair of
these systems requires the coordination and integration of sophisticated and
highly specialized hardware and software technologies and equipment located
throughout the world. There can be no assurance that, even if built to
specifications, the Company's systems will function as expected in a cost-
effective manner. The failure of the hardware or software to function as
required could render a cable system unable to perform at design
specifications.
AC-1 has, and each of the Company's other systems are expected to have, a
design life of not less than 25 years; however, there can be no assurance of
the actual useful life of any of these systems. A number of factors will
affect the useful life of each of the Company's systems, including, among
other things, quality of construction, unexpected deterioration and
technological or economic obsolescence. Failure of any of the Company's
systems to operate for its full design life could have a material adverse
effect on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends on the efforts of certain of its
officers and key technical, sales and other employees, some of whom have only
recently joined the Company, as well as its ability to attract, retain and
motivate highly skilled officers and employees. There can be no assurance that
the Company will successfully integrate new management personnel and employees
into its existing operations, or that the Company will be able to attract,
retain and motivate highly skilled management personnel and employees.
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<PAGE>
Furthermore, the Company does not presently maintain any key person life
insurance policies on any of its management personnel. See "Management--
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company will derive substantial revenues from international operations.
The Company intends to have substantial physical assets in several
jurisdictions along the routes of its planned systems. International
operations are subject to political, economic and other uncertainties,
including, among other things, risk of war, revolution, border disputes,
expropriation, renegotiation or modification of existing contracts, labor
disputes and other uncertainties arising out of foreign government sovereignty
over the Company's international operations. There can be no assurance that
these factors will not have a material adverse effect on the Company.
FOREIGN EXCHANGE; EXCHANGE CONTROLS
The Company will invoice all sales of capacity in U.S. dollars, and each
customer will incur maintenance and other obligations denominated in U.S.
dollars; however, many actual and prospective customers of the Company derive
their revenues in currencies other than U.S. dollars. The obligations of
customers whose revenues are preponderantly in foreign currencies will be
subject to unpredictable and indeterminate increases in the event that such
currencies devalue relative to U.S. dollars. Furthermore, such customers may
be or may become subject to exchange control regulations which might restrict
or prohibit the conversion of their revenue currencies into dollars. There can
be no assurance that the occurrence of any such factors will not have a
material adverse effect on the Company.
EFFECT OF GOVERNMENT REGULATION
The Company, in the ordinary course of development, construction and
operation of its fiber optic cable systems, will be required to obtain and
maintain various permits, licenses and other authorizations in both the United
States and in foreign jurisdictions where its cables land. In particular,
undersea cable landing or similar licenses will be required in many of the
jurisdictions where Global Crossing's systems will land. Such licenses are
typically issued for a term of years, subject to renewal. Moreover, the
licenses may subject the Company's business and operations to varying forms of
regulation, which could change over the course of time. Failure to obtain or
renew such a license, or a material change in the nature of the regulation to
which the Company's operations are subject, could have a material adverse
effect on the Company's business. In addition, the Company's international
operations may be affected from time to time by political developments and
national and local laws and regulations and may be subject to risks such as
the imposition of governmental controls, license requirements and changes in
tariffs. Specifically, in connection with the construction of each cable
system, the Company must obtain certain permits and licenses with respect to
construction, operations and maintenance. Although Global Crossing intends
that the construction contracts for each of the Company's cable systems will
impose the burden of acquiring and maintaining construction licenses and
permits on the contractor for each of such systems, there can be no assurance
that such contractor will successfully obtain such permits and licenses.
Failure to obtain or maintain any permits or licenses so required could have a
material adverse effect on the Company. See "Business--Regulation."
DEPENDENCE ON THIRD PARTIES
The Company is and will continue to be dependent upon third parties to (i)
provide access to certain origination and termination points of its systems in
various jurisdictions, (ii) construct and operate landing stations in certain
of such jurisdictions, (iii) construct and maintain the Company's systems
pursuant to contractual arrangements with the Company, (iv) provide backhaul
service to the Company's customers through contractual arrangements with such
parties and (v) act as joint venture participants with respect to PC-1 and,
potentially, certain of the Company's future systems. There can be no
assurance that such parties will perform
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<PAGE>
their contractual obligations or that there will not be political or economic
events in relation to such parties which may have a material adverse effect on
the Company.
RISK OF ERROR IN FORWARD-LOOKING STATEMENTS
The Company is a development stage company. Accordingly, all statements in
this Prospectus that are not clearly historical in nature are forward-looking.
Examples of such forward-looking statements include the statements concerning
the Company's operations, prospects, size of world telecommunications traffic,
size of addressable market, technological and customer support capabilities,
pricing, potential customers and liquidity and working capital needs,
estimated demand forecasts, and information concerning characteristics of
competing systems. These forward-looking statements are inherently predictive
and speculative and no assurance can be given that any of such statements will
prove to be correct. Actual results and developments may be materially
different from those expressed or implied by such statements. Prospective
investors should carefully review the other risk factors set forth in this
section of this Prospectus for a discussion of certain factors which could
result in any of such forward-looking statements proving to be inaccurate.
TAX MATTERS
The Company believes that a significant portion of its income will not be
subject to tax by any of (i) Bermuda, which currently does not have a
corporate income tax, or (ii) certain other countries in which the Company
conducts activities or in which customers of the Company are located,
including the United States. However, this belief is based upon the
anticipated nature and conduct of the business of the Company, which may
change, and upon the Company's understanding of its position under the tax
laws of the various countries in which the Company has assets or conducts
activities, which position is subject to review and possible challenge by
taxing authorities and to possible changes in law (which may have retroactive
effect). The extent to which certain jurisdictions may require the Company to
pay tax or to make payments in lieu of tax cannot be determined in advance. In
addition, the operations and payments due to the Company may be affected by
changes in taxation, including retroactive tax claims or assessment of
withholding on amounts payable to the Company or other taxes assessed at the
source, in excess of the taxation anticipated by the Company based on business
contacts and practices of the Company and the current tax regimes. There can
be no assurance that any of the foregoing factors would not have a material
adverse effect on the Company. See "Tax Considerations."
FOREIGN PERSONAL HOLDING COMPANY, PASSIVE FOREIGN INVESTMENT COMPANY,
CONTROLLED FOREIGN CORPORATION AND PERSONAL HOLDING COMPANY RULES
It is possible that the Issuer or one of its non-United States subsidiaries
will be classified as a foreign personal holding company (a "FPHC") under the
United States Internal Revenue Code of 1986, as amended (the "Code"). If the
Issuer or one of its non-United States subsidiaries were classified as an
FPHC, all United States Holders (as defined below under "Tax Considerations")
of Common Stock would be required to include in income, as a dividend, their
pro rata share of the Issuer's (or its relevant non-United States
subsidiary's) undistributed FPHC income (generally, taxable income with
certain adjustments). While the Company intends to manage its affairs so as to
attempt to avoid or minimize having income imputed to United States Holders
under these rules, to the extent such management of its affairs is consistent
with its business goals, there can be no assurance that the Company will be
successful in this endeavor.
The Issuer believes that it is not a passive foreign investment company (a
"PFIC") and does not expect to become a PFIC in the future, although there can
be no assurance in this regard. In addition, this belief is based, in part, on
interpretations of existing law that the Issuer believes are reasonable, but
which have not been approved by any taxing authority. If the Issuer were a
PFIC, then each United States Holder of Common Stock would, upon certain
distributions by the Issuer, or upon disposition of the Common Stock at a
gain, be liable to pay tax at the then prevailing rates on ordinary income
plus an interest charge, generally as if the distribution or gain had been
recognized ratably over the United States Holder's holding period (for PFIC
purposes) for the Common Stock, or if a "qualified electing fund" election
were made by a United States Holder of Common
19
<PAGE>
Stock, a pro rata share of the Issuer's ordinary earnings and net capital gain
would be required to be included in such United States Holder's income each
year. A United States Holder may also be able to make a mark to market
election. If the mark to market election is available to a United States
Holder, annual increases and decreases in share value would be included as
ordinary income or deducted from ordinary income by marking-to-market the
value of the shares at the close of each year. See "Tax Considerations."
Furthermore, additional tax considerations would apply if the Issuer or any
of its affiliates were a controlled foreign corporation (a "CFC") or a
personal holding company (a "PHC"). See "Tax Considerations."
DIVIDEND POLICY; RESTRICTION ON PAYMENT OF DIVIDENDS
The Company does not anticipate paying cash dividends in the foreseeable
future. See "Dividend Policy." The Company's ability to pay dividends is
limited by certain of its debt instruments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Description of Certain Indebtedness."
DILUTION
The public offering price is substantially higher than the tangible book
value of the outstanding Common Stock. Purchasers of Shares in the Offerings
will therefore experience immediate and substantial dilution in tangible book
value per share, and existing shareholders of GCL will receive a material
increase in the tangible book value per share of their shares of Common Stock.
The dilution to new investors will be $15.57 per Share (based on a Price to
Public of $18.00 per Share and assuming no exercise of the over-allotment
options granted to the Underwriters). See "Dilution."
VOTING AND TRANSFER RESTRICTIONS
The Amended and Restated Bye-Laws of the Company (the "Bye-Laws") will
provide that each share of Common Stock will have one vote. However, if the
Controlled Shares (as defined herein) of any person constitute 9.5% (or, in
the case of CIBC and its affiliates, 35%) of the voting power of the
outstanding shares, the voting rights with respect to such Controlled Shares
will be limited pursuant to the Bye-Laws and the voting rights attached to
such shares allocated to the other holders of Common Stock on a pro rata
basis. The other holders allocated these voting rights may not exceed the
above limitation as a result of this allocation. The Bye-Laws will also
prohibit any transfer of shares of Common Stock that, subject to certain
exceptions, would result in a person beneficially owning Controlled Shares in
excess of 5% of the outstanding shares of Common Stock, in the case of a
natural person, or 9.5% of the outstanding shares of Common Stock, in the case
of a group or any person other than a natural person, without the approval of
a majority of the members of the Board of Directors and stockholders holding
at least 75% of the votes that may be cast by all holders of Common Stock.
Such voting and transfer restrictions will increase the difficulty for any
person or group of persons acting in concert (other than certain existing
stockholders) to acquire a substantial ownership position in, or control of,
the Company. See "Description of Capital Stock--GCL--Voting and Transfer
Restrictions."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop or
be sustained. The offering price has been determined by negotiations between
the Company and the Underwriters and there can be no assurance that the prices
at which the Common Stock will sell in the public market after the Offerings
will not be lower than the price at which the Common Stock is sold in the
Offerings. See "Underwriting." Historically, the market prices for securities
of emerging companies in the telecommunications industry have been highly
volatile. The trading price of the Common Stock after the Offerings could be
subject to wide fluctuations in response to numerous factors, including, but
not limited to, quarterly variations in operating results, competition,
announcements of technological innovations or new products by the Company or
its competitors, product enhancements by the Company or its competitors,
20
<PAGE>
regulatory changes, any differences in actual results and results expected by
investors and analysts, changes in financial estimates by securities analysts
and other events or factors. In addition, the stock market has experienced
volatility that has affected the market prices of equity securities of many
companies and that often has been unrelated to the operating performance of
such companies. These broad market fluctuations may adversely affect the
market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings (assuming no exercise of the over-allotment
options granted to the Underwriters), GCL will have 201,688,519 shares of
Common Stock outstanding, including 21,000,000 Shares of Common Stock offered
hereby and 180,688,519 "restricted" shares of Common Stock. The Shares of
Common Stock offered hereby will be freely tradeable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), by persons other than "affiliates" of the Company within
the meaning of Rule 144 promulgated under the Securities Act. Holders of
restricted shares generally will be entitled to sell these shares in the
public securities market without registration under the Securities Act to the
extent permitted by Rule 144 (or Rule 145, as applicable) promulgated under
the Securities Act or any exemption under the Securities Act. The restricted
shares generally will be eligible for sale under Rule 144, as currently in
effect, beginning as early as 180 days from the date of this Prospectus.
The Company intends to file a registration statement under the Securities
Act after the Offerings to register shares of Common Stock reserved for
issuance under the Stock Incentive Plan, thus permitting the resale of such
shares by non-affiliates upon issuance in the public market without
restriction under the Securities Act. Such registration statement will
automatically become effective immediately upon filing. See "Management--Stock
Incentive Plan."
Subject to certain exceptions, the Company and certain shareholders,
directors and officers of the Company have agreed not to offer, sell, contract
to sell or otherwise dispose of, directly or indirectly, or announce the
offering of any shares of Common Stock, including any such shares beneficially
or indirectly owned or controlled by the Company, or any securities
convertible into, or exchangeable or exercisable for, shares of Common Stock,
for 180 days from the date of this Prospectus, without the prior written
consent of Smith Barney Inc.
Sales of a substantial amount of Common Stock in the public market, or the
perception that such sales may occur, could adversely affect the market price
of the Common Stock prevailing from time to time in the public market and
could impair the Company's ability to raise additional capital through the
sale of its equity securities. See "Shares Eligible for Future Sale."
21
<PAGE>
USE OF PROCEEDS
The net proceeds from the Offerings to the Company are estimated to be
approximately $318.2 million (after deducting the Underwriters' discount and
estimated Offerings fees and expenses payable by the Company). The Company
intends to use the net proceeds of the Offerings as follows: (i) approximately
$220 million to make investments in the Global Crossing Network, (ii) up to
$50 million to make minority investments in telecommunications companies and
Internet service providers, (iii) up to $25 million to fund the Company's
proposed investment in Global Access Limited and (iv) the balance for general
corporate purposes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Business." Pending the application of the net proceeds of the Offerings as
described above, the Company will invest such proceeds in short-term,
interest-bearing U.S. Government securities and certain other short term,
investment grade securities. The Company will receive no proceeds from the
sale of the Shares by the Selling Shareholders. The net proceeds from the sale
of the Shares by the Selling Shareholders will be used by such Selling
Shareholders to fund anticipated income tax liabilities resulting from the
Company's acquisition of the rights to advisory fees payable under the
Advisory Services Agreements as described under "Certain Transactions."
DIVIDEND POLICY
GCL does not anticipate paying dividends in the foreseeable future. The
terms of certain debt instruments of the Company also place limitations on
GCL's ability to pay dividends. Future dividends, if any, will be at the
discretion of the Board of Directors of GCL and will depend upon, among other
things, the Company's operations, capital requirements and surplus, general
financial condition, contractual restrictions and such other factors as the
Board of Directors of GCL may deem relevant. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Description of
Certain Indebtedness."
DILUTION
At March 31, 1998, the historical net tangible book value of the Company was
$35.0 million or $0.19 per share of Common Stock. "Historical net tangible
book value per share" represents the Company's net worth less intangible
assets of $25.0 million divided by 182,738,519 shares of Common Stock
outstanding on July 13, 1998 (after giving effect to the Common Stock Dividend
and the transactions associated therewith). After giving effect to the sale by
the Company of 18,950,000 Shares pursuant to the Offerings at an assumed
initial public offering price of $18.00 per share and after deducting the
underwriting discount and expenses of the Offerings, the pro forma net
tangible book value of the Company at March 31, 1998, would have been $490.2
million, or $2.43 per share of Common Stock. Such amount represents an
immediate increase in pro forma net tangible book value of $2.24 per share of
Common Stock to the existing stockholder and an immediate dilution to new
investors of $15.57 per share of Common Stock. The following table illustrates
the dilution in pro forma net tangible book value per share to new investors:
<TABLE>
<S> <C> <C>
Assumed public offering price per Share........................ $18.00
Historical net tangible book value per share at March 31, 1998. $0.19
Increase in net tangible book value per share attributable to
net proceeds
of the Offerings.............................................. 2.24
-----
Pro forma net tangible book value per share after the Offer-
ings.......................................................... 2.43
------
Dilution to new investors...................................... $15.57
======
</TABLE>
The foregoing table assumes no exercise of the Underwriters' over-allotment
options to purchase an additional 3,150,000 Shares.
22
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1998 (i) the historical
consolidated capitalization of the Company and (ii) the capitalization as
adjusted to reflect the Offerings, the Note Offering and the application of
the net proceeds therefrom. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
----------------------------
ACTUAL AS ADJUSTED(1)
------------ --------------
(UNAUDITED)
<S> <C> <C>
Long Term Debt:
AC-1 Credit Facility(2)..................... $305,508,000 $ 305,508,000
GTH Senior Notes............................ 150,000,000 --
Obligations under capital leases............ 7,642,845 7,642,845
Obligations under Inland Services
Agreements(3).............................. 745,000 745,000
GCH Senior Notes............................ -- 800,000,000
------------ --------------
Total Long Term Debt...................... 463,895,845 1,113,895,845
------------ --------------
GTH Preference Shares......................... 95,007,302 --
------------ --------------
Shareholders' Equity:
Common Stock................................ 110 2,016,885
Treasury Stock.............................. -- (139,773,807)
Additional Paid-in Capital.................. 87,395,845 796,369,289
Accumulated Deficit During Development
Stage...................................... (27,389,205) (144,328,708)
------------ --------------
Total Shareholders' Equity................ 60,006,750 514,283,659
------------ --------------
Total Capitalization...................... $618,909,897 $1,628,179,504
============ ==============
</TABLE>
- --------
(1) As adjusted to reflect the Refinancing, the Note Offering, the Offerings,
the PCG Warrant Conversion, the Advisory Services Agreement Termination,
the TDC Exchange and the Old GCL Liquidation. For detailed information on
these adjustments, see Note 2 to "Summary Consolidated Financial and
Operating Data."
(2) The AC-1 Credit Facility provides non-recourse financing at the ACL level
for the construction and development of AC-1. A total of $482.0 million is
available to be borrowed under this facility, of which $305.5 million was
outstanding as of March 31, 1998. See "Description of Certain
Indebtedness--AC-1 Credit Facility."
(3) Net of the $12.5 million current portion of such obligations.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" as of December 31, 1997 and for the
period from March 19, 1997 (date of inception) through December 31, 1997 are
derived from the Consolidated Financial Statements of the Company included
herein, which financial statements are prepared in accordance with U.S. GAAP
and have been audited by Arthur Andersen & Co., independent public
accountants, as indicated in their report thereon included elsewhere in this
Prospectus. The financial data as of and for the three months ended March 31,
1998 and for the period from March 19, 1997 (date of inception) to March 31,
1998 are derived from the Company's unaudited interim financial statements.
The unaudited interim financial statements include all adjustments, consisting
of normal recurring adjustments, that management considers necessary for fair
presentation of the financial position as of March 31, 1998 and results of
operations for this interim period presented. Results of operations for the
interim period is not necessarily indicative of the results of operations for
a full year. The operating data presented below are derived from the Company's
records. The Company is in its development stage; accordingly, financial data
presented herein and elsewhere in this Prospectus is not necessarily
indicative of the financial position or results of operations of the Company
in the future. The information set forth below should be read in conjunction
with the discussion under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and the Consolidated
Financial Statements and the notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD FOR THE PERIOD
THREE MONTHS MARCH 19, 1997 MARCH 19, 1997
ENDED (DATE OF INCEPTION) (DATE OF INCEPTION)
MARCH 31, 1998 TO DECEMBER 31, 1997 TO MARCH 31, 1998
-------------- -------------------- -------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Interest Income......... $ 345,834 $ 2,941,352 $ 3,287,186
------------ ------------ ------------
Expenses:
Sales and Marketing... 784,216 1,366,724 2,150,940
General and
Administrative....... 2,614,903 1,695,770 4,310,673
Depreciation and
Amortization......... 30,367 39,214 69,581
Project Evaluation
Costs................ 7,047,044 -- 7,047,044
------------ ------------ ------------
Total Expenses.......... 10,476,530 3,101,708 13,578,238
------------ ------------ ------------
Net Loss (1)............ (10,130,696) (160,356) (10,291,052)
Preference Share Non-
Cash Dividends (2)..... (4,408,230) (12,689,923) (17,098,153)
------------ ------------ ------------
Net Loss Applicable to
Common Shareholders.... $(14,538,926) $(12,850,279) $(27,389,205)
============ ============ ============
Basic and diluted net
loss per common share
(3).................... $ (0.13) $ (0.12) $ (0.25)
============ ============ ============
Shares used in computing
basic and diluted net
loss per
common share........... 110,615,211 110,294,100 110,370,758
============ ============ ============
<CAPTION>
AS OF AS OF
MARCH 31, 1998 DECEMBER 31, 1997
-------------------- -------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current Assets Including Cash and
Restricted Cash (4)................... $ 54,683,167 $ 27,743,838
Construction in Progress (5)........... 620,963,878 518,518,509
Deferred Finance and Organization
Costs, Net of Accumulated
Amortization.......................... 24,974,952 25,934,021
------------ ------------
Total Assets........................... $700,621,997 $572,196,368
============ ============
Current Liabilities.................... $ 81,712,100 $ 92,097,773
Long Term Debt......................... 305,508,000 162,325,000
GTH Senior Notes....................... 150,000,000 150,000,000
Obligations Under Capital Leases....... 7,642,845 --
Obligations Under Inland Services
Agreements (6)........................ 745,000 3,009,000
GTH Preference Shares (7).............. 95,007,302 90,643,919
Shareholders' Equity:
Common Stock......................... 110 110
Additional Paid-in Capital........... 87,395,845 86,970,845
Deficit Accumulated During the
Development Stage................... (27,389,205) (12,850,279)
------------ ------------
Total Shareholders' Equity............. 60,006,750 74,120,676
------------ ------------
Total Liabilities and Shareholders'
Equity................................ $700,621,997 $572,196,368
============ ============
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
AS OF
JUNE
30, 1998
------------
<S> <C>
OPERATING DATA:
Executed CPAs...................................................... $550 million
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED(8)
--------------
<S> <C>
Route Kilometers................................................ 51,300
Fiber Kilometers................................................ 345,200
Estimated System Costs
AC-1 .......................................................... $ 750 million
Other Projects Under Development............................... $2,025 million
Landing Stations................................................ 14
</TABLE>
- --------
(1) The Company is in the process of finalizing determination of the fair
value of its Common Stock on the date of its stock option grants. On a pro
forma basis, assuming the fair value of the Company's Common Stock were
determined to be the midpoint of the expected pricing range for the
Offerings on the dates of grants which commenced on January 21, 1998, the
net loss for the three months ended March 31, 1998 would increase by $7.4
million. This would have no effect on the Company's cash flow, total
assets, total liabilities or stockholders equity.
(2) The holders of GTH Preference Shares are entitled to receive cumulative,
compounding dividends at an initial annual rate of 14%. Preference share
dividends include cumulative 14% dividends and amortization of the
discount and issuance costs. All dividends to date have been paid through
the issuance of additional preference shares. The Company has redeemed all
of the outstanding GTH Preference Shares effective as of June 17, 1998.
(3) Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding. Diluted net loss per share is computed
using the weighted average number of shares of common stock outstanding
and common stock equivalents including shares issuable under options and
warrants that are dilutive using the treasury stock method.
(4) The majority of restricted cash and cash equivalents are funds which have
been reserved for the purpose of funding future interest payable on the
GTH Senior Notes. The Company has applied a portion of the net proceeds of
the Note Offering to repurchase all outstanding GTH Senior Notes.
(5) Construction in Progress includes direct and indirect expenditures for
construction of AC-1 and is stated at cost. Capitalized costs include
costs incurred under (i) the AC-1 Contract; (ii) advisory, consulting and
legal fees; (iii) interest (including amortization of debt issuance costs
incurred during the construction phase); and (iv) other costs necessary
for developing AC-1. Costs incurred to acquire backhaul capacity are also
included.
(6) Certain contracts to acquire backhaul capacity require payments over a 25-
year period. The amount shown reflects the present value of such payments,
net of the $12.5 million ($18.1 million as of December 31, 1997) current
portion of such payments, which is included under "Current Liabilities."
(7) Reflects (i) $100 million of GTH Preference Shares originally issued, plus
(ii) $13.7 million ($9.8 million as of December 31, 1997) of GTH
Preference Shares issued as dividends thereon, less (iii) $18.7 million
($19.2 million as of December 31, 1997), reflecting the unamortized
discount and issue costs associated therewith. The Company has redeemed
all of the outstanding GTH Preference Shares effective as of June 17,
1998.
(8) Assumes full completion of AC-1, PC-1, MAC and PAC based upon current
Company estimates, including anticipated financing costs. See "Risk
Factors--Risks Relating to Completing the Company's Cable Systems" and
"Risk of Error in Forward-Looking Statements."
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements that include, among
others, statements concerning the Company's plans to effect the design,
construction, and operations of, and sales of capacity on, its planned
telecommunications systems, expectations as to funding its future capital
requirements and other statements of expectations, beliefs, future plans and
strategies, anticipated developments and other matters that are not historical
facts. Management cautions the reader that these forward-looking statements
are subject to risks and uncertainties that could cause actual events or
results to differ materially from those expressed or implied by the
statements. The most important factors that could prevent the Company from
achieving its goals include, but are not limited to, failure by the Company
to: (i) complete its systems within currently estimated time frames and
budgets, (ii) sell capacity on its systems, (iii) make a successful transition
from a system development and construction company to an operating company and
(iv) effectively compete in the context of a rapidly evolving market
characterized by intense price competition and unpredictable levels of demand
for telecommunication capacity. The Company does not intend to publish updates
or revisions of any forward-looking statements included in this Prospectus to
reflect events or circumstances after the date hereof or to reflect subsequent
market analysis. See "Risk Factors--Risk of Error in Forward-Looking
Statements."
The following discussion and analysis should be read in conjunction with the
Company's audited Consolidated Financial Statements and the notes thereto
contained in this Prospectus.
OVERVIEW
The Company was formed as the world's first independent developer, owner and
operator of undersea digital fiber optic cable systems to capitalize on the
accelerating growth of international Internet and telecommunications traffic.
The Company commenced operations in March 1997, when it entered into a fixed
price contract with Tyco Submarine Systems Ltd. ("TSSL", formerly AT&T
Submarine Systems, Inc.) for the design, development, construction and
installation of AC-1 and obtained commitments for AC-1's initial financing.
AC-1, the first of Global Crossing's planned fiber optic cable systems, is
designed to be a four fiber pair system connecting (i) the United States to
the United Kingdom, (ii) the United Kingdom to The Netherlands and Germany,
(iii) The Netherlands to Germany and (iv) Germany to the United States. The
first segment of AC-1, the United States to United Kingdom route, was
completed and commenced operations on May 26, 1998. The Company currently
anticipates that the full AC-1 system will be completed and commence
operations by February 1999. See "Risk Factors--Risks Related to Completing
the Company's Cable Systems."
The Company, since its inception, has been involved in the planning,
financing, marketing, organization, development, design and construction of
the AC-1 system. In addition, the Company has been engaged in the planning,
developing and financing of the three other planned systems currently under
active development by the Company (PC-1, MAC and PAC). The Company has also
achieved a number of significant milestones, including (i) the recruitment of
experienced professionals in undersea cable and telecommunications operations,
(ii) the signing of construction contracts on AC-1, PC-1, MAC and PAC, (iii)
the execution of the AC-1 Credit Facility and the execution of financing
commitments with respect to PC-1, MAC and PAC and (iv) the construction and
activation of the United States to United Kingdom segment of AC-1.
Sales of capacity by the Company on its cable systems are effected through
Capacity Purchase Agreements pursuant to which the Company's customers obtain
an indefeasible right of use ("IRU") for a certain number of circuits. Each
IRU entitles the customer to the use of the related capacity for a period
ending 25 years after the RFS date for the related system. Global Crossing
also sells capacity on terrestrial cables through Inland Capacity Purchase
Agreements ("ICPAs"), linking certain of the Company's landing stations with
major cities in order to provide city-to-city connectivity to its customers.
This backhaul capacity, which is purchased by the Company through Inland
Services Agreements ("ISAs") from the owners of terrestrial cable systems, is
resold by the Company to its customers through ICPAs.
The Company's basic pricing structure currently provides for volume-based
discounts to its customers. Customers are generally provided options in their
capacity purchase agreements to purchase additional capacity in
26
<PAGE>
the future at prices which reflect the aggregate purchases made by such
customers. Consequently, the prices under such options in the future are often
lower than the current price paid by such customers for their initial
capacity.
In connection with the development and construction of AC-1, ACL entered
into an advisory services agreement with an affiliate of the Company providing
for the payment by the Company of an advisory fee of 2.0% of the gross
revenues of ACL. The Company's Board of Directors also approved similar
advisory fees and authorized the Company to enter into similar agreements in
respect of other cable systems developed by the Company. The Company intends
to acquire the rights of the persons entitled to the fees payable under these
agreements in consideration for the issuance by the Company of Common Stock
having an aggregate value (determined on the basis of the Price to Public per
Share payable in the Offerings) of $135 million and the cancellation of
approximately $2.7 million owed to the Company under a related advance
agreement. As a result of this transaction, the Company will incur a charge of
$97 million, which is discounted from the $135 million to take into account
the non-marketability of the non-registered common stock issued, which will be
reflected in its statement of operations for the period ended June 30, 1998.
See "Certain Transactions." Upon the consummation of this transaction, all of
the obligations of the Company and ACL in respect of these advisory services
agreements will be terminated.
REVENUES
Prior to the RFS date for the United States to United Kingdom segment of AC-
1, the Company had no revenues and had interest income on restricted cash,
cash raised from financing, cash on CPA deposits and cash on ICPA deposits. As
of June 30, 1998, the Company had entered into CPAs with customers for
capacity on AC-1 providing for payments to the Company of an aggregate of at
least $550 million and had received aggregate payments (including deposits)
from customers of approximately $110 million. Cash deposits have been recorded
as unearned revenue prior to activating the capacity sold pursuant to the
related CPA. Most deposits are refundable if the AC-1 system RFS date does not
occur prior to June 30, 1999. See "Business--Summary of Principal Terms of
Standard Contractual Documentation."
Since the RFS date for the United States to United Kingdom segment of AC-1,
which occurred on May 26, 1998, the Company's revenues have been principally
comprised of revenues from sales of cable capacity on AC-1 and the sale of
backhaul capacity. Revenues from the sale of capacity on the Company's systems
and from the sale of backhaul capacity are recognized in the period during
which (i) the purchaser obtains the right to use the capacity, which can only
be suspended by a failure of the purchaser to pay the full purchase price or
fulfill its contractual obligations, (ii) the purchaser is obligated to pay
OA&M costs and (iii) the segment of the system related to the capacity
purchased is available for service.
COST OF SALES; CAPACITY AVAILABLE FOR SALE
Cable construction costs incurred with respect to each segment of AC-1,
reflected as "Construction in Progress" in the Company's consolidated December
31, 1997 balance sheet, will be reflected as capacity available for sale at
the date such segment becomes operational. Capacity available for sale will be
recorded at the lower of cost or fair value less cost to sell and will be
charged to cost of sales in the period the related revenues are recognized.
Fair value of capacity will be derived from a third party consultant's market
study of expected sales of capacity.
The amount charged to cost of sales in any period related to AC-1 capacity
will be calculated based on the ratio of AC-1 capacity revenues recognized in
the period to total expected AC-1 capacity revenues over the life of the
system, multiplied by the total cost incurred to construct AC-1. The Company
plans to use the same accounting policy for its other planned cable systems.
The cost to acquire backhaul capacity will be charged to cost of sales in the
period during which the related revenues are recognized. Changes in
management's estimate of the expected revenues to be derived from sales of a
cable system's capacity will result in adjustments to the calculations of cost
of sales. These adjustments will be recorded on a prospective basis over
future periods commencing with the period when management revises its
estimate.
OPERATING EXPENSES
In addition to cost of sales, the Company's operating expenses will
principally comprise sales and marketing, operating and maintenance and
general and administrative costs. Costs relating to the Company's evaluation
of possible additional systems will be expensed as incurred.
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The Company has entered into an agreement with TSSL relating to operations,
administration and maintenance of AC-1 and related backhaul capacity ("the AC-
1 OA&M Agreement"). Following the AC-1 full system RFS date, the Company
anticipates that its costs under the AC-1 OA&M Agreement will be largely
recovered through charges to its customers under the terms of CPAs.
CONSTRUCTION IN PROGRESS
Construction in progress includes direct expenditures for construction of
AC-1 and is stated at cost. These expenditures include costs incurred under
the AC-1 Contract; advisory, consulting and legal fees; interest and amortized
debt issuance costs incurred during the construction phase. Additionally, the
Company has capitalized the cost of acquiring backhaul capacity. The Company
has recorded in "Construction in Progress" amounts for backhaul capacity equal
to the present value of future payments associated with the acquisition of
such backhaul capacity.
RESULTS OF OPERATIONS FOR THE PERIOD FROM MARCH 19, 1997 TO DECEMBER 31, 1997
Interest Income. Pursuant to the purchase agreement relating to the sale of
its outstanding $150 million GTH Senior Notes, the Company was required to
maintain certain amounts in restricted cash and cash equivalents accounts to
fund future semi-annual interest payments on such notes. Interest income
earned on this balance, together with interest income earned on cash raised
from financing and cash on CPA deposits, totalled approximately $2.9 million
for the period from March 19, 1997 to December 31, 1997. The Company utilized
a portion of the net proceeds from the Note Offering to repurchase the GTH
Senior Notes. See "--Liquidity and Capital Resources."
Expenses. During the period ended December 31, 1997, the Company incurred
expenses of $3.1 million. Of this amount, approximately $1.4 million was
attributable to sales and marketing expenses, relating principally to AC-1,
and approximately $1.7 million was attributable to general and administrative
expenses.
GTH Preference Share Dividends. The GTH Preference Shares accrued
compounding dividends at an annual rate of 14%. During the period ended
December 31, 1997, the Company recorded preference share dividends of
approximately $12.7 million. This amount is comprised of $11.1 million in
paid-in-kind ("PIK") dividends, $1.0 million in amortization of the discount
on issuance and $0.6 million in amortization of issuance costs. The $11.1
million in PIK dividends includes $1.3 million accrued but unpaid as of
December 31, 1997.
In connection with the issuance of the GTH Preference Shares, the exclusive
placement agent thereof, CIBC Wood Gundy Securities Corp., received a total of
13,235,300 shares of Class A common stock of Global Crossing Ltd., LDC ("Old
GCL") for no additional consideration. The Company has recorded the
$13,235,000 estimated fair value of such shares as a discount in the carrying
value of the GTH Preference Shares, which discount is being amortized over the
term of such shares. The Class A shares will be cancelled in connection with
the Common Stock Dividend and the liquidation of Old GCL which is to occur
concurrently with the Offerings, with holders of such Class A shares receiving
a dividend of 1.5 shares of Common Stock of GCL for each share of Old GCL
stock held by it prior to cancellation of such shares. See "Certain
Transactions--Transactions Regarding Class A Shares of Old GCL."
The Company utilized a portion of the net proceeds from the Note Offering to
redeem the GTH Preference Shares effective June 17, 1998. See "--Liquidity and
Capital Resources."
Net Loss and Net Loss Applicable to Common Shareholders. During the period
ended December 31, 1997, the Company had a net loss applicable to common
shareholders of $12.9 million, resulting primarily from the $12.7 million of
dividends on the GTH Preference Shares described above.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998
For the three months ended March 31, 1998, the Company had revenues of
approximately $0.3 million, consisting entirely of interest income, and net
loss applicable to common shareholders of approximately $14.5 million.
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During this period, the Company incurred approximately $0.8 million of sales
and marketing expenses; $2.6 million of general and administrative expenses;
$7.0 million of project evaluation costs relating to new cable systems; and
approximately $4.4 million of PIK dividends, including amortization of both
the discount on issuance and issuance costs. The increase in sales and
marketing and general and administration expenses reflects the continuing
growth in number of employees during the development stage. The number of the
Company's employees has increased from 9 as of December 31, 1997 to 38 as of
March 31, 1998. The Company also issued options on 2,731,500 shares of Common
Stock at an exercise price of $1.67 per share in January 1998 (after giving
effect to the Common Stock Dividend). No compensation expense was recorded
related to these options since the estimated fair value of the options on the
date of grant did not exceed the exercise price.
RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1998
For the three months ended June 30, 1998, the Company expects to report
revenues and gross profit of approximately $101 million and $57.5 million,
respectively.
During this period, the Company incurred an operating loss of $69.2 million
(which includes non-cash charges of $97 million relating to the Advisory
Services Agreement Termination and a charge of $8.7 million for stock-based
compensation using an independent determination of the fair value of the stock
at the dates the stock options were granted over the past 12 months) and a net
loss before extraordinary item of $81.5 million.
In addition, during the period the Company incurred an extraordinary loss on
the repurchase of the GTH Senior Notes of $19.7 million. This loss is
comprised of a $9.8 million charge for the tender premium on the GTH Senior
Notes and a $9.9 million write-off of deferred finance fees relating to the
GTH Senior Notes.
Net loss applicable to Common Shareholders of $139.3 million includes a one
time charge related to the redemption of GTH Preference Shares of $38.0
million, which consists of a $15.9 million premium on the redemption of the
GTH Preference Shares, an $18.3 million write-off of discount and issuance
costs and $3.8 million of preferred share dividends accrued during the second
quarter of 1998 through the date of redemption.
The Company's investment in construction in progress, capacity available for
sale and investment in the Pacific Crossing Ltd. joint venture total
approximately $832 million as at June 30, 1998.
The Company is in the process of finalizing determination of the fair value
of its Common Stock on the date of its stock option grants. On a pro forma
basis, assuming the fair value of the Company's Common Stock were determined
to be the midpoint of the expected pricing range for the Offerings on the
dates of grants which commenced on January 21, 1998, the net loss for the
three months ended March 31, 1998 and June 30, 1998 would increase by $7.4
million and $34.4 million, respectively. This would have no effect on the
Company's cash flow, total assets, total liabilities or stockholders equity,.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital expenditure requirements involve the
construction of undersea cable systems, the related landing stations, and
certain investments in backhaul capacity to connect the landing stations to
major metropolitan areas. As of May 31, 1998 and December 31, 1997,
respectively, the Company had incurred approximately $660 million and $519
million, respectively, of capital expenditures in respect of AC-1, principally
for system construction costs and purchases of backhaul capacity and was
committed to a further $61 million and $195 million, respectively, of capital
expenditures under the AC-1 Contract in connection with the completion of AC-
1. Amounts attributable to purchases of backhaul capacity represent the
present value of future payments required to be made by the Company for such
capacity.
The total cost of AC-1 is estimated at approximately $750 million, including
financing costs capitalized during the period AC-1 is under construction. All
future costs with respect to AC-1 will be fully financed with the remaining
availability under the AC-1 Credit Facility. AC-1 was initially financed
through (i) the $482 million AC-1 Credit Facility; (ii) $150 million of GTH
Senior Notes; (iii) $100 million of GTH Preference Shares; and (iv) $75
million of GCL common equity. See "Description of Certain Indebtedness." As of
December 31, 1997 and March 31, 1998, respectively, the Company had borrowed
$162 million and $306 million, respectively, under the AC-1 Credit Facility.
The Company's principal source of liquidity through those dates was the AC-1
Credit Facility.
On May 18, 1998, GCH consummated an $800 million private offering of 9 5/8
Senior Notes Due 2008 (the "Note Offering"). The Company has utilized (or will
utilize) the net proceeds of the Note Offering (i) to purchase all of the $150
million outstanding GTH Senior Notes, (ii) to redeem all of the $100 million
outstanding
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GTH Preference Shares, (iii) to repay in full the $67.2 million outstanding
under the $200 million senior bridge loan facility of GCH (the "Global
Crossing Bridge Facility"), (iv) to make $315 million of equity investments in
certain of the Company's systems and (v) for general corporate purposes,
including $74 million to fund a one-year interest reserve on the GCH Senior
Notes.
Cash provided by operating activities was approximately $1.3 million for the
quarter ended March 31, 1998 and $5.4 million for the period from March 19,
1997 (date of inception) to December 31, 1997 and principally represents cash
received on deposits on signed CPAs plus interest income received, less sales
and marketing and general and administrative expenses paid.
Cash provided by financing activities of $129.5 million for the quarter
ended March 31, 1998 primarily represents borrowings under the AC-1 Credit
Facility and the Global Crossing Bridge Facility net of the increase in
proceeds on borrowings held in restricted cash and cash equivalents. Cash
provided by financing activities of $425.1 million for the period from March
19, 1997 (date of inception) to December 31, 1997 principally relates to net
proceeds from the issuance of common stock, preference shares and senior
notes, and borrowings under the AC-1 Credit Facility less finance and
organization costs paid, less an increase in proceeds on borrowings held in
restricted cash and cash equivalents.
Cash used in investing activities of $129.4 million and $429.0 million for
the quarter ended March 31, 1998 and the period from March 19, 1997 (date of
inception) to December 31, 1997, respectively, represents cash paid for
construction in progress.
The Company is currently actively developing three additional systems, PC-1,
MAC and PAC. The Company currently estimates that the costs of constructing
these systems will total approximately $2,025 million, including financing
costs. The Company expects to use approximately $315 million of the net
proceeds from the Note Offering to fund initial investments in PC-1, MAC and
PAC. In order to finance certain initial costs relating to the development of
these systems, the Company has obtained additional financing. During the first
quarter of 1998, the Company, acting through GCL, entered into the $200
million Global Crossing Bridge Facility with a syndicate of banks led by CIBC.
At March 31, 1998, approximately $12.1 million of borrowings were outstanding
under the Global Crossing Bridge Facility. The Company utilized a portion of
the net proceeds from the Note Offering to repay such borrowings and terminate
the remaining commitments under the Global Crossing Bridge Facility. The
Company expects that the additional capital required to finance these cable
systems will be raised through a combination of commercial bank borrowings,
non-recourse project financings, and public and private offerings of debt and
equity securities. Effective May 11, 1998, the Company entered into a
commitment letter with three financial institutions (CIBC Inc., Deutsche Bank
AG, an affiliate of Deutsche Bank Securities Inc., and Goldman Sachs Credit
Partners, L.P., an affiliate of Goldman, Sachs and Co.) for the $850 million
non-recourse project debt financing of PC-1 (including $50 million for the
initial upgrade of the PC-1 system). Effective June 26, 1998, the Company
entered into a commitment letter with two financial institutions (CIBC Inc.
and Deutsche Bank AG) for the $240 million non-recourse project debt financing
of MAC. Effective July 21, 1998, the Company entered into a commitment letter
with The Chase Manhattan Bank for the $310 million non-recourse project debt
financing of PAC. There can be no assurance that the Company will be
successful in raising additional capital at all or on terms acceptable to the
Company. See "Risk Factors--Substantial Future Capital Requirements" and "Risk
Factors--Risks Related to Completing the Company's Cable Systems."
Because the Company's cost of developing and constructing its systems, as
well as operating its business, will depend on a variety of factors (including
the Company's ability to successfully negotiate construction supply contracts
at favorable prices, the ability of the Company to generate sufficient sales
to customers, changes in the competitive environment of the markets served by
the Company, the estimated levels of participation by the Company's joint
venture partners, and changes in technology), actual costs and revenues will
vary from expected amounts, possibly materially, and such variations will
likely impact the Company's future capital requirements. The development of
additional systems which may be pursued by the Company will lead to additional
future capital requirements.
As of April 21, 1998, a supply contract (the "PC-1 Contract") was entered
into with TSSL to construct PC-1. The PC-1 Contract contains construction
payments totaling $1.0 billion to be made by Global Crossing and its joint
venture partners. On June 2, 1998, the Company entered into a supply contract
(the "MAC
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Contract") with Alcatel to construct MAC. On July 21, 1998, the Company
entered into a supply contract (the "PAC Contract") with TSSL to construct
PAC. See "Risk Factors--Substantial Future Capital Requirements" and "Risk
Factors--Risk of Error in Forward-Looking Statements."
The Company has extended financing to a small number of customers in
connection with certain CPAs. The financing terms provide for installment
payments over a period of up to four years. To date, less than ten percent of
the Company's sales have been made on this basis. The Company believes that
its extension of financing to its customers will not have a material effect on
the Company's liquidity.
The Company has entered into a commission sharing agreement with TSSL
providing for the payment to TSSL of commissions in respect of marketing of
capacity on the AC-1 and PC-1 systems. Payments by the Company to TSSL of
these commissions is fully contingent upon the receipt by the Company of cash
payment under the related CPAs and, accordingly, payment by the Company of
these commissions has no material effect on its liquidity.
INCOME TAXES
Since the Company recognized no income through March 31, 1998, no income tax
provision has been reflected in the consolidated financial statements.
FOREIGN CURRENCY EXPOSURE
All of the Company's sales and substantially all of its expenditures are
denominated in U.S. dollars. Monetary assets and liabilities denominated in
foreign currencies at year end are translated into U.S. dollars at the rate of
exchange at that date. Resulting gains or losses on exchange are recorded in
the statement of operations.
INFLATION
Management does not believe that its business is impacted by inflation to a
significantly different extent than the general economy.
YEAR 2000 COMPLIANCE
The Company believes that its computer information systems will enable it to
process transactions relating to Year 2000 and beyond and that its computer
systems relating to AC-1 will be Year 2000 compliant. The Company has received
assurances from TSSL and Lucent Technologies regarding Year 2000 compliance
status of these suppliers with respect to AC-1, but does not currently have
such information regarding its customers. In the event that any of the
Company's significant suppliers or customers do not successfully and timely
achieve Year 2000 compliance, the Company's business or operations could be
adversely affected.
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BUSINESS
Global Crossing is the world's first independent provider of global Internet
and long distance telecommunications facilities and services utilizing a
network of undersea digital fiber optic cable systems and associated
terrestrial backhaul capacity. As such, the Company believes it is the first
to offer "one-stop shopping" for its customers to multiple destinations
worldwide. The Company operates as a "carriers' carrier", providing tiered
pricing and segmented products to licensed providers of international
telecommunications services. Capacity on the Global Crossing Network is
offered to all customers on an open, equal access basis. The first four cable
systems under development by the Company, together with associated terrestrial
backhaul capacity, will form a state-of-the-art interconnected worldwide high
capacity undersea fiber optic network: AC-1, a system connecting the United
States and Europe; PC-1, a system connecting the United States and Asia; MAC,
a system connecting the eastern United States, Bermuda and the Caribbean; and
PAC, a system connecting the western United States, Mexico, Panama and the
Caribbean. The undersea component of this initial network totals approximately
51,000 km. The Company is in the process of developing several new cable
systems and evaluating other business development opportunities which will
complement the Global Crossing Network.
Global Crossing's business is designed to meet the varying needs of the
global carrier market. The Company offers customers the ability to purchase
capacity on demand, thereby (i) eliminating their need to commit the
substantial capital which would otherwise be required to build undersea cable
capacity and (ii) decreasing the risks associated with forecasting their
future capacity requirements. Compared with traditional undersea cable
systems, the Company offers more comprehensive, flexible and low-cost
purchasing alternatives designed to meet current market requirements of
international carriers and licensed Internet service providers, including
direct international city-to-city connectivity, the ability to purchase
capacity annually and discounts based upon aggregate volume purchased on the
Global Crossing Network.
The Global Crossing Network is being engineered and constructed to allow
multiple upgrades to its initial circuit capacity at a fraction of the initial
system cost, and the Company is exploring opportunities to expand its subsea
and terrestrial systems, as well as the range of the products it offers. The
Company anticipates that its future revenues, beyond those obtained from the
sale of the initial capacity of its first four cable systems, will derive from
several sources. First, each of the currently-planned systems under
development by the Company is upgradeable to capacities significantly beyond
the initial capacity at a fraction of the original system cost. These upgrades
can be used to meet growth in market demand for telecommunications capacity
and to achieve additional revenues. In addition, the Company is currently
evaluating a number of additional undersea cable projects, as well as
proposals to develop or purchase additional terrestrial fiber capacity in
North America, Europe, and Asia. These potential projects will be pursued to
the extent that they further the Company's strategy of developing an
integrated global network that serves approximately 50 of the largest
metropolitan communications markets worldwide. As the Company's global network
is developed, additional wholesale revenues may be generated from the sale of
additional products and services. See "Risk Factors--Sales Capacity;
Realization of Other Revenues."
Global Crossing was formed to capitalize on the accelerating growth of
international voice and data telecommunications traffic. The significant
increase in Internet usage and other bandwidth-intensive applications and the
growing use of corporate networks have substantially increased the demand for
international fiber optic cable capacity. The proliferation of
telecommunications service providers due, in large part, to industry
deregulation has further contributed to increased demand for such
international cable capacity. Additionally, the Company believes that other
technological developments, such as improvements in "last mile" access
technology, including xDSL and cable modems, and the increasing video content
of Internet applications, will result in further capacity demand growth.
The Company commenced operations in March 1997, when it contracted for the
construction of AC-1, a 14,000 km digital fiber optic cable system that will
link the United States, the United Kingdom, The Netherlands and Germany and
will initially offer 40 Gbps of service capacity, which is upgradeable to a
minimum of 80 Gbps, increasing the existing undersea fiber optic cable
capacity along the heavily trafficked transatlantic route
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by approximately 65% prior to upgrades. AC-1 commenced service on its United
States-United Kingdom segment on May 26, 1998 and the full system,
encompassing a four fiber pair self-healing ring, is scheduled for completion
by February 1999. In April 1998, Global Crossing contracted for the
construction of PC-1, a 21,000 km digital cable system that will link the
United States and Japan and will initially offer 80 Gbps of service capacity,
upgradeable to a minimum of 160 Gbps. PC-1, a four fiber pair self healing
ring, is scheduled to commence initial service in March 2000. In June 1998,
Global Crossing contracted for the construction of MAC, a 9,300 km digital
cable system that will connect New York, Bermuda, the Caribbean and Florida
and will initially offer 20 Gbps of service capacity, upgradeable to a minimum
of 40 Gbps. In addition, in July 1998, Global Crossing contracted for the
construction of PAC, a 7,000 km two fiber pair digital cable that will connect
California, Mexico, Panama and the Caribbean and will initially offer 20 Gbps
of service capacity, upgradable to a minimum of 40 Gbps.
In addition to the undersea segments of the Global Crossing Network, the
Company has made and expects to continue to make acquisitions of terrestrial
fiber capacity which complement its core undersea cable business and which
address customer demands for global city-to-city connectivity. Global Crossing
intends to pursue such connectivity in approximately 50 of the largest
metropolitan communications markets worldwide. Once completed, the undersea
segments of the Global Crossing Network, in combination with the Company's
investments in terrestrial fiber capacity, will form an integrated worldwide
network with multiple access points offering low-cost wholesale capacity.
MARKET OPPORTUNITY
The Global Crossing Network is being developed to capitalize on certain
trends in the international telecommunications industry:
Rapid Growth of International Internet and Telecommunications Traffic. While
international voice traffic from 1996-2000 is expected to grow at a rate of
13% annually, international data traffic growth is expected to significantly
outpace voice traffic growth. One of the key factors contributing to the
growth in data traffic is the increasing use of broadband applications
dominated by Internet, which has grown at a compound annual rate of 86% for
the past five years as measured by the number of Internet hosts. Reflecting
this growth, the number of ISPs is growing explosively on a global basis. ISPs
outside the United States, particularly in Europe, Asia and Latin America, are
expected to require significant subsea optical circuit capacity to provide
efficient service to their customers to popular Internet web sites in the
United States. In addition, improvements in "last mile" technology, such as
xDSL and cable modems, are contributing to the significant increase in the
number of subscribers using such bandwidth-intensive applications. For
example, the number of cable modem subscribers in the United States alone is
projected to increase by approximately 600% in 1998. Several additional key
factors are expected to drive the rapid growth in worldwide telecommunications
traffic, including the (i) worldwide growth in the use of bandwidth-intensive
applications, such as video conferencing and corporate intranets, (ii)
increased globalization of commerce and (iii) a general decline in
international tariffs.
Impact of Global Deregulation. The continued deregulation of the global
telecommunications industry has resulted in a significant increase in the
number of competitors, including traditional carriers, wireless operators,
ISPs and new local exchange service providers, due in large part to: (i) the
breadth and volume of privatization activity globally and (ii) the ability of
new entrants to effectively compete against the formerly protected incumbent
providers. This change in the global competitive landscape is generating
significant demand for broadband communications capacity as carriers seek to
secure sufficient capacity for their expansion plans. As of July 1998, the ITU
estimated that there were 1,000 international carriers, representing a 181%
increase since the end of 1996. In addition, further telecom privatization is
expected during 1998 and 1999, which in turn is expected to generate increased
global competition.
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Shortage of Available Capacity. The Company believes that additional network
undersea capacity and faster response times will be required to satisfy
current and anticipated growth in telecommunications traffic. While there has
been a significant increase in the demand for global telecommunications
capacity, there has not been a corresponding growth in the number of new
transport facilities, especially in the undersea cable industry. The Company
believes that construction of competing undersea cable systems will be limited
in the near future due to barriers to entry, including (i) the extensive lead
time required to engineer and construct cable systems, (ii) the limited number
of major undersea cable supply and construction companies, (iii) the limited
number of qualified personnel with extensive experience in the undersea cable
industry and (iv) the significant capital required to develop undersea cable
systems.
Increasing Challenges for Consortia Systems. Historically, the planning and
ownership of undersea cable systems was conducted through large consortia
typically led by the monopoly telecommunications providers. Global Crossing
believes that the consortium approach to constructing, owning and operating
undersea cable systems is becoming far less effective as (i) carriers
increasingly view significant long term capital investments in capacity to be
a suboptimal utilization of resources, (ii) deregulation of international
telecommunications markets leads to direct competition among consortia members
for customers, (iii) competition from new entrants makes carriers' market
share and capacity requirements increasingly difficult to predict and (iv) the
rapid pace of technological change creates difficulties in the ability of
carriers to accurately forecast the growth of telecommunications traffic.
Acceptance of Privately Sponsored Cable Systems. The Company believes that
telecommunications service providers have become increasingly receptive to the
advantages of independent, privately-owned cable systems. In connection with
the marketing of capacity on the Global Crossing Network, carriers have
responded positively to the Company's ability to offer (i) capacity as and
when needed without the incurrence of significant initial capital investments,
(ii) a wide range of purchasing options appealing to both established carriers
and new market entrants, (iii) state-of-the-art system quality combined with
cost-effective high quality operations, administration and maintenance support
and (iv) the absence of direct competition with its customers.
BUSINESS STRATEGY
Global Crossing's mission is to create the world's first independent global
fiber optic network designed to offer its customers the highest quality city-
to-city communications connectivity among approximately 50 of the largest
metropolitan markets worldwide. The principal elements of the Company's
business strategy include:
Create a Worldwide Network. Upon completion, the currently announced
undersea segments of the Global Crossing Network will directly connect Asia,
North America, Europe, Central America and the Caribbean through the major
transoceanic routes utilizing state-of-the-art technology. To increase the
attractiveness of the Global Crossing Network, the Company is making selective
wholesale acquisitions of terrestrial fiber capacity, thereby providing its
customers with international city-to-city connectivity through Global
Crossing's cable systems at prices significantly lower than if such customers
had attempted to gain connectivity by separately purchasing required
terrestrial backhaul capacity. The Company also intends to actively pursue
additional opportunities for the expansion of the Global Crossing Network,
including complementary businesses and facilities.
The Company has entered into contractual arrangements to provide terrestrial
backhaul service between its landing stations in the United States and the
United Kingdom and New York City and London, respectively, as well as other
arrangements to provide backhaul service in Germany and The Netherlands. In
addition, the Company recently entered into an agreement with Qwest whereby
Global Crossing will receive access to over 25 U.S. metropolitan
communications markets on Qwest's terrestrial network. Through Global Access,
a Japanese telecommunications carrier owned by Marubeni, the Company will
offer backhaul services to PC-1
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customers from the Company's Japanese landing stations directly to Tokyo at
prices substantially lower than existing alternatives. The Company is also
currently negotiating with Marubeni to obtain a minority investment in Global
Access, which is constructing a domestic terrestrial fiber optic cable network
connecting the PC-1 cable station with Tokyo, Nagoya and Osaka. See "Use of
Proceeds."
Maintain Position as a Leading Wholesale Service Provider. Global Crossing
is the world's first independent provider of global Internet and long distance
telecommunications facilities and services utilizing a network of undersea
digital fiber optic cable systems and associated terrestrial backhaul
capacity. The Company's products are segmented to meet the varying needs of
the global carrier market, with shore-to-shore capacity offered to major
carriers that have their own terrestrial backhaul capacity and city-to-city
capacity provided to other customers that require such service. Global
Crossing also offers carriers, through wholesale channels, a combination of
volume-based purchasing flexibility, typically according to a tiered scale
with various incentive levels, and volume discounts for purchases of capacity
on one cable system based upon purchases previously made on the Company's
other systems. See "--Sales and Marketing."
Utilize State-of-the-Art Technology. The Global Crossing Network is being
engineered and constructed using the latest in fiber optic technology, self-
healing ring structures, erbium doped fiber amplifier repeaters, DWDM and
redundancies of capacity to ensure instantaneous restoration. The Company
believes that incorporating such technology in the Global Crossing Network
will (i) provide a cost advantage over existing alternatives, (ii) make it
more reliable than competing systems, (iii) allow the Company to offer
substantially more capacity than existing cable systems and (iv) enable the
capacity of each of the Company's cable systems to be upgraded at the landing
stations rapidly and at a fraction of the initial system cost without physical
modification of the submerged portion of the system.
Maintain Position as Low-Cost Provider. The Company plans to maintain its
position as a low-cost provider of facilities and services to its carrier
customers relative to its competitors. Global Crossing believes that this low-
cost position results from a combination of (i) low sales and marketing and
general and administrative costs, reflecting a commitment to wholesale
customers, (ii) ownership of undersea fiber optic facilities utilizing state-
of-the-art technology, resulting in lower operating and maintenance costs that
will be passed on to its customers, and (iii) leveraging the Company's strong
position in the undersea fiber optic facilities market to obtain low-cost
terrestrial connectivity between cable landing stations and major
telecommunications sites.
Provide "One-Stop" Sales and Service. Through both its marketing and sales
force, as well as its ongoing operations, administrative and maintenance
support, Global Crossing plans to offer one-stop sales and service to
customers worldwide. The Company currently employs 18 marketing professionals
located in the Company's headquarters in Bermuda and in major cities
throughout the world in order to facilitate the sales of its
telecommunications capacity and increase market awareness and name
recognition. See "--Sales and Marketing." The efforts of the sales force have
resulted in significant contractual arrangements to date with international
telecommunications carriers. In addition, Global Crossing is developing a
centralized operations, administration and maintenance support system to serve
the entire Global Crossing Network, including a customer care center, network
operations center and technical support center. Through such integrated
customer support, in combination with its sales force, the Company intends to
enable customers to have a single point of contact regarding capacity sales
and service on the Global Crossing Network.
Leverage Extensive Management Experience. Global Crossing has assembled and
will continue to build a strong management team comprised of executives with
extensive operating experience in the telecommunications industry and the
undersea cable sector. Prior to joining the Company, Jack Scanlon, the
Company's Chief Executive Officer, was President and General Manager of the
Cellular Networks and Space Sector of Motorola, Inc., responsible for
approximately $6 billion in annual revenues and 16,000 employees. Mr. Scanlon
has over 30 years of experience in the telecommunications industry, including
24 years with AT&T and Bell Laboratories.
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In addition, William Carter, the Company's senior executive in charge of
system development, was formerly the President and Chief Executive Officer of
SSI, overseeing the research and development, engineering, implementation and
integration of AT&T's international cable and satellite facilities. Mr. Carter
had been at AT&T for 30 years prior to joining the Company. During Mr.
Carter's tenure, SSI had the leading worldwide market share in the undersea
cable industry. Dan J. Cohrs, the Company's Chief Financial Officer, was
formerly Vice President and Chief Planning and Development Officer at GTE,
where he was responsible for corporate development activities, including
mergers and acquisitions and strategic transactions, as well as strategic
planning and competitive analysis. In addition, the Company's system
development team includes several individuals with extensive experience with
major undersea cable and telecommunications industry participants. See
"Management."
THE GLOBAL CROSSING NETWORK
As part of Global Crossing's mission to create an integrated global, high
capacity undersea fiber optic cable network, the Global Crossing Network is
being engineered and constructed to connect the two most heavily trafficked
international corridors in the world via AC-1 (United States to Europe) and
PC-1 (United States to Asia). Global Crossing plans to interconnect these
systems with two north-south systems (MAC and PAC), directly connecting
Bermuda, the Caribbean, Central America and, through unaffiliated cable
systems, South America. Of the four undersea fiber optic cable systems
currently being constructed by Global Crossing, AC-1, MAC and PAC are wholly-
owned projects by the Company, while PC-1 is being constructed through a joint
venture with one or more partners, principally Marubeni. Global Crossing will
initially have approximately a 58% interest in PC-1 and, in conjunction with
Marubeni, will manage its development, sales and operation.
The following table contains information regarding the estimated system
cost, initial RFS date and ownership structure of the Company's four currently
planned systems:
<TABLE>
<CAPTION>
ESTIMATED
SYSTEM COST(1) EXPECTED INITIAL OWNERSHIP
SYSTEM (MILLIONS) RFS DATE(2) STRUCTURE
------ -------------- ------------------------- -------------
<S> <C> <C> <C>
AC-1 $ 750 May 1998 (US-UK) Wholly-Owned
(complete)
February 1999 (Full Ring)
PC-1 1,200 March 2000 Joint Venture
July 2000 (Full Ring)
MAC 350 December 1999 Wholly-Owned
PAC 475 February 2000 Wholly-Owned
------
$2,775
======
</TABLE>
- --------
(1) Includes anticipated financing costs. The amount indicated under
"Estimated System Cost" is based upon executed supply and financing
documents. Certain factors, such as increases in interest rates and delays
in construction, could result in higher actual costs or later RFS dates
than currently estimated. See "Risk Factors--Risks Related to Completing
the Company's Cable Systems" and "Risk Factors--Risk of Error in Forward-
Looking Statements."
(2) Based upon executed supply and financing documents. Certain factors, such
as reliance upon third party suppliers, could result in timing delays. See
"Risk Factors--Dependence on Third Parties."
ATLANTIC CROSSING
AC-1, the Company's first undersea fiber optic cable in the Atlantic region,
is a 14,000 km four fiber pair self-healing ring that, upon completion, will
connect the United States and Europe with landing stations in the United
States, the United Kingdom, The Netherlands and Germany. AC-1 is equipped with
state-of-the-art
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DWDM and the full ring will initially offer 40 Gbps of service capacity,
increasing the existing undersea fiber optic cable capacity along the heavily
trafficked transatlantic route by approximately 65% prior to upgrades.
Capacity on AC-1 is upgradeable to a minimum of 80 Gbps using DWDM technology.
AC-1 commenced service on its United States-United Kingdom segment on May 26,
1998 and the full system, encompassing a self-healing ring, is scheduled for
completion by February 1999.
The aggregate costs of AC-1, which are estimated to be approximately $750
million, have been fully financed prior to the Offerings. In addition to the
AC-1 Contract with TSSL for construction of the system, Global Crossing has
entered into other contracts with TSSL pursuant to which TSSL will provide
operations, administration and maintenance services for the system.
The Company has successfully marketed capacity on AC-1 to licensed
telecommunications providers, including PTTs, Internet service providers and
established and emerging telecommunications companies. Sales of capacity on
AC-1 and related backhaul commenced in October 1997 and, as of June 30, 1998,
the Company had entered into CPAs with customers providing for payments to the
Company of approximately $550 million and $100 million of payments (including
deposits) had been received in respect thereof. These CPAs represent
approximately 37% of the initial capacity of AC-1 prior to upgrades. The
balance of these payments is scheduled to be collected over the next four
years. The Company's AC-1 customers include Deutsche Telekom, GTE, Qwest,
Teleglobe, Swisscom, PTT Telecom BV, Telia AB and a number of emerging
telecommunications companies. The Company generally grants customers who have
entered into CPAs options to acquire further capacity on AC-1. The amount of
such capacity depends upon a number of factors, including upgrades to AC-1,
future prices for AC-1 capacity and the amount of unsold capacity on AC-1 at
certain dates after the AC-1 system RFS date. In addition, the Company has
received as of June 30, 1998 non-binding indications of interest from
customers pursuant to memoranda of understanding ("MOUs") that would, if
converted into CPAs, provide for payments to the Company of approximately $90
million. The timing of payments by purchasers under CPAs generally depends on
when service commences on the segment or segments of AC-1 on which capacity is
acquired. All of the foregoing payment amounts assume the completion of the
related segment prior to specified dates falling after the scheduled RFS date
for that segment. There can be no assurance that any MOUs will be converted
into CPAs or that the final form of any CPA will contain the same capacity
purchase or payment provisions as the related MOU.
Based upon its current expectations regarding sales of capacity on AC-1, the
Company believes that it will develop and eventually construct AC-2, an
additional four fiber pair cable connecting the United States to Europe. When
combined with AC-1, AC-2 would double the capacity that Global Crossing would
be able to offer customers on the transatlantic route. There can be no
assurance that the Company will ultimately elect to proceed with AC-2 or that
such system will help the Company achieve and sustain operating profitability.
PACIFIC CROSSING
PC-1, the Company's first undersea fiber optic cable in the Pacific region,
is being developed as a 21,000 km four fiber pair self-healing ring that, upon
completion, will connect California, Washington and two landing sites in
Japan, providing connectivity to other points in Asia through interconnection
with other third party cable systems. PC-1 is designed to operate initially at
80 Gbps of service capacity and to be upgradeable to a minimum of 160 Gbps,
using DWDM technology.
In April 1998, the Company executed the PC-1 Contract with TSSL for the
construction of PC-1, which provides for a system completion date of Summer
2000 at an aggregate cost of approximately $1.2 billion (excluding potential
future upgrades). Equity investments in PC-1 by Global Crossing and its
partners are currently estimated at $400 million (of which at least $200
million will be provided by the Company), with the remaining $800 million
financed through incurrence of non-recourse indebtedness at the PC-1 level.
The contractual commitment for the financing of such indebtedness was obtained
on May 11, 1998.
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<PAGE>
On July 6, 1998, the Company executed a memorandum of understanding with DDI
Corporation, the second largest telephone company in Japan, to purchase
capacity on PC-1 which, if successfully converted to a CPA, would represent
its first sale of capacity to an Asian customer on this system.
MID-ATLANTIC CROSSING
MAC is being developed as a 9,300 km two fiber pair self-healing ring that,
upon completion, will connect New York, Bermuda the Caribbean and Florida.
Global Crossing intends that MAC will be connected to AC-1 via its cable
station in Brookhaven, New York, providing connectivity between Europe, the
eastern United States, Bermuda and the Caribbean and, through interconnection
with other non-Global Crossing submarine cable systems, South America. MAC is
being designed to operate initially at 20 Gbps of service capacity and to be
upgradeable to a minimum of 40 Gbps using DWDM technology.
Global Crossing is negotiating with TeleBermuda International Limited
("TBI"), the second international carrier in Bermuda, to acquire from TBI the
now operational BUS-1 undersea cable which connects Bermuda to New Jersey, in
exchange for cash and certain capacity on AC-1. If such transaction is
consummated, the BUS-1 cable would be integrated with MAC, providing an
additional landing in the United States.
In June 1998, the Company executed a contract with Alcatel Submarine
Networks ("Alcatel") for the construction of MAC, which provides for a system
completion date of December 1999 at an aggregate cost of approximately $350
million (excluding potential future upgrades), of which approximately $110
million will be financed by equity contributions by the Company and
$240 million is to be financed through non-recourse indebtedness at the MAC
level. The contractual commitment for the financing of such indebtedness was
obtained on June 26, 1998.
PAN AMERICAN CROSSING
PAC is being developed as a 7,000 km two fiber pair cable that, upon
completion, will connect California, Mexico, Panama and the Carribean,. PAC is
being designed to interconnect with PC-1 through the Company's landing station
in San Luis Obispo, California and with MAC through the Company's landing
station in St. Croix. It is anticipated that PAC will transverse Panama via an
existing terrestrial right-of-way. PAC is being designed to operate initially
at 20 Gbps of service capacity and to be upgradeable to a minimum of 40 Gbps
using DWDM technology.
In July 1998, the Company executed a contract with TSSL for the construction
of this system which provides for a system completion date of February 2000
and will cost approximately $475 million (excluding potential future
upgrades), with $165 million financed through equity contributions from the
Company and $310 million to be financed through non-recourse indebtedness at
the PAC level. The contractual commitment for the financing of such
indebtedness was obtained on July 22, 1998.
TERRESTRIAL BACKHAUL SERVICES
In addition to the undersea segments of the Global Crossing Network, the
Company has made and expects to continue to make acquisitions of terrestrial
fiber capacity which complement its core undersea cable business and which
address customer demands for global city-to-city connectivity. Global Crossing
intends to acquire such connectivity to approximately 50 of the largest
metropolitan telecommunications markets worldwide. The Company has entered
into contractual arrangements to provide terrestrial backhaul service between
its landing stations in the United States and the United Kingdom and New York
City and London, respectively, as well as other arrangements to provide
backhaul service in Germany and The Netherlands. In addition, the Company
recently entered into an agreement with Qwest whereby Global Crossing will
receive access to over 25 U.S. metropolitan communications markets on Qwest's
terrestrial network. Through Global Access, a Japanese telecommunications
carrier owned by Marubeni, the Company will offer backhaul services to PC-1
customers from the Company's Japanese landing stations directly to Tokyo at
prices substantially lower than existing
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<PAGE>
alternatives. The Company is also currently negotiating with Marubeni to
obtain a minority investment in Global Access, which is constructing a
domestic terrestrial fiber optic cable network connecting the PC-1 cable
station with Tokyo, Nagoya and Osaka. See "Use of Proceeds."
ADDITIONAL NETWORK EXPANSION OPPORTUNITIES
The Company is in the process of developing several new cable systems and
evaluating other business development opportunities which will complement the
Global Crossing Network. There can be no assurance that the Company will
ultimately elect to proceed with such opportunities or, if it elects to do so,
that such opportunities will help the Company achieve and sustain operating
profitability.
Further Undersea Opportunities. The undersea routes served by the Global
Crossing Network and other cable systems are projected to have substantial
growth greatly exceeding all capacity currently in use and under development
(including planned upgrades). To address such demand, the Company plans to
evaluate and, as appropriate, build additional systems on such routes. It is
anticipated that such systems, where possible, would be restored on the
existing systems and would achieve further cost efficiencies through the use
of existing landing stations.
Terrestrial Backhaul Opportunities. The Company is reviewing opportunities
to obtain terrestrial backhaul connectivity from the major cities in Europe
and Japan to landing sites for both AC-1 and PC-1 landing stations
respectively.
Other Development Opportunities. The Company is actively pursuing
development opportunities whereby Global Crossing would provide "fee for
service" expertise in the planning, design, implementation and operation of
global undersea cable systems and associated terrestrial backhaul.
OTHER ACTIVITIES
Neptune Acquisition. The Company entered into a letter agreement on May 26,
1998 with Neptune Communications, L.L.C. ("Neptune") to acquire substantially
all of the business of its wholly-owned subsidiary, Neptune Communications
Corp. ("NCC"), for an acquisition price of $20,000,000 payable in Common
Stock. Neptune is controlled by the Carlyle Group, an international investment
firm ("Carlyle"), and was formed to pursue opportunities in the undersea cable
business. Pursuant to such agreement, the Company will acquire all tangible
and intangible assets of NCC (except for assets relating to its North Pacific
Cable business), which consist principally of certain telecommunications
licenses. In addition, Carlyle managing director William Conway, the former
Chief Financial Officer of MCI, has agreed to serve on the Company's Board of
Directors. The Company and Neptune intend to enter long-form agreements with
respect to the transactions contemplated by the letter agreement. Neptune has
an option to terminate the transaction if the Company has not consummated the
Offerings by August 15, 1998.
Possible Investments. The Board of Directors of the Company has approved in
principle the making of minority investments in telecommunications and
Internet service providers that do not compete with the Company in its core
business and that will also be current or prospective purchasers of capacity
on the Global Crossing Network. Such investments may consist of purchases of
equity securities for either cash or contributions of capacity on the Global
Crossing Network. Such investments may be managed either by the Company
directly or, if the Board of Directors deems advisable, by one or more third-
party investment advisers so as to minimize potential conflicts of interest
and the amount of time allocated by the Company's senior management to such
investments.
SYSTEM PERFORMANCE
AC-1, PC-1 and MAC are each designed utilizing self-healing ring technology
to optimize system performance. Two types of protection switching, span
switching and ring switching, are provided. Span switching protects a system
against failures between adjacent landing sites which only affect service line
traffic
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<PAGE>
and not the protection fibers. Ring switching protects a system against
complete failures between adjacent landing sites. Because such technology will
protect any single system failure in less than 500 milliseconds, no outages
will result as a consequence of a single system failure. Accordingly, the
estimated system availability on any point-to-point link on such systems is
99.995%.
As undersea cable systems become more powerful (i.e., carry more traffic
along their transmission paths), it is important to provide a "self-
restoration solution" because other systems do not have the capacity to
provide restoration for these new high performance undersea cable systems.
Single span systems must enter into reciprocal arrangements with either other
undersea fiber-optic operators or satellite carriers to pick up and deliver
this traffic if a system failure should occur. Providing self-restoration
through this ring design with the switching techniques described above is now
viewed as offering a qualitative advantage over single span systems with
external restoration.
With respect to PAC, which does not employ self-healing ring technology, the
Company is exploring options to enter into restoration arrangements with
terrestrial fiber optic cable operators to protect against system traffic
interruptions. The Company may also enter into similar arrangements to protect
against catastrophic system malfunction on its other cable systems.
SALES AND MARKETING
The Company markets capacity on its systems to licensed telecommunications
providers, including PTTs, Internet service providers and established and
emerging telecommunications companies. The Company believes its current
customers represent a broad array of telecommunications companies.
The initial sales strategy of the Company emphasizes the sale of capacity on
an IRU basis, whereby the customer purchases a unit of capacity for the
remaining design life of a particular cable system. On AC-1, the Company is
selling capacity at an increment of 155 megabits (Mbps), known as an STM-1,
for the 25-year life of AC-1. For the other Global Crossing cable systems, the
Company also expects to sell capacity to customers at the STM-1 level, as well
as at the smaller increment of 45 Mbps, where warranted based upon the actual
demand levels along certain routes. The Company has instituted a tiered
pricing schedule for all of its systems which provides for volume discounts,
thereby allowing customers to reduce their average circuit cost as more
circuits are purchased. In addition, the Company offers pricing discounts on
purchases of capacity prior to a system's commercial operation date, in order
to induce customers to make early purchase commitments.
To further increase the attractiveness of the Company's network, Global
Crossing intends to make selective wholesale acquisitions of backhaul
capacity, thereby enabling customers to achieve city-to-city connectivity
through the Global Crossing Network at prices significantly lower than if such
customers had attempted to gain such connectivity by separately purchasing
such backhaul capacity. For AC-1 customers, the Company entered into
contractual arrangements providing backhaul capacity between its landing
stations in the United States and the United Kingdom and New York City and
London, respectively. In addition, Deutsche Telecom and KPN provide backhaul
services directly to the Company's AC-1 customers in Germany and The
Netherlands, respectively. In addition, the Company has recently entered into
an agreement with Qwest whereby Global Crossing will receive access to over 25
U.S. cities on Qwest's terrestrial network.
Global Crossing is exploring the development of other products designed to
take advantage of its ownership of several cable systems in different parts of
the world. For example, the Company has offered its customers volume discounts
for purchases of capacity on one system based upon purchases previously made
on the Company's other systems and the ability to transfer a portion of unused
capacity purchases from one Global Crossing system to another depending on
customers' individual traffic needs.
The Company's marketing entity, Global Crossing International, was
established to facilitate the sales of communications capacity on the Global
Crossing Network, as well as to increase market awareness and name recognition
of Global Crossing. Global Crossing has been able to recruit and train a full-
service sales and
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marketing team, including Mr. Jack Finlayson, President of Global Crossing
International, a former senior executive of Motorola who recently joined the
Company, and Mr. Patrick Joggerst, Vice President, Worldwide Sales and
Marketing, who had been at TSSL and AT&T for a total of 17 years prior to
joining the Company, most recently as Managing Director of TSSL's Americas
Region. Mr. Joggerst directly oversees the Americas Region and is responsible
for overseeing the duties of the two regional vice presidents, each being in
charge of one of the two other regions of the Company's marketing
organization, Europe/Middle East/Africa and Asia. Each regional vice-president
oversees the performance of regional marketing directors who have direct
account responsibility in certain geographic areas of the region. In total,
the Company employed 18 marketing professionals as of June 30, 1998. While the
Company intends to expand the current size of its marketing organization,
management believes that a moderately-sized sales force is sufficient to
adequately address all customers seeking to acquire undersea cable capacity on
a wholesale basis.
During the pre-operational period for AC-1, in which the Company sought to
generate significant pre-sales of capacity, the Company presented project
information meetings (otherwise known as data gathering meetings) in order to
better educate potential customers about AC-1 and Global Crossing's other
planned cable systems. To date, the Company has hosted three such meetings,
with the most recent event attracting 200 attendees representing over 75
companies. Attendees of such meetings have been affiliated with both existing
and prospective customers and have represented a variety of sectors of the
telecommunications industry. Ongoing, the Company intends to organize at least
one major international conference per year in order to provide updated
information on the Global Crossing Network. The Company also intends to host
regional project information meetings focusing on a particular cable system,
with such meetings scheduled to precede the anticipated commercial operation
date for such system.
The Company intends to reinforce customer awareness through a variety of
marketing campaigns, including its Global Crossing international conferences
and regional marketing events, participation in key industry and user group
conferences, speaking engagements, press conferences and promotional
campaigns. In addition, Global Crossing expects its marketing team to
periodically visit current and prospective customers to obtain a greater
understanding of the individual needs of such customers.
SUMMARY OF PRINCIPAL TERMS OF STANDARD CONTRACTUAL DOCUMENTATION
Capacity Purchase Agreements (CPAs)
In general, a CPA provides for the sale of capacity by the Company on an IRU
basis, whereby the purchaser owns a unit of capacity for the remaining design
life of a particular system. The term of a CPA is 25 years from the RFS date
for the system on which capacity is being acquired, which is the entire useful
life of the system. Upon execution of a CPA prior to a segment RFS date, the
Company generally receives 10% of the purchase price immediately, with the
balance of the purchase price due to the Company upon the applicable RFS date
for that segment. A limited number of CPAs provide for payment of the purchase
price in installments over two to three year periods. Each purchaser under a
CPA is required to pay its allocated share of the cost of operating,
maintaining and repairing the system. A purchaser's payment obligation under a
CPA shall generally terminate with respect to any purchased capacity on AC-1
other than the United States-United Kingdom segment (and, in some cases, with
respect to purchased capacity on the United States-United Kingdom segment), if
the RFS date for the AC-1 system has not occurred by June 30, 1999.
Performance under CPAs is also contingent upon the obtaining and continuance
of such approvals, consents, governmental authorizations, licenses and permits
as may be required or reasonably deemed necessary by each party thereto for
performance by such party thereunder and as may be satisfactory to it. The
obligations of purchasers under certain CPAs are additionally contingent upon
the execution of related ICPAs. See "Risk Factors--Sales of Capacity;
Termination of CPAs."
Additionally, each purchaser acquiring capacity on AC-1 prior to the system
RFS date is granted the right to receive additional capacity ("residual
capacity") at no additional cost upon the date which is 12 1/2 years after the
RFS date for the system. Furthermore, neither party is liable to the other for
consequential, incidental, indirect or special damages sustained by reason of
(i) any failure in or breakdown on the system or the facilities
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associated with the system, (ii) the failure of any inland carrier to perform
the terms and conditions of any agreement to which it and the purchaser are
parties or (iii) for any interruption of service, whatever the cause and
however long it shall last. Each CPA is subject to an arbitration clause. Some
CPAs are supported by a parent guarantee from the purchaser.
Inland Services Agreements (ISAs)
The Company has entered into agreements with certain terrestrial fiber cable
systems to purchase inland capacity on such systems for resale to its
purchasers. In general, the term of each ISA is 25 years from the RFS date of
the particular system or until the system is retired, whichever occurs first.
In certain cases, the Company has the option to extend the term of each ISA
for an additional five years. Neither party to an ISA is responsible for any
loss, damage, delay or failure of performance resulting from an event of Force
Majeure (as defined therein). If an event of Force Majeure continues for a
period of 30 days, the Company may terminate the ISA. Each ISA is subject to
an arbitration clause.
Inland Capacity Purchase Agreements (ICPAs)
The Company has entered into ICPAs with some of its customers. Under an
ICPA, the Company provides the customer with a portion of the backhaul
capacity it purchased from owners of terrestrial cable systems under ISAs. The
term of each ICPA is 25 years from the RFS date for the particular system.
Upon execution of an ICPA, the Company generally receives 10% of the purchase
price immediately, with the balance due no later than the RFS date for the
particular segment. A purchaser's payment obligation under an ICPA generally
shall terminate with respect to any purchased capacity on AC-1 other than the
United States-United Kingdom segment (and, in some cases, with respect to
purchased capacity on the United States-United Kingdom segment), if the RFS
Date for the AC-1 system has not occurred by June 30, 1999. Unlike a CPA, the
purchaser under an ICPA is generally not required to make any additional
payments for costs associated with operating, maintaining and repairing the
backhaul capacity in which the IRU is granted. Neither party is liable to the
other for consequential, incidental, indirect or special damages sustained (i)
by reason of any failure of any inland carrier to perform the terms and
conditions of any ISA to which it is a party or (ii) for any interruption of
service, whatever the cause and however long it shall last. Each ICPA is
subject to an arbitration clause. An ICPA may be supported by a corresponding
parent guarantee from the purchaser.
OPERATIONS, ADMINISTRATION AND MAINTENANCE SUPPORT
Pursuant to the AC-1 OA&M Agreement, TSSL will provide operations,
administration and maintenance support on behalf of AC-1 for a term of eight
years following the commencement of commercial operations. As of December 31,
1997, the Company was committed under the AC-1 OA&M Agreement to make payments
totalling approximately $263 million. Such agreement is extendible at the
option of the Company for two additional periods of 8.5 years each. For AC-1,
TSSL's network operations center is designed to ensure the overall ongoing
monitoring of the system's operation, maintenance and control systems. The
network management equipment located at the Brookhaven, New York landing
station provides fault management, security management, configuration
management and performance management, while undersea network management
equipment located at all landing stations provides system level monitoring of
the undersea terminating equipment. The full integration of these control
elements allows the AC-1 cable system to be "self-diagnostic," with such
control elements facilitating localization and repair in the event of the
occurrence of a system fault.
In addition, Global Crossing is separately developing a worldwide
operations, administration and maintenance support system to serve each of its
cable systems (exclusive of AC-1 for the initial term of the TSSL OA&M
Agreement). Such support will be handled through three co-located work centers
currently anticipated to be located in Bermuda: a customer care center
("CCC"), network operations center ("NOC") and technical support center
("TSC").
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Customer Care Center. The CCC will provide capacity purchasers with a single
point of contact for service provisioning, interconnect coordination support
and billing inquiries.
Network Operations Center. The NOC will handle operations, administrative
and maintenance activities for each of the Company's cable systems, including
capacity provisioning, network performance, repair and restoration activities.
Capacity provisioning relates to the appropriate allocation of capacity on the
Company's cable systems among capacity purchasers. Management of network
performance entails detection and response to system degradation and other
performance parameters, as well as preventative activities.
Technical Support Center. The TSC will be a 24-hour center managed by
highly-trained experts to handle technical inquiries from purchasers regarding
system performance and interconnection arrangements.
COMPETITION
The international telecommunications industry is highly competitive. The
Company faces competition from existing and planned cable systems along each
of its planned routes and from satellite providers, including existing
geosynchronous satellites and low-earth orbit systems now under construction.
The Company competes primarily on the basis of price, availability,
transmission quality and reliability, customer service and the location of its
systems. Traditionally, carriers have made long term investments in ownership
of cable capacity, making lower price and superior service less determinative
in convincing such carriers to acquire additional capacity on the Company's
systems than is the case in industries without such long-term relationships.
See "Risk Factors--Competition."
Existing and Planned Cable Systems
The routes addressed by Global Crossing's planned systems are currently
served by several undersea cables as well as satellites. Currently, there are
several fiber optic transatlantic cable systems, each of which will compete
directly with AC-1. Primary future sources of transatlantic competition for
the Company may result from, among others, (i) TAT-14, a transatlantic cable
system which is being developed by its consortium members, including British
Telecom, AT&T, France Telecom and Deutsche Telekom, and (ii) Gemini, a
transatlantic cable system being operated and marketed by WorldCom and Cable &
Wireless. The Company believes that such other cable systems will compete
directly with AC-1 and the commitments of the developers and other carriers on
these systems could substantially reduce demand for capacity on AC-1.
Similarly, there are several cable systems currently operating between the
United States and Asia, the route to be served by PC-1. Competition in the
transpacific market may result from, among others, (i) China-US, a
transpacific system being developed as a "private cable system" by fourteen
large carriers, including SBC, MCI, AT&T and Sprint, most of whom have
traditionally sponsored consortium cables and (ii) a transpacific system being
developed by a consortium of major telecommunications carriers, including
Worldcom, AT&T, KDD, NTT, Cable & Wireless and GTE. Although the Company
believes that such other cable systems will not satisfy the demand for
capacity between the United States and Japan and that there is currently
enough demand projected to accommodate all such systems, such other cable
systems will receive commitments for capacity that PC-1 could have received in
their absence.
Other regional and global systems are being considered by developers,
including Project Oxygen, a global system being evaluated by CTR Group, Ltd.
In addition, the Company may face competition from existing and planned
regional systems and satellites on its MAC and PAC routes, where entrants are
vying for purchases from a small but rapidly growing customer base.
Satellite Transmission
When comparing cable transmission against satellite transmission, the
Company believes that cable has a distinct advantage with respect to latency
(i.e., transmission delay) and voice quality. Cable transmission has a
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lower cost per circuit, higher capacity and longer expected equipment life
than satellite transmission. Satellite transmission is generally considered to
have a comparative advantage versus cable transmission for mobile
communications only in the area of point-to-multipoint broadcast and "thin
route" transmission, as opposed to the more common point-to-point, high volume
transmission for which cable usage is considered to be preferable.
In early 1997, the FCC granted Ka-band licenses and orbital locations to 13
companies. The firms developing future satellite technology envision a network
of satellites that will provide broadband data transmission with data rates of
2 Mbps, 20 Mbps, and even 155 Mbps. Potential participants in the field
include Astrolink, Skybridge, Teledesic Corporation, CyberStar and SpaceWay,
who are seeking to provide high bandwidth transmission sublet networks. Due to
(i) the significant initial costs related to these systems, (ii) the risks
relating to satellite launch systems and (iii) the significantly lower
transmission capacity versus current fiber optic systems, the Company believes
that the new satellite systems will not be able to offer competitive cost per
unit of transmission capacity in the dense metropolitan markets the Company is
targeting. Further, the Company believes it will have at least five years lead
time to help it solidify a sustainable competitive market position before true
broadband satellite service commences.
SUPPLIERS
There are currently three major supply companies in the undersea cable
industry: TSSL, Alcatel and KDD SCS. Cable & Wireless and Pirelli also have a
presence in the industry and there are a number of smaller suppliers who have
focused primarily on regional routes or non-repeatered systems. TSSL is
completing construction of AC-1, is responsible for the design and
installation of PAC and, together with KDD SCS (as a subcontractor), is
responsible for design and installation of PC-1. Alcatel is responsible for
design and construction of MAC. See "Risk Factors--Dependence on Third
Parties."
PROPERTIES
The Company leases executive and administrative offices at its worldwide
headquarters at Wessex House, 45 Reid Street, Hamilton HM12 Bermuda. The
Company owns a cable station in Brookhaven, New York and a cable station in
White Sands, United Kingdom. The Company leases cable station space in Sylt,
Germany and cable station space in Beverwijk, The Netherlands. Such leases run
for the anticipated 25-year term of AC-1. The Company also leases office space
in Los Angeles, Morristown, New Jersey, Dallas, London and San Francisco.
REGULATION
The Company, in the ordinary course of development, construction and
operation of its fiber optic cable systems, will be required to obtain and
maintain various permits, licenses and other authorizations in both the United
States and in foreign jurisdictions where its cables land, and will be subject
to applicable telecommunications regulations in such jurisdictions. In
particular, submarine cable landing or similar licenses will be required in
many of the jurisdictions where Global Crossing's planned systems will land.
With respect to AC-1, an undersea cable landing license (the "AC-1 Landing
License") and a subsequent modification have been obtained from the United
States Federal Communications Commission ("FCC"), which license permits AC-1
to land in the United States at the Brookhaven, New York landing site and to
operate between the United States, the United Kingdom, The Netherlands and
Germany. The AC-1 Landing License authorizes the Company to provide capacity
on a private carriage basis, and AC-1 is not presently regulated by the FCC as
a common carrier. Global Crossing has obtained landing licenses similar to the
AC-1 Landing License in each of the other jurisdictions where the AC-1 cable
system will land and where such licenses are required. With respect to each of
the Company's cable systems other than AC-1, the Company anticipates both
filing applications for cable landing licenses with the FCC (and, where
necessary, foreign regulatory agencies) and seeking private carriage status
for these systems as well. These licenses are typically issued for a term of
years (in the case of the FCC-issued cable landing license, 25 years), and are
subject to renewal. United States law (and the law of several foreign
jurisdictions, as well) limits foreign ownership, direct or indirect, of
entities holding cable landing
44
<PAGE>
licenses, although the FCC has progressively relaxed to the rules to examine
only those foreign holders that are affiliated with a foreign
telecommunications carrier that has market power in the destination country.
More recently, in order to implement a multilateral World Trade Organization
agreement, the FCC adopted regulations that presumptively permit unlimited
foreign ownership by nationals of countries that are party to that agreement.
See "Risk Factors--Government Regulation."
Construction of each of the Company's cable systems also requires the
acquisition and maintenance of various permits and licenses in the ordinary
course of business. Pursuant to its construction contracts for AC-1 and PC-1,
TSSL is contractually obligated to obtain and maintain all such licenses and
permits. Although Global Crossing intends that the construction contracts for
each of the Company's other planned cable systems will impose the burden of
acquiring and maintaining construction licenses and permits on the contractor
for each of such systems, there can be no assurance that such contractor will
successfully obtain such permits and licenses. See "Risk Factors--Risks
Related to Completing the Company's Cable Systems."
EMPLOYEES
As of June 30, 1998, the Company had approximately 75 employees. The Company
considers its relations with its employees to be good.
LEGAL PROCEEDINGS
The Company is not presently subject to any legal claims or proceedings.
45
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of the
directors and executive officers of GCL.
Prior to the Offerings, GCL will amend and restate its Bye-Laws (the "Bye-
Laws") to provide for a Board of Directors consisting of 16 members divided
into three classes with terms of three years each. Mr. Brown, Mr. Porter, Mr.
Phoenix, Mr. Levine and Mr. Conway will be elected as Class A Directors, with
a term expiring in 1999; Mr. Cook, Mr. Lee, Mr. Raben, Mr. Kent and Mr.
Scanlon will be elected as Class B Directors, with a term expiring in 2000;
and Mr. Winnick, Mr. Bloom, Mr. Kehler, Mr. Weinberger, Mr. Steed and
Mr. Ogasawara will be elected as Class C Directors, with a term expiring in
2001. The form of Amended and Restated Bye-Laws is an exhibit to the
Registration Statement of which this Prospectus is a part.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gary Winnick.......... 50 Co-Chairman of the Board and Director
Lodwrick Cook......... 70 Co-Chairman of the Board and Director
Jack M. Scanlon....... 56 Chief Executive Officer and Director
David L. Lee.......... 49 President, Chief Operating Officer and Director
Barry Porter.......... 40 Senior Vice President and Director
Abbott L. Brown....... 54 Senior Vice President and Director
Dan J. Cohrs.......... 45 Senior Vice President and Chief Financial Officer
James C. Gorton....... 36 Senior Vice President and General Counsel
K. Eugene Shutler..... 60 Senior Vice President
Hillel Weinberger..... 44 Director
Jay R. Bloom.......... 42 Director
Dean C. Kehler........ 41 Director
Jay R. Levine......... 41 Director
William D. Phoenix.... 41 Director
Bruce Raben........... 44 Director
Michael R. Steed...... 48 Director
William E. Conway..... 48 Director*
Toshiaki Ogasawara.... 67 Director*
Geoffrey J.W. Kent.... 56 Director*
</TABLE>
- --------
* Effective immediately prior to Offerings
GARY WINNICK--Mr. Winnick, founder of Global Crossing, has been Co-Chairman
of the Board of GCL since January 1998 and, prior thereto, was Chairman of the
Board since the inception of the Company in March 1997. Mr. Winnick is the
founder and has been the Chairman and Chief Executive Officer of Pacific
Capital Group since its inception, having been in the principal equity
investment and merchant banking business since 1985. Mr. Winnick holds a BA in
Economics and Business Management from C.W. Post College.
LODWRICK M. COOK--Mr. Cook has been Co-Chairman of the Board of GCL since
January 1998 and Vice Chairman, Managing Director of PCG since 1997. Prior to
joining PCG, Mr. Cook spent 39 years at Atlantic Richfield Co., serving as
President and Chief Executive Officer from 1985 to 1995 and as Chairman of the
Board of Directors from 1986 to 1995, when he became Chairman Emeritus. Mr.
Cook is also a member of the Board of Directors of Castle and Cooke, Litex and
Ocean Energy, Inc. Mr. Cook received BS degrees in mathematics and petroleum
engineering from Louisiana State University and holds an MBA degree from
Southern Methodist University.
46
<PAGE>
JACK M. SCANLON--Mr. Scanlon has been Chief Executive Officer and a director
of GCL since April 1998. Prior to joining the Company, Mr. Scanlon was
President and General Manager of the Cellular Networks and Space Sector of
Motorola Inc. and had been affiliated with Motorola Inc. since 1990. Mr.
Scanlon was Chief Operating Officer of Cambridge Technology Group from 1988 to
1990 and, prior thereto, spent 24 years with AT&T Corp. and Bell Laboratories,
rising to Group Vice President at AT&T Corp. Mr. Scanlon received his BS
degree from the University of Toronto and a MS degree in electrical
engineering from Cornell University.
DAVID L. LEE--Mr. Lee has been President and Chief Operating Officer and a
director of GCL since the inception of the Company in March 1997. He has also
been a managing director of PCG since 1989. Prior to joining PCG, Mr. Lee was
Group Vice President of Finance and Acquisitions at TRW Information Systems
Group. Mr. Lee is a graduate of McGill University and holds a PhD. in Physics
and Economics from the California Institute of Technology.
BARRY PORTER--Mr. Porter is Senior Vice President, Corporate Development and
a director of GCL. Mr. Porter has been a director of the Company since 1997
and has also been a managing director of PCG since 1993. From 1986 to 1993,
Mr. Porter was affiliated with Bear, Stearns & Co. Inc., rising to a Senior
Managing Director in the investment banking department. Mr. Porter received
his JD and MBA degrees from the University of California (Berkeley) and his BS
degree from The Wharton School.
ABBOTT L. BROWN--Mr. Brown is Senior Vice President, Corporate Affairs and a
director of GCL. Mr. Brown has been a director of the Company since 1997 and
has also been a managing director and Chief Financial Officer of PCG since
1994. From 1990 through 1994, Mr. Brown was Executive Vice President, Chief
Financial Officer and a member of the board of directors of Sony Pictures
Entertainment Inc., a wholly-owned subsidiary of Sony Corporation. Prior
thereto, Mr. Brown was a partner in the international accounting firm of Price
Waterhouse LLP. Mr. Brown holds a BS degree from Lehigh University and is a
Certified Public Accountant.
DAN J. COHRS--Mr. Cohrs has been Senior Vice President and Chief Financial
Officer of GCL since May 18, 1998. From 1993 to 1998, Mr. Cohrs was affiliated
with GTE Corporation, rising to the position of Vice President and Chief
Planning and Development Officer in 1997. From 1990 to 1993, he was at
Northwest Airlines and prior to leaving Northwest Airlines served as Vice
President of International Finance (Tokyo, Japan); from 1986 to 1990, he was
at the Marriott Corporation and served in such capacities as Vice President of
Financial Planning and Acquisitions and Vice President of Project Finance; and
from 1983 to 1986, he was a Strategy and Financial Consultant at Marakon
Associates. Mr. Cohrs received his BS degree from Michigan State University in
Engineering and his PhD degree from Cornell University in Economics, Finance
and Public Policy.
JAMES C. GORTON--Mr. Gorton became Senior Vice President and General Counsel
of GCL effective July 15, 1998. From 1994 to 1998, Mr. Gorton was a member of
the New York law firm Simpson Thacher & Bartlett and had been associated with
the firm since 1986. Mr. Gorton holds a BA degree from Columbia College and a
JD degree from New York University School of Law.
K. EUGENE SHUTLER--Mr. Shutler is a Senior Vice President of GCL and is also
President of ACL. From 1996 to 1997, Mr. Shutler served as Chairman of the
Board and Chief Executive Officer of Styles On Video, Inc. Prior thereto, Mr.
Shutler was Executive Vice President, General Counsel and a Director of MGM
Grand, Inc. from 1991 to 1995; a member of the Los Angeles law firm of Troy
and Gould from 1983 to 1991; and Vice President/General Counsel of Republic
Corporation, Continental Aircraft Services (Continental Airlines) and Caesars
World, Inc. Mr. Shutler holds a BA degree from the University of Pennsylvania
and an LLB degree from Yale Law School.
HILLEL WEINBERGER--Mr. Weinberger, a director of GCL since June 1997, has
been a Senior Vice President of Loews/CNA Holdings Corp. since 1988. Prior
thereto, Mr. Weinberger was a Senior Vice President of Presidential Life from
1982 to 1988. Mr. Weinberger serves as director to News Communications Inc.
47
<PAGE>
JAY R. BLOOM--Mr. Bloom, a director of GCL since the Company's inception in
March 1997, is a managing director of CIBC Oppenheimer Corp. ("CIBC
Oppenheimer"), co-head of its High Yield Group and co-head of CIBC World
Markets High Yield Merchant Banking Funds. Mr. Bloom also serves on the board
of directors of Heating Oil Partners, L.P., Consolidated Advisers Limited,
L.L.C. and Morris Material Handling, Inc. Prior to joining CIBC Oppenheimer in
August 1995, Mr. Bloom was a founder and managing director of The Argosy Group
L.P. From 1984 to 1990, Mr. Bloom was a managing director in the Mergers and
Acquisitions Group of Drexel Burnham Lambert Incorporated. Mr. Bloom was an
investment banker associated with Lehman Brothers Kuhn Loeb Incorporated from
1982 to 1984 and, from 1981 to 1982, practiced law at Paul Weiss Rifkind
Wharton & Garrison in New York. Mr. Bloom received his BS and MBA degrees from
Cornell University and his JD degree from Columbia University School of Law.
DEAN C. KEHLER--Mr. Kehler, a director of GCL since the Company's inception,
is a managing director of CIBC Oppenheimer and co-head of its High Yield
Group. In addition, he is a member of CIBC's Investment Committee and co-head
of CIBC World Markets High Yield Merchant Banking Funds. Prior to joining CIBC
Oppenheimer in 1995, Mr. Kehler was a founder and managing director of The
Argosy Group. From 1985 to 1990, Mr. Kehler was a managing director in the
Mergers and Acquisitions Group, Co-Head of Merchant Banking and a member of
the Corporate Finance Executive Committee of Drexel Burnham Lambert
Incorporated. Mr. Kehler serves on the board of directors of Booth Creek
Group, Inc., Telebanc Financial Corporation and Heating Oil Partners, L.P.
From 1979 to 1985, Mr. Kehler was an investment banker at Lehman Brothers. Mr.
Kehler received his BS degree from The Wharton School.
JAY R. LEVINE--Mr. Levine, a director of GCL since the Company's inception,
is a managing director of CIBC Oppenheimer, and manages the CIBC World Markets
High Yield Merchant Banking Funds. Prior to joining CIBC Oppenheimer in May,
1997, Mr. Levine was President of PPMJ Inc., a private consulting firm, from
September 1996 to April 1997 that advised its clients on private equity
investments. From August 1990 to June 1996, Mr. Levine was a senior executive
in the Morningside and Springfield Group, Inc., a private investment company.
Mr. Levine serves as a director of Aircraft Service International Group,
Consolidated Advisers Limited, L.L.C., Heating Oil Partners, L.P. and Talton
Holdings, Inc. Mr. Levine received a BS degree from Syracuse University, a JD
degree from Tulane University and an LLM in Taxation from New York University.
WILLIAM P. PHOENIX--Mr. Phoenix, a director of GCL since its inception, is a
managing director of CIBC Oppenheimer and co-head of Credit Capital Markets.
Prior to joining CIBC Oppenheimer in 1995, Mr. Phoenix had been the Managing
Director of the Canadian Imperial Bank of Commerce since 1982. Mr. Phoenix
serves as a director of the Electrolux Corporation. Mr. Phoenix received his
BA degree from the University of Western Ontario and his MBA degree from the
University of Toronto.
BRUCE RABEN--Mr. Raben, a director of GCL since its inception, is a managing
director of CIBC Oppenheimer. Prior to joining CIBC Oppenheimer in January
1996, Mr. Raben was a founder, managing director and co-head of the Corporate
Finance Department of Jefferies & Co., Inc. since 1990. Mr. Raben serves as a
director of Optical Security, Inc., Talton Holdings, Inc., Terex Corporation
and Equity Marketing, Inc. Mr. Raben received his MBA degree from Columbia
Business School and his AB degree from Vassar College.
MICHAEL R. STEED--Mr. Steed, a director of GCL since its inception, is
Senior Vice President of Investments for the Union Labor Life Insurance
Company, ULLICO Inc. ("ULLICO") and its Family of Companies and President of
Trust Fund Advisors, ULLICO's investment management subsidiary. Mr. Steed
joined ULLICO in November 1992 after serving seven years as President and
Founder of A.F.I.C. Group, Ltd., a financial and investment consulting firm.
From 1983 to 1985, Mr. Steed was the Executive Director of the Democratic
National Committee. He received his JD degree from Loyola University School of
Law in Los Angeles and his BA degree from Loyola Marymount University in Los
Angeles.
48
<PAGE>
WILLIAM E. CONWAY--Mr. Conway is a nominee for director for GCL. Mr. Conway
has been a managing director of The Carlyle Group since 1987. Mr. Conway was
Senior Vice President and Chief Financial Officer of MCI Communications
Corporation from 1984 until he jointly founded The Carlyle Group in August
1987. Mr. Conway serves as director to GTS Duratek, Inc., Nextel
Communications, Inc. and Hownet International Corporation. Mr. Conway received
his BA degree from Dartmouth College and his MBA in Finance from Chicago
Graduate School of Business.
TOSHIAKI OGASAWARA--Mr. Ogasawara is a nominee for director for GCL. Mr.
Ogasawara has been Chairman and Publisher of The Japan Times, Limited since
1985 and President and Representative Director of Nifco Inc since 1967. Mr.
Ogasawara serves as Chairman and Representative Director for FM Inter-Wave,
Inc. and Simmons Co. Ltd.
GEOFFREY J.W. KENT--Mr. Kent is a nominee for director for GCL. Mr. Kent is
Chairman and Chief Executive Officer of the Abercrombie & Kent Group of
companies and has been associated with the company since 1967.
ADDITIONAL MANAGEMENT
Global Crossing's management team utilizes additional executives with
extensive experience in the telecommunications industry and the undersea cable
sector, including the following individuals:
WILLIAM B. CARTER, JR. is President of Global Crossing Development Co. and
the Company's Senior executive in charge of development. Prior to joining the
Company, Mr. Carter spent 30 years with AT&T, where he headed up the
International Facilities Planning (both cable and satellite) and served as
President and Chief Executive Officer for SSI and as Director of International
Network Operations for AT&T. During Mr. Carter's tenure, SSI had the leading
worldwide market share in the undersea cable industry, with an average market
share of 35-50%. Mr. Carter is a member of the World Telecommunications
Advisory Council to the International Telecommunications Union (ITU) and
Senior Advisory Council to the U.S. government on communications and economic
development. Mr. Carter received a BEE degree from Georgia Institute of
Technology and has completed the advanced program for senior managers at MIT's
Sloan School.
JACK FINLAYSON--Mr. Finlayson has been President of Global Crossing
International, Ltd. since June 1998. Prior to joining the Company, Mr.
Finlayson was corporate vice president and general manager of Motorola Inc.'s
Asia Pacific Cellular Infrastructure group, where he was responsible for
managing the wireless infrastructure business, and had been affiliated with
Motorola Inc. since 1994. Prior to joining Motorola Inc., Mr. Finlayson was
employed by AT&T, where he was sales vice president of Business Network Sales
for the southeastern United States. Mr. Finlayson has more than 17 years
experience in the telecommunications field. Mr. Finlayson received his BS
degree in marketing from LaSalle University and holds an MBA degree in
information management from St. Joseph's University.
S. WALLACE DAWSON, JR., Senior Vice President of Operations of Global
Crossing Development Co., worked at SSI for 29 years, where he had overall
delivery responsibility for the implementation of all submarine cable
projects. Prior thereto, he held various positions at AT&T, where his work
centered on specialized equipment design for military and commercial undersea
cable systems and development of various network services. Mr. Dawson holds a
BEE degree from the University of Virginia, and an MSEE degree from Duke
University. He also completed the Advanced Management Program at INSEAD,
Fountainbleu, France.
HAROLD D. GROSSNICKLE, Managing Director of Global Crossing Development Co.,
is responsible for directing the operations, administration and maintenance of
the Global Crossing Network. Mr. Grossnickle has 28 years of experience in the
telecommunications industry, including over 24 years at AT&T and AT&T
Paradyne, where he served as a vice president of network management systems
and services. Mr. Grossnickle received his BS from Iowa State University and
his MBA from the University of Missouri.
49
<PAGE>
PATRICK JOGGERST is Vice President of Global Sales & Marketing of Global
Crossing International Ltd. and the Company's Senior executive in charge of
sales. Prior to joining the Company, Mr. Joggerst served as Managing Director
for the Americas Region at TSSL. His 17-year tenure at AT&T included positions
with several departments, including international services operations,
organizational development/human resources, and communications products and
service sales. Mr. Joggerst graduated from Georgetown University's School of
Foreign Service.
IAN MCLEAN--Mr. McLean is Vice President of GCL and also serves as Chief
Financial Officer of ACL. Prior to joining the Company in September, 1997, Mr.
McLean was Chief Financial Officer and Systems Information Officer at Price
Waterhouse, Bermuda from 1994 to 1997; Chief Financial Officer for Horizons
Limited from 1992 to 1994; Deputy Manager, Corporate Trust at Bank of Bermuda
Limited from 1988 to 1992 and Vice President of Finance for the Baillargeon
Group from 1985 to 1988. Mr. McLean is a Canadian Chartered Accountant and
holds a Bba degree from Bishop's University and a graduate diploma in
accountancy from McGill University.
WILLIAM T. RICHARDS is Vice President of Operations of ACL. Mr. Richards was
employed at British Telecommunications for seven years, most recently as
Manager of Subsea Projects & Consultancies, and served as Independent Engineer
on the FLAG system. Prior to his position at British Telecommunications, he
served as Business Development Manager at Dowty Magnetics. Mr. Richards
received his BFc (Hons.) degree from City University of London.
LISA DADOURIS, Director of Business Development of Global Crossing
Development Co., spent 12 years at AT&T and Lucent Technologies, where she
held a number of positions in business development, marketing and finance,
including Chief Financial Officer for Local Service in the northeast United
States and Director of Manufacturing Planning for Lucent. Ms. Dadouris
graduated from Wake Forest University with a BS in business, and received her
MBA in accounting from Fuqua School of Business at Duke University.
MOOL SINGHI is Director of Network Planning of Global Crossing Development
Co. Prior to joining the Company, Mr. Singhi served as the Director of Market
Planning at TSSL. Mr. Singhi spent 27 years at AT&T, where he held various key
positions in manufacturing, finance, engineering, operations and international
network planning. Mr. Singhi received a bachelor's degree in mechanical
engineering and a master's degree in operations research and industrial
engineering from the University of Buffalo.
CHARLES D. HOGAN, Director of Operations of Asia Systems of Global Crossing
Development Co., spent 42 years at AT&T, serving as Regional Managing
Developer of AT&T's General Departments. Immediately prior to joining the
Company, Mr Hogan was based in Hong Kong where he was responsible for the
planning of international digital lightwave undersea cables for AT&T in the
Asia/Pacific region, including the planned China-United States cable system.
JOHN MERCOGLIANO, Vice President of Sales and Marketing of Global Crossing
International Ltd., has over 19 years of experience in the telecommunications
industry. Prior to joining the Company, Mr. Mercogliano was employed as Vice
President-Europe of Bell Atlantic Network Systems (Bermuda) Ltd., where he was
responsible for developing strategies and directing sales and marketing
opportunities in the FLAG European region. Mr. Mercogliano received his B.A.
degree from New York University and his M.B.A. from Pace University.
COMPENSATION
Total compensation paid or accrued to the executive officers of GCL and its
consolidated subsidiaries as a group during the fiscal year ended December 31,
1997 was $155,409. Directors of GCL and its consolidated subsidiaries do not
receive compensation, except as officers or employees of GCL or its
consolidated subsidiaries.
50
<PAGE>
OPTION GRANTS AND OPTION VALUES
The table below sets forth information as of July 13, 1998 concerning
options granted since January 1, 1998 to principal officers of the Company.
Options representing a total of 9,847,500 shares of Common Stock (after giving
effect to the Common Stock Dividend) have been issued to officers or directors
of the Company at exercise prices ranging from $1.67 per share to the price of
the Offerings.
<TABLE>
<CAPTION>
GRANT
DATE
INDIVIDUAL GRANTS VALUE(1)
---------------------------------------------- ----------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANT
OPTIONS GRANTED TO EXERCISE OR DATE
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME (#) FISCAL YEAR ($/SHARE) DATE VALUE($)
---- ---------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Gary Winnick............ 900,000 7.77% 1.67 03/31/07 14,700,000
Co-Chairman of the
Board
Jack Scanlon............ 1,800,000 15.55% 1.67 04/01/08 29,400,000
Chief Executive Officer
Bill Carter............. 1,500,000 12.95% 1.67 10/27/07 24,500,000
President, Global
Crossing Development
Co.
James Gorton............ 750,000 6.48% 6.67 06/12/08 8,500,000
Senior Vice President
and General Counsel
Jack Finlayson.......... 585,000 5.05% 6.67 06/12/08 6,630,000
President, Global
Crossing International,
Ltd. 150,000 1.30% (2) 06/12/08 --
</TABLE>
- --------
(1) Based upon difference between exercise price and midpoint of expected
pricing range of the Offerings.
(2) Exercise price will equal the price of the Offerings.
The table below sets forth information as of July 13, 1998 concerning
exercises of stock options by the individuals named above for the current year
and the value of such individuals' unexercised options based upon the midpoint
of the expected pricing range of the Offerings.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS(#) OPTIONS($)
SHARES VALUE ----------------- --------------------
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) ($) UNEXERCISABLE UNEXERCISABLE(1)
---- ----------- -------- ----------------- --------------------
<S> <C> <C> <C> <C>
Gary Winnick............ -- -- 300,000/600,000 4,900,000/9,800,000
Co-Chairman of the
Board
Jack Scanlon............ -- -- 450,000/1,350,000 7,350,000/22,050,000
Chief Executive Officer
Bill Carter............. -- -- 0/1,500,000 0/24,500,000
President, Global
Crossing Development
Co.
James Gorton............ -- -- 187,500/562,500 2,125,000/6,375,000
Senior Vice President
and General Counsel
Jack Finlayson.......... -- -- 292,500/442,500 3,315,000/3,315,000
President, Global
Crossing International,
Ltd.
</TABLE>
- --------
(1) Based upon difference between exercise price and midpoint of expected
pricing range of the Offerings.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The 1998 Global Crossing Ltd. Stock Incentive Plan (the "Stock Incentive
Plan") provides that, upon a "change in control," certain of the awards
granted under the Stock Incentive Plan will vest immediately. A "change in
control" is defined under the Stock Incentive Plan as the occurrence of any of
the following: (i) any Person (other than a Person holding securities
representing 10% or more of the combined voting power of GCL's outstanding
securities as of July 15, 1998, GCL, any trustee or other fiduciary holding
securities under an employee benefit plan of GCL, or any company owned,
directly or indirectly, by the shareholders of GCL in
51
<PAGE>
substantially the same proportions as their ownership of stock of GCL) becomes
the beneficial owner (as defined under Rule 13d-3 under the Exchange Act) of
securities of GCL (a) in excess of the interest held by the existing
shareholders of GCL as of July 15, 1998 and (b) representing 30% or more of
the combined voting power of GCL's then outstanding securities; (ii) during
any period of 24 months, individuals who at the beginning of such period
constitute the board of directors and any new director (other than those
directors who meet certain exceptions specified in the Stock Option Plan)
whose election was approved in advance by a vote of at least two-thirds of the
directors then still in office, cease for any reason to constitute at least a
majority of the board of directors; (iii) the shareholders of GCL approve any
transaction under which GCL is merged or consolidated with any other company,
other than a merger or consolidation which would result in shareholders of GCL
immediately prior thereto continuing to own more than 65% of the combined
voting power of the voting securities of GCL or such surviving entity; or (iv)
the shareholders of GCL approve a plan of complete liquidation of the company
or an agreement for the sale or disposition by GCL of all or substantially all
of GCL's assets, other than the liquidation of GCL into a wholly-owned
subsidiary.
GCL has entered into an employment agreement, dated as of April 1, 1998,
with Mr. Jack Scanlon, providing for Mr. Scanlon's employment as GCL's Chief
Executive Officer for a term of two years and continuing thereafter for
successive two-year terms unless either GCL or Mr. Scanlon provides at least
three months' notice in advance of the expiration of the current term. In
connection with such agreement, Mr. Scanlon was issued an option to purchase a
total of 1,800,000 shares of Common Stock at an exercise price of $1.67 per
share (after giving effect to the Common Stock Dividend). Such options vest in
25% increments upon the first day of employment and at the end of each of the
first three years of Mr. Scanlon's employment with GCL. Upon a "change of
control", as defined in the Stock Incentive Plan, or any other "non-fault"
termination as defined in Mr. Scanlon's employment agreement, vesting of all
of such options shall immediately occur and Mr. Scanlon shall be entitled to
terminate the agreement and receive a lump sum payment equal to the sum of two
times Mr. Scanlon's then annual base salary and bonus. In the event that a
public offering of Common Stock or a reasonably equivalent opportunity to
liquidate stock does not occur within three years of the commencement of Mr.
Scanlon's employment, Mr. Scanlon may require GCL to purchase up to 450,000
shares of Common Stock held by him at $13.33 per share (after giving effect to
the Common Stock Dividend). GCL has agreed to make similar arrangements
available to Mr. Cohrs with respect to 150,000 shares (after giving effect to
the Common Stock Dividend) of Common Stock after three years of employment.
Mr. Finlayson has the option to sell 150,000 shares of Common Stock to the
Company at $13.33 per share after two years of employment (after giving effect
to the Common Stock Dividend).
GCL COMMITTEES
Audit Committee. The purpose of the Audit Committee is to: (i) make
recommendations concerning the engagement of independent public accountants;
(ii) review with GCL management and the independent public accountants the
plans for, and scope of, the audit procedures to be utilized and results of
audits; (iii) approve the professional services provided by the independent
public accountants; (iv) review the adequacy and effectiveness of GCL's
internal accounting controls; (v) review GCL's insurance program; and (vi)
perform any other duties and functions required by any organization under
which GCL's securities may be listed. Messrs. Kehler, Weinberger and Brown are
the current members of the Audit Committee. Following the Offerings, GCL will
reconstitute the Audit Committee so that it will be comprised of three members
of GCL's Board of Directors, at least two of which will be independent
directors.
Compensation Committee. The purpose of the Compensation Committee is to
establish and submit to the Board of Directors of GCL recommendations with
respect to (i) compensation of officers and other key employees of GCL and
(ii) awards to be made under the Stock Incentive Plan. Messrs. Cook, Steed and
Levine are the current members of the Compensation Committee.
52
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table and the accompanying footnotes set forth, as of July 13,
1998, certain information regarding the beneficial ownership of the common
stock of GCL ("Common Stock") by (i) each person or entity who is known to GCL
to own beneficially five percent or more of GCL's voting Common Stock, (ii)
each of GCL's directors and executive officers and (iii) all directors and
executive officers of GCL as a group. To the knowledge of GCL, each such
stockholder has sole voting and investment power with respect to the shares
shown, unless otherwise noted. For a summary of the principal terms of the
Common Stock, see "Description of Capital Stock."
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF COMMON STOCK
-------------------------------------------
NUMBER PERCENTAGE NUMBER OF PERCENTAGE
OF PRIOR TO SHARES TO AFTER
BENEFICIAL OWNER SHARES(1) OFFERINGS BE SOLD OFFERINGS
---------------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Pacific Capital Group, Inc.(2) ... 52,678,165 27.08% 1,158,636 24.14%
150 El Camino Drive, Suite 204
Beverly Hills, California 90212
Canadian Imperial Bank of
Commerce......................... 48,550,622 24.96% -- 22.74%
161 Bay Street, 8th Floor--BCE
Place
P.P. Box 500
M5J258
Toronto, Canada
Continental Casualty Company(3)... 20,037,585 10.30% -- 9.39%
CNA Plaza, Floor 23 South
Chicago, Illinois 60685
MRCo, Inc. (4).................... 16,959,462 8.72% -- 7.95%
111 Massachusetts Avenue NW
Washington, DC 20001
Gary Winnick(5)................... 52,978,165 27.24% 1,158,636 24.28%
Lodwrick M. Cook(6)............... 2,398,170 1.23% -- 1.12%
Jack M. Scanlon(7)................ 450,000 * -- *
Dan J. Cohrs(8)................... 225,000 * -- *
David L. Lee(9)................... 11,874,012 6.10% 324,093 5.41%
Abbott L. Brown(10)(11)........... 7,042,273 3.62% 243,178 3.19%
Barry Porter(12).................. 10,938,811 5.62% 324,093 4.97%
James C. Gorton(13)............... 187,500 * -- *
Jack Finlayson(14)................ 292,500 * -- *
K. Eugene Shutler(11)(15)......... 248,986 * -- *
Hillel Weinberger(16)............. 21,345,900 10.97% -- 10.00%
Jay R. Bloom(17).................. 48,565,622 24.97% -- 22.75%
Dean C. Kehler(17)................ 48,565,622 24.97% -- 22.75%
Jay R. Levine(17)(18)............. 48,565,622 24.97% -- 22.75%
William P. Phoenix(17)(18)........ 48,565,622 24.97% -- 22.75%
Bruce Raben(17)(18)............... 48,565,622 24.97% -- 22.75%
Michael R. Steed(19).............. 16,974,462 8.73% -- 7.95%
William E. Conway(20)............. 15,000 * -- *
Toshiaki Ogasawara(20)............ 15,000 * -- *
Geoffrey J.W. Kent(20)............ 15,000 * -- *
All Directors and Executive
Officers as a Group.............. 173,626,383 89.26% 2,050,000 80.38%
</TABLE>
- --------
* Percentage of shares beneficially owned does not exceed one percent.
(1) As of July 13, 1998, after giving effect to the Old GCL Liquidation, the
Common Stock Dividend, the PCG Warrant Conversion, the Advisory Services
Agreement Termination, the TDC Exchange and the transactions associated
therewith, 182,738,519 shares of Common Stock would have been issued and
outstanding. An additional 2,475,500 shares of Common Stock would have
been issuable upon the exercise of options within 60 days of June 30,
1998; an additional 2,696,074 shares of Common Stock would have been
issuable upon the exercise of the GCL Warrants (effective upon the
Offerings); and an additional 6,597,227 shares of Common Stock would have
been issuable upon the exercise of the New PCG Warrants (effective upon
the Offerings). Both the GCL Warrants and the New PCG Warrants will have
a per share exercise price equal to the Price to Public per Share of the
Offerings.
53
<PAGE>
(2) Includes 38,670,241 shares of Common Stock and 1,327,776 shares of Common
Stock issuable upon the exercise of GCL Warrants which in May 1998 were
transferred to GKW Unified Holdings, LLC, a company formed for the
benefit of Gary Winnick and members of his family that is managed by PCG.
Includes 3,298,612 shares of Common Stock issuable upon the exercise of
New PCG Warrants.
(3) Includes 8,397,750 shares of Common Stock owned by Continental Casualty
Corporation and 933,150 shares of Common Stock held by Continental
Casualty Corp. Designated High Yield, for which Continental Casualty
Corporation holds sole voting and investment power. Includes 10,706,685
shares of Common Stock to be acquired by Continental Casualty Corp.
Designated High Yield prior to the Offerings.
(4) Includes 368,353 shares of Common Stock issuable upon the exercise of GCL
Warrants.
(5) Includes all shares of Common Stock owned by GKW Unified Holdings, LLC,
of which PCG is manager, and all shares of Common Stock owned by PCG, of
which Mr. Winnick is Chairman and Chief Executive Officer. Includes
300,000 shares of Common Stock issuable upon the exercise of options
within 60 days of July 13, 1998.
(6) Includes 593,750 shares of Common Stock issuable upon the exercise of New
PCG Warrants. Includes 150,000 shares of Common Stock issuable upon the
exercise of options within 60 days of July 13, 1998.
(7) Includes 450,000 shares of Common Stock issuable upon the exercise of
options within 60 days of July 13, 1998.
(8) Includes 225,000 shares of Common Stock issuable upon exercise of options
within 60 days of July 13, 1998.
(9) Includes 4,936,156 shares of Common Stock and 270,832 shares of Common
Stock issuable upon the exercise of GCL Warrants owned by San Pasqual
Corp., of which Mr. Lee and his family are the sole shareholders.
Includes 2,707,890 shares of Common Stock and 79,325 shares of Common
Stock issuable upon the exercise of GCL Warrants owned by the David and
Ellen Lee Family Trust of which Mr. Lee and his wife are the sole
shareholders. Includes 150,000 shares of Common Stock issuable upon the
exercise of options within 60 days of July 13, 1998. Includes 989,584
shares of Common Stock issuable upon the exercise of New PCG Warrants.
(10) Includes all 3,762,154 shares of Common Stock and 194,045 shares of
Common Stock issuable upon the exercise of GCL Warrants owned by
Ridgestone Corp., of which Mr. Brown's family and a related trust are the
sole shareholders. Includes 150,000 shares of Common Stock issuable upon
the exercise of options within 60 days of July 13, 1998. Includes 791,668
shares of Common Stock issuable upon the exercise of New PCG Warrants.
(11) After giving effect to the liquidation of PCG Telecom LDC, which is
managed by Ridgestone Corp. and of which Mr. Brown and Mr. Shutler are
shareholders, and the distribution therefrom of 37,209 shares to Mr.
Brown and 148,986 shares to Mr. Shutler.
(12) Includes all 5,926,271 shares of Common Stock and 298,528 shares of
Common Stock issuable upon the exercise of GCL Warrants owned by
Galenight Corp., of which Mr. Porter is the sole shareholder. Includes
150,000 shares of Common Stock issuable upon the exercise of options
within 60 days of July 13, 1998. Includes 989,584 shares of Common Stock
issuable upon the exercise of New PCG Warrants.
(13) Includes 187,500 shares of Common Stock issuable upon exercise of options
within 60 days of July 13, 1998.
(14) Includes 292,500 shares of Common Stock issuable upon exercise of options
within 60 days of July 13, 1998.
(15) Includes 100,000 shares of Common Stock issuable upon the exercise of
options within 60 days of July 13, 1998.
(16) Includes all shares of Common Stock owned by Continental Casualty
Company, an affiliate of Loews/CNA Holdings Corp. Mr. Weinberger is an
officer of Loews/CNA Holdings Corp. Includes 1,293,315 shares of Common
Stock, consisting of 1,050,000 shares to be held by Global Crossing Trust
1998, of which Mr. Weinberger is a trustee and 243,315 shares to be held
by a partnership of which Mr. Weinberger is a managing partner. Includes
15,000 shares of Common Stock issuable upon the exercise of options
within 60 days of July 13, 1998.
(17) Includes all shares of Common Stock beneficially owned by CIBC. Messrs.
Bloom, Kehler, Levine, Phoenix and Raben are all affiliated with CIBC
Oppenheimer, an affiliate of CIBC. Includes 15,000 shares of Common Stock
issuable upon the exercise of options within 60 days of July 13, 1998.
(18) Beneficial ownership of all shares of Common Stock indicated is
disclaimed.
(19) Includes all shares of Common Stock owned by MRCo, Inc. Mr. Steed is the
Senior Vice President of ULLICO and the President of MRCo, Inc., which is
a wholly-owned subsidiary of ULLICO. Includes 15,000 shares of Common
Stock issuable upon the exercise of options within 60 days of July 13,
1998. Includes 368,353 shares of Common Stock issuable upon the exercise
of GCL Warrants.
(20) Includes 15,000 shares of Common Stock issuable upon the exercise of
options within 60 days of July 13, 1998. Effective immediately prior to
Offerings.
54
<PAGE>
CERTAIN TRANSACTIONS
GENERAL
The Company has entered into certain transactions described below with
entities affiliated with the Company, its officers and directors.
TRANSACTIONS WITH PACIFIC CAPITAL GROUP (PCG) AND ITS AFFILIATES
PCG and its affiliates, including PCG Telecom Services LLC ("PCG Telecom")
and Ocean Systems International LLC ("OSI"), have entered into certain
transactions with the Company described below in connection with the
development by PCG and its affiliates of several of Global Crossing's systems,
including AC-1, PC-1, PAC and MAC, and the decision by the Board of Directors
of GCL to assume the ongoing development of systems (other than AC-1) from
OSI. Revenue from the Company comprises the sole source of revenues for PCG
Telecom. PCG and its affiliates are controlled by Mr. Gary Winnick, the Co-
Chairman of the Board of Directors of GCL, and certain other officers and
directors of GCL are affiliated with PCG, including Messrs. Cook, Lee, Porter
and Brown. See "Management" and "Principal and Selling Shareholders."
Advisory Services Agreements. ACL has entered into an Advisory Services
Agreement, dated as of March 25, 1997 (as amended, the "AC-1 Advisory
Agreement"), with PCG Telecom with respect to AC-1, under which PCG Telecom is
entitled to an advisory fee of 2.0% of the gross revenues of ACL. The Board of
Directors of GCL has agreed that each other direct subsidiary of GCL shall
from time to time enter into, or cause each of its subsidiaries to enter into,
similar Advisory Services Agreements (together with the AC-1 Advisory
Agreement, the "Advisory Services Agreements") with PCG Telecom, providing for
an advisory services fee of 2% of such subsidiary's gross revenues (not double
counting any portion of intercompany revenues on which the advisory services
fee has already been calculated). The aggregate amount of all advisory fees
payable under the Advisory Services Agreements shall be reduced by the amount,
if any, by which principals of PCG receive cash compensation (as opposed to
reimbursement of expenses) from the Company other than cash compensation paid
to such principals in their capacities as officers or directors of the Company
as approved by the Board of Directors. In addition, until the earlier of (i)
the date GCL has a public equity market value in excess of $1.5 billion and
(ii) March 25, 2002 (such earlier date, the "Deferred Fee Payment Date"), the
aggregate cumulative amount of the fees paid under the Advisory Services
Agreements in respect of the calendar years prior to and including each
calendar year set forth below shall not exceed the amounts set forth below,
with any excess being deferred and paid (together with interest thereon at a
rate per annum equal to LIBOR) on the Deferred Fee Payment Date: 1998--$10
million; 1999--$20 million; 2000--$30 million; and 2001--$40 million.
Amounts payable under the AC-1 Advisory Agreement are to be divided annually
in the following manner: 90% of the initial $5 million in advisory services
fees is retained by PCG Telecom, 5% of the initial $5 million in advisory
service fees is payable to ULLICO, Inc. ("ULLICO"), which is the ultimate
parent of MRCo, Inc., and 5% of the initial $5 million in advisory service
fees is payable to PCG. With respect to amounts over the initial $5 million
annually in advisory services fees, 15.5% is payable to ULLICO, 15.5% is
payable to PCG, 35% is payable to CIBC and the remaining 34% is retained by
PCG Telecom. Amounts retained by PCG Telecom, after deducting associated
expenses incurred by PCG relating to salaries, bonuses, overhead and an annual
discretionary expense reduction, are divided amongst Messrs. Winnick, Brown,
Lee, and Porter in the following percentages: 40%, 15%, 22.5%, and 22.5%,
respectively.
All amounts payable annually under each of the other Advisory Services
Agreements will be retained by PCG Telecom and, after deducting associated
expenses incurred by PCG relating to salaries, bonuses, overhead and an annual
discretionary expense reduction, divided amongst Messrs. Winnick, Cook, Brown,
Lee, and Porter in the percentages: 50%, 8%, 12%, 15%, and 15% respectively.
The Company has agreed to acquire the rights to advisory fees payable under
the Advisory Services Agreements in consideration for the issuance, through
PCG Telecom, to the persons entitled to receive such fees
55
<PAGE>
of shares of Common Stock having an aggregate value (determined on the basis
of the Price to Public per Share payable in the Offerings) of $135 million and
the cancellation of approximately $2.7 million owed to the Company under a
related advance agreement (the "Advisory Services Agreement Termination").
Upon the consummation of this transaction, all of the obligations of the
Company and ACL in respect of the Advisory Services Agreements will be
terminated. Any final agreement will be subject to the approval of the
Company's current shareholders. The Company has obtained a fairness opinion
from an independent financial advisor in connection with this transaction. As
a result of this transaction, the Company will incur a charge of $97 million
which is discounted from the $135 million to take into account the non-
marketability of the non-registered stock which will be reflected in its
statement of operations for the period ended June 30, 1998. The Company
anticipates that the shares of Common Stock to be issued in connection with
the Advisory Services Agreement Termination will be issued to and beneficially
owned by the following persons in the following amounts:
<TABLE>
<CAPTION>
RECIPIENT COMMON STOCK VALUE(1)
--------- ------------ ------------
<S> <C> <C>
Gary Winnick (including PCG and PCG Telecom)... 3,438,557 $ 61,894,026
CIBC........................................... 707,222 12,729,996
ULLICO......................................... 386,944 6,964,992
Lodwrick M. Cook............................... 321,917 5,794,506
Abbott L. Brown................................ 721,694 12,990,492
David L. Lee................................... 961,833 17,312,994
Barry Porter................................... 961,833 17,312,994
--------- ------------
Total........................................ 7,500,000 $135,000,000
========= ============
</TABLE>
- --------
(1) Based upon the midpoint of expected pricing range of the Offerings
The net proceeds from the sale of the Shares being offered by the Selling
Shareholders in the Offerings are to be used by such Selling Shareholders to
fund anticipated income tax liabilities resulting from this transaction. See
"Principal and Selling Shareholders."
PCG Warrants. Old GCL and PCG entered into a warrant agreement, dated as of
January 21, 1998 (the "PCG Warrant Agreement"), pursuant to which Old GCL
issued PCG three separate warrants (collectively, the "PCG Warrants")
permitting PCG to purchase (i) 6,151,061 of Old GCL's Class B Shares for an
aggregate purchase price of $50,000,000; (ii) an additional 3,075,531 of Old
GCL's Class B Shares for an aggregate purchase price of $31,250,000; and (iii)
an additional 3,075,531 of Old GCL's Class B Shares for an aggregate purchase
price of $37,500,000 (prior to giving effect to the Common Stock Dividend).
Such PCG Warrants would entitle PCG to acquire an additional 10% of the
capital stock of Old GCL (as of the date of issuance of the PCG Warrants),
with the exercise price of each PCG Warrant based upon a different market
valuation of the Company. In connection with issuance of the PCG Warrants, the
PC-1, MAC and PAC projects (then under development) were acquired by the
Company, as was the development team that had been assembled by Pacific
Capital Group (led by William Carter, former President of AT&T Submarine
Systems International ("SSI") and Wally Dawson, former Senior Vice President
of SSI). The exercise of each of the PCG Warrants is conditioned upon (i) an
initial public offering of shares of Old GCL (or any successor thereto),
underwritten by an investment banking firm of national reputation (as
determined by a majority of the Board of Directors of Old GCL) from which Old
GCL shall have received at least $50,000,000 in net proceeds, (ii) the
investment by Old GCL in the aggregate of at least $500,000,000 of Net
Attributable Capital (as defined below) in cable systems other than AC-1 and
(iii) the generation in the aggregate by cable systems other than AC-1 of at
least $100,000,000 in Net Attributable Revenues (as defined below). For
purposes of the PCG Warrant Agreement, with respect to any cable system, (i)
"Net Attributable Capital" means the aggregate debt and equity capitalization
of such system multiplied by the percentage ownership of Old GCL (directly or
indirectly) in such system, and (ii) "Net Attributable Revenues" means the net
revenues of such system multiplied by the percentage ownership interest of Old
GCL (directly or indirectly) in such system. Rights under each of the PCG
Warrants has been divided amongst Messrs. Winnick, Cook, Brown, Lee and Porter
in the following percentages: 50%, 8%, 12%, 15% and 15%, respectively.
56
<PAGE>
The Board of Directors of Old GCL has determined that upon the successful
completion of the Offerings the conditions precedent to exercising the PCG
Warrants will have been met and therefore the PCG Warrants have been deemed
exercisable. The Board of Directors of Old GCL has also amended the terms of
the PCG Warrants to give each holder the option to convert each share under
warrant into a fraction of a Class B Share based upon the ratio of the current
per share valuation at the time of conversion less the per share exercise
price of the warrant divided by the current per share valuation at the time of
conversion multiplied by the number of warrants to be converted, together with
a new warrant ("New PCG Warrants") to purchase the remaining fraction of such
Class B Share at an exercise price equal to the Price to Public Per Share
payable in the Offerings. Prior to the Offerings, PCG will convert the PCG
Warrants in such manner into Class B Shares and New PCG Warrants, utilizing
the anticipated price of the Offerings as the current per share valuation for
such purposes, with GCL assuming the obligations of Old GCL under the New PCG
Warrants and Old GCL being liquidated and dissolved (the "PCG Warrant
Conversion").
The Company anticipates that, following such transactions, shares of Common
Stock and New PCG Warrants issued in connection with the conversion of the PCG
Warrants will be issued to the following persons in the following amounts:
<TABLE>
<CAPTION>
COMMON NEW PCG
NAME STOCK WARRANTS VALUE(1)
---- ---------- --------- ------------
<S> <C> <C> <C>
Gary Winnick.......................... 5,927,979 3,298,612 $106,703,622
David L. Lee.......................... 1,778,392 989,584 32,011,056
Barry Porter.......................... 1,778,392 989,584 32,011,056
Abbott L. Brown....................... 1,422,712 791,668 25,608,816
Lodwrick M. Cook...................... 948,474 527,779 17,072,532
---------- --------- ------------
Total............................... 11,855,949 6,597,227 $213,407,082
========== ========= ============
</TABLE>
- --------
(1) Based upon the number of shares of Common Stock received multiplied by
$18.00 (the midpoint of the expected pricing range for the Offerings) plus
the number of warrants received multiplied by the difference between
exercise price per share and $18.00.
Advance Agreements. GCL has entered into an Advance Agreement, dated as of
March 24, 1998 (the "AC-1 Advance Agreement"), with PCG Telecom, pursuant to
which GCL has agreed to make advances to PCG Telecom within three days of a
written request from PCG in respect of fees which will become owing to PCG
Telecom under the AC-1 Advisory Agreement in an amount not to exceed 1% of the
amounts payable under long-form capacity purchase agreements executed by ACL.
As security for the obligation of PCG Telecom to repay such advances, PCG
Telecom has granted a security interest to GCL in its rights to receive
payments under the AC-1 Advisory Agreement. The AC-1 Advance Agreement will be
terminated and the obligation of PCG Telecom to repay approximately $2.7
million to the Company thereunder cancelled in connection with the termination
of the Advisory Service Agreements discussed above.
Of the $4,669,340 advanced to PCG Telecom under the AC-1 Advance Agreement,
the following amounts were paid to directors, executive officers and
shareholders of the Company:
<TABLE>
<CAPTION>
NAME AMOUNT
---- ----------
<S> <C>
Gary Winnick............................. $3,191,630(1)
David L. Lee............................. 481,130
Barry Porter............................. 481,130
Abbott L. Brown.......................... 320,754
MRCo, Inc................................ 194,696
----------
Total.................................. $4,669,340
==========
</TABLE>
- --------
(1) Includes amounts received by PCG, including reimbursement of PCG expenses
of $1,987,914.
57
<PAGE>
Assignment of Rights. As part of the consideration for the assumption by the
Company of the rights of OSI to the ongoing development of cable systems, in
the first quarter of 1998 the Company paid PCG $6.5 million for costs incurred
by PCG to such date in connection with such development.
Arrangement Fees. Additionally, during 1997, $7,250,000 in fees were paid to
PCG and certain of its key executives, who are shareholders of GCL, and
another shareholder of GCL for services provided in respect of arranging the
AC-1 Credit Facility, the GTH Senior Notes and GTH Preference Shares. Of such
fees, the following amounts were paid to directors, executive officers and
shareholders of the Company:
<TABLE>
<CAPTION>
NAME AMOUNT
---- ----------
<S> <C>
Gary Winnick................................ $3,000,000
David L. Lee................................ 1,250,000
Abbott L. Brown............................. 1,000,000
Barry Porter................................ 1,000,000
MRCo, Inc. ................................. 1,000,000
----------
Total..................................... $7,250,000
==========
</TABLE>
TRANSACTIONS WITH CIBC AND ITS AFFILIATES
CIBC and its affiliates have entered into certain financing transactions
with the Company in connection with the development and construction of the
Company's systems: (i) CIBC, Inc. was the arranger and initial lender under
the $200 million Global Crossing Bridge Facility; (ii) CIBC, Inc. is one of
the lead agents under the $482 million AC-1 Credit Facility, (iii) CIBC Wood
Gundy Securities Corp., an affiliate of CIBC, acted as exclusive placement
agent for the issuance by GTH of its $100 million outstanding GTH Preference
Shares and the issuance by GTH of its $150 million outstanding GTH Senior
Note; (iv) CIBC Oppenheimer was an Initial Purchaser in connection with the
issuance by GCH of its $800 million GCH Senior Notes; (v) CIBC, Inc. and other
banks entered into a commitment letter with the Company, effective May 11,
1998, for the $850 million non-recourse project debt financing of PC-1; (vi)
CIBC, Inc. and other lenders issued a $101 million loan to Pacific Crossing
Ltd. to make the initial payments with respect to the PC-1 construction
contract; and (vii) CIBC, Inc. will be a lead agent under the proposed $240
million MAC bank credit facility. See "Description of Certain Indebtedness."
During 1997, the Company paid CIBC approximately $25 million in fees in
connection with these transactions. CIBC is a substantial shareholder in GCL
and certain members of the Board of Directors of the GCL are affiliated with
CIBC, including Messrs. Bloom, Kehler, Phoenix, Raben and Levine. See
"Management" and "Principal and Selling Shareholders."
TRANSACTIONS WITH WORLDPORT
On April 7, 1998, the Company entered into a CPA with Worldport
Communications, Inc. ("Worldport"), whereby Worldport acquired a total of five
STM-1s of capacity on AC-1 in a transaction that occurred in the ordinary
course of business of the Company and on terms and conditions no less
favorable to the Company than those contained in its other CPAs. Worldport
also executed an MOU to purchase capacity on PC-1, PAC and MAC. Certain
officers and directors of the Company, including Mr. Winnick, Mr. Cook, Mr.
Scanlon, Mr. Lee, Mr. Porter, Mr. Brown, Mr. Raben, Mr. Levine, Mr. Kehler and
Mr. Steed, have direct or indirect equity ownership positions in Worldport
aggregating approximately 10% of the current common stock of Worldport. In
addition, Continental Casualty Corporation, with which Mr. Weinberger is
affiliated, holds warrants to purchase common stock in Worldport aggregating
less than 1% of the current common stock of Worldport and has also engaged in
certain debt financing transactions with Worldport. Campuslink Communications
Systems Inc., a private company which provides telecommunications services to
colleges and universities and which is indirectly majority-owned by Mr.
Winnick and Union Labor Life Insurance Company, an affiliate of MRCo, Inc.,
has reached an agreement in principle to be acquired by Worldport. In
addition, in connection with the Company's recent decision to explore the
making of minority investments in telecommunications and internet service
providers that are current or prospective customers on the Global Crossing
Network, the Company is considering an investment in Worldport. If the Company
chooses to make such investment, it is currently anticipated that such
investment would amount to approximately $10 million of cash and two STM-1
circuits on AC-1.
58
<PAGE>
TRANSACTIONS WITH TELECOMMUNICATIONS DEVELOPMENT COMPANY
Prior to the Offerings, to facilitate the liquidation of Telecommunications
Development Company, a Cayman Islands corporation ("TDC"), the Company will
purchase all of 11,000,686 shares of Common Stock of the Company held by TDC
(after giving effect to the Old GCL Liquidation) in exchange for 10,850,686
newly issued shares of Common Stock, based upon the anticipated Price to
Public per Share of the Offerings (the "TDC Exchange"). Upon consummation of
such transaction, TDC will distribute all of the shares of Common Stock and
GCL Warrants owned by it to the holders of its preferred and common stock and
then liquidate (the "TDC Liquidation"). Mr. Lee is the Chairman and Mr.
Winnick is a director of TDC. Messrs. Lee, Winnick, Brown and Porter
beneficially own a majority of the outstanding common stock of TDC and
approximately 29% of the outstanding preferred stock of TDC. The balance of
such stock is owned by persons not affiliated with the Company. The Company
anticipates that, following the TDC Exchange and TDC Liquidation, shares of
Common Stock and GCL Warrants held originally held by TDC will be issued to
the following persons in the following amounts:
<TABLE>
<CAPTION>
COMMON GCL
NAME STOCK WARRANTS
---- ---------- --------
<S> <C> <C>
Gary Winnick.......................................... 2,392,140 69,365
David L. Lee.......................................... 2,707,890 79,325
Barry Porter.......................................... 810,646 23,557
Abbott L. Brown....................................... 270,215 7,852
Non-affiliates........................................ 4,669,795 127,571
---------- -------
Total............................................... 10,850,686 307,670
========== =======
</TABLE>
TRANSACTIONS REGARDING CLASS A SHARES OF OLD GCL
In connection with the initial purchase of the GTH Preference Shares by CIBC
Wood Gundy Securities Corp., the initial purchaser thereof, an affiliate of
the initial purchaser, CIBC Wood Gundy Capital SFC, received a total of
13,235,300 shares of Class A stock of Old GCL for no additional consideration.
9,794,100 of these shares were transferred to subsequent purchasers of the GTH
Preference Shares. Of the remaining 3,441,200 Class A shares, 1,720,600 shares
were transferred to holders of Old GCL's Class B and Class C shares as
follows:
<TABLE>
<CAPTION>
CLASS A
NAME SHARES
---- ---------
<S> <C>
Gary Winnick(1).............................. 748,142
MRCo, Inc. .................................. 407,846
Telecommunications Development Corporation... 254,904
PCG Telecom LDC.............................. 113,432
Barry Porter(2).............................. 86,667
David L. Lee(3).............................. 63,726
Abbott L. Brown(4)........................... 45,883
---------
Total...................................... 1,720,600
=========
</TABLE>
- --------
(1) Shares indicated for Gary Winnick were acquired by GKW Unified Holdings,
LLC, which is managed by PCG.
(2) Shares indicated for Barry Porter were acquired by Galenight Corp., of
which Mr. Porter is sole shareholder.
(3) Shares indicated for David L. Lee were acquired by San Pasqual Corp., of
which Mr. Lee and his family are the sole shareholders.
(4) Shares indicated for Abbott L. Brown were acquired by Ridgestone Corp., of
which Mr. Brown's family and a related trust are the sole shareholders.
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following summary description of the capital stock of the Company does
not purport to be complete and is subject to the provisions of the constituent
documents of GCL and each of its subsidiaries.
LIQUIDATION OF OLD GCL
As of the date hereof, all 1,200,000 shares of common stock of GCL are held
by Global Crossing Ltd., LDC, a Cayman Islands company ("Old GCL"). In order
to provide for certain class voting protections and differential rights upon
liquidation, Old GCL has issued and outstanding five classes of common stock:
Class A shares, Class B shares, Class C shares, Class D shares and Class E
shares. Class A shares, Class B shares and Class C shares have identical
voting rights other than with respect to election of directors, in which case
it is specified in Old GCL's Articles of Association how many directors each
class is entitled to elect. Except with respect to any shareholder vote that
would modify the rights of such class, holders of Class D shares and Class E
shares have no voting rights. With respect to distributions, Class D shares
are subordinated to the rights of each of the other classes of stock until
such other classes shall have received cumulative payments yielding a specific
internal rate of return. In January 1998, Old GCL authorized Class E shares,
which are non-voting but otherwise identical in all respects to Class B
shares, to be issued to individuals receiving awards under GCL's Stock
Incentive Plan that was established at such time.
Prior to the Offerings, GCL will declare a stock dividend to Old GCL so that
Old GCL will hold 1.5 shares of common stock of GCL for each share of common
stock of Old GCL outstanding (the "Common Stock Dividend"). Pursuant to the
terms of the Articles of Association of Old GCL, prior to the Offerings each
holder of Class D shares will convert such shares into a fraction of a Class E
share based upon a valuation at the time of such conversion, together with a
warrant to purchase the remaining fraction of such Class E share at an
exercise price based upon such market valuation. In addition, each holder of
Class E shares of Old GCL will have such Class E shares converted into Class B
shares of Old GCL. Accordingly, each holder of Class D and Class E shares will
ultimately receive Class B shares, with the warrants to purchase Class E
shares received by former Class D shareholders then cancelled in exchange for
warrants ("GCL Warrants") to purchase shares of Common Stock of GCL at an
exercise price equal to the Price to Public Per Share payable in the
Offerings. Old GCL will then declare a dividend to its shareholders of 1.5
shares of Common Stock of GCL for each Class A, Class B or Class C share of
Old GCL held. Immediately subsequent to such dividend, Old GCL will be
liquidated and each of the outstanding Class A, Class B and Class C shares
will be cancelled (the "Old GCL Liquidation").
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The following table sets forth the beneficial share ownership of Old GCL by
directors, executive officers and principal shareholders of the Company prior
to the liquidation thereof and the number of shares of Common Stock to be
issued in connection with such liquidation (after giving effect to the Common
Stock Dividend):
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
-------------------- --------------------- --------------------- -------------------------------
GCL
OLD GCL GCL SHARES OLD GCL GCL SHARES OLD GCL GCL SHARES OLD GCL GCL SHARES WARRANTS
NAME SHARES RECEIVED SHARES RECEIVED SHARES RECEIVED SHARES** RECEIVED RECEIVED
- ---------------- --------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Canadian
Imperial Bank of
Commerce ....... 1,720,600 2,580,900 0 30,175,000 45,262,500 0 0 0
Pacific Capital
Group, Inc. .... 804,338 1,206,507 15,040,966 22,561,449 0 0 10,296,100 14,917,285 1,327,776
Continental
Casualty
Company......... 8,208,390 12,312,585 1,575,000 2,362,500 3,575,000 5,362,500 0 0 0
MRCo, Inc. ..... 407,846 611,769 7,626,700 11,440,050 0 0 3,013,800 4,152,346 368,353
Gary Winnick.... 804,338 1,206,507 15,040,966 22,561,449 0 0 10,296,100 14,917,285 1,327,776
Lodwrick M.
Cook............ 0 0 300,000 450,000 0 0 0 0 0
Jack M. Scanlon. 0 0 0 0 0 0 0 0 0
Dan L. Cohrs.... 0 0 0 0 0 0 0 0 0
David L. Lee.... 127,340 191,009 2,381,275 3,571,912 0 0 2,215,900 3,881,125 350,157
Abbott L. Brown. 53,490 80,234 1,000,253 1,500,379 0 0 1,523,400 2,181,541 194,045
Barry Porter.... 105,711 158,567 1,976,816 2,985,223 0 0 2,442,500 3,613,127 322,085
James C. Gorton. 0 0 0 0 0 0 0 0 0
Jack Finlayson.. 0 0 0 0 0 0 0 0 0
K. Eugene
Shutler......... 5,042 7,563 94,282 141,423 0 0 0 0 0
Hillel
Weinberger...... 9,070,600 13,605,900 1,575,000 2,362,500 3,575,000 5,362,500 0 0 0
Jay R. Bloom.... 1,720,600 2,580,900 0 0 30,175,000 45,262,500 0 0 0
Dean C. Kehler.. 1,720,600 2,580,900 0 0 30,175,000 45,262,500 0 0 0
Jay R. Levine... 1,720,600 2,580,900 0 0 30,175,000 45,262,500 0 0 0
William P.
Phoenix......... 1,720,600 2,580,900 0 0 30,175,000 45,262,500 0 0 0
Bruce Raben..... 1,720,600 2,580,900 0 0 30,175,000 45,262,500 0 0 0
Michael R.
Steed........... 407,846 611,769 7,626,700 11,440,050 0 0 3,013,800 4,152,346 368,353
William E.
Conway.......... 0 0 0 0 0 0 0 0 0
Toshiaki
Ogasawara....... 0 0 0 0 0 0 0 0 0
Geoffrey J. W.
Kent............ 0 0 0 0 0 0 0 0 0
<CAPTION>
CLASS E*
----------------
GCL
OLD GCL SHARES
NAME SHARES RECEIVED
- ----------------- ------- --------
<S> <C> <C>
Canadian
Imperial Bank of
Commerce ....... 0 0
Pacific Capital
Group, Inc. .... 0 0
Continental
Casualty
Company......... 0 0
MRCo, Inc. ..... 0 0
Gary Winnick.... 200,000 300,000
Lodwrick M.
Cook............ 100,000 150,000
Jack M. Scanlon. 300,000 450,000
Dan L. Cohrs.... 150,000 225,000
David L. Lee.... 100,000 150,000
Abbott L. Brown. 100,000 150,000
Barry Porter.... 100,000 150,000
James C. Gorton. 125,000 187,500
Jack Finlayson.. 195,000 292,500
K. Eugene
Shutler......... 66,667 100,000
Hillel
Weinberger...... 10,000 15,000
Jay R. Bloom.... 10,000 15,000
Dean C. Kehler.. 10,000 15,000
Jay R. Levine... 10,000 15,000
William P.
Phoenix......... 10,000 15,000
Bruce Raben..... 10,000 15,000
Michael R.
Steed........... 10,000 15,000
William E.
Conway.......... 10,000 15,000
Toshiaki
Ogasawara....... 10,000 15,000
Geoffrey J. W.
Kent............ 10,000 15,000
</TABLE>
- -------
* Includes shares of Common Stock issuable upon the exercise of stock options
which are exercisable within 60 days of July 13, 1998.
** In connection with the liquidation of TDC, Messrs. Winnick, Lee, Porter and
Brown will also receive 731,547, 828,108, 247,906 and 82,635 shares of
Common Stock, respectively, plus warrants to acquire a further 69,365,
79,325, 23,557 and 7,852 shares of Common Stock, respectively, directly
attributable to Class D shares held by TDC. Such amounts are reflected in
the post-liquidation columns under "Class D" above; however, amounts
initially held by TDC are not shown in the "Old GCL Shares" column under
"Class D" above. See "Certain Transactions--Transactions with
Telecommunications Development Company."
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GCL
General. Pursuant to its Memorandum of Association, the authorized share
capital of GCL is $12,000, divided into 1,200,000 shares of par value $.01
each. As of the date hereof, all of such shares were issued and outstanding
and held by Old GCL. Prior to the Offerings, GCL will amend and restate its
Memorandum of Association to increase its authorized share capital to consist
of 600,000,000 shares of Common Stock. The form of Amended and Restated
Memorandum of Association is an exhibit to the Registration Statement of which
this Prospectus is a part.
Voting and Transfer Restrictions. Following the adoption of the Amended and
Restated Bye-Laws of the Company immediately prior to the Offerings, each
share of Common Stock will have one vote, except that if, and so long as, the
Controlled Shares (as defined below) of any person constitute more than 9.5%
(or, in the case of CIBC and certain of its affiliates, collectively, 35%) of
the voting power of the outstanding shares, including the Common Stock, of the
Company (an "Over-the-Threshold Common Stockholder"), the voting rights with
respect to the Controlled Shares owned by such person will be limited, in the
aggregate, to a voting power of 9.5%, pursuant to a formula set forth in the
Bye-Laws. The votes that could be cast by Over-the-Threshold Common
Stockholders but for the restrictions on voting rights described above will be
allocated to the other holders of Common Stock, pro rata based upon the number
of shares of Common Stock held by all other holders of Common Stock, subject
only to the further limitation that no stockholder allocated any such voting
rights may exceed the applicable limitation set forth above as a result of
such allocation. "Controlled Shares" includes, among other things, all shares
of Common Stock that a person is deemed (i) to own directly, indirectly or
constructively pursuant to Section 958 of the Code or (ii) to beneficially own
directly or indirectly as a result of the possession of sole or shared voting
power within the meaning of Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder.
The Bye-Laws also provide that any transfer of shares of Common Stock (or
any interest therein) that results in a person (other than PCG, GKW Unified
Holdings, LLC, CIBC, Continental Casualty Company or MRCo, Inc. or their
affiliates or certain lenders to any of them) beneficially owning (within the
meaning of Section 13(d) of the Exchange Act), directly or indirectly,
Controlled Shares in excess of the Maximum Percentage (as defined below) of
the outstanding shares of Common Stock without the approval of a majority of
the members of the Board of Directors and stockholders holding at least 75% of
the votes that may be cast by all holders of Common Stock (after giving effect
to the voting limitations outlined above) shall not be registered in the share
register of the Company and shall be void and of no effect. "Maximum
Percentage" means (x) in the case of a natural person, 5%, and (y) in the case
of any person (other than a natural person) or any group (as used in Section
13(d) of the Exchange Act), 9.5%.
Amendments to or waivers of the voting reallocation and transfer restriction
provisions of the Bye-Laws will require the approval of the Board of Directors
and stockholders holding 75% of the votes that may be cast by all holders of
Common Stock. In the event of any such amendment or waiver, the Company shall
indemnify and hold harmless any stockholder who, as a result thereof, becomes
subject to treatment as a "United States Shareholder" for purposes of Section
951 et seq. of the Code from and against all losses, costs, damages,
liabilities and expenses directly or indirectly arising out of such treatment.
These voting reallocation and transfer restrictions could make it difficult
for any person or group of persons acting in concert (other than certain
existing owners) to acquire control of the Company.
Distributions. Holders of Common Stock will be treated equally with respect
to all distributions to shareholders of GCL.
GCL STOCKHOLDERS AGREEMENT AND REGISTRATION RIGHTS AGREEMENT
The Company, PCG, GKW Unified Holdings, LLC ("GKW"), CIBC, Continental
Casualty Company, MRCo, Inc. and certain other shareholders of the Company
(including certain of the Company's officers and directors and their
affiliates) (collectively, the "Existing Holders") have entered into a
Stockholders Agreement and a Registration Rights Agreement, each of which has
been filed as an exhibit to the Registration Statement of which this
Prospectus constitutes a part.
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Under the Stockholders Agreement, the Company has been granted a right of
first refusal on certain private transfers by the Existing Holders during the
first two years after the consummation of the Offerings. In addition, subject
to the exceptions set forth in the Stockholders Agreement, certain of the
Existing Holders have rights ("tag-along rights") permitting such shareholder
to participate, on the same terms and conditions, in certain transfers of
shares by other Existing Holders as follows: (i) PCG, GKW and CIBC (and their
affiliates and permitted transferees) shall have the right to participate in
any transaction initiated by any of them to transfer 5% or more of the
outstanding securities of the Company and (ii) PCG, GKW, CIBC, Continental
Casualty Company and MRCo, Inc (and their affiliates and permitted
transferees) shall have the right to participate in any transaction initiated
by any of them to transfer any securities of the Company which transaction
would result in a change of control of the Company. In addition, so long as
Gary Winnick, PCG and GKW and certain of their transferees ("PCG Holders")
collectively beneficially own (within the meaning of Section 13(d) of the
Exchange Act) at least 15% of the outstanding shares of Common Stock, any PCG
Holder shall be entitled to seek appraisal of the fair value of the Common
Stock beneficially owned by such person (and the payment thereof in cash) in
connection with any merger or consolidation of the Company or the sale, lease
or transfer of all or substantially all of the assets of the Company, if such
PCG Holder, in his capacity as a shareholder of the Company, shall not have
voted in favor of or given consent with respect to such transaction and
beneficially owns the Common Stock as to which appraisal is sought immediately
prior to consummation of the transaction.
Pursuant to the Registration Rights Agreement, the Existing Holders have
certain demand and piggyback registration rights and receive indemnification
and, in certain circumstances, expense reimbursement from the Company in
connection with such registration.
CAPITAL STOCK OF SUBSIDIARIES
GCL owns, directly or indirectly, 100% of the capital stock of each of its
subsidiaries, except for the PC-1 joint venture entity, in which it will have
approximately a 58% economic interest. See "Business--Pacific Crossing."
TRANSFER AGENT AND REGISTRAR FOR COMMON STOCK
The transfer agent and registrar for the Common Stock is First Chicago Trust
Company of New York.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offerings, there has been no public market for the Common
Stock. Sales of a substantial amount of Common Stock in the public market, or
the perception that such sales may occur, could adversely affect the market
price of the Common Stock prevailing from time to time in the public market
and could impair the Company's ability to raise additional capital through the
sale of its equity securities in the future.
Upon completion of the Offerings, assuming no exercise of the over-allotment
options granted to the Underwriters, the Company will have 201,688,519 shares
of Common Stock outstanding, including 21,000,000 Shares of Common Stock
offered hereby and 180,688,519 restricted shares of Common Stock. The
restricted shares of Common Stock generally will be eligible for sale under
Rule 144 as currently in effect, beginning as early as 180 days from the date
of this Prospectus.
The Shares offered hereby will be freely tradable without restriction or
further registration under the Securities Act by persons other than affiliates
of the Company within the meaning of Rule 144 promulgated under the Securities
Act. The holders of restricted shares generally will be entitled to sell these
shares in the public securities market without registration under the
Securities Act to the extent permitted by Rule 144 (or Rule 145, as
applicable) promulgated under the Securities Act or any exemption under the
Securities Act.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted shares from the
Company or any affiliate of the Company, as that term is defined under the
Securities Act, the holder is entitled to sell within any three-month period a
number of shares of Common Stock that does not exceed the greater of 1% of the
then-outstanding shares of Common Stock or the average weekly trading volume
of shares of Common Stock on all exchanges and reported through the automated
quotation system of a registered securities association during the four
calendar weeks preceding the date on which notice of the sale is filed with
the Commission. Sales under Rule 144 are also subject to certain restrictions
on the manner of sales, notice requirements and the availability for current
public information about the Company. If two years have elapsed since the date
of acquisition of restricted shares from the Company or from any affiliate of
the Company, and the holder thereof is deemed not to have been an affiliate of
the Company at any time during the 90 days preceding a sale, such person would
be entitled to sell such Common Stock in the public market under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements.
The Company intends to file a registration statement under the Securities
Act to register shares of Common Stock reserved for issuance under the Stock
Incentive Plan, thus permitting the resale of such shares by non-affiliates
upon issuance in the public market without restriction under the Securities
Act. Such registration statement will automatically become effective
immediately upon filing.
Subject to certain exceptions, the Company, the Selling Shareholders and
certain other shareholders, directors and officers of the Company have agreed
not to offer, sell, contract to sell or otherwise dispose of, directly or
indirectly, or announce the offering of any shares of Common Stock, including
any such shares beneficially or indirectly owned or controlled by the Company,
the Selling Shareholders or such other shareholders, or any securities
convertible into, or exchangeable or exercisable for, shares of Common Stock
for 180 days from the date of this Prospectus, without the prior written
consent of Smith Barney Inc.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
GCH SENIOR NOTES
On May 18, 1998, GCH, the direct wholly-owned subsidiary of the Issuer,
issued and sold the GCH Senior Notes in the aggregate principal amount of
$800.0 million to a group of institutional investors in a private transaction
not subject to the registration requirements under the Securities Act. The GCH
Senior Notes are guaranteed by the Issuer and certain subsidiaries of GCH. The
Indenture for the GCH Senior Notes contains certain covenants that, among
other things, limit the ability of GCH and certain of its subsidiaries (the
"Restricted Subsidiaries") to incur additional indebtedness and issue
preferred stock, pay dividends or make other distributions, repurchase capital
stock or subordinated indebtedness, create certain liens, enter into certain
transactions with affiliates, sell assets of GCH or its Restricted
Subsidiaries, issue or sell capital stock of GCH's Restricted Subsidiaries or
enter into certain mergers and consolidations. In addition, under certain
limited circumstances, GCH will be required to offer to purchase the GCH
Senior Notes at a price equal to 100% of the principal amount thereof plus
accrued and unpaid interest to the date of purchase, with the excess proceeds
of certain asset sales. In the event of a Change of Control (as defined in the
Indenture), holders of the GCH Senior Notes will have the right to require GCH
to purchase all of their GCH Senior Notes at a price equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest. The
Indenture relating to the GCH Senior Notes is an exhibit to the Registration
Statement of which this Prospectus is a part.
The Company entered into a Registration Agreement dated May 18, 1998 (the
"Registration Agreement") with the initial purchasers of the GCH Senior Notes
(the "Initial Purchasers") for the benefit of the holders of the GCH Senior
Notes. Pursuant to the Registration Agreement, GCH agreed, for the benefit of
the holders, that it will, at its cost, (a) file a registration statement (the
"Exchange Offer Registration Statement") with the Commission with respect to a
registered offer (the "Exchange Offer") to exchange the GCH Senior Notes for a
series of notes (the "New Notes") with terms identical in all material
respects to the GCH Senior Notes (except that the New Notes will not contain
terms with respect to registration rights or transfer restrictions) or (b) in
lieu of the Exchange Offer Registration Statement, file a shelf registration
statement (the "Shelf Registration Statement") with respect to registration of
resales of the GCH Senior Notes. If (i) the Exchange Offer Registration
Statement has not been filed with the Commission within 90 days after May 18,
1998 (the "Closing Date") or declared effective within 150 days after the
Closing Date, or the Exchange Offer has not been consummated within 180 days
after the Closing Date or (ii) in lieu thereof, the Shelf Registration
Statement has not been filed with the Commission on or prior to 30 days after
such filing obligation arises or declared effective within 90 days after such
obligation arises or (iii) after either the Exchange Offer Registration
Statement or the Shelf Registration Statement has been declared effective, as
the case may be, it thereafter ceases to be effective or usable (subject to
certain exceptions) in connection with resales of GCH Senior Notes or New
Notes in accordance with and during the periods specified in the Registration
Agreement (each such event referred to in clauses (i) through (iii), a
"Registration Default"), additional interest ("Special Interest") will accrue
on the GCH Senior Notes and the New Notes (in addition to the stated interest
on the GCH Senior Notes and the New Notes) from and including the date on
which any such Registration Default shall occur to but excluding the date on
which all Registration Defaults have been cured. Special Interest will accrue
and be payable semiannually at a rate of 0.50% per annum during the 90-day
period immediately following the occurrence of any Registration Default and
shall increase by 0.25% per annum at the end of each subsequent 90-day period,
but in no event shall such rates exceed 1.00% per annum in the aggregate
regardless of the number of Registration Defaults. The Registration Agreement
relating to the GCH Senior Notes is an exhibit to the Registration Statement
of which this Prospectus is a part.
AC-1 CREDIT FACILITY
ACL is the borrower under the $482.0 million senior secured AC-1 Credit
Facility, comprised of a $472.0 million term loan facility and a $10.0 million
working capital facility, with certain commercial lending institutions and
CIBC and Deutsche Bank AG, New York Branch as lead agents for the lenders. The
AC-1 Credit Facility is secured by pledges of the stock of ACL and its
subsidiaries (and other entities holding landing licenses
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or AC-1 assets) and security interests in the assets and revenues of ACL and
its subsidiaries and is being used to provide financing for a portion of AC-1.
A portion of the AC-1 Credit Facility is available only to pay interest on the
loans prior to the AC-1 RFS date, and a portion is available to issue letters
of credit to the contractor of AC-1. The loans under the AC-1 Credit Facility
will amortize in eight semi-annual installments, commencing on the first
initial principal payment date (which shall be May 31 or November 30) to occur
more than two months after the commercial operation date (anticipated to occur
in February 1999), with 15% of the principal amount to be amortized in the
first year, 25% in the second year, 30% in the third year and 30% in the
fourth year. Borrowings bear interest at an adjustable rate based on the
adjusted base rate or LIBOR plus an applicable margin. The facility also
requires mandatory prepayments to be made from, among other things, 50% of
excess cash flow, 50% of net cash proceeds of any equity offering of ACL and
100% of net cash proceeds of any permitted debt offerings of ACL or its
immediate parent, permitted asset sales or insurance proceeds. As of March 31,
1998, a total of $305.5 million in indebtedness (to which the Notes would be
effectively subordinated) was outstanding under the AC-1 Credit Facility.
The AC-1 Credit Facility contains covenants that, among other things,
restrict ACL's use of the term loan proceeds to the financing of AC-1 and the
payment of fees and expenses directly thereto and the use of the working
capital facility proceeds to AC-1 costs and for working capital purposes and
limit ACL's ability to make certain dividends, distributions or investments
and mergers. The facility generally only permits dividends or distributions
with respect to a portion of ACL's excess cash flow, but severely restricts
the payment of other dividends or distributions to GCL. The AC-1 Credit
Facility contains certain financial covenants relating to minimum sales of
capacity on AC-1 and ratio of EBITDA to interest expense, the failure to
comply with which would cause all excess cash flow to be applied to the
lenders under the AC-1 Credit Facility for such period. The AC-1 Credit
Facility contains certain events of default including, among other things,
failure to pay amounts when due, failure to comply with covenants and
insolvency. An event of default shall also occur upon the occurrence of
certain failures in connection with AC-1. Upon the occurrence of an event of
default, the AC-1 Credit Facility permits the lenders to declare all
outstanding borrowings to be immediately due and payable and to proceed
against the collateral. In addition, the AC-1 Credit Facility prescribes the
order by which proceeds from the sale of AC-1 capacity shall be applied, both
prior to and after the commencement of commercial operations, and requires ACL
to maintain certain reserve accounts. As a result of the foregoing, the
ability of ACL to use and distribute revenue is severely restricted so long as
the AC-1 Credit Facility remains in existence.
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TAX CONSIDERATIONS
TAXATION OF THE COMPANY
The Company believes that a significant portion of its income will not be
subject to tax in Bermuda, which currently has no corporate income tax, or
other countries in which the Issuer or its affiliates conduct activities or in
which customers of the Company are located, including the United States.
However, this belief is based upon the anticipated nature and conduct of the
business of the Company, which may change, and upon the Company's
understanding of its position under the tax laws of the various countries in
which the Company has assets or conducts activities, which position is subject
to review and possible challenge by taxing authorities and to possible changes
in law (which may have retroactive effect). The extent to which certain taxing
jurisdictions may require the Company to pay tax or to make payments in lieu
of tax cannot be determined in advance. In addition, the operations of and
payments due to the Company may be affected by changes in taxation, including
retroactive tax claims or assessments of withholding on amounts payable to the
Company or other taxes assessed at the source, in excess of the taxation
anticipated by the Company based on business contacts and practices of the
Company and the current tax regimes. There can be no assurance that these
factors will not have a material adverse effect on the Company.
United States Federal Income Tax Considerations
The Issuer and its non-United States subsidiaries will be subject to United
States federal income tax at regular corporate rates (and to United States
branch profits tax) on their income that is effectively connected with the
conduct of a trade or business within the United States, and will be required
to file federal income tax returns reflecting that income. The Company intends
to conduct its operations so as to reduce the amount of its effectively
connected income. However, no assurance can be given that the Internal Revenue
Service (the "IRS") will agree with the positions taken by the Company in this
regard. Moreover, the United States subsidiaries of the Issuer will be subject
to United States federal income tax on their worldwide income regardless of
its source (subject to reduction by allowable foreign tax credits), and
distributions by such United States subsidiaries to the Issuer or its foreign
subsidiaries generally will be subject to United States withholding.
Bermuda Tax Considerations
Under current Bermuda law, the Company is not subject to tax on income or
capital gains. Furthermore, the Company has obtained from the Minister of
Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 (as
amended), an undertaking that, in the event that Bermuda enacts any
legislation imposing tax computed on profits, income, any capital asset, gain
or appreciation, or any tax in the nature of estate duty or inheritance tax,
then the imposition of such tax will not be applicable to the Company or to
any of its operations, or the shares, capital or Common Stock of the Company,
until March 28, 2016. This undertaking does not, however, prevent the
imposition of property taxes on any company owning real property or leasehold
interests in Bermuda.
TAXATION OF STOCKHOLDERS
In the opinion of Simpson Thacher & Bartlett, special United States federal
income tax counsel to the Company, the summary set forth below under "Taxation
of Stockholders--United States Federal Income Tax Considerations" accurately
describes certain material United States federal income tax consequences that
may be relevant to the purchase, ownership and disposition of the Common
Stock. In the opinion of Appleby, Spurling & Kempe, special Bermuda tax
counsel to the Company, the summary set forth below under "Taxation of
Stockholders--Bermuda Tax Considerations" accurately describes certain
material Bermuda tax consequences that may be relevant to the purchase,
ownership and disposition of the Common Stock. Unless otherwise stated, the
discussion below deals only with Common Stock held as capital assets by United
States Holders (as defined below) who purchase the Common Stock upon original
issuance at its original offering price. The discussion does not deal with all
possible tax consequences relating to an investment in the Common Stock
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and does not purport to deal with the tax consequences applicable to all
categories of investors, some of which (such as dealers in securities,
insurance companies and tax-exempt entities) may be subject to special rules.
In particular, the discussion does not address the tax consequences under
state, local or other national (e.g., non-United States, non-Bermuda) tax
laws. Accordingly, each prospective investor should consult its own tax
advisor regarding the particular tax consequences to it of an investment in
the Common Stock. The following discussion is based upon laws, regulations and
relevant interpretations thereof in effect as of the date of this Prospectus,
all of which are subject to change, possibly retroactively.
Bermuda Tax Considerations
Under current Bermuda law, no income, withholding or other taxes or stamp or
other duties are imposed upon the issue, transfer or sale of the Common Stock
or on any payments thereunder. See "Taxation of the Company--Bermuda Tax
Considerations" for a description of the undertaking on taxes obtained by the
Company from the Minister of Finance of Bermuda.
United States Federal Income Tax Considerations
The following is a summary of certain material United States federal income
tax considerations that apply to the acquisition, ownership and disposition of
Common Stock by United States Holders (as defined below) as of the date
hereof. This summary deals only with Common Stock that is held as a capital
asset by a United States Holder, and does not address tax considerations
applicable to United States Holders that may be subject to special tax rules,
such as dealers or traders in securities, financial institutions, insurance
companies, tax-exempt entities, United States Holders that hold Common Stock
as part of a straddle, conversion transaction, constructive sale or other
arrangement involving more than one position, United States Holders that have
a principal place of business or "tax home" outside the United States or
United States Holders whose functional currency is not the United States
dollar. In addition, the summary generally does not address the tax
consequences to United States Holders that own (or are deemed for United
States federal income tax purposes to own, pursuant to complex attribution and
constructive ownership rules) 10% or more of the voting stock of the Issuer or
any of its non-United States subsidiaries ("10% Shareholders"). 10%
Shareholders are advised to consult their own tax advisors regarding the tax
considerations incident to an investment in Common Stock.
The discussion below is based upon the provisions of the Code, and
regulations, rulings and judicial decisions thereunder as of the date hereof;
any such authority may be repealed, revoked or modified, perhaps with
retroactive effect, so as to result in United States federal income tax
consequences different from those discussed below.
THE DISCUSSION SET OUT BELOW IS INTENDED ONLY AS A SUMMARY OF CERTAIN UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE COMMON STOCK.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
TAX CONSEQUENCES OF AN INVESTMENT IN THE COMMON STOCK, INCLUDING THE
APPLICATION TO THEIR PARTICULAR SITUATIONS OF THE TAX CONSIDERATIONS DISCUSSED
BELOW, AS WELL AS THE APPLICATION OF STATE, LOCAL, FOREIGN OR OTHER FEDERAL
TAX LAWS. THE STATEMENTS OF UNITED STATES FEDERAL INCOME TAX LAW SET OUT BELOW
ARE BASED ON THE LAWS IN FORCE AND INTERPRETATIONS THEREOF AS OF THE DATE OF
THIS PROSPECTUS, AND ARE SUBJECT TO ANY CHANGES OCCURRING AFTER THAT DATE.
As used herein, a "United States Holder" of Common Stock means a holder that
is (i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in or under the laws of the United States or
any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source or
(iv) a trust which is subject to the supervision of a court within the United
States and the control of a United States person as described in section
7701(a)(30) of the Code.
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Taxation of Dividends
The gross amount of dividends paid to United States Holders of Common Stock
will be treated as dividend income to such United States Holders, to the
extent paid out of current or accumulated earnings and profits, as determined
under United States federal income tax principles. Such income will be
includible in the gross income of a United States Holder as ordinary income on
the day received by the United States Holder. Such dividends will not be
eligible for the dividends received deduction allowed to corporations under
the Code. Subject to the PFIC rules described below, to the extent that the
amount of any distribution exceeds the Issuer's current and accumulated
earnings and profits for a taxable year, the distribution will first be
treated as a tax-free return of capital, causing a reduction in the adjusted
basis of the Common Stock (thereby increasing the amount of gain, or
decreasing the amount of loss, to be recognized by the United States Holder on
a subsequent disposition of the Common Stock), and the balance in excess of
adjusted basis will be taxed as capital gain. The Issuer does not anticipate
paying cash dividends in the foreseeable future. See "Dividend Policy."
For so long as the Issuer is a "United States-owned foreign corporation,"
distributions with respect to the Common Stock that are taxable as dividends
generally will be treated for United States foreign tax credit purposes as
either (i) foreign source "passive income" (or, in the case of certain United
States Holders, foreign source "financial services income") or (ii) United
States source income, in proportion to the earnings and profits of the Issuer
in the year of such distribution allocable to foreign and United States
sources, respectively. For this purpose, the Issuer will be treated as a
United States-owned foreign corporation so long as stock representing 50% or
more of the voting power or value of the Issuer is owned, directly or
indirectly, by United States Holders.
Taxation of Capital Gains
For United States federal income tax purposes, a United States Holder will
recognize taxable gain or loss on any sale or exchange of Common Stock in an
amount equal to the difference between the amount realized for the Common
Stock and the United States Holder's adjusted basis in the Common Stock.
Subject to the PFIC and CFC rules discussed below, such gain or loss will be
capital gain or loss. Capital gain of individuals derived with respect to
capital assets held for more than one year is eligible for reduced rates of
taxation depending upon the holding period of such capital assets. The
deductibility of capital losses is subject to limitations. Any gain recognized
by a United States Holder generally will be treated as United States source
income. It is presently unclear whether any loss realized by a United States
Holder will be treated as United States or foreign source.
Passive Foreign Investment Company
The Issuer believes that it is not a PFIC and does not expect to become a
PFIC in the future for United States federal income tax purposes, although
there can be no assurance in this regard. This conclusion is a factual
determination made annually and thus is subject to change. In addition, it is
based, in part, on interpretations of existing law that the Issuer believes
are reasonable, but which have not been approved by any taxing authority.
In general, the Issuer will be a PFIC with respect to a United States Holder
if, for any taxable year in which the United States Holder held Common Stock,
either (i) at least 75% of the gross income of the Issuer for the taxable year
is passive income or (ii) at least 50% of the value (determined on the basis
of a quarterly average) of the Issuer's assets is attributable to assets that
produce or are held for the production of passive income. For this purpose,
passive income generally includes dividends, interest, royalties, rents (other
than rents and royalties derived in the active conduct of a trade or business
and not derived from a related person), annuities and gains from assets that
produce passive income. If the Issuer owns (directly or indirectly) at least
25% by value of the stock of another corporation, the Issuer will be treated
for purposes of the PFIC tests as owning its proportionate share of the assets
of the other corporation, and as receiving directly its proportionate share of
the other corporation's income. If the Issuer is classified as a PFIC in any
year with respect to which a United States person is a shareholder, the Issuer
generally will continue to be treated as a PFIC with respect to such
shareholder in all succeeding years, regardless of whether it continues to
meet the income or asset test described above, subject to certain possible
shareholder elections that may apply in certain circumstances.
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If the Issuer is treated as a PFIC, unless a United States Holder makes a
"QEF election" or a "mark to market election," each as described below:
1. Distributions made by the Issuer during a taxable year to a United
States Holder with respect to Common Stock that are "excess distributions"
(defined generally as the excess of the amount received with respect to the
Common Stock in any taxable year over 125% of the average received in the
shorter of either the three previous years or the United States Holder's
holding period before the taxable year) must be allocated ratably to each
day of the United States Holder's holding period. The amounts allocated to
the current taxable year and to taxable years prior to the first year in
which the Issuer was classified as a PFIC are included as ordinary income
in the United States Holder's gross income for that current year. The
amount allocated to each other prior taxable year is taxed as ordinary
income at the highest rate in effect for the United States Holder in that
prior year and the tax is subject to an interest charge at the rate
applicable to deficiencies in income taxes.
2. The entire amount of any gain realized upon the sale or other
disposition (including for these purposes a pledge) of Common Stock will be
treated as an excess distribution made in the year of sale or other
disposition and as a consequence will be treated as ordinary income and, to
the extent allocated to years prior to the year of sale or disposition,
will be subject to the interest charge described above. In addition, United
States Holders who acquire their Common Stock from decedents generally will
not receive a "stepped-up" basis in such Common Stock. Instead, such United
States Holders will have a tax basis equal to the lower of the fair market
value of such Common Stock or the decedent's basis.
The special PFIC tax rules described above will not apply to a United States
Holder if the United States Holder elects to have the Issuer treated as a
"qualified electing fund" (a "QEF election") and the Issuer provides certain
information to United States Holders. If the Issuer is treated as a PFIC, it
intends to notify United States Holders and to provide to United States
Holders such information as may be required to make such QEF election
effective.
A United States Holder that makes a QEF election will be taxable currently
on its pro rata share of the Issuer's ordinary earnings and net capital gain
(at ordinary income and capital gain rates, respectively) for each taxable
year of the Issuer during which it is treated as a PFIC, regardless of whether
or not distributions were received. The United States Holder's basis in the
Common Stock will be increased to reflect taxed but undistributed income.
Distributions of income that had previously been taxed will result in a
corresponding reduction of basis in the Common Stock and will not be taxed
again as a distribution to the United States Holder.
Alternatively, a United States Holder of stock in a PFIC that is treated as
"marketable stock" may make a mark to market election. A United States Holder
that makes such an election will not be subject to the PFIC rules described
above. Instead, in general, an electing United States Holder will include in
each year as ordinary income the excess, if any, of the fair market value of
such stock at the end of the taxable year over its adjusted basis and will be
permitted an ordinary loss in respect of the excess, if any, of the adjusted
basis of such stock over its fair market value at the end of the taxable year
(but only to the extent of the net amount previously included in income as a
result of the mark to market election). The electing United States Holder's
basis in the stock will be adjusted to reflect any such income or loss
amounts. Any gain or loss on the sale of the Common Stock will be ordinary
income or loss (except that such loss will be ordinary loss only to the extent
of the previously included net mark to market gain). The mark to market
election is only available with respect to stock that is regularly traded on
certain United States exchanges and other exchanges designated by the United
States Treasury. The meaning of the term "regularly traded," for purposes of
the mark to market election, is unclear.
A United States Holder who owns Common Stock during any year that the Issuer
is a PFIC must file IRS Form 8621. United States Holders are urged to consult
their tax advisors concerning the United States federal income tax
consequences of holding Common Stock of the Issuer if it is a PFIC, including
the advisability and availability of making any of the foregoing elections.
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Foreign Personal Holding Company
If the Issuer or one of its non-United States subsidiaries were classified
as an FPHC, all United States Holders (including certain indirect holders),
regardless of their percentage ownership, would be required to include in
income, as a dividend, their pro rata share of the Issuer's (or its relevant
non-United States subsidiary's) undistributed FPHC income (generally, taxable
income with certain adjustments) if they were holders on the last day of the
Issuer's taxable year (or if earlier, the last day on which the Issuer
satisfied the shareholder test). In addition, if the Issuer were classified as
an FPHC, United States Holders who acquire their Common Stock from decedents
would not receive a "stepped-up" basis in such Common Stock. Instead, such
United States Holders would have a tax basis equal to the lower of the fair
market value of such Common Stock or the decedent's basis.
A foreign corporation will be classified as an FPHC if (i) at any time
during the corporation's taxable year, five or fewer individuals, who are
United States citizens or residents, directly or indirectly own more than 50%
of the corporation's stock (by either voting power or value) (the "shareholder
test") and (ii) the corporation receives at least 60% of its gross income (50%
after the initial year of qualification), as adjusted, for the taxable year
from certain passive sources (the "income test"). It is possible that the
shareholder test will be met after the Offering. It is also possible that the
Issuer or one of its non-United States subsidiaries would meet the income test
in a given year and would be treated as an FPHC. The Company intends to manage
its affairs so as to attempt to avoid or minimize having income imputed to its
United States Holders under these rules, to the extent such management of its
affairs is consistent with its business goals, although there can be no
assurance in this regard.
Personal Holding Company
A corporation classified as a PHC is subject to a 39.6% tax on its
undistributed PHC income. Foreign corporations (such as the Issuer) determine
their liability for PHC tax by considering only (i) gross income derived from
United States sources and (ii) gross income that is effectively connected with
a United States trade or business. A corporation will be classified as a PHC
if (i) at any time during the last half of the corporation's taxable year,
five or fewer individuals own more than 50% of the corporation's stock (by
value) directly or indirectly and (ii) the corporation receives at least 60%
of its gross income, as adjusted, from certain passive sources. However, if a
corporation is an FPHC or a PFIC, it cannot be a PHC. It is possible that the
Issuer could meet the PHC shareholder test in a given taxable year. It is also
possible that the Issuer or one of its non-United States subsidiaries would
meet the income test in a given year and would be treated as a PHC. The
Company intends to manage its affairs so as to attempt to avoid or minimize
the imposition of the PHC tax, to the extent such management of its affairs is
consistent with its business goals, although there can be no assurance in this
regard.
Controlled Foreign Corporations
If 10% Shareholders (as defined above) own, in the aggregate, more than 50%
(measured by voting power or value) of the shares of the Issuer or any of its
non-United States corporate subsidiaries (directly, indirectly, or by
attribution), the Issuer or any such non-United States subsidiary would be a
CFC. If characterized as CFCs, then a portion of the undistributed income of
the Issuer and its non-United States subsidiaries may be includible in the
taxable income of 10% Shareholders of those entities, and a portion of the
gain recognized by such 10% Shareholders on the disposition of their shares in
the Issuer (which could otherwise qualify for capital gains treatment) may be
converted into ordinary dividend income. It is possible that the Issuer and
its non-United States corporate subsidiaries may be CFCs or may become CFCs in
the future. However, as discussed above, CFC status generally only has
potentially adverse consequences to 10% Shareholders.
In order to attempt to prevent any United States person from being a 10%
Shareholder of the Issuer, the Bye-Laws of the Issuer generally provide, among
other things, that no holder of Common Stock (or any group of holders through
whom ownership may be attributed to another holder by the constructive
ownership or attribution rules of Section 958 of the Code) will be allowed to
cast votes with respect to more than 9.5% of the
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Common Stock, and certain restrictions have been placed on the transferability
of shares. There can be no assurance that these limitations will prevent the
characterization of the Issuer (or any of its non-United States subsidiaries)
as a CFC or of any United States Holder as a 10% Shareholder. However, a
United States Holder that owns directly less than 10% of the Common Stock
generally will not be treated as a 10% Shareholder unless it is attributed
Common Stock owned by other shareholders.
Taxation of Non-United States Holders
For United States federal income tax purposes, a non-United States Holder
generally will not be subject to tax or withholding on distributions made with
respect to, and gains realized from the disposition of, Common Stock unless
such distributions and gains are attributable to an office or fixed place of
business maintained by such non-United States Holder in the United States.
Information Reporting and Backup Withholding
United States Holders
In general, information reporting requirements will apply to dividends in
respect of the Common Stock or the proceeds received on the sale, exchange, or
redemption of the Common Stock paid within the United States (and in certain
cases, outside of the United States) to United States Holders other than
certain exempt recipients (such as corporations), and a 31% backup withholding
may apply to such amounts if the United States Holder fails to provide an
accurate taxpayer identification number or to report dividends required to be
shown on its United States federal income tax returns. The amount of any
backup withholding from a payment to a United States Holder will be allowable
as a refund or credit against the United States Holder's United States federal
income tax liability, provided that the required information or appropriate
claim for refund is furnished to the IRS.
Non-United States Holders
Under current law, United States information reporting requirements and
backup withholding generally will not apply to dividends paid to a non-United
States Holder at an address outside the United States (unless the payor has
knowledge that the payee is a United States person). However, under recently
finalized United States Treasury regulations effective for payments made after
December 31, 1999, a non-United States Holder will generally be subject to
backup withholding unless applicable certification requirements are met.
As a general matter, information reporting and backup withholding will not
apply to a payment of the proceeds of a sale of Common Stock effected outside
the United States by a foreign office of a non-United States Holder. However,
payment of the proceeds of a sale of Common Stock within the United States or
conducted through certain United States related financial intermediaries is
subject to both backup withholding and information reporting unless the
beneficial owner certifies under penalties of perjury that it is a non-United
States Holder (and the payor does not have actual knowledge that the
beneficial owner is a United States person) or the holder otherwise
establishes an exemption.
The amount of any backup withholding from a payment to a non-United States
Holder will be allowable as a refund or credit against such non-United States
Holder's United States federal income tax liability, provided that the
required information or appropriate claim for refund is furnished to the IRS.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among the Company, the Selling Shareholders and the U.S. Underwriters (the
"U.S. Underwriting Agreement"), the Company and the Selling Shareholders have
agreed to sell to each of the U.S. Underwriters named below (the "U.S.
Underwriters"), and each of the U.S. Underwriters, for whom Smith Barney Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, CIBC Oppenheimer Corp.,
Deutsche Bank Securities Inc., Goldman, Sachs & Co. and Morgan Stanley & Co.
Incorporated are acting as the representatives (the "U.S. Representatives"),
has severally agreed to purchase the number of Shares set forth opposite its
name below:
<TABLE>
<CAPTION>
UNDERWRITING
U.S. UNDERWRITERS COMMITMENT
----------------- ------------
<S> <C>
Smith Barney Inc. ............................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................
CIBC Oppenheimer Corp. .......................................
Deutsche Bank Securities Inc. ................................
Goldman, Sachs & Co. .........................................
Morgan Stanley & Co. Incorporated.............................
Total....................................................... 16,800,000
==========
</TABLE>
The Company and the Selling Shareholders have been advised by the U.S.
Representatives that the several U.S. Underwriters initially propose to offer
such Shares to the public at the Price to Public set forth on the cover page
of this Prospectus and to certain dealers at such price less a concession not
in excess of $ per Share. The U.S. Underwriters may allow, and such dealers
may re-allow, a concession not in excess of $ per Share to other dealers.
After the Offerings, the Price to Public and such concessions may be changed.
The Company has granted to the U.S. Underwriters and the international
underwriters (the "International Underwriters" and, collectively with the U.S.
Underwriters, the "Underwriters") options, exercisable during the 30-day
period after the date of this Prospectus, to purchase up to 3,150,000
additional shares of Common Stock from the Company at the Price to Public less
the Underwriting Discount, solely to cover over-allotments. To the extent that
the U.S. Underwriters and the International Underwriters exercise such
options, each of the U.S. Underwriters and the International Underwriters, as
the case may be, will be committed, subject to certain conditions, to purchase
a number of option shares proportionate to such U.S. Underwriter's or
International Underwriter's initial commitment.
The Company and the Selling Shareholders have entered into an International
Underwriting Agreement with the International Underwriters named therein, for
whom Smith Barney Inc., Merrill Lynch International, CIBC Oppenheimer Corp.,
Deutsche Bank AG (London Branch), Goldman Sachs International and Morgan
Stanley & Co. International Limited are acting as the representatives (the
"International Representatives" and, together with the U.S. Representatives,
the "Representatives"), providing for the concurrent offer and sale of
4,200,000 Shares (in addition to the shares covered by the over-allotment
options described above) outside the United States and Canada. Both the U.S.
Underwriting Agreement and the International Underwriting Agreement provide
that the obligations of the U.S. Underwriters and the International
Underwriters are such that if any of the Shares are purchased by the U.S.
Underwriters pursuant to the U.S. Underwriting Agreement, or by the
International Underwriters pursuant to the International Underwriting
Agreement, all the Shares agreed to be purchased by either the U.S.
Underwriters or the International Underwriters, as the case may be, pursuant
to their respective agreements must be so purchased. The Price to Public and
Underwriting Discount per Share for the U.S. Offering and the International
Offering will be identical. The closing of the International Offering is a
condition to the closing of the U.S. Offering and the closing of the U.S.
Offering is a condition to the closing of the International Offering.
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Each U.S. Underwriter has severally agreed that, as part of the distribution
of the 16,800,000 Shares offered by the U.S. Underwriters, (i) it is not
purchasing any Shares for the account of anyone other than a United States or
Canadian Person, (ii) it has not offered or sold, and will not offer or sell,
directly or indirectly, any Shares or distribute this Prospectus to any person
outside of the United States or Canada, or to anyone other than a United
States or Canadian Person and (iii) any dealer to whom it may sell any Shares
will represent that it is not purchasing for the account of anyone other than
a United States or Canadian Person and agree that it will not offer or resell,
directly or indirectly, any Shares outside of the United States or Canada, or
to anyone other than
a United States or Canadian Person or to any other dealer who does not so
represent and agree. Each International Underwriter has severally agreed that,
as part of the distribution of the 4,200,000 Shares offered by the
International Underwriters, (i) it is not purchasing any Shares for the
account of any United States or Canadian Person, (ii) it has not offered or
sold, and will not offer or sell, directly or indirectly, any Shares or
distribute any Prospectus relating to the International Offering to any person
in the United States or Canada, or to any United States or Canadian Person and
(iii) any dealer to whom it may sell any Shares will represent that it is not
purchasing for the account of any United States or Canadian Person and agree
that it will not offer or resell, directly or indirectly, any Shares in the
United States or Canada, or to any United States or Canadian Person or to any
other dealer who does not so represent and agree.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement Between U.S.
Underwriters and International Underwriters. "United States or Canadian
Person" means any person who is a national or resident of the United States or
Canada, any corporation, partnership or other entity created or organized in
or under the laws of the United States or Canada or of any political
subdivision thereof, and any estate or trust the income of which is subject to
United States or Canadian federal income taxation, regardless of its source
(other than any non-United States or non-Canadian branch of any United States
or Canadian Person), and includes any United States or Canadian branch of a
person other than a United States or Canadian Person.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the U.S. Underwriters and the
International Underwriters of such number of Shares as may be mutually agreed.
The price of any Shares so sold shall be the Price to Public, less an amount
not greater than the concession to securities dealers. To the extent that
there are sales between the U.S. Underwriters and the International
Underwriters pursuant to the Agreement Between U.S. Underwriters and
International Underwriters, the number of Shares initially available for sale
by the U.S. Underwriters or by the International Underwriters may be more or
less than the amount specified on the cover page of this Prospectus.
Any offer of the Shares in Canada will be made only pursuant to an exemption
from the prospectus filing requirement and an exemption from the dealer
registration requirement (where such an exemption is not available, offers
shall be made only by a registered dealer) in the relevant Canadian
jurisdiction where such offer is made.
The U.S. Underwriting Agreement provides that the Company will indemnify the
U.S. Underwriters against certain liabilities and expenses, including
liabilities under the Securities Act, or contribute to payments the U.S.
Underwriters may be required to make in respect thereof.
Subject to certain exceptions, the Company, its parent, the Selling
Shareholders and certain other directors and officers of the Company have
agreed not to offer, sell, contract to sell or otherwise dispose of, directly
or indirectly, or announce the offering of any shares of Common Stock,
including any such shares beneficially or indirectly owned or controlled by
the Company, the Selling Shareholders, respectively or any securities
convertible into, or exchangeable or exercisable for, shares of Common Stock,
for 180 days from the date of this Prospectus, without the prior written
consent of Smith Barney Inc.
At the Company's request, the U.S. Underwriters have reserved up to
1,050,000 shares of Common Stock (the "Directed Shares") for sale at the Price
to Public to persons who are directors, officers or employees of, or otherwise
associated with, the Company and its affiliates and who have advised the
Company of their desire to purchase such Shares. The number of Shares of
Common Stock available for sale to the general public will be
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reduced to the extent of sales of Directed Shares to any of the persons for
whom they have been reserved. Any Shares not so purchased will be offered by
the U.S. Underwriters on the same basis as all other Shares offered hereby.
In connection with the Offerings and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more Shares than the total amount shown
on the list of Underwriters and participations which appears above) and may
effect transactions which stabilize, maintain or otherwise affect the market
price of the shares at levels above those which might otherwise prevail in the
open market. Such transactions may include placing bids for the Shares or
effecting purchases of the Shares for the purpose of pegging, fixing or
maintaining the price of the Shares or for the purpose of reducing a syndicate
short position created in connection with the offering. A syndicate short
position may be covered by exercise of the option described above in lieu of
or in addition to open market purchases. In addition, the contractual
arrangements among the Underwriters include a provision whereby, if the
Representatives purchase Shares in the open market for the account of the
underwriting syndicate and the securities purchased can be traced to a
particular Underwriter or member of the selling group, the underwriting
syndicate may require the Underwriter or selling group member in question to
purchase the Shares in question at the cost price to the syndicate or may
recover from (or decline to pay to) the Underwriter or selling group member in
question the selling concession applicable to the securities in question. The
Underwriters are not required to engage in any of these activities and any
such activities, if commenced, may be discontinued at any time.
Prior to the Offerings, there has been no public market for the Common
Stock. The Price to Public was determined by negotiations between the Company,
the Selling Shareholders and the Representatives. Among the factors considered
in determining the Price to Public were prevailing market conditions, the
market values of publicly traded companies that the Underwriters believed to
be somewhat comparable to the Company, the demand for the Shares and for
similar securities of publicly traded companies that the Underwriters believed
to be somewhat comparable to the Company, the future prospects of the Company
and its industry in general, sales, earnings and certain other financial and
operating information of the Company in recent periods, and other factors
deemed relevant. There can be no assurance that the prices at which the Shares
will sell in the public market after the Offerings will not be lower than the
Price to Public.
The Underwriters and certain of their affiliates have provided and may in
the future provide investment banking and other financial services to the
Company and certain of its affiliates for which they receive customary fees.
Affiliates of CIBC Oppenheimer have engaged in certain related-party
transactions with the Company, including as a lender under the AC-1 Credit
Facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources," "Principal and
Selling Shareholders," "Certain Transactions" and "Description of Certain
Indebtedness."
Under Rule 2720 ("Rule 2720") of the Conduct Rules of the National
Association of Securities Dealers, Inc. ("NASD"), the Company is considered an
affiliate of CIBC Oppenheimer Corp. The Offerings are being conducted in
accordance with Rule 2720, which provides that, among other things, when an
NASD member participates in the underwriting of an affiliate's equity
securities, the public offering price per share can be no higher than that
recommended by a "qualified independent underwriter" meeting certain standards
("QIU"). In accordance with this requirement, Smith Barney Inc. has assumed
the responsibilities of acting as QIU in pricing the Offerings and conducting
due diligence. The Company and the other Underwriters have agreed to indemnify
Smith Barney Inc. in its capacity as QIU against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Common Stock will be passed upon by the Company's
counsel, Appleby, Spurling & Kempe, Hamilton, Bermuda. Certain legal matters
under United States and New York law with respect to the
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Shares offered hereby will be passed upon for the Company by Simpson Thacher &
Bartlett, New York, New York, and for the Underwriters by Latham & Watkins,
New York, New York. Simpson Thacher & Bartlett and Latham & Watkins will rely,
as to matters of Bermuda law, on the opinion of Appleby, Spurling & Kempe,
Hamilton, Bermuda.
EXPERTS
The financial statements of the Company for the period from March 19, 1997
(date of inception) to December 31, 1997, included in this Prospectus have
been audited by Arthur Andersen & Co., independent public accountants, as
indicated in their report with respect thereto included herein.
AVAILABLE INFORMATION
The Company is not currently subject to the information requirements of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"). As a
result of the Offerings, GCL will be required to file reports and other
information with the Securities and Exchange Commission (the "Commission")
pursuant to the informational requirements of the Exchange Act. GCL intends to
furnish its stockholders with Annual Reports containing Consolidated Financial
Statements audited by independent certified public accountants and with
quarterly reports containing unaudited financial information for each of the
first three quarters of each year.
GCL has filed with the Commission a Registration Statement on Form S-1 under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the securities offered hereby. As permitted by the rules and regulations of
the Commission, this Prospectus, which is a part of the Registration
Statement, omits certain information, exhibits, schedules and undertakings set
forth in the Registration Statement. For further information pertaining to the
Company and the securities offered hereby, reference is made to such
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents or provisions of any documents
referred to herein are not necessarily complete, and in each instance,
reference is made to the copy of the document filed as an exhibit to the
Registration Statement. GCL will issue annual and quarterly reports. Annual
reports will include audited financial statements prepared in accordance with
accounting principles generally accepted in the United States and a report of
its independent auditors with respect to the examination of such financial
statements. In addition, GCL will issue to its securityholders such other
unaudited quarterly or other interim reports as it deems appropriate.
The Registration Statement may be inspected without charge at the office of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of
the Registration Statement may be obtained from the Commission at prescribed
rates from the Public Reference Section of the Commission at such address, and
at the Commission's regional offices located at 7 World Trade Center, 13th
Floor, New York, New York 10048, and at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, registration
statements and certain other filings made with the Commission through its
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are
publicly available through the Commission's site on the Internet's World Wide
Web, located at http://www.sec.gov.
76
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of March 31, 1998 (unaudited) and December
31, 1997................................................................. F-3
Consolidated Statements of Operations for the three months ended March 31,
1998 (unaudited), for the period from March 19, 1997 (Date of
Inception) to March 31, 1997 (unaudited), for the period from March 19,
1997 to December 31, 1997 and for the period March 19, 1997 (Date of
Inception) to March 31, 1998 (unaudited)............................... F-4
Consolidated Statements of Shareholders' Equity for the three months ended
March 31, 1998 (unaudited) and for the period from March 19, 1997 (Date
of Inception) to December 31, 1997..................................... F-5
Consolidated Statements of Cash Flows for the three months ended March 31,
1998 (unaudited), for the period from March 19, 1997 (Date of
Inception) to March 31, 1997 (unaudited), for the period from March 19,
1997 to December 31, 1997 and for the period March 19, 1997 (Date of
Inception) to March 31, 1998 (unaudited)............................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Global Crossing Ltd., LDC:
We have audited the accompanying consolidated balance sheet of Global
Crossing Ltd., LDC (a Cayman Islands company in its development stage) and
subsidiaries as of December 31, 1997, and the related consolidated statements
of operations, shareholders' equity and cash flows for the period from March
19, 1997 (date of inception) to December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Global Crossing Ltd., LDC
and subsidiaries as of December 31, 1997, and the results of their operations
and their cash flows for the period from March 19, 1997 (date of inception) to
December 31, 1997, in conformity with accounting principles generally accepted
in the United States.
Arthur Andersen & Co.
Hamilton, Bermuda
April 21, 1998
F-2
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current assets:
Cash....................................... $ 2,737,743 $ 1,452,684
Interest receivable........................ 85,000 123,000
Value added tax recoverable................ 8,470,341 --
Other assets and prepaid costs............. 4,209,636 892,958
Restricted cash and cash equivalents....... 39,180,447 25,275,196
------------ ------------
54,683,167 27,743,838
Construction in progress..................... 620,963,878 518,518,509
Deferred finance and organization costs, net
of accumulated amortization of $3,453,283
($2,246,857 as of December 31, 1997)........ 24,974,952 25,934,021
------------ ------------
$700,621,997 $572,196,368
============ ============
LIABILITIES:
Current liabilities:
Accrued construction costs................. $ 23,732,932 $ 52,003,875
Accounts payable and accrued liabilities... 4,041,649 1,658,399
Accrued dividends on preference shares..... 1,326,201 1,281,354
Accrued interest on Senior Notes........... 6,002,000 1,640,500
Unearned revenue........................... 14,550,000 5,325,000
Short term borrowings...................... 11,929,750 --
Current portion of obligations under
capital leases............................ 7,616,631 12,297,645
Current portion of obligations under inland
services agreements....................... 12,512,937 17,891,000
------------ ------------
81,712,100 92,097,773
Long term debt............................... 305,508,000 162,325,000
Senior Notes................................. 150,000,000 150,000,000
Obligations under capital leases............. 7,642,845 --
Obligations under inland services
agreements.................................. 745,000 3,009,000
------------ ------------
Total liabilities.......................... 545,607,945 407,431,773
------------ ------------
COMMITMENTS
MANDATORILY REDEEMABLE PREFERENCE SHARES,
113,674 shares (109,830 as of December 31,
1997), $1,000 liquidation preference per
share (net of unamortized discount on
issuance of $11,893,118 ($12,223,993 as of
December 31, 1997) and net of unamortized
issued costs of $6,773,960 ($6,962,407 as of
December 31, 1997)).......................... 95,007,302 90,643,919
------------ ------------
SHAREHOLDERS' EQUITY:
Class A common stock, 20,735,300 shares
issued (20,735,300 as of December 31,
1997)....................................... 20 20
Class B common stock, 34,050,000 shares
issued (33,750,000 as of December 31,
1997)....................................... 34 34
Class C common stock, 33,750,000 shares
issued (33,750,000 as of December 31, 1997)
shares issued............................... 34 34
Class D common stock, 22,058,800 shares
issued, convertible to Class E shares
(22,058,800 as of December 31, 1997)........ 22 22
Class E common stock, 125,000 shares issued
(nil as of December 31, 1997)............... -- * --
Additional paid-in capital................... 87,395,845 86,970,845
Deficit accumulated during the development
stage....................................... (27,389,205) (12,850,279)
------------ ------------
60,006,750 74,120,676
------------ ------------
$700,621,997 $572,196,368
============ ============
</TABLE>
- --------
*Amount less than $1.
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
THREE MONTHS MARCH 19, 1997 MARCH 19, 1997 MARCH 19, 1997
ENDED (DATE OF INCEPTION) (DATE OF INCEPTION) (DATE OF INCEPTION)
MARCH 31, 1998 TO MARCH 31, 1997 TO DECEMBER 31, 1997 TO MARCH 31, 1998
-------------- ------------------- -------------------- -------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
INTEREST INCOME......... $ 345,834 $ -- $ 2,941,352 $ 3,287,186
------------ ----------- ------------ ------------
EXPENSES:
Sales and marketing... 784,216 -- 1,366,724 2,150,940
General and
administrative....... 2,614,903 -- 1,695,770 4,310,673
Depreciation and
amortization......... 30,367 -- 39,214 69,581
Project evaluation
costs................ 7,047,044 -- 7,047,044
------------ ----------- ------------ ------------
10,476,530 -- 3,101,708 13,578,238
------------ ----------- ------------ ------------
NET LOSS................ (10,130,696) -- (160,356) (10,291,052)
PREFERENCE SHARE
DIVIDENDS.............. (4,408,230) (194,444) (12,689,923) (17,098,153)
------------ ----------- ------------ ------------
NET LOSS APPLICABLE TO
COMMON SHAREHOLDERS.... $(14,538,926) $ (194,444) $(12,850,279) $(27,389,205)
============ =========== ============ ============
Basic and diluted net
loss per common share.. $ (0.13) $ -- * $ (0.12) $ (0.25)
============ =========== ============ ============
Shares used in computing
basic and diluted net
loss per common share.. 110,615,211 110,294,100 110,294,100 110,370,758
============ =========== ============ ============
</TABLE>
*Amount less than $(0.01)
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND FOR THE PERIOD FROM
MARCH 19, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT(1) CAPITAL DEFICIT EQUITY
----------- --------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Issuance of Class A
common stock for cash
on March 25, 1997...... 7,500,000 $ 7 $ 7,499,993 $ -- $ 7,500,000
Class A common stock
distributed for nil
consideration to the
initial purchaser of
preference shares on
March 25, 1997......... 13,235,300 13 13,234,987 -- 13,235,000(2)
Issuance of Class B
common stock for cash
on March 25, 1997...... 33,750,000 34 31,249,966 -- 31,250,000
Issuance of Class C
common stock for cash
on March 25, 1997...... 33,750,000 34 33,749,966 -- 33,750,000
Issuance of Class D
common stock for cash
to certain Class B
shareholders on
March 25, 1997......... 22,058,800 22 2,499,978 -- 2,500,000
Costs incurred related
to the issuance of
common stock........... -- -- (1,264,045) -- (1,264,045)
Net loss applicable to
common shareholders for
the period............. -- -- -- (12,850,279) (12,850,279)
----------- ---- ----------- ------------ ------------
Balance, December 31,
1997................... 110,294,100 110 86,970,845 (12,850,279) 74,120,676
----------- ---- ----------- ------------ ------------
Issuance of Class B
common stock for cash
on January 21, 1998.... 300,000 -- * 300,000 -- 300,000
Issuance of Class E
common stock for cash
on January 21, 1998.... 125,000 -- * 125,000 -- 125,000
Net loss applicable to
common shareholders for
the three months ended
March 31, 1998......... -- -- -- (14,538,926) (14,538,926)
----------- ---- ----------- ------------ ------------
Balance, March 31, 1998. 110,719,100 $110 $87,395,845 $(27,389,205) $ 60,006,750
=========== ==== =========== ============ ============
</TABLE>
- --------
*Amount less than $1.
(1)Amount per share less than $1.
(2)Per Note 7, value was determined based on the $1 per share paid for the
7,500,000 Class A shares.
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
THREE MONTHS MARCH 19, 1997 MARCH 19, 1997 MARCH 19, 1997
ENDED (DATE OF INCEPTION) (DATE OF INCEPTION) (DATE OF INCEPTION)
MARCH 31, TO MARCH 31, TO DECEMBER 31, TO MARCH 31,
1998 1997 1997 1998
------------ ------------------- ------------------- -------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss applicable
to common
shareholders......... $(14,538,926) $ (194,444) $ (12,850,279) $ (27,389,205)
Adjustments to
reconcile net loss
to net cash provided
by operating
activities:
Depreciation and
amortization....... 30,367 -- 39,214 69,581
Preference share
dividends.......... 4,408,230 194,444 12,689,923 17,098,153
Decrease (increase)
in interest
receivable......... 38,000 -- (123,000) (85,000)
Increase in other
assets and prepaid
costs.............. (3,323,902) -- (909,015) (4,232,917)
Increase in value
added tax
recoverable........ (8,470,341) -- -- (8,470,341)
Increase in unearned
revenue............ 9,225,000 -- 5,325,000 14,550,000
Increase in accounts
payable and accrued
liabilities........ 1,956,567 25,000 1,248,133 3,204,700
Increase in short
term borrowings.... 11,929,750 -- -- 11,929,750
------------ ------------- ------------- -------------
Net cash provided
by operating
activities....... 1,254,745 25,000 5,419,976 6,674,721
------------ ------------- ------------- -------------
CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES:
Finance and
organization costs
incurred............. (247,357) (16,661,358) (28,180,878) (28,428,235)
Preference share
issuance costs....... -- -- (7,529,651) (7,529,651)
Costs related to
issuance of common
stock................ -- -- (1,264,045) (1,264,045)
Proceeds from
issuance of common
stock and additional
paid-in capital...... 425,000 75,000,000 75,000,000 75,425,000
Proceeds from
issuance of
preference shares.... -- 100,000,000 100,000,000 100,000,000
Proceeds from long
term debt............ 143,183,000 -- 162,325,000 305,508,000
Proceeds from
issuance of Senior
Notes................ -- -- 150,000,000 150,000,000
Increase in
restricted cash and
cash equivalents..... (13,905,251) (124,887,205) (25,275,196) (39,180,447)
------------ ------------- ------------- -------------
Net cash provided
by financing
activities....... 129,455,392 33,451,437 425,075,230 554,530,622
------------ ------------- ------------- -------------
CASH FLOWS USED IN
INVESTING ACTIVITY:
Cash paid for
construction in
progress............. (129,425,078) (31,112,795) (429,042,522) (558,467,600)
------------ ------------- ------------- -------------
NET INCREASE IN CASH... 1,285,059 2,363,642 1,452,684 2,737,743
CASH, beginning of
period................ 1,452,684 -- -- --
------------ ------------- ------------- -------------
CASH, end of period.... $ 2,737,743 $ 2,363,642 $ 1,452,684 $ 2,737,743
============ ============= ============= =============
SUPPLEMENTAL
INFORMATION ON NON-
CASH INVESTING
ACTIVITIES:
Costs incurred for
construction in
progress............. $102,445,369 $ 31,112,795 $ 518,518,509 $ 620,963,878
Decrease (increase)
in accrued
construction costs... 28,270,943 -- (52,003,875) (23,732,932)
Increase in accrued
interest on Senior
Notes................ (4,361,500) -- (1,640,500) (6,002,000)
Increase in accrued
liabilities.......... (426,683) -- (410,267) (836,950)
Amortization of
deferred finance
costs................ (1,183,283) -- (2,223,700) (3,406,983)
Increase in
obligations under
capital leases....... (2,961,831) -- (12,297,645) (15,259,476)
Decrease (increase)
in obligations under
inland services
agreements........... 7,642,063 -- (20,900,000) (13,257,937)
------------ ------------- ------------- -------------
Cash paid for
construction in
progress........... $129,425,078 $ 31,112,795 $ 429,042,522 $ 558,467,600
============ ============= ============= =============
SUPPLEMENTAL
INFORMATION ON NON-
CASH FINANCING
ACTIVITY:
Class A common stock
distributed to
holders of
preference shares
reflected as a
discount............. $ -- $ 13,235,000 $ 13,235,000 $ 13,235,000
============ ============= ============= =============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Interest paid and
capitalized.......... $ 4,445,632 $ -- $ 8,136,267 $ 12,581,899
============ ============= ============= =============
Interest paid (net of
capitalized
interest)............ $ 23,234 $ -- $ -- $ 23,234
============ ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
1. BACKGROUND
On March 19, 1997, Global Crossing Ltd., LDC ("GCL"), formerly GT Parent
Holdings LDC, was incorporated as an exempted limited duration company in the
Cayman Islands. GCL is an independent developer, owner and operator of
undersea digital fiber optic cable systems. Atlantic Crossing Ltd. ("ACL"),
formerly Global Telesystems Ltd., a Bermuda company which is an indirect
wholly-owned subsidiary of GCL, was incorporated to construct and operate an
undersea fiber optic cable ring with landing stations in the United States,
the United Kingdom, Germany and the Netherlands. ACL has incorporated wholly-
owned subsidiaries in each of these countries in order to own the portion of
the cable system located in each country and the related territorial waters.
During the three months ended March 31, 1998, GCL began to develop three
additional undersea fiber optic cable systems: Pacific Crossing, Mid-Atlantic
Crossing and Pan American Crossing. Subsequent to March 31, 1998, GCL
incorporated additional companies to own and operate these additional cable
systems (see Note 15).
To finance construction of ACL's undersea fiber optic cable ring, GCL issued
$75 million of common stock and Global Telesystems Holdings Limited ("GTH"),
an indirect wholly-owned subsidiary of GCL, and the parent of ACL, issued $100
million of preference shares and sold $150 million of Senior Notes, as
described in Note 6. These proceeds, together with a $482 million Credit
Facility, as described in Note 5, are being used to pay for construction
costs, financing fees and other related costs. Together GCL and its
subsidiaries are defined as the Company.
ACL has entered into a fixed price contract (the "Contract") with Tyco
Submarine Systems Ltd. ("TSSL"), formerly AT&T Submarine Systems, Inc., for
the development, design, construction and installation of a four fiber pair,
fiber optic cable system connecting (i) the United States to the United
Kingdom, (ii) the United Kingdom to the Netherlands and Germany, (iii) the
Netherlands to Germany and (iv) Germany to the United States (collectively,
"AC-1" or the "System"). AT&T Corp. has provided ACL with a guarantee in
respect of TSSL's obligations under the Contract. Assuming that construction
of AC-1 progresses according to the Contract schedule, the System will be
accepted by ACL and made available for commercial service on February 22, 1999
(the "System RFS date"). Certain segments of the System are expected to be
completed in advance of the System RFS date. The United States to the United
Kingdom segment was ready for service on May 31, 1998 and the Germany to the
United States segment is expected to be ready for service on November 30,
1998. Once ACL formally accepts each segment of the System, the segment
becomes ready for service and the ownership of the segment assets transfers to
ACL and its subsidiaries. The only exception to this transfer of ownership is
in respect of certain of the segment assets located in U.S. territory to which
TSSL retains title until such time as GT Landing Corp., as a U.S. wholly owned
subsidiary of ACL, exercises its $10,000 bargain purchase option to purchase
title. Pursuant to the Contract, TSSL granted GT Landing Corp. an indefeasible
right of use ("IRU"), for the estimated life of the System of 25 years from
the System RFS date. GT Landing Corp. has accounted for the IRU as a capital
lease, since the IRU transfers the risks and rewards of ownership to GT
Landing Corp. The U.S. assets governed by his IRU include all landing stations
assets (with the exception of the building and land, to which GT Landing Corp.
has title), fiber optic cable located in the U.S. and the landing license.
F-7
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
Customers of the Company enter into Capacity Purchase Agreements ("CPA") to
obtain an IRU in units of transatlantic and European capacity ("AC-1
Capacity"). The purchase price for AC-1 Capacity is non-refundable once the
segment of the System specified in the CPA is ready for service and the IRU
entitles the customer to all rights and obligations of ownership of the AC-1
capacity for a period ending 25 years after the System RFS date.
Customers who purchase AC-1 capacity prior to the System RFS date are
granted 80% of the capacity that remains unsold, if any, 12 1/2 years after
the System RFS date. However, based on sales projections provided by a third
party consultant, it is highly unlikely that there will be a material amount
of residual capacity on AC-1 at the end of 12 1/2 years after the System RFS
date. The Company has no constraints on the pricing or structure of sales of
residual capacity and the Company would expect that if such capacity had any
remaining value, it would enter into one or more transactions to dispose of
such capacity prior to such date to realize such remaining value. As a result,
the right to residual capacity is not a substantive right.
ACL subsidiaries have entered into contracts, called Inland Services
Agreements, to obtain IRU of capacity on terrestrial telecommunications
systems ("Backhaul Capacity") for terms of 25 years from the System RFS date.
Under the IRU, the Company is required to pay an up-front non-recurring charge
plus, in certain cases, monthly recurring charges over a 25 year period and in
exchange obtains all rights and obligations of ownership. The Company has
accounted for the IRUs as capital leases as these IRUs represent leases as
defined under SFAS 13. The Company sells this Backhaul Capacity under separate
CPAs ("Backhaul CPA") to certain customers that have purchased capacity on AC-
1 for the purpose of extending capacity from AC-1 landing stations to major
telecommunication centers in the United States and the United Kingdom. The
purchase price for Backhaul Capacity is non-refundable and grants the customer
an IRU which entitles the customer to all rights and obligations of ownership
of the Backhaul Capacity for a period ending 25 years after the System RFS
date.
ACL has entered into an Operations, Administration and Maintenance ("OA&M")
agreement with TSSL whereby TSSL is obligated to provide operating,
administration and maintenance functions to AC-1. The administration functions
include but are not limited to the provision of billing information and annual
expense budgets. The operations and maintenance functions include but are not
limited to the management and maintenance of a Network Operating Center,
assumption of ship costs and any related ship repair costs, obtaining and
renewing all operating permits, providing repair equipment, providing cable
protection and ordering and restocking spares. The OA&M Agreement is for an
initial term of eight years with two renewal periods of eight and one half
years each. Quarterly payments under the OA&M Agreement to TSSL will commence
as ACL accepts ownership to the various segments.
Pursuant to the terms of CPAs, ACL is obliged to use commercially reasonable
efforts to cause the System to be maintained in efficient working order and in
accordance with industry standards. In exchange for the operation and
maintenance services provided by ACL through the OA&M agreement with TSSL,
customers are obligated for the term of the IRU to pay for their allocable
share of the costs for operating and maintaining the System. In accordance
with the CPA, customers appoint members to a System Advisory Committee which
is charged with the responsibility of directing the operations and maintenance
of the System. Customers pay for 110% of ACL's cost to operate and maintain
the system based on their pro-rata share of total capacity subject to maximum
amounts per circuit purchased of $250,000 per transatlantic circuit and
$50,000 per European circuit.
F-8
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
Their pro-rata share is effectively calculated by taking the weighted average
of purchased capacity over total capacity multiplied by 110% of actual costs
incurred. These OA&M costs are billed to customers quarterly in advance, are
non-refundable and should a customer fail to make an OA&M payment, ACL may
suspend all rights to capacity granted under the IRU.
ACL originally entered into a Sales Agency Agreement with TSSL whereby TSSL
was responsible for the marketing and sale of capacity of the System and
received commissions on sales proceeds received at rates that varied as
certain cumulative revenue levels were reached. Effective March 5, 1998, the
Company entered into a commissions sharing agreement with TSSL whereby GCL
assumed primary responsibility for the marketing and sale of capacity of the
System and will share a percentage of commissions payable to TSSL under the
Sales Agency Agreement as consideration for assuming primary responsibility
for the sales effort and marketing of the Company's projects. The Sales Agency
Agreement with TSSL will terminate on March 25, 2002 with an option to extend
it until March 25, 2005.
On January 21, 1998, GCL effected a 100 for 1 stock split of each of the
Class A, B, C and D common stock and undesignated stock and amended the par
value of each share of common stock from $.0001 per share to $.000001 per
share. All share information presented in the consolidated financial
statements, including these notes, gives effect to the stock split.
2. SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The significant accounting
policies are summarized as follows:
a) Principles of Consolidation
The consolidated financial statements include the accounts of Global
Crossing Ltd., LDC and its wholly owned subsidiaries. All significant
intercompany transactions have been eliminated. Investments in entities in
which Global Crossing Ltd., LDC exercises significant influence, but does not
control, are accounted for using the equity method.
b) Development Stage Company
The Company is in its development stage, having completed various studies
and vendor selection for AC-1. Currently, landing stations are under
construction, submersible plant and cable is being manufactured and cable-
laying operations are underway. The Company will begin recognizing revenues
from signed CPAs upon the ready for service date of May 31, 1998 for the
United States to the United Kingdom segment and all aspects of the System will
be ready for commercial service by February 22, 1999. In addition, the Company
is in the initial stages of developing three other undersea fiber optic cable
systems.
F-9
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
Successful future operations are subject to several risks, including the
ability of the Company to ensure the successful, timely and cost-effective
completion of AC-1 and other cable systems as well as to successfully market
and generate significant revenue from the sale of capacity of the System. ACL
may encounter problems, delays and expenses, many of which may be beyond its
control. There can be no assurance that the cable systems will be completed
within the time frame and costs set out in the Contract and that capacity
sales will meet expectations, or that substantial delays would not adversely
affect ACL's achievement of profitable operations.
c) Cash and Cash Equivalents
The Company considers short-term highly liquid investments with an original
maturity of three months or less at the date of purchase to be cash
equivalents. Cash and cash equivalents include cash in banks and short-term
money market deposits with a maturity of one month.
d) Sales, Cost of Sales Recognition and Unearned Revenue
As of March 31, 1998, the Company had entered into signed CPAs totaling
approximately $280 million (approximately $141 million as of December 31,
1997).
The Company enters into CPAs to sell capacity on the transatlantic and
European segments. In addition, in conjunction with most sales of AC-1
capacity, the Company enters into Backhaul CPAs to sell Backhaul Capacity.
Both AC-1 and Backhaul CPAs grant the customer an IRU of capacity for the life
of the cable which is 25 years from the ready for service date.
Sales of capacity under CPAs are accounted for as sales type leases as they
represent leases of property and meet the criteria for sales-type lease
accounting under Statement of Financial Accounting Standards No. 13:
Accounting for Leases (SFAS 13).
Revenues from the sale of AC-1 capacity and backhaul capacity are recognized
in the period that the rights and obligations of ownership transfer to the
purchaser, which occurs when (1) the purchaser obtains the right to use the
capacity, which can only be suspended by a failure of the purchaser to pay the
full purchase price or fulfill its contractual obligations, (2) the purchaser
is obligated to pay OA&M costs and (3) the segment of the System related to
the capacity purchased is available for service. Customers who have entered
into CPAs for AC-1 capacity to date have paid deposits toward the purchase
price and such amounts are reflected as unearned revenue in the accompanying
consolidated balance sheet. Certain CPAs require a refund of these deposits
should the System RFS date occur after June 30, 1999.
Costs incurred on each segment of the System, currently reflected as
construction in progress in the accompanying consolidated balance sheet, will
be recorded as capacity available for sale at the date each segment of the
System becomes operational. AC-1 capacity and Backhaul capacity available for
sale will be recorded at the lower of cost or fair value less costs to sell
and will be charged to costs of sales in the period the related revenues are
recognized. Fair value of AC-1 capacity will be derived from a third party
consultant's market study of expected sales of capacity.
F-10
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
The amount charged to cost of sales in any period relating to System
capacity will be calculated based on the ratio of System capacity revenues
recognized in the period to total expected System capacity revenues over the
life of the System multiplied by the total costs incurred to construct the
System. This calculation of the cost of sales amount matches costs with the
relative value of each sale to total expected revenues. Until the entire
System is completed, for purposes of calculating cost of sales, the total
System costs incurred will include an estimate of remaining costs to be
incurred to complete the entire System. Backhaul Capacity sold to customers is
acquired from third party capacity providers generally when needed to fulfill
the Company's commitments under Backhaul CPA agreements. The cost of acquiring
Backhaul Capacity will be charged to cost of sales in the period that the
related revenue is recognized.
The AC-1 System was designed to enable the Company to upgrade the System in
future years so as to increase the initial design capacity of 256 circuits
available for sale. In addition to the 256 circuits available for sale, there
are 256 circuits reserved for restoration. The rationale under the business
plan for the investment in AC-1 indicated a minimum capacity sales level of at
least 512 circuits and therefore the business plan assumes the purchase of at
least one upgrade to increase capacity available for sale to the 512 circuits.
In the period the Company first recognizes revenue on the System, the estimate
of total expected System capacity revenues over the life of the System, for
purposes of the cost of sales calculation, will be based on the minimum
capacity sales level required under the business plan which, as noted above,
is 512 circuits available for sale. The Company has included the cost from the
upgrade in the cost of sale calculation since (i) the Board of Directors has
authorized the purchase of the upgrade, (ii) the Company has the financial
ability to purchase the upgrade and (iii) there are no regulatory or
technology issues preventing the completion of the upgrade. In the period the
Company purchases any further upgrades, the total expected System capacity
revenues and cost of the System used in the cost of sales calculation will
change to take into account the further increase in System cost and in System
capacity. The total expected System capacity revenues used by the Company in
its cost of sales calculation will always be limited by total sales forecasted
by a third party consultant which will be updated on an annual basis. Based on
the current third party consultant's sales forecast, the Company expects to
sell all of the 512 circuits available for sale.
In addition to capacity upgrades, management's estimate of future expected
AC-1 capacity revenues may change due to a number of factors including
possible variances in actual sales prices and volume from management's
estimates. Management will continually evaluate these factors in conjunction
with the updated third party consultant's sales forecast and, as necessary,
revise its estimate of the total expected revenues of AC-1 capacity to be
derived over the life of the System. Changes in management's estimate of the
total expected revenues to be derived from sales of AC-1 capacity will result
in adjustments to the calculations of cost of sales. These adjustments will be
recorded on a prospective basis over future periods commencing with the period
management revises its estimate.
Under their respective CPAs, certain customers have been provided options to
purchase additional capacity at specified prices for specified future periods
as well as the option to purchase additional capacity should the Company
upgrade the System capacity in the future. In many cases, prices under the
options to purchase capacity during these specified periods are lower than the
current price for capacity charged to the customer. Management's estimate of
future revenues for purposes of calculating cost of sales takes into
consideration prices under these options.
F-11
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
OA&M revenues are recognized evenly over the fiscal quarter to which they
relate. On an annual basis the actual OA&M costs incurred by the Company will
be accumulated and an adjustment will be made to true up actual OA&M revenues
so that they equal 110% of actual costs incurred, provided specified limits
have not been reached. This adjustment will be recorded in the period in which
the adjustment is made.
e) Commissions and Advisory Services Fees
The Company's policy is to record the commission and advisory fee expense
and related payable upon the recognition of revenue so as to appropriately
match these costs with the related revenue. Under the Advisory Services
Agreement ("ASA"), the Company pays Pacific Capital Group, Inc. ("PCG") and
its affiliates 2% of capacity of sales for advisory services performed and
under the Sales Agency Agreement pays TSSL a commission based on a percentage
of capacity sales. See Note 12 and Note 15 for further discussion of the ASA.
f) Construction in Progress
Construction in progress includes direct expenditures for construction of
the System and is stated at cost. Capitalized costs include costs incurred
under the Contract, advisory, consulting and legal fees, interest and
amortized finance costs incurred during the construction phase. Once it is
probable that a cable system will be constructed, costs directly identifiable
with the cable system under development are capitalized. Costs relating to the
evaluation of new projects incurred prior to the date development of the cable
system becomes probable are expensed as incurred. During the three months
ended March 31, 1998, the Company expensed approximately $7 million paid to a
subsidiary of PCG for such project evaluation costs relating to certain new
projects that are described in Note 15.
Additionally, the cost of acquiring Backhaul Capacity under Inland Services
Agreements has been capitalized in construction in progress. Under these
agreements the Company is required to pay an up-front non-recurring charge
plus, in certain cases, recurring charges over the period the capacity is
provided. The Company has capitalized the present value of total future
payments (excluding maintenance charges) in construction in progress and has
recorded an equal amount as an obligation under Inland Services Agreements in
the accompanying consolidated balance sheets (see Note 5). The maintenance
charges will be expensed in the period incurred. Additionally, the Company has
included in construction in progress the minimum lease payments related to the
IRU held by GT Landing Corp. on System assets in the U.S. and minimum lease
payments related to leases of buildings in Germany and Netherlands described
further in Note 5.
Total interest cost incurred for the three months ended March 31, 1998 was
$8,830,366 of which $8,807,133 was capitalized to construction in progress and
total interest cost incurred for the period March 19, 1997 (date of inception)
to December 31, 1997 was $9,776,767 of which $9,776,767 was capitalized to
construction in progress.
g) Deferred Finance and Organization Costs
Costs incurred to obtain financing for the System through the issuance of
Senior Notes and long term debt have been reflected as an asset in the
accompanying consolidated balance sheets. Costs incurred to obtain financing
for the System through the issuance of common stock and preference shares,
respectively, have been reflected as a reduction in the carrying value of the
issued common and preference shares. The financing costs
F-12
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
relating to the debt are amortized over the term of the related debt
agreements. Offering costs of $7,529,651 related to the issuance of preference
shares are amortized on a straight line basis through the mandatory redemption
date of April 1, 2007. The preference shares were issued at a discount, as
explained in Note 7, which is also being amortized through the mandatory
redemption date. During the construction period of the System, the amortized
portion of deferred financing costs relating to the Senior Notes and the long
term debt are included in construction in progress as a component of interest
capitalized. The amortized portion of the deferred financing costs relating to
the preference shares is included as a component of preference share
dividends. Deferred organization costs, which include legal and professional
fees incurred to bring GCL, GTH and ACL into legal existence, are amortized to
expense over a period of five years.
h) Translation of Foreign Currencies
Transactions in foreign currencies are translated into U.S. dollars at the
rate of exchange prevailing at the date of each transaction. Monetary assets
and liabilities denominated in foreign currencies at year end are translated
into U.S. dollars at the rate of exchange at that date. Resulting gains or
losses on exchange are recorded as other income or loss in the statement of
operations.
i) Stock Option Plan
The Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees",
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.
Certain options granted by the company require the company to repurchase stock
from employees at specified option prices. These options are accounted for
using variable plan accounting because the final measurement date of each
option is not known until the stock is repurchased or the option expires. For
these options, the amount of compensation expense to be recorded over the
vesting period will be adjusted as the value of the options change.
Disclosures will be made in the consolidated financial statements of future
periods in accordance with Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation" (See Note 9).
j) Interest Rate Derivatives
The Company uses derivative financial instruments for the purpose of
reducing its exposure to adverse fluctuations in interest rates. The Company
does not utilize derivative financial instruments for trading or other
speculative purposes. The counterparty to these instruments is CIBC. The
Company is exposed to credit loss in the event of nonperformance by this
counterparty.
As discussed in Note 5, effective December 31, 1997, the Company entered
into an interest rate swap agreement to hedge its exposure to interest rates
on its long term debt. The net cash amounts paid or received on the agreement
are accrued and recognized as an adjustment to interest expense on the related
debt.
For interest rate derivatives to qualify for hedge accounting, the debt
instrument being hedged must expose the Company to interest rate risk and, at
the inception of the derivative instrument and throughout the period the
F-13
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
derivative is held, there must be a high correlation of changes in the market
value of the derivative and interest expense of the hedged item. Gains and
losses on interest rate derivatives and other derivative instruments which do
not meet this criteria would be recorded in the statement of operations.
If an interest rate derivative instrument were to terminate or be replaced
by another instrument and no longer qualify as a hedge instrument, then it
would be marked to market and carried on the balance sheet at fair value.
k) Interim Financial Information
The unaudited financial statements as of March 31, 1998, and for the three
months ended March 31, 1998 and for the period from March 19, 1997 (date of
inception) to March 31, 1997 include, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for the fair presentation of such financial statements.
l) Net loss per Share
Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding. Diluted net loss per share is computed
using the weighted average number of shares of common stock outstanding and
common stock equivalents including shares issuable under options and warrants
that are dilutive using the treasury stock method.
The following table sets forth the computation of basic and diluted net loss
per share:
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
FOR THE THREE MARCH 19, MARCH 19, MARCH 19,
MONTHS ENDED 1997 (DATE OF 1997 (DATE OF 1997 (DATE OF
MARCH 31, INCEPTION) TO INCEPTION) TO INCEPTION) TO
1998 MARCH 31, 1997 DECEMBER 31, 1997 MARCH 31, 1998
------------- -------------- ----------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Numerator:
Net loss applicable to
common shareholders.... $ (14,538,926) $ (194,444) $ (12,850,279) $(27,389,205)
Denominator:
Denominator for basic
and diluted net loss
per share:............. 110,615,211 110,294,100 110,294,100 110,370,758
------------- ------------ ------------- ------------
Basic and diluted net
loss per share
applicable to common
shareholders........... $ (0.13) $ --* $ (0.12) $ (0.25)
</TABLE>
Subsequent to March 31, 1998, the Company issued additional options which
have not been included in the above net loss per share calculations. See Note
15 for further discussions of stock options.
- --------
* Amount less than $(0.01)
m) Pending and New Accounting Standards
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income" ("SFAS
130") and Statement of Financial Accounting Standard
F-14
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 130 and SFAS 131 are effective for periods beginning after
December 15, 1997. There was no impact to the financial statements due to the
adoption of SFAS 130 in the first quarter of 1998. Management does not expect
the impact of the adoption of SFAS 131 on the Company's financial position or
results of operations to be material.
The American Institute of Certified Public Accountants (AICPA) recently
issued Statement of Position 98-5 Reporting on the Cost of Start-Up Activities
(SOP 98-5). SOP 98-5 is effective for periods beginning after December 15,
1998. Management does not expect the impact of the adoption of this SOP on the
Company's financial position or results of operations to be material.
n) Reclassifications
Certain reclassifications have been made to the December 31, 1997
consolidated balance sheet to conform with the presentation as of March 31,
1998.
3. RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash and cash equivalents comprises approximately $20 million as
of March 31, 1998 and December 31, 1997 reserved for purposes of funding
future interest payable on Senior Notes, approximately $15 million as of March
31, 1998 ($5 million as of December 31, 1997) in funds received from CPAs
signed to date that may be used only in accordance with the terms of the long
term debt agreement and approximately $4 million as of March 31, 1998 (nil as
of December 31, 1997) restricted for purchases of Backhaul Capacity.
4. SHORT TERM BORROWINGS
Effective March 24, 1998, GCL obtained a $200 million secured revolving
credit promissory note ("Bridge Facility") from CIBC and other lenders to fund
development of the new undersea fiber optic cable systems discussed further in
Note 15 and advances on the ASA. All amounts borrowed under the Bridge
Facility are due and payable on June 24, 1998 and bear interest at a floating
rate of LIBOR plus 2.5%. As of March 31, 1998, the Company had borrowings of
approximately $12 million under the Bridge Facility. The Bridge Facility is
secured by pledges of the common stock of all existing and future direct
subsidiaries of GCL. (See Note 15).
5. LONG TERM DEBT AND OBLIGATIONS UNDER INLAND SERVICES AGREEMENTS AND CAPITAL
LEASES
On June 27, 1997, ACL entered into a $410 million aggregate senior secured
limited recourse loan facility (the "Credit Facility") with a group of banks
led by CIBC and Deutsche Bank AG, for the construction and financing costs of
AC-1. On December 15, 1997, the Credit Facility was amended to increase it to
$482 million comprised of a $472 million multiple draw down term loan facility
(the "Term Facility") and a $10 million working capital facility (the "Working
Capital Facility") for the purpose of extending the System to include, among
other things, a Netherlands landing site. The Credit Facility is secured by
pledges of the stock of ACL and its subsidiaries and security interests in its
assets and revenues. As of March 31, 1998, ACL had borrowed $305,508,000
($162,325,000 as of December 31, 1997) under the Credit Facility.
F-15
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
The Credit Facility provides that ACL may select loan arrangements as either
a Eurodollar loan or an Alternative Base Rate ("ABR") Loan. The Eurodollar
interest rate is LIBOR plus 2.5% and the ABR interest rate is the greatest of
(a) the Prime Rate (b) the Base CD Rate plus 1% and (c) the Federal Funds
Effective Rate plus 0.5%, plus 1.5%. ACL pays a commitment fee of 0.5% per
annum on the unused portion of the Credit Facility. The Credit Facility
contains various covenants that, among other things, (i) limit further
indebtedness by ACL and its subsidiaries, (ii) limit the ability of ACL to pay
dividends, (iii) require ACL to meet certain minimum capacity sales levels and
(iv) require ACL to meet a minimum interest coverage ratio for the years 1999
through to maturity of the Credit Facility. The Credit Facility will be repaid
in eight semi-annual installments, commencing on the first May 31 or November
30 occurring two months after the System RFS date, with $72.3 million of the
principal amount due in the initial year and $120.5 million, $144.6 million,
and $144.6 million due in the second, third and fourth years, respectively. If
at any semi-annual installment date the outstanding loan balance is lower than
the installment amounts noted in the previous sentence, then the outstanding
loan balance amount will be repaid. In addition, on each semi-annual
installment date, ACL will apply an amount equal to 50% of Excess Cash Flow to
the mandatory prepayment of the remaining outstanding balance under the Credit
Facility. Excess Cash Flow is defined under the terms of the Credit Facility
as all cash received from revenues during the period reduced by the payment of
OA&M expenses, ASA fees, commissions under the Sales Agency Agreement, and
transfers to certain reserve accounts. The Credit Facility also requires
mandatory prepayments to be made from 50% of net cash proceeds of any equity
offering of ACL and 100% of net cash proceeds from permitted debt offerings by
ACL or GTH. Optional prepayments may be made at any time without premium or
penalty. All revenues received prior to the System RFS date are used to fund
certain reserve accounts, as defined by the Credit Facility, and thereafter
applied against the borrowings under the Credit Facility and the Senior Notes
as determined by the Credit Facility agreement.
On September 30, 1997, pursuant to the Contract with TSSL and the Credit
Facility agreement, ACL put in place a $50 million letter of credit in favor
of TSSL which will expire at such time as ACL has paid all costs under the
contract. ACL pays a commitment fee of 2.5% per annum on the full amount of
the letter of credit.
As of March 31, 1998, all borrowings under the Credit Facility are
Eurodollar Loans with $7,800,000 ($500,000 as of December 31, 1997) drawn down
under the Working Capital Facility and $297,708,000 ($161,825,000 as of
December 31, 1997) drawn down under the Term Facility. ACL has incurred
interest costs, including amortization of deferred financing costs, of
$5,554,697 for the three months ended March 31, 1998 ($4,246,616 for the
period from inception through December 31, 1997). These costs have been
capitalized and included in construction in progress in the accompanying
consolidated balance sheets. Effective December 31, 1997, ACL entered into an
interest rate swap transaction based on one month LIBOR to minimize its
exposure to increases in interest rates on its borrowings. The swap
transaction was amended on February 2, 1998 and currently fixes ACL's floating
interest rate at 5.7825% on a notional amount of borrowings ranging between
$200 million and $310 million until January 31, 1999.
As described in Note 1, the Company has capitalized the minimum lease
payments of the IRU held by GT Landing Corp. on System assets held in the U.S.
The Company has been granted a bargain purchase option to purchase for $10,000
all rights and title to these assets at any time during the term of this
contract which is 25 years from the System RFS. As of March 31, 1998 the
present value of the payments under the IRU have been
F-16
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
recorded as an obligation under capital leases in the amount of $7,143,068,
($12,297,645 as of December 31, 1997).
The Company has capitalized building and conduit leases in The Netherlands
and Germany. The leases are for a period of 25 years which represents more
than 75 percent of the economic life of the asset being purchased. The Company
has the option to extend The Netherlands lease for an additional 5 year term.
As of March 31, 1998 the present value of the obligation has been recorded as
an obligation under capital leases in the accompanying consolidated balance
sheet in the amount of $8,116,408.
As described in Note 1, ACL has purchased Backhaul Capacity. Certain
contracts to purchase Backhaul Capacity require payments over a 25 year period
which represents more than 75 percent of the economic life of the asset being
purchased. As of March 31, 1998, the present value of these payments has been
recorded as obligations under Inland Services Agreements in the accompanying
consolidated balance sheets in the amount of $13,257,937, ($20,900,000 as of
December 31, 1997).
As at March 31, 1998 future minimum payments, in the aggregate for the nine
months ended December 31, 1998 and for the four succeeding years, under these
Inland Services Agreements and capital leases are as follows:
<TABLE>
<S> <C>
For the nine months ended December 31, 1998.................... $ 16,776,053
1999........................................................... $ 5,595,000
2000........................................................... $ 2,632,000
2001........................................................... $ 2,647,000
2002........................................................... $ 2,671,000
Thereafter until 2024.......................................... $ 77,706,455
------------
Total minimum lease............................................ $108,027,508
Less: Amount representing interest............................. $ 23,994,095
Less: Amount representing maintenance payments................. $ 55,516,000
------------
Present value of net minimum lease payments.................... $ 28,517,413
============
</TABLE>
6. SENIOR NOTES
The 12% senior notes due March 31, 2004 with a face value of $150 million
("Senior Notes") are general unsecured obligations of GTH and will rank senior
to any future subordinated indebtedness of GTH and pari passu in right of
payment with any future unsecured senior indebtedness of GTH. The Senior Notes
bear an initial interest rate of 12% per annum. Interest is payable semi-
annually in arrears on each June 1 and December 1. If the Senior Notes are not
repaid by April 1, 2000, the interest rate will increase by 0.5% on April 1,
2000 and by an additional 0.5% on each subsequent April 1, until repaid. If
the interest rate exceeds 15% per annum (the interest rate payable increases
by 2% upon any event of default) GTH may, at its option, cause such interest
in excess of 15% to be paid in additional senior notes. GTH has incurred
interest costs, including amortization of deferred financing costs, of
$4,930,282 for the three months ended March 31, 1998 ($9,013,534 for the
period ended December 31, 1997), which has been capitalized and included in
construction in progress in the accompanying consolidated balance sheets.
F-17
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
As described in Note 5, revenues received prior to the System RFS date are
used to fund certain reserve accounts which are then applied against
borrowings under the Credit Facility and the Senior Notes as determined by the
Credit Facility agreement. Additionally, GTH will on each June 1 and December
1, commencing on the first such date to occur more than 90 days after the
System RFS date, apply an amount equal to 50% of ACL's Excess Cash Flow (as
defined in Note 5), to redeem the Senior Notes at face value, plus accrued
interest to the date of repurchase. The Senior Notes are redeemable at the
option of GTH, at redemption prices starting at 106% of the face value
beginning April 1, 2000, declining to 103% in 2001, and 100% in 2002 and 2003,
plus accrued interest (see Note 15).
The Senior Notes agreement imposes certain limitations on the ability of GTH
and its subsidiaries to, among other things, (i) incur additional indebtedness
including senior indebtedness and (ii) pay certain dividends and make certain
other restricted payments and investments.
7. MANDATORILY REDEEMABLE PREFERENCE SHARES
The authorized preference shares consist of 500,000 shares at a liquidation
preference of $1,000 per share. Effective March 25, 1997, 100,000 shares were
issued for $100 million in cash and as of March 31, 1998, 113,674 shares
(109,830 shares as of December 31, 1997) were issued and outstanding.
The holders of preference shares are entitled to receive cumulative,
compounding dividends at an initial annual rate of 14% of the $1,000
liquidation preference per share. If the preference shares are not redeemed on
or prior to April 1, 2001, the annual dividend rate will increase by 0.5% per
annum (the dividend rate payable increases by 2% upon any event of default)
thereafter, subject to a maximum annual dividend rate of 20%. At the option of
GTH, accrued dividends may be paid in cash or paid by issuing additional
preference shares (i.e. pay-in-kind) until April 1, 2002, at which time they
must be paid in cash. However, if the dividend rate exceeds 15% per annum, GTH
may cause dividends in excess of 15% to be paid in additional preference
shares. Dividends paid in additional preference shares are payable on a
quarterly basis and cash dividends are payable on a semi-annual basis. All
dividends declared to date have been paid in additional preference shares. The
preference shares rank senior to all common stock with respect to dividend
rights, rights of redemption or rights on liquidation and senior to any future
preferred stock. The preference shares are non-voting unless GTH fails to pay
a dividend, fails to make a mandatory redemption or upon a change in control,
fails to make an offer to purchase the preference shares at 101%, at which
time the holders of a majority of the preference shares will be entitled to
elect one to two directors. In the event that any preference shares are still
outstanding on April 1, 2001, the holders thereof will receive warrants to
purchase shares of Class A common stock of GCL at an exercise price of $.01
per share, up to a maximum of 46,440 shares of GCL common stock.
The preference shares have a mandatory redemption on April 1, 2007 at their
liquidation preference. In addition, the preference shares will be redeemed
out of ACL's Excess Cash Flows (as described in Note 5) after repayment of the
Credit Facility and Senior Notes at redemption prices starting at 114% for
both 1997 and 1998, declining to 112% in 1999 and 2000, 107% in 2001 and 100%
thereafter. The preference shares can be redeemed, in whole or in part, at the
option of GTH at redemption prices starting at 114% of the liquidation
preference through 2001, declining to 111% in 2002, 108% in 2003, 105% in
2004, 102% in 2005 and 100% thereafter. The outstanding preference shares are
exchangeable, in whole, at the option of GTH for Senior Subordinated
F-18
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
Exchange Notes ("Exchange Notes") issued by ACL at a rate of $1,000 principal
amount of Exchange Notes for each $1,000 of liquidation preference of
preference shares. These Exchange Notes will bear an interest rate equal to
the dividend rate of the preference shares and will have repayment terms
similar to the preference shares described above (see Note 15).
During the three months ended March 31, 1998, dividends approximating $3.9
million ($9.8 million for the period from inception through December 31, 1997)
were paid by issuing additional preference shares and a further $1.3 million
($1.3 million as of December 31, 1997) in dividends were accrued as of March
31, 1998.
Preference share dividends included the following:
<TABLE>
<CAPTION>
THREE FOR THE PERIOD FOR THE PERIOD
MONTHS MARCH 19, 1997 MARCH 19, 1997
ENDED MARCH (DATE OF INCEPTION) (DATE OF INCEPTION)
31, TO DECEMBER 31, TO MARCH 31,
1998 1997 1998
----------- ------------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Preference share
dividends.............. $3,888,908 $11,111,672 $15,000,580
Amortization of discount
on preference shares... 330,875 1,011,007 1,341,882
Amortization of
preference share
issuance costs......... 188,447 567,244 755,691
---------- ----------- -----------
$4,408,230 $12,689,923 $17,098,153
========== =========== ===========
</TABLE>
In connection with the issuance of the preference shares, the holders of
preference shares purchased an aggregate of 7,500,000 shares of GCL's Class A
common stock for total proceeds of $7.5 million. Additionally, in connection
with the issuance of the preference shares, the initial purchaser of the
preference shares received 13,235,300 shares of GCL's Class A common stock for
no additional consideration representing 15% of the aggregate number of GCL's
Class A, B and C shares outstanding, after giving effect to the issuance. The
initial purchaser had the right to distribute these Class A shares to
purchasers of the preference shares. The Company has reflected the
$13,235,000 estimated fair value of the GCL's Class A common stock as a
discount in the carrying value of the preference shares.
The fair value of the 13,235,300 shares of GCL's Class A common stock
distributed to preference shareholders was based on the $1 per share paid by
the holders of preference shares for the 7,500,000 GCL's Class A shares
purchased for cash.
8. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
<TABLE>
<S> <C> <C>
Common Stock:
Authorized:
1,000,000,000 Class A common stock of $.000001 par value
1,000,000,000 Class B common stock of $.000001 par value
1,000,000,000 Class C common stock of $.000001 par value
3,000,000,000 Class D common stock of $.000001 par value
</TABLE>
F-19
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
1,000,000,000 Class E common stock of
$.000001 par value
43,000,000,000 undesignated common stock of
$.000001 par value
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Issued and Outstanding as of March 31, 1998:
20,735,300 Class A shares (20,735,300 as of
December 31, 1997)........................ $20 $20
34,050,000 Class B shares (33,750,000 as of
December 31, 1997)........................ 34 34
33,750,000 Class C shares (33,750,000 as of
December 31, 1997)........................ 34 34
22,058,800 Class D shares (22,058,800 as of
December 31, 1997)........................ 22 22
125,000 Class E shares (nil as of December
31, 1997)................................. -- * --
</TABLE>
- --------
* Amount less than $1.
As discussed in Note 1, on January 21, 1998, GCL effected a 100 for 1 stock
split of each of the Class A, B, C and D common stock and undesignated stock
and amended the par value of each share of common stock from $.0001 per share
to $.000001 per share. Class A shares, Class B shares and Class C shares all
have voting rights. On March 25, 1997, GCL issued 7,500,000 Class A shares,
33,750,000 Class B shares, 33,750,000 Class C shares for $1 per share,
resulting in aggregate proceeds of $75 million. As discussed in Note 7, in
addition to the 7,500,000 Class A shares issued to the preference shareholders
for cash, in connection with the issuance of the preference shares, a total of
13,235,300 Class A shares were distributed to the initial preference
shareholder representing 15% of the aggregate number of Class A, B and C
shares outstanding. In addition, warrants to acquire a maximum of 46,440
shares of common stock of GCL were issued into escrow for the benefit of the
holders of preference shares. All or a portion of the warrants may be
exercised at a price of $.01 per share if the preference shares are
outstanding on April 1, 2001. Effective January 21, 1998, GCL authorized
1,000,000,000 of new Class E non-voting shares.
Certain of the Class B shareholders were issued a total of 22,058,800 Class
D shares. Of the $33,750,000 of proceeds received from the issuance of Class B
shares, $2,500,000 was allocated to the Class D shares representing the
estimated fair value of the Class D shares based on an independent valuation.
Class D shares are non-voting shares which carry special preference rights on
the cash distributions made by GCL. Class D shareholders will receive 10% of
cash distributions to common shareholders once the internal rate of return to
Class C shareholders exceeds 10%, and then increasing to 20% of cash
distributions to common shareholders once the internal rate of return to Class
C shareholders exceeds 30%. Effective January 21, 1998, Class D share rights
were amended such that Class D shareholders now have the option to convert
each Class D share into one Class E share upon payment to GCL of $2.20 per
share or are entitled to a fraction of a Class E share based upon a valuation
at the time of such conversion, together with a warrant to purchase the
remaining fraction of such Class E share at an exercise price based upon such
market valuation.
F-20
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
During the three months ended March 31, 1998, the Company issued, at a price
of $1 per share, 300,000 Class B shares and 125,000 Class E shares to
employees of GCL resulting in an increase in shareholders' equity of $425,000.
9. STOCK OPTION PLAN
On January 21, 1998, GCL adopted the 1998 Stock Incentive Plan ("the Plan")
which provides for the granting of non-qualified stock options to key officers
and employees of GCL at the discretion of the compensation committee or Board
of Directors. As of March 31, 1998, the maximum number of shares of common
stock which may be issued under the Plan was 8,303,933 shares of Class E
common stock. Generally, options vest equally over a period of three years and
expire ten years from the date of grant.
The following table summarizes the transactions of the company's stock
option plans for the three months ended March 31, 1998:
<TABLE>
<CAPTION>
NUMBER
WEIGHTED EXERCISABLE WEIGHTED
NUMBER OF AVERAGE AS AT AVERAGE
OPTIONS EXERCISE MARCH 31, REMAINING
OUTSTANDING PRICE 1998 LIFE
----------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Options outstanding as of December
31, 1997........................... -- -- -- --
Options granted on January 21, 1998. 2,821,000 $2.50 -- 10 years
Forfeited........................... (1,000,000) $2.50 -- 10 years
Options outstanding as of March 31,
1998............................... 1,821,000 $2.50 -- 10 years
</TABLE>
During the three month period ended March 31, 1998, no options had expired
or were exercised.
As permitted by SFAS 123, the Company has chosen to account for stock
options under APB 25 and accordingly no compensation expense has been
recognized as of March 31, 1998 since the estimated fair value of the stock on
the date the options were granted (January 21, 1998) did not exceed the
exercise price. Had compensation cost for the Company's stock-based
compensation plans been determined consistent with the SFAS 123 fair value
approach, the impact on the Company's loss applicable to common shareholders
and loss per share would be as follows:
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED MARCH
31, 1998
------------
(UNAUDITED)
<S> <C>
Net loss applicable to common shareholders:
As reported.................................................... $(14,538,926)
Pro forma...................................................... (14,670,874)
Basic and diluted net loss per share:
As reported.................................................... $ (0.13)
Pro forma...................................................... (0.13)
</TABLE>
F-21
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
The fair value of options for purposes of the SFAS 123 disclosure is
estimated on the date of grant using the minimum value method with the
following weighted average assumptions: no dividend yield, risk-free interest
rates of 5.45% and an average expected life of 4 years. The estimated fair
value of the options granted on January 21, 1998 was $0.49 per share.
10. FORMATION OF GLOBAL CROSSING HOLDINGS LTD.
On March 18, 1998, GCL formed a wholly-owned subsidiary, Global Crossing
Ltd. (New GCL), a Bermuda company, and contributed its investment in GTH to
New GCL. New GCL is currently in the process of forming a wholly-owned
subsidiary, to be named Global Crossing Holdings Ltd. (GCH), a Bermuda
company. New GCL will contribute, among other things, its investment in GTH to
GCH upon its formation. It is the Company's intent to declare a dividend of
1.5 shares of common stock of New GCL for each share of common stock of GCL,
and then liquidate GCL concurrently with the initial public offering of New
GCL.
Because GCL and New GCL are entities under common control, the transfer by
GCL to New GCL of its investment in GTH was accounted for similar to a pooling
of interests. The anticipated transfer of New GCL's investment in GTH to GCH
will also be accounted for similar to a pooling of interests. Accordingly, the
summarized financial information of GCH presented below reflects the accounts
of GTH and its subsidiaries retroactive to inception of GTH (March 24, 1997).
GCL, New GCL and GTH will each provide a guarantee of the senior unsecured
notes to be issued by GCH as discussed under the Refinancing heading of Note
15. Additionally, Global Crossing International, Inc. ("GCI"), a wholly-owned
subsidiary of GCH that provides marketing and development services to GCL,
along with its wholly-owned subsidiaries will also provide guarantees of the
senior unsecured notes to be issued by GCH. All guarantees will be full,
unconditional, joint and several. Separate financial statements of each
subsidiary guarantor have not been provided because they would not be material
to investors.
F-22
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997 (DATE
OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
SUMMARIZED FINANCIAL INFORMATION OF GCH AND GUARANTORS:
($ AMOUNTS IN '000S)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATION GCL
GCL GCH SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
AS OF MARCH 31, 1998 -------- -------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets.......... $ 340 $ 2,182 $ 22,919 $ 29,581 $ (339) $ 54,683
Construction in pro-
gress.................. -- -- 13,944 607,020 -- 620,964
Investment in subsidi-
ary.................... 59,541 69,164 275,878 -- (404,583) --
Deferred finance costs,
net.................... 228 148 10,189 14,389 21 24,975
Current liabilities..... 102 11,953 8,759 61,216 (318) 81,712
Long term debt.......... -- -- -- 305,508 -- 305,508
Senior Notes............ -- -- 150,000 -- -- 150,000
Obligations under capi-
tal leases............. -- -- -- 7,643 -- 7,643
Obligations under Inland
Service Agreements..... -- -- -- 745 -- 745
Mandatorily redeemable
preference shares...... -- -- 95,007 -- -- 95,007
Shareholders' equity.... $ 60,007 $ 59,541 $ 69,164 $275,878 $(404,583) $ 60,007
- -------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS
ENDED
MARCH 31, 1998
Interest income......... $ -- $ -- $ 230 $ 116 $ -- $ 346
Operating expenses...... 128 23 9,190 1,136 -- 10,477
-------- -------- -------- -------- --------- --------
Net loss................ (128) (23) (8,960) (1,020) -- (10,131)
Equity in loss from sub-
sidiary................ (14,411) (14,388) (1,020) -- 29,819 --
Preference share divi-
dends.................. -- -- (4,408) -- -- (4,408)
-------- -------- -------- -------- --------- --------
Net loss applicable to
common shareholders.... $(14,539) $(14,411) $(14,388) $ (1,020) $ 29,819 $(14,539)
======== ======== ======== ======== ========= ========
- -------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1997
Current assets.......... $ 33 $ 12 $ 21,307 $ 6,597 $ (205) $ 27,744
Construction in
progress............... -- -- 9,014 509,505 -- 518,519
Investment in
subsidiary............. 73,952 73,940 276,897 -- (424,789) --
Deferred finance costs,
net.................... 208 -- 10,619 15,107 -- 25,934
Current liabilities..... 72 -- 3,253 88,978 (205) 92,098
Long term debt.......... -- -- -- 162,325 -- 162,325
Senior Notes............ -- -- 150,000 -- -- 150,000
Obligations under Inland
Service Agreements..... -- -- -- 3,009 -- 3,009
Mandatorily redeemable
preference shares...... -- -- 90,644 -- -- 90,644
Shareholders' equity.... $ 74,121 $ 73,952 $ 73,940 $276,897 $(424,789) $ 74,121
</TABLE>
F-23
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997 (DATE
OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
SUMMARIZED FINANCIAL INFORMATION OF GCH AND GUARANTORS (CONTINUED):
($ AMOUNTS IN '000S)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATION GCL
GCL GCH SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- -------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD FROM
MARCH 19, 1997 TO
DECEMBER 31, 1997
Interest income......... $ -- $ -- $ 556 $ 2,385 $ -- $ 2,941
Operating expenses...... 42 -- 200 2,859 -- 3,101
-------- -------- -------- ------- ------- --------
Net income (loss)....... (42) -- 356 (474) -- (160)
Equity in loss of
subsidiary............. (12,808) (12,808) (474) -- 26,090
Preference share
dividends.............. -- -- (12,690) -- -- (12,690)
-------- -------- -------- ------- ------- --------
Net loss applicable to
common shareholders.... $(12,850) $(12,808) $(12,808) $ (474) $26,090 $(12,850)
======== ======== ======== ======= ======= ========
FOR THE PERIOD FROM
MARCH 19, 1997 TO MARCH
31, 1998
Interest income......... $ -- $ -- $ 786 $ 2,501 $ -- $ 3,287
Operating expenses...... 170 23 9,390 3,995 -- 13,578
-------- -------- -------- ------- ------- --------
Net income.............. (170) (23) (8,604) (1,494) -- (10,291)
Equity in loss of
subsidiary............. (27,219) (27,196) (1,494) -- 55,909 --
Preference share
dividends.............. -- -- (17,098) -- -- (17,098)
-------- -------- -------- ------- ------- --------
Net loss applicable to
common shareholders.... $(27,389) $(27,219) $(27,196) $(1,494) $55,909 $(27,389)
======== ======== ======== ======= ======= ========
</TABLE>
11. FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Restricted cash and cash
equivalents............ $ 39,180,447 $ 39,180,447 $ 25,275,196 $ 25,275,196
Short term borrowings... (11,929,750) (11,929,750) -- --
Long term debt,
obligations under
Inland Services
Agreements
and capital leases..... (334,025,413) (334,025,413) (195,522,645) (195,522,645)
Preference shares....... (95,007,302) (95,007,302) (90,643,919) (90,643,919)
Senior Notes............ (150,000,000) (150,000,000) (150,000,000) (150,000,000)
Interest rate swap
transaction............ -- (321,070) -- (115,115)
</TABLE>
Restricted cash and cash
equivalents................... The carrying amount of restricted cash and
cash equivalents is a reasonable estimate of
fair value as the balances include amounts
held in banks and money market deposits with
a short-term maturity.
F-24
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
Short term borrowings.......... The carrying value of short term borrowings
approximates fair value as the borrowings are
repayable within three months.
Long term debt, obligations
under Inland Services
Agreements and capital The Credit Facility is a special financing
leases................... for the construction of the System, and the
interest rates provided under the existing
Credit Facility are the best estimate of cur-
rent market rates available to ACL for fi-
nancing with similar terms. Obligations under
Inland Services Agreements and capital leases
are recorded at their present value using a
weighted average interest rate of the Credit
Facility, preference shares, and Senior
Notes.
Since the preference shares are a special fi-
Preference shares.............. nancing for the construction of the System,
the dividend rates provided under the exist-
ing preference share agreement are the best
estimate of current market rates available
for financing with similar terms and redemp-
tion provisions.
Senior Notes................... Since the Senior Notes are a special financ-
ing for the construction of the System, the
interest rates provided under the existing
Senior Notes arrangement are the best esti-
mate of current market rates available for
financing with similar terms.
Interest rate swap The interest rate swap transaction is "zero
transaction................... cost" meaning that the cost of acquiring the
transaction is embedded in the fixed interest
rate paid. As the transaction is accounted
for as a hedge against interest rate fluctua-
tions on the long term debt there is no car-
rying value. The fair value is a mid-market
valuation provided by CIBC.
12. RELATED PARTY TRANSACTIONS
ACL has entered into the ASA with PCG Telecom, an affiliate of PCG which is
a shareholder of GCL. Under the ASA, PCG Telecom provides ACL with advice in
respect of the development and maintenance of the System, development and
implementation of marketing and pricing strategies and the preparation of
business plans and budgets. As compensation for its advisory services, PCG
Telecom receives a 2% fee on the cash received from gross revenues, subject to
certain restrictions, with the first such payment occurring at the System RFS
date. Advances on fees payable under the ASA are being paid to PCG Telecom at
a rate of 1% on signed CPAs and Backhaul CPAs until the System RFS date and
are secured by amounts payable under the ASA. Approximately $2 million had
been advanced to PCG Telecom as of March 31, 1998 and is reflected in other
assets and prepaid costs in the accompanying consolidated balance sheets. A
minimal portion of the fees under the ASA are paid to PCG Telecom and then
further allocated by PCG Telecom to MRCO, Inc. and PCG both of which are
shareholders of GCL (see Note 15).
Effective January 21, 1998, GCL entered into a warrant agreement ("PCG
Warrants") under which PCG was issued three separate warrants permitting PCG
to purchase (i) 6,151,061 of GCL's Class B shares for an aggregate price of
$50,000,000; (ii) an additional 3,075,531 of the GCL's Class B shares for an
aggregate price of $31,250,000; and (iii) an additional 3,075,531 of GCL's
Class B shares for an aggregate price of $37,500,000. The PCG Warrants were
granted in exchange for the rights to commence the development of the new
projects that previously had been under development by an affiliate of PCG.
F-25
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
These warrants are intended to entitle PCG to acquire, in addition to their
existing ownership, 10% of the capital stock of GCL, as of the date these
warrants were issued. Exercise of these warrants is contingent upon (i) an
initial public offering of shares of GCL (or any successor thereto),
underwritten by an investment banking firm of national reputation (as
determined by a majority of the Board of Directors of GCL) from which GCL
shall have received at least $50,000,000 in net proceeds, (ii) the investment
by GCL in the aggregate of at least $500,000,000 of Net Attributable Capital
(as defined below) in cable systems other than AC-1 and (iii) the generation
in the aggregate by cable systems other than AC-1 of at least $100,000,000 in
Net Attributable Revenues (as defined below). For purposes of the PCG Warrant
Agreement, with respect to any cable system, (i) "Net Attributable Capital"
means the aggregate debt and equity capitalization of such system multiplied
by the percentage ownership of Old GCL (directly or indirectly) in such
system, and (ii) "Net Attributable Revenues" means the net revenues of such
system multiplied by the percentage ownership interest of GCL (directly or
indirectly) in such system. No accounting was made for the PCG Warrants at the
time of issuance on the basis that it was indeterminable when the conditions
described above would be met. See further discussion of warrants in Note 15.
$7,250,000 in fees were paid to PCG and certain of its key executives, who
are shareholders of GCL, and another shareholder for services provided in
respect of obtaining the Credit Facility, Senior Notes and preference share
financing. Of the fees paid, $5,523,775 was allocated to the Credit Facility
and Senior Notes and recorded as deferred finance costs, $986,725 was
allocated to the preference shares and recorded as a reduction in the carrying
value of the preference shares and $739,500 was recorded as common stock
issuance costs and is included in the approximately $1.3 million which is
reflected as a reduction in additional paid-in capital.
GCL has paid CIBC and affiliates ("CIBC"), a shareholder, approximately $25
million in fees related to the financing obtained under the Senior Notes,
Credit Facility, and the issuance of preference shares. Of the fees incurred,
approximately $6.2 million related to underwriting and commitment fees
pertaining to the issuance of the preference shares and were recorded as a
reduction in the carrying value of the preference shares, approximately $9.2
million related to underwriting, commitment and advisory fees in connection
with the issuance of the Senior Notes and approximately $9.6 million related
to fees associated with obtaining the Credit Facility which were recorded as
deferred finance costs. As of March 31, 1998 CIBC held 17,218 outstanding
preference shares (25,636 as of December 31, 1997), and $9 million in Senior
Notes. CIBC is also a member of the syndicate funding the Credit Facility
under which GCL has borrowings of $305,508,000 ($162,325,000 as of December
31, 1997), as of March 31, 1998 and has been paid interest and other related
fees in the amount of approximately $9.8 million ($4.2 million as of December
31, 1997).
13. TAXES
Since the Company has not recognized any income to date, no tax provision
has been reflected in the consolidated financial statements and
correspondingly no deferred tax liability has been recorded in accordance with
SFAS 109. The Company has incurred operating losses which relate almost
entirely to non-taxable jurisdictions and therefore operating losses incurred
to date cannot be applied against future taxable earnings of the Company and
therefore, have not been recorded as deferred tax assets in accordance with
SFAS 109.
F-26
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
14. COMMITMENTS
As of March 31, 1998, ACL was committed under its contract with TSSL for
future construction costs totaling approximately $105 million ($195 million as
of December 31, 1997) and is committed under the OA&M contract with TSSL to
quarterly payments totaling approximately $260 million ($263 million as of
December 31, 1997) over the next eight years. The Company is committed to
paying TSSL commissions ranging from 4% to 7% on revenues received.
GCL and its subsidiaries have commitments under various operating leases
primarily relating to its office facility in Bermuda. Rent expense for
operating leases was $41,309 since inception and $26,556 for the three months
ended March 31, 1998. Estimated future minimum lease payments on all operating
leases are approximately as follows:
<TABLE>
<S> <C>
For the nine months ended December 31, 1998.................. $ 815,000
1999......................................................... 893,000
2000......................................................... 903,000
2001......................................................... 911,000
2002......................................................... 590,000
Thereafter................................................... 3,811,000
</TABLE>
15. SUBSEQUENT EVENTS
New projects
Effective April 21, 1998, GCL, through its wholly-owned subsidiary, GCT
Pacific Holdings Ltd., which was incorporated on April 1, 1998, entered into a
contract with TSSL to construct a cable system project, PC-1,
for a contract price of approximately $1.2 billion which will be financed
through a $400 million equity contribution by the joint venture partners and
the remainder through the credit facility discussed below. PC-1 is an undersea
fiber optic cable system connecting California, Washington and two landing
sites in Japan. PC-1 is owned and operated by Pacific Crossing Ltd. ("PCL"), a
joint venture company. The Company has an economic interest in PCL represented
by a 50% direct voting interest in PCL and through one of the joint venture
partners anticipates owning a further 8% economic interest in PCL but does not
have voting control. The Company's funding commitment in respect of the $400
million, which is proportional to the planned total 58% economic interest,
will aggregate approximately $232 million. The Company will account for its
investment in PCL on an equity basis. To finance construction of PC-1, PCL has
signed a commitment to obtain an $850 million senior secured, limited
recourse, credit facility from CIBC and other lenders. PCL has borrowed
approximately $104 million from CIBC and other lenders under a promissory note
to be used to make the initial payments on the PC-1 construction contract.
Upon the funding of the $850 million credit facility a portion of the facility
will be used to repay the $104 million promissory note.
Effective June 2, 1998, GCL, through its wholly-owned subsidiary Mid-
Atlantic Crossing Ltd., entered into a contract with Alcatel Submarine
Networks for the construction of MAC, an undersea fiber optic cable system
connecting New York, the Caribbean and Florida. On June 26, 1998, Mid-Atlantic
Crossing Ltd. signed a commitment to obtain $240 million of non-recourse
indebtedness from CIBC and other lenders.
F-27
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
Effective July 21, 1998, the Company through its wholly-owned subsidiary Pan
American Crossing Ltd., entered into a $475 million contract with TSSL for the
construction of PAC, an undersea fiber optic cable system connecting
California, Mexico and Panama. On the same day, Pan American Crossing Ltd.
signed a commitment to obtain $310 million of non-recourse indebtedness with
the remaining $165 million to be financed through equity contributions.
Backhaul Capacity Purchases
During April 1998, the Company signed several Inland Services Agreements to
Purchase Backhaul Capacity. In accordance with Note 2(f), the Company will
capitalize the approximately $26 million present value of future payments
under these agreements as part of construction in progress in the accompanying
consolidated balance sheets.
Stock options
On April 3, 1998 and June 12, 1998, the Board of Directors approved the
issuance of 3,665,000 options and 2,235,000 options, respectively, under the
Plan. The April 3, 1998 shares have exercise prices of $2.50 per share and the
June 12, 1998 shares have exercise prices of $10 per share generally with a
three year vesting period and a ten year expiration. During the quarter ended
June 1998, the Company will recognize approximately $8.7 million of
compensation expense for the options issued in April and June since the
exercise price is less than the estimated fair value of the stock used for
financial statement purposes on the date of grant. The estimated fair value of
the options granted in April is $5 per share and the estimated fair value of
the options granted in June is $20 per share. Certain employees have the
right, after three years of employment, to require the Company to purchase up
to 300,000 shares of common stock held by them for $20.00 per share, if the
Company has not completed an initial public offering of its stock by that time
and one employee has the option to sell 100,000 shares of stock to the Company
at $20.00 per share.
Refinancing
On May 18, 1998, GCH issued $800 million of senior unsecured notes for the
purpose of repurchasing the Senior Notes, redeeming the outstanding preference
shares, repaying amounts drawn under the Bridge Facility, and financing the
new projects. The Company recognized an extraordinary loss of $19.7 million on
refinancing on May 18, 1998 comprising a premium of approximately $9.8 million
payable to repurchase the Senior Notes and a write-off of approximately $9.9
of unamortized deferred financing costs. The redemption of the preference
shares occurred on June 17, 1998 and resulted in a charge against additional
paid-in capital comprising approximately a $15.9 million redemption premium
and $18.3 million of unamortized discount and issuance cost on the preference
shares on the date of the redemption. The redemption premium and write off of
unamortized discount and issuance costs on the preference shares will be
treated as a deduction to arrive at net loss applicable to common shareholders
in the consolidated statement of operations. Furthermore, upon the redemption
of the preference shares, the warrants attached to the preference shares as
described in Note 7 have expired. Pursuant to the senior unsecured notes
agreement GCL, New GCL and several of GCH's wholly-owned subsidiaries provided
guarantees of these notes as described in Note 10, and additionally, these
same guarantors along with ACL and its subsidiaries are restricted in respect
of, among other things, the ability to pay dividends.
F-28
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
PCG Warrants
Subsequent to March 31, 1998, the Board of Directors amended the terms of
the PCG Warrants so that the PCG Warrants will become exercisable upon the
successful completion of the initial public offering ("IPO") and thereby
eliminating the other two conditions described in Note 12.
Further to the amendment to the conditions precedent to exercise, the Board
of Directors also amended the terms of the PCG Warrants to give each holder
the option to convert each share under warrant into a fraction of a Class B
share based upon the ratio of the current per share valuation at the time of
conversion less the per share exercise price of the warrant divided by the
current per share valuation at the time of conversion multiplied by the number
of shares available under the PCG Warrants, together with a new warrant ("New
PCG Warrants") to purchase the remaining fraction of such Class B share at an
exercise price equal to the current per share valuation. Prior to the IPO, it
is expected that the holders of the PCG Warrants will exercise their warrants
to acquire Class B shares by way of the cashless conversion and the New PCG
Warrants will be issued with an exercise price based on the per share
valuation at the conversion date. As of June 30, 1998, the Company will record
an increase in its investment in PC-1 and an increase in construction in
progress for PAC and MAC with a corresponding increase in additional paid in
capital an amount representing the estimated value of the PCG Warrants based
on the per share valuation at the conversion date, discounted for non-
marketability of a non-registered share, multiplied by the number of warrants
to be converted to Class B shares. The Company's accounting for the PCG
Warrants is pursuant to EITF 96-18, "Accounting for Equity Instruments with
Variable Terms that are Issued for Consideration other than Employee Services
under FASB Statement No. 123." Under EITF 96-18, the fair value of equity
instruments issued for consideration other than employee services should be
measured using the stock price or other measurement assumptions as of the date
at which a firm commitment for performance has been reached. The Company has
recorded the estimated value of the PCG Warrants as of June 30, 1998, since
the IPO was probable at that date. The estimated value of the warrants will be
adjusted to the actual value on the measurement date (i.e. the IPO). The New
PCG Warrants will be valued and recorded upon the completion of the IPO.
Transaction with Worldport
On April 7, 1998, the Company signed a CPA with Worldport Communications,
Inc. ("Worldport"), to acquire capacity on AC-1. This transaction occurred in
the ordinary course of business of the Company and on terms and conditions no
less favorable to the Company than in its other CPAs. Certain officers and
directors of the Company, have direct or indirect equity ownership positions
in Worldport, aggregating approximately 10% of the current common stock of
Worldport.
Advisory Service Agreement
Effective June 30, 1998, the Company intends to acquire the rights of those
entitled to fees payable under the ASA in consideration for the issuance by
the Company of common stock having an aggregate value of $135 million and the
cancellation of approximately $2.7 million owed to the Company under a related
advance agreement. The cost of buying out the rights to the ASA fees,
estimated at approximately $97 million, will be recorded as an expense in the
Company's financial statements for the period June 30, 1998.
F-29
<PAGE>
GLOBAL CROSSING LTD., LDC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998, FOR THE PERIOD FROM
MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1997, AND CUMULATIVE FROM MARCH 19, 1997
(DATE OF INCEPTION) TO MARCH 31, 1998 IS UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
Telecommunications Development Company Repurchase
The Board of Directors authorized that immediately prior to the IPO, the
Company will purchase all common shares owned by Telecommunications
Development Company ("TDC") in the Company in exchange for 150,000 fewer
shares of newly issued common shares based upon the per share value at the
repurchase date. The transaction will be accounted for as the acquisition of
treasury stock and will be recorded at the fair value of the consideration
given.
F-30
<PAGE>
GLOSSARY OF CERTAIN DEFINED TERMS
Unless the context otherwise requires, any reference in this Prospectus to
any agreement shall mean such agreement and all schedules, exhibits and
attachments thereto, as amended, supplemented or otherwise modified as of the
date of this Prospectus. All terms defined herein used or the singular shall
have the same meanings when used in the plural and vice versa.
<TABLE>
<C> <S>
Amplifier: A device used to boost the strength of an
electronic or optical signal, which is
weakened (attenuated) as it passes through
the transport network. Amplifiers add gain
to the signal by an amount equal to the
loss in the previous section of the
network since last amplification.
Backhaul Capacity: Capacity on terrestrial fiber optic cables
from undersea cable landing stations to
metropolitan areas.
Band: A range of frequencies between two defined
limits.
Bandwidth: A measure of capacity of information-
carrying capacity on a communications
channel. 1) The difference between the
high and low frequencies of a transmission
band, expressed in cycles per second
(Hertz) or in wavelengths (nanometers). It
is a measure of raw capacity without
compression or coding of the information
signal. A voice transmission requires
about 3 KHz and a TV channel about 6 MHz.
2) Transmission capacity is expressed in
bits per second. For example megabits per
second (Mbps) is a bit rate expressed in
millions of bits per second while gigabits
per second (Gbps) is a bit rate expressed
in billions.
. Narrowband: Less than or equal to 64-
kbps
. Wideband: Digital rates between 64-kbps
and 1.544-Mbps (DS1) or 2.048-Mbps
(E1)--LANs, bulk files transfer, video
conferencing, and multimedia.
. Broadband: Greater than 44.736-Mbps (D3)
or 34.368-Mbps (E3)
Bit: A binary unit of information that can have
either of two values, 0 or 1. Contraction
of binary digit:
. KILOBIT = 1,000 bits
. MEGABIT = 1 million bits
. GIGABIT = 1 billion bits
. TERABIT = 1 trillion bits
Broadband: A transmission channel usually carrying a
tremendous amount of information at
transmission speeds of 45 Mbps (45,000,000
bits per second) or greater. Some
facilities have transmission speeds in the
billion of bits (gigabits per second or
Gbps).
1. A communications channel with bandwidth
sufficiently large to carry voice, data
and video on a single channel.
2. Any voice communications channel having
a bandwidth greater than a voice grade
channel.
. A bandwidth of 45 Mbps can carry 672
voice connections.
. In theory up to 64 telephone grade
communication channels can be carried on
one 6 MHz broadband channel.
</TABLE>
GL-1
<PAGE>
<TABLE>
<C> <S>
Capacity: The information-carrying ability of a
telecommunications system, as defined by
its design (number of fibers, system
length, and opto/electronic equipment)
and its deployed equipment (amount of
opto/electronics in the station) and
measured in bits per second. Capacity is
sold in discrete units, usually system
interface levels such as DS-3's and STM-
1's, that in the aggregate are the
equivalent of total system capacity.
Carrier: 1. A third party provider of communications
services by wire, fiber or radio.
. Common Carrier: A private company
offering facilities or services to the
general public on a non-discriminatory
basis and regulated as to market entry,
practices, and rates by various Federal
and State authorities.
. Private Carrier: Services provided for
internal use and free of most common
carrier regulations to allow
discrimination in service provision or
pricing.
2. A signal that is modulated in order to
transmit information.
Common Carrier: A business authorized by the FCC to provide
communications services by wire or radio
from place to place without influence of
content. Services are provided to the
public on a non-discriminatory basis, and
are regulated by Title II of the
Communications Act of 1934. Regulatory
agencies are the FCC and state public
utility commissions.
. Non-dominant carrier is one which has
insufficient market power to practice
anti-competitive pricing.
. Private carriers are not regulated by
government agencies and may charge
whatever the market will bear.
Compression: Algorithm that minimizes the redundancy in
the signal to be transmitted.
Digital: Describes a method of storing, processing
and transmitting information through the
use of distinct electronic or optic pulses
representing the binary digits 0 and 1. In
communications they will modify a carrier
at a selected frequency. The precise
signal transitions preclude any distortion
such as graininess or snow in the case of
video transmission, or static or other
background distortion in the case of audio
transmission.
Digital Transmission: Method of storing, processing and
transmitting information through the use
of distinct electronic or optical pulses
that represent the binary digits 0 and 1.
Digital transmission and switching
technologies employ a sequence of these
pulses to represent information as opposed
to a continuously variable analog signal.
The precise digital numbers preclude any
distortion such as graininess or snow in
the case of video transmission, or static
or other background distortion in the case
of audio transmission.
</TABLE>
GL-2
<PAGE>
<TABLE>
<C> <S>
Doped Fibers: Various impurities may be added to silica-
based fiber-optic strands as they are
constructed to achieve specifically
desired transmission or physical
properties.
. Erbium-Doped Optical Fiber Amplifier
(EDFA) optical amplifiers use a section
of optical fiber doped with the rare
earth erbium and optically pumped with
a laser diode. It can amplify a range
of wavelengths at the same time
surrounding a base wavelength of 1550
nm.
. Praseodymium-doped fibers produce a
signal gain of 30 dB in 1310 nm fibers.
DS1: A digital transmission hierarchy
supporting 1.544 million bits per second
that may be used for "near full-motion"
or compressed video, data or voice
circuits (24, 48 or 96).
DWDM (Dense Wavelength Division
Multiplexing): A technique which employs more than one
light source and detector operating at
different wavelengths and simultaneously
transmits optical signals through the
same fiber while message integrity of
each signal is preserved.
EDFA (Erbium Doped Fiber A purely optical (as opposed to
Amplifier): electronic) device used to boost an
optical signal. It contains several
meters of glass fiber doped with erbium
ions. When the erbium ions are excited to
a higher energy state, the doped fiber
changes from a passive medium to an
active amplifying medium.
Fiber Kilometers: The number of route kilometers installed
multiplied by the number of fiber strands
along the path.
Gbps (Gigabit per second): A data rate of 1 Gbps corresponds to 1,000
million bits per second.
Internet: A fabric of interconnected computer
networks, originally known as the DARPA
network (Defense Advanced Research
Projects Agency) connecting government
and academic sites. It currently links
about 50 million people world-wide who
use it for everything from scientific
research to simple E-Mail.
Indefeasible Right of Use (IRU): A measure of currency in the undersea
cable business. The owner of an IRU has
the right to use the capacity for the
time and bandwidth to which the IRU
applies.
ISP: Independent service provider.
ITU (International
Telecommunications
Union): The ITU is an intergovernmental agency of
the United Nations within which the
public and private sectors cooperate for
the development of telecommunications.
The ITU adopts international regulations
governing the use of the radio spectrum
and develops standards to facilitate the
interconnection of telecommunications
systems on a worldwide basis. It is
headquartered in Geneva, Switzerland. In
1996, the ITU comprised 185 Member States
and 363 members (scientific and
industrial companies, public and private
operators, broadcasters, regional and
international organizations active in
three sectors: Radio communications,
Standardization and Development).
</TABLE>
GL-3
<PAGE>
<TABLE>
<C> <S>
Mbps (Megabit per second): One Mbps corresponds to a data rate of
1,000,000 bite per second.
Multimedia: The electronic conversation between two or
more people or groups of people in
different places using two or more types
of digitally integrated communication for
voice, sound, text, data, graphics,
video, image or presence at the same
time. Applications include conferencing,
presentations, training, referencing,
games, etc.
Multiplexing: An electronic or optical process that
combines two or more lower bandwidth
transmissions into one higher bandwidth
signal by splitting the total available
bandwidth into narrower bands (frequency
division) or by allotting a common
channel to several transmitting sources
one at a time in sequence (time
division).
Multipoint: Pertaining or referring to a
communications line to which three or
more stations are connected. It implies
that the line physically extends from one
station to another until all are
connected.
Optical Fibers: Thin filaments of glass through which
light beams are transmitted. Enormous
capacity, low-cost, low-power
consumption, small space, lite-weight,
insensitivity to electromagnetic
interference characterize this transport
media.
PTTs (Post, Telephone and
Telegraph
companies): International telecommunications carriers
which are generally under the control of
the government in a country that has not
yet privatized its telecommunications
markets.
Repeater: 1. Equipment that receives a low-power
signal, possibly converting it from
light to electrical form, amplifying it
or retiming and reconstructing it for
transmission. It may need to be
reconverted to light for retransmission.
2. An optoelectrical device used at each
end and occasionally at intermediate
points of exceptionally long fiber-optic
span. Optical input is converted to
electrical form to restore a clean
signal, which drives lasers that fully
restores the optical signal at the
original signal strength.
Route Kilometers: The number of route kilometers installed.
RFS (Ready for Service): The data of provisional acceptance or
commercial service of a cable system.
STM (Synchronous Transfer Mode): New term for traditional TDM switching to
distinguish it from ATM.
STM-1: The largest standard circuit unit of
capacity, which consists of 155,500 Kbps
(equal to 155 Mbps). Thus, each Gbps
contains enough capacity for 6.4 STM-1
circuits. While capacity is sold to the
largest telecommunications companies in
minimum investment units equal to one
STM-1 unit, most telecommunications
companies buy smaller units at a price
higher than the equivalent STM-1 price.
</TABLE>
GL-4
<PAGE>
<TABLE>
<C> <S>
Wavelength: The distance between two crests of a signal
or a carrier and is measured in terms of
meters, millimeters, nanometers, etc. In
lightwave applications, because of the
extremely high frequencies, wavelength is
measured in nanometers.
xDSL: A term referring to a variety of new
Digital Subscriber Line technologies. Some
of these varieties are asymmetric with
different data rates in the downstream and
upstream directions. Others are symmetric.
Downstream speeds range from 384 Kbps (or
"SDSL") to 1.5-8 Mbps (or "ADSL").
</TABLE>
GL-5
<PAGE>
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Service of Process and Enforcement of Liabilities......................... ii
Information Regarding Forward-Looking Statements.......................... ii
Summary................................................................... 1
Risk Factors.............................................................. 12
Use of Proceeds........................................................... 22
Dividend Policy........................................................... 22
Dilution.................................................................. 22
Capitalization............................................................ 23
Selected Consolidated Financial Data...................................... 24
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 26
Business.................................................................. 32
Management................................................................ 46
Principal and Selling Shareholders........................................ 53
Certain Transactions...................................................... 55
Description of Capital Stock.............................................. 60
Shares Eligible for Future Sale........................................... 64
Description of Certain Indebtedness....................................... 65
Tax Considerations........................................................ 67
Underwriting.............................................................. 73
Legal Matters............................................................. 75
Experts................................................................... 76
Available Information..................................................... 76
Index to Consolidated Financial Statements................................ F-1
Glossary of Certain Defined Terms......................................... GL-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER COMMENCEMENT OF THE OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
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21,000,000 SHARES
GLOBAL CROSSING LTD.
COMMON STOCK
LOGO GLOBAL CROSSING
-------
PROSPECTUS
DATED , 1998
-------
SALOMON SMITH BARNEY
MERRILL LYNCH & CO.
CIBC OPPENHEIMER
DEUTSCHE BANK SECURITIES
GOLDMAN, SACHS & CO.
MORGAN STANLEY DEAN WITTER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION, DATED JULY 23, 1998
PROSPECTUS
21,000,000 SHARES
GLOBAL CROSSING LTD.
LOGO
COMMON STOCK
--------
Of the 21,000,000 shares of Common Stock, par value $.01 per share, offered
hereby (the "Shares"), 4,200,000 Shares are being offered by the International
Underwriters (as defined herein) outside the United States and Canada (the
"International Offering") and 16,800,000 Shares are being offered by the U.S.
Underwriters (as defined herein) in a concurrent offering in the United States
and Canada (the "U.S. Offering" and, collectively with the International
Offering, the "Offerings"), subject to transfers between the International
Underwriters and the U.S. Underwriters (collectively, the "Underwriters"). The
Price to Public and Underwriting Discount per Share will be identical for the
International Offering and the U.S. Offering. See "Underwriting." The closings
of the International Offering and the U.S. Offering are conditioned upon each
other.
Of the 21,000,000 Shares offered hereby, 18,950,000 Shares are being sold by
Global Crossing Ltd., a Bermuda company ("GCL" or the "Issuer" and, together
with its subsidiaries, "Global Crossing" or the "Company"), and 2,050,000
Shares are being sold by certain selling shareholders (the "Selling
Shareholders"). See "Principal and Selling Shareholders." The Company will not
receive any proceeds from the sale of the Shares by the Selling Shareholders.
Prior to the Offerings, there has been no public market for the Common Stock
of the Issuer. It is currently estimated that the Price to Public will be
between $17 and $19 per share. See "Underwriting" for information relating to
the factors considered in determining the Price to Public. Upon completion of
the Offerings, purchasers of Shares in the Offerings will own approximately
10.41% (11.79% if the Underwriters' over-allotment options are exercised in
full) and existing shareholders will own 89.59% (88.21% if the over-allotment
options are exercised in full) of the outstanding Common Stock. See "Principal
and Selling Shareholders."
Application has been made to have the Common Stock listed on the Nasdaq Stock
Market's National Market (the "Nasdaq National Market") under the symbol
"GBLXF" and listed supplementally on the Bermuda Stock Exchange.
--------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED
HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNTS AND COMMISSIONS(1) COMPANY (2) SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ $ $ $
- --------------------------------------------------------------------------------------------------------
Total(3) $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of
1933. See "Underwriting."
(2) Before deducting expenses estimated at $2,400,000 payable by the Company.
(3) The Company has granted to the U.S. Underwriters and the International
Underwriters 30-day options to purchase up to an aggregate of 3,150,000
additional shares of Common Stock at the Price to Public, less
Underwriting Discounts and Commissions, solely to cover over-allotments,
if any. If the Underwriters exercise such options in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively.
See "Underwriting."
--------
The Shares are offered subject to receipt and acceptance by the Underwriters,
to prior sale and to such Underwriters' right to reject any order in whole or
in part and to withdraw, cancel or modify the offer without notice. It is
expected that delivery of the Shares will be made at the offices of Smith
Barney Inc. at 333 West 34th Street, New York, New York 10001 or through the
facilities of The Depository Trust Company (the "Depository") on or about
, 1998.
--------
Joint Book-Running Managers
SALOMON SMITH BARNEY INTERNATIONAL
MERRILL LYNCH INTERNATIONAL
--------
CIBC OPPENHEIMER
DEUTSCHE BANK
GOLDMAN SACHS INTERNATIONAL
MORGAN STANLEY DEAN WITTER
The date of this Prospectus is , 1998.
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Service of Process and Enforcement of Liabilities......................... ii
Information Regarding Forward-Looking Statements.......................... ii
Summary................................................................... 1
Risk Factors.............................................................. 12
Use of Proceeds........................................................... 22
Dividend Policy........................................................... 22
Dilution.................................................................. 22
Capitalization............................................................ 23
Selected Consolidated Financial Data...................................... 24
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 26
Business.................................................................. 32
Management................................................................ 46
Principal and Selling Shareholders........................................ 53
Certain Transactions...................................................... 55
Description of Capital Stock.............................................. 60
Shares Eligible for Future Sale........................................... 64
Description of Certain Indebtedness....................................... 65
Tax Considerations........................................................ 67
Underwriting.............................................................. 73
Legal Matters.............................................................
Experts...................................................................
Available Information.....................................................
Index to Consolidated Financial Statements................................ F-1
Glossary of Certain Defined Terms......................................... GL-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER COMMENCEMENT OF THE OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
21,000,000 SHARES
GLOBAL CROSSING LTD.
COMMON STOCK
LOGO GLOBAL CROSSING
-------
PROSPECTUS
DATED , 1998
-------
SALOMON SMITH BARNEY INTERNATIONAL
MERRILL LYNCH INTERNATIONAL
CIBC OPPENHEIMER
DEUTSCHE BANK
GOLDMAN SACHS INTERNATIONAL
MORGAN STANLEY DEAN WITTER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The registrant estimates that expenses in connection with the offering
described in this Registration Statement will be as follows:
<TABLE>
<S> <C>
SEC registration fee........................................... $ 139,045
NASD filing fee................................................ 30,500
NASDAQ National Market listing fee............................. 95,000
Bermuda Stock Exchange listing fee............................. 62,500
Printing and engraving expenses................................ 500,000
Legal fees and expenses........................................ 1,000,000
Accounting fees and expenses................................... 500,000
Blue Sky fees and expenses..................................... 5,000
Transfer agent and registrar fees.............................. 15,000
Miscellaneous.................................................. 52,955
----------
Total...................................................... $2,400,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
No provision is made in Bermuda statutory law for indemnification of
officers and directors.
The Bye-laws of the registrant provide for indemnification of the
registrant's officers and directors against all liabilities, loss, damage or
expense incurred or suffered by such party as an officer or director of the
registrant; provided that such indemnification shall not extend to any matter
which would render it void pursuant to the Companies Acts as in effect from
time to time in Bermuda.
The Underwriting Agreements provide for indemnification of directors and
officers of the registrant by the Underwriters against certain liabilities.
The directors and officers of the Company are covered by directors' and
officers' insurance policies maintained by the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this Registration Statement, the
registrant and its predecessor, Global Crossing Ltd., LDC ("Old GCL") issued
the following securities that were not registered under the Securities Act of
1933, as amended (the "Securities Act"):
(a) $800,000,000 aggregate principal amount of 9-5/8% Senior Notes Due
2008 (the "GCH Senior Notes") issued by the registrant's wholly-owned
subsidiary, Global Crossing Holdings, Ltd. and sold to each of Salomon
Brothers Inc, Merrill Lynch, Pierce, Fenner & Smith Incorporated, CIBC
Oppenheimer Corp., Morgan Stanley & Co. Incorporated and Deutsche Bank
Securities Inc. (formerly known as Deutsche Morgan Grenfell Inc.);
(b) $150,000,000 aggregate principal amount of 12% Senior Notes Due 2004
(the "GTH Senior Notes") issued by the registrant's indirect wholly-owned
subsidiary, Global Telesystems Holdings, Ltd. ("GTH"), and sold to CIBC
Wood Gundy Securities Corp.;
(c) $100,000,000 million aggregate principal amount of 14% Mandatorily
Redeemable Preference Shares (the "GTH Preference Shares") issued by GTH
and sold to CIBC Wood Gundy Securities Corp.;
II-1
<PAGE>
(d) upon formation of Old GCL, (i) 7,500,000 Class A shares, 31,250,000
Class B shares and 33,750,000 Class C shares of common stock of Old GCL at
$1.00 per share and (ii) 22,058,800 Class D shares of common stock of Old
GCL, valued at $.11 per share, in each case to the initial shareholders
thereof;
(e) 13,235,300 Class A shares of common stock of Old GCL, valued at $1.00
per share, issued for no consideration to CIBC Wood Gundy Securities Corp.
in connection with the sale of the GTH Preference Shares;
(f) 300,000 Class B shares and 125,000 Class E shares of common stock of
Old GCL at $1.00 per share issued on January 21, 1998 to additional
shareholders of Old GCL;
(g) 100,000 Class E shares of common stock of Old GCL at $1.00 per share
issued on April 22, 1998 to an additional shareholder of Old GCL; and
(h) upon formation of the registrant, 1,200,000 shares of its Common
Stock, at its par value of $.01 per share, to its sole stockholder.
The GCH Senior Notes, GTH Senior Notes and GTH Preference Shares have been
resold only to institutional investors that are "qualified institutional
buyers" within the meaning of Rule 144A under the Securities Act or pursuant
to Regulation S under the Securities Act. All issuances specified above were
made in reliance upon an exemption from the registration provisions of the
Securities Act set forth in Section 4(2) thereof relative to transactions by
an issuer not involving any public offering or the rules and regulations
thereunder. All of such shares of Common Stock are deemed restricted
securities within the meaning of Rule 144 under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
1.1*** Form of U.S. Underwriting Agreement
3.1* Memorandum of Association of the Registrant, dated March 5, 1998
3.2* Bye-laws of the Registrant, dated March 18, 1997
3.3 Certificate of Incorporation of Change of Name
3.4 Memorandum of Increase of Share Capital
3.5 Form of Amended and Restated Bye-laws of the Registrant
4.1 Form of Certificate for Common Stock
4.2* Indenture, dated as of May 18, 1998, between Global Crossing
Holdings Ltd. and United States Trust Company of New York, as
Trustee
4.3* Registration Agreement, dated as of May 18, 1998, among the
registrant, Global Crossing Holdings Ltd. and the other parties
named therein
4.4 Form of Registration Rights Agreement among the Registrant and
the investors named therein
4.5* Credit Agreement, dated as of June 27, 1997 (the "Credit
Agreement"), among Global Telesystems Ltd., various financial
institutions names therein, Deutsche Bank AG, New York Branch
and Canadian Imperial Bank of Commerce, as Lead Agents, Deutsche
Bank AG, New York Branch, as Administrative Agent, Canadian
Imperial Bank of Commerce, as Syndication Agent, Documentation
Agent and the Issuing Bank and Deutsche Morgan Grenfell Inc. and
CIBC Gundy Securities Corp, as Arrangers
4.6* First Amendment and Consent, dated as of December 15, 1997, to
Credit Agreement, among Global Telesystems Ltd., the lenders
named therein, Deutsche Bank AG, New York Branch and Canadian
Imperial Bank of Commerce, as Lead Agents, Deutsche Bank AG, New
York Branch, as Administrative Agent, Canadian Imperial Bank of
Commerce, as Syndication Agent, Documentation Agent and the
Issuing Bank and Deutsche Morgan Grenfell Inc. and CIBC Gundy
Securities Corp, as Arrangers
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
4.7* Form of Amended and Restated Stockholders' Agreement among GCT
Pacific Holdings, Ltd., SCS (Bermuda) Ltd., Marubeni Pacific
Cable Limited and Pacific Crossing Ltd.
4.8 Second Amendment and Consent, dated as of June 12, 1998, to the
Credit Agreement, among Atlantic Crossing Ltd. (f/k/a Global
Telesystems Ltd.), the lenders named therein, Deutsche Bank AG,
New York Branch and Canadian Imperial Bank of Commerce, as Lead
Agents, Deutsche Bank AG, New York Branch, as Administrative
Agent, Canadian Imperial Bank of Commerce, as Syndication Agent,
Documentation Agent and the Issuing Bank and Deutsche Morgan
Grenfell Inc. and CIBC Gundy Securities Corp, as Arrangers
5.1 Opinion of Appleby, Spurling & Kempe as to the legality of the
Shares being registered
8.1* Opinion of Simpson Thacher & Bartlett as to tax matters relating
to the Shares being registered
8.2* Opinion of Appleby, Spurling & Kempe as to tax matters relating
to the Shares being registered
9.1 Form of Stockholders Agreement among the Registrant and the
investors named therein
10.1* Form of 1998 Global Crossing Ltd. Stock Incentive Plan
10.2** Project Development and Construction Contract, dated March 18,
1997, among AT&T Submarine Systems, Inc. and Global Telesystems
Ltd.
10.3** Project Development and Construction Contract, dated as of April
21, 1998, among Tyco Submarine Systems, Ltd. and Pacific
Crossing Ltd.
10.4** Project Development and Construction Contract, dated as of June
2, 1998, among Alcatel Submarine Networks and Alcatel Submarine
Networks, Inc. and Mid-Atlantic Crossing Ltd.
10.5* Advisory Services Agreement, dated as of March 25, 1997, among
Global Telesystems Ltd. and PCG Telecom Services LLC
10.6* First Amendment, dated as of June 27, 1997, to the Advisory
Services Agreement, dated as of March 25, 1997, among Global
Telesystems Ltd. and PCG Telecom Services LLC
21.1* Subsidiaries of the Registrant
23.1* Consent of Appleby Spurling & Kempe (included in the opinions
filed as Exhibit 5.1 and Exhibit 8.2)
23.2 Consent of Arthur Andersen & Co.
23.3* Consent of Simpson Thacher & Bartlett (included in the opinion
filed as Exhibit 8.1)
24.1* Power of Attorney (included on signature page II-4 of the
original filing of Registration Statement on Form S-1)
27.1* Financial Data Schedule
99.1* Consent of Nominee Director
99.2* Consent of Nominee Director
99.3* Consent of Nominee Director
</TABLE>
--------
* Previously filed
** Portions have been omitted pursuant to a request for confidential
treatment
*** To be filed by amendment
(b) Financial Statement Schedules
ITEM 17. UNDERTAKINGS.
(1) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificate in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(2) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
II-3
<PAGE>
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(i) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(ii) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 to the registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of New York, State of New York on July 23, 1998.
Global Crossing Ltd.
/s/ John M. Scanlon
By __________________________________
NAME: JOHN M. SCANLON
TITLE: CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the registration statement has been signed on July 23, 1998
by or on behalf of the following persons in the capacities indicated with the
registrant.
SIGNATURE TITLE
/*/ Co-Chairman of the Board and
------------------------------------- Director
Gary Winnick
/*/ Co-Chairman of the Board and
------------------------------------- Director
Lodwrick Cook
/s/ John M. Scanlon Chief Executive Officer and Director
-------------------------------------
John M. Scanlon
/*/ President, Chief Operating Officer
------------------------------------- and Director
David Lee
/*/ Senior Vice President and Director
-------------------------------------
Barry Porter
/*/ Senior Vice President and Director
-------------------------------------
Abbott Brown
/*/ Senior Vice President and Chief
------------------------------------- Financial Officer
Dan J. Cohrs
/*/ Director
-------------------------------------
Hillel Weinberger
II-5
<PAGE>
SIGNATURE TITLE
/*/ Director
------------------------------------
Jay Bloom
/*/ Director
------------------------------------
Dean Kehler
/*/ Director
------------------------------------
Jay Levine
/*/ Director
------------------------------------
William Phoenix
/*/ Director
------------------------------------
Bruce Raben
/*/ Director
------------------------------------
Michael Steed
/s/ John M. Scanlon Authorized Representative in the
------------------------------------ United States
John M. Scanlon
* By Power of Attorney
/s/ John M. Scanlon Attorney-in-Fact
------------------------------------
John M. Scanlon
II-6
<PAGE>
APPENDIX DESCRIBING GRAPHIC MATERIAL
PURSUANT TO RULE 304 OF REGULATION S-T
Inside Front cover
Beginning clockwise from top left corner.
Picture 1.
Picture of assorted European currency on top of newspaper background.
Caption below picture says "cost effective".
Picture 2.
Picture of face of a clock with hands featured prominently. Caption
below picture says "reliable".
Picture 3.
Picture of fiber optic cables. Caption below picture says
"connectivity".
Picture 4.
Picture of hand holding cellular telephone.
Picture 5.
Picture of globe with focus on the North Atlantic Ocean. Caption in
picture says "global".
Gatefold
Map of world indicating the Company's network of undersea fiber optic
cables linking the continents and indicating terrestrial capacity acquired from
third parties.
The descriptive caption in the top left corner of the map reads: "The
Global Crossing Network will be initially comprised of: Atlantic Crossing, which
commenced service on the United States to United Kingdom segment in May 1998;
Mid-Atlantic Crossing, scheduled to commence service in November 1999; Pan-
American Crossing, scheduled to commence service in February 2000; and Pacific
Crossing, scheduled to commence initial service in March 2000."
<PAGE>
2
Inside Back Cover
Beginning clockwise in top left corner.
Picture 1.
Fiber optic cable being loaded into water from cable laying ship.
Picture 2.
Woman verifying computer equipment in landing station.
Picture 3.
Cable-laying vessel on high seas.
Picture 4.
Manufacturing process of optical repeater being worked on by five
technicians.
Picture 5.
Two men laying fiber optic cable.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT PAGE
------- ------- ----
<C> <S> <C>
1.1*** Form of U.S. Underwriting Agreement
3.1* Memorandum of Association of the Registrant, dated March 5,
1998
3.2* Bye-laws of the registrant, dated March 18, 1997
3.3 Certificate of Incorporation of Change of Name
3.4 Memorandum of Increase of Share Capital
3.5 Form of Amended and Restated Bye-laws of the Registrant
4.1 Form of Certificate for Common Stock
4.2* Indenture, dated as of May 18, 1998, between Global Crossing
Holdings Ltd. and United States Trust Company of New York, as
Trustee
4.3* Registration Agreement, dated as of May 18, 1998, among the
Registrant, Global Crossing Holdings Ltd. and the other parties
named therein
4.4 Form of Registration Rights Agreement among the Registrant and
the investors named therein
4.5* Credit Agreement, dated as of June 27, 1997 (the "Credit
Agreement"), among Global Telesystems Ltd., various financial
institutions names therein, Deutsche Bank AG, New York Branch
and Canadian Imperial Bank of Commerce, as Lead Agents,
Deutsche Bank AG, New York Branch, as Administrative Agent,
Canadian Imperial Bank of Commerce, as Syndication Agent,
Documentation Agent and the Issuing Bank and Deutsche Morgan
Grenfell Inc. and CIBC Gundy Securities Corp, as Arrangers
4.6* First Amendment and Consent, dated as of December 15, 1997, to
Credit Agreement, among Global Telesystems Ltd., the lenders
named therein, Deutsche Bank AG, New York Branch and Canadian
Imperial Bank of Commerce, as Lead Agents, Deutsche Bank AG,
New York Branch, as Administrative Agent, Canadian Imperial
Bank of Commerce, as Syndication Agent, Documentation Agent and
the Issuing Bank and Deutsche Morgan Grenfell Inc. and CIBC
Gundy Securities Corp, as Arrangers
4.7* Form of Amended and Restated Stockholders' Agreement among GCT
Pacific Holdings, Ltd., SCS(Bermuda) Ltd., Marubeni Pacific
Cable Limited and Pacific Crossing Ltd.
4.8 Second Amendment and Consent, dated as of June 12, 1998, to the
Credit Agreement, among Atlantic Crossing Ltd. (f/k/a Global
Telesystems Ltd.), the lenders named therein, Deutsche Bank AG,
New York Branch and Canadian Imperial Bank of Commerce, as Lead
Agents, Deutsche Bank AG, New York Branch, as Administrative
Agent, Canadian Imperial Bank of Commerce, as Syndication
Agent, Documentation Agent and the Issuing Bank and Deutsche
Morgan Grenfell Inc. and CIBC Gundy Securities Corp, as
Arrangers
5.1 Opinion of Appleby, Spurling & Kempe as to the legality of the
Shares being registered
8.1* Opinion of Simpson Thacher & Bartlett as to tax matters
relating to the Shares being registered
8.2* Opinion of Appleby, Spurling & Kempe as to tax matters relating
to the Shares being registered
9.1 Form of Stockholders' Agreement among the Registrant and the
investors named therein
10.1* Form of 1998 Global Crossing Ltd. Stock Incentive Plan
10.2** Project Development and Construction Contract, dated March 18,
1997, among AT&T Submarine Systems, Inc. and Global Telesystems
Ltd.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT PAGE
------- ------- ----
<C> <S> <C>
10.3** Project Development and Construction Contract, dated as of
April 21, 1998, among Tyco Submarine Systems, Ltd. and Pacific
Crossing Ltd.
10.4** Project Development and Construction Contract, dated as of June
2, 1998, among Alcatel Submarine Networks and Alcatel Submarine
Networks, Inc. and Mid-Atlantic Crossing Ltd.
10.5* Advisory Services Agreement, dated as of March 25, 1997, among
Global Telesystems Ltd. and PCG Telecom Services LLC
10.6* First Amendment, dated as of June 27, 1997, to the Advisory
Services Agreement, dated as of March 25, 1997, among Global
Telesystems Ltd. and PCG Telecom Services LLC
21.1* Subsidiaries of the Registrant
23.1* Consent of Appleby Spurling & Kempe (included in the opinions
filed as Exhibit 5.1 and Exhibit 8.2)
23.2 Consent of Arthur Andersen & Co.
23.3* Consent of Simpson Thacher & Bartlett (included in the opinion
filed as Exhibit 8.1)
24.1* Power of Attorney (included on signature page II-4 of the
original filing of Registration Statement on Form S-1)
27.1* Financial Data Schedule
99.1* Consent of Nominee Director
99.2* Consent of Nominee Director
99.3* Consent of Nominee Director
</TABLE>
- --------
* Previously filed
** Portions have been omitted pursuant to a request for confidential treatment
*** To be filed by amendment
2
<PAGE>
EXHIBIT 3.3
FORM NO. 3a REGISTRATION NO. EC24644
[SEAL]
BERMUDA
CERTIFICATE OF INCORPORATION
ON CHANGE OF NAME
I HEREBY CERTIFY that in accordance with section 10 of THE COMPANIES ACT 1981
GLOBAL CROSSING HOLDINGS LTD. by resolution and with the approval of the
Registrar of Companies has changed its name and was registered as GLOBAL
CROSSING LTD. on the 30TH day of APRIL, 1998.
Given under my hand and the Seal of the
[SEAL] REGISTRAR OF COMPANIES this 5TH day of
MAY, 1998
/s/ Illegible
for REGISTRAR OF COMPANIES
<PAGE>
EXHIBIT 3.4
FORM NO. 7
[SEAL]
BERMUDA
THE COMPANIES ACT 1981
MEMORANDUM OF INCREASE OF SHARE CAPITAL
OF
GLOBAL CROSSING LTD.
- --------------------------------------------------------------------------------
(hereinafter referred to as "the Company")
DEPOSITED in the office of the Registrar of Companies on the 9th day of
July, 1998, in accordance with the provisions of section 45(3) of the Companies
Act 1981.
Minimum Share Capital of the Company US$12,000.00
Authorized Share Capital of the Company US$12,000.00
Increase of Share Capital as authorized
by resolution passed at a general US$5,988,000.00
meeting of the Company to the
day of 1996
---------------
AUTHORIZED SHARE CAPITAL AS INCREASE US$6,000,000.00
---------------
DULY STAMPED in the amount of BD$NIL being the stamp duty payable on the amount
of increase of share capital of the Company in accordance with the provision of
the Stamp Duties Act, 1976.
---------------------
Lorraine Dean
Assistant Secretary
DATED THIS 9th day of July, 1998.
NOTE: This memorandum must be filed in the office of the Registrar of
Companies within thirty days after the date on which the resolution
increasing the share capital has effect and must be accompanied by a
copy of the resolution and the prescribed fee.
<PAGE>
EXHIBIT 3.5
B Y E - L A W S
of
Global Crossing Ltd.
I HEREBY CERTIFY that the within written Bye-Laws are a true copy of the Bye-
Laws of GLOBAL CROSSING LTD. as subscribed by the subscribers to the Memorandum
of Association and approved at the Statutory meeting of the above Company on the
[ ].
Director
Prepared by
Messrs Appleby Spurling & Kempe
Cedar House
41 Cedar Avenue
Hamilton, Bermuda
<PAGE>
I N D E X
---------
BYE-LAW SUBJECT PAGE
- ------- ------- ----
1 Interpretation 3-7
2 Registered Office 7
3-4 Share Rights 7,8
5-6 Modification of Rights 9,10
7-9 Shares 10
10-13 Certificates 11
14-17 Lien 12-14
18-23 Calls on Shares 15,16
24-30 Forfeiture of Shares 16-18
31-32 Register of Shareholders 18
33 Register of Directors and Officers 18,19
34-37 Transfer of Shares 19-21
38-41 Transmission of Shares 21,22
42-44 Increase of Capital 23
45-46 Alteration of Capital 23,24
47-48 Reduction of Capital 24,25
49 General Meetings and Written Resolutions 25,26
50-52 Notice of General Meetings 26,27
53 General Meetings at more than one place 27,28
54-60 Proceedings at General Meetings 28-30
61-71 Voting 30-35
72-77 Proxies and Corporate Representatives 35-37
78-84 Appointment and Removal of Directors 37-41
85 Resignation and Disqualification of Directors 41,42
86-89 Alternate Directors 42-44
<PAGE>
2
BYE-LAW SUBJECT PAGE
- ------- ------- ----
90 Directors' Fees and Additional
Remuneration and Expenses 44
91 Directors' Interests 45-47
92-94 Powers and Duties of the Board 47,48
95 Gratuities, Pensions and Insurance 48,49
96-99 Delegation of the Board's Powers 49,50
100-111 Proceedings of the Board 50-53
112 Officers 54
113-115 Executive Directors 54,55
116 Minutes 55,56
117-118 Secretary and Resident Representative 56
119 The Seal 56,57
120-126 Dividends and Other Payments 57-59
127 Reserves 59,60
128-129 Capitalisation of Profits 60,61
130 Record Dates 61
131-133 Accounting Records 61,62
134 Audit 62
136-137 Service of Notices and Other Documents 62,63
138 Destruction of Documents 63,64
139 Untraced Shareholders 65-67
140 Winding Up 67
141-145 Indemnity 67-70
146 Amalgamation 70
147 Continuation 70
148 Alteration of Bye-Laws 70,71
<PAGE>
3
B Y E - L A W S
OF
GLOBAL CROSSING LTD.
INTERPRETATION
1. (1) In these Bye-Laws unless the context otherwise requires
"AFFILIATES OR AFFILIATES" means any other person directly or
indirectly controlling, controlled by or under direct or indirect
common control with any other person. For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling" "controlled by" and "under common control with"), as
used with respect to any person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the
management or policies of such person, whether through the ownership
of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting stock of a person
shall be deemed to be control.
"BERMUDA" means the Islands of Bermuda;
"BOARD" means the Board of Directors of the Company or the Directors
present at a meeting of Directors at which there is a quorum;
"CIBC" means Canadian Imperial Bank of Commerce, CIBC Wood Gundy
Capital (SFC) Inc., [names of two CIBC Partnerships to be added] any
Affiliates of Canadian Imperial Bank of Commerce and any Permitted
Transferee (as defined in the Stockholders Agreement) of any of the
foregoing;
"THE CODE" means the United States Internal Revenue Code of 1986, as
amended from time to time.
<PAGE>
4
"COMMON SHARES" means all the authorised common shares of par value
US$0.01 each in the capital of the Company;
"THE COMPANIES ACTS" means every Bermuda statute from time to time in
force concerning companies insofar as the same applies to the Company;
"COMPANY" means the company incorporated in Bermuda under the name of
Global Crossing Holdings Ltd. (but now named Global Crossing Ltd.) on
the 23rd day of March, 1998;
"CONTROLLED SHARES" in reference to any Shareholder means:
(i) all common shares directly, indirectly, or constructively
owned by such Shareholders within the meaning of Section 958 of the
Code and the Treasury regulations promulgated thereunder; and
(ii) all common shares directly or indirectly or constructively
owned as a result of voting power held or shared by any Person or
"group" of Persons within the meaning of Section 13(d) of the Exchange
Act (the "13(d) Formula").
For the purposes of the application of the 13(d) Formula only,
"Person" means any individual, firm, partnership, company, limited
liability company, association or other entity or any "group" of
Persons with respect to the exercise of voting power within the
meaning of Section 13(d) of the Exchange Act.
"THE EXCHANGE ACT" means the United States Securities Exchange Act of
1934 as amended, and the rules and regulations promulgated thereunder;
"GKW" means GKW Unified Holdings, LLC;
"OFFICER" means a person appointed by the Board pursuant to Bye-Law
112-7 of these Bye-Laws and shall not include an auditor of the
Company;
"LOEWS" means The Loews Corporation;
<PAGE>
5
"MR CO" means MR Co. Inc.;
"PACIFIC CAPITAL" means Pacific Capital Group Inc.;
"PAID UP" means paid up or credited as paid up;
"REGISTER" means the Register of Shareholders of the Company;
"REGISTERED OFFICE" means the registered office for the time being of
the Company;
"RESIDENT REPRESENTATIVE" means the person (or, if permitted in
accordance with the Companies Acts, the company) appointed to perform
the duties of resident representative set out in the Companies Acts
and includes any assistant or deputy Resident Representative appointed
by the Board to perform any of the duties of the Resident
Representative;
"RESOLUTION" means a resolution of the Shareholders or, where
required, of a separate class or separate classes of Shareholders,
adopted either in general meeting or by written resolution, in
accordance with the provisions of these Bye-Laws;
"SEAL" means the common seal of the Company and includes any duplicate
thereof;
"SECRETARY" includes a temporary or assistant or deputy Secretary and
any person appointed by the Board to perform any of the duties of the
Secretary;
"SHARES" means all shares in the capital of the Company whether
preferred or common;
"SHAREHOLDER" means a shareholder or member of the Company;
"STOCK EXCHANGE" means The Nasdaq National Stock Market, the Bermuda
Stock Exchange or any other stock exchange on which shares of the
Company may be listed from time to time;
"STOCKHOLDER AGREEMENT" means the Stockholders Agreement dated
[ ], 1998 and entered into among the Company,
<PAGE>
6
CIBC, Pacific Capital, GKW, Loews, Winnick and MR Co. and the other
parties thereto;
"SPECIFIED PLACE" means the place, if any, specified in the notice of
any meeting of the shareholders, or adjourned meeting of the
shareholders, at which the chairman of the meeting shall preside;
"THESE BYE-LAWS" means these Bye-Laws in their present form or as from
time to time amended;
"UNITED STATES PERSON" means any national or resident of the United
States of America, its territories or possessions and all areas
subject to its jurisdiction including the Commonwealth of Puerto Rico
("United States") (including any corporation, partnership or other
entity created or organised in or under the laws of the United States
or any political subdivision thereof) and any estate or trust which is
subject to United States federal income taxation regardless of the
source of its income];
"WINNICK" means Gary K. Winnick;
(2) For the purposes of these Bye-Laws a corporation shall be deemed to be
present in person if its representative duly authorised pursuant to
the Companies Acts is present;
(3) Words importing only the singular number include the plural number and
vice versa;
(4) Words importing only the masculine gender include the feminine and
neuter genders respectively;
(5) Words importing persons include companies or associations or bodies of
persons, whether corporate or un-incorporate;
(6) Reference to writing shall include typewriting, printing, lithography,
photography and other modes of representing or reproducing words in a
legible and non-transitory form;
(7) Any words or expressions defined in the Companies Acts in force at the
date when these Bye-Laws or any part thereof are adopted shall
<PAGE>
7
bear the same meaning in these Bye-Laws or such part (as the case may
be);
(8) In these Bye-Laws, (a) powers of delegation shall not be restrictively
construed but the widest interpretation shall be given thereto; (b)
the word "Board" in the context of the exercise of any power contained
in these Bye-Laws includes any committee consisting of one or more
Directors, any Director holding executive office and any local or
divisional Board, manager or agent of the Company to which or, as the
case may be, to whom the power in question has been delegated; (c) no
power of delegation shall be limited by the existence of any other
power of delegation; and (d) except where expressly provided by the
terms of delegation, the delegation of a power shall not exclude the
concurrent exercise of that power by any other body or person who is
for the time being authorised to exercise it under these Bye-Laws or
under another delegation of the powers.
REGISTERED OFFICE
2. The Registered Office shall be at such place in Bermuda as the Board shall
from time to time appoint.
SHARE RIGHTS
3. (1) Subject to any special rights conferred on the holders of any share or
class of shares, any share in the Company may be issued with or have
attached thereto such preferred, deferred, qualified or other special
rights or such restrictions, whether in regard to dividend, voting,
return of capital or otherwise, as the Company may by Resolution
determine or, if there has not been any such
<PAGE>
8
determination or so far as the same shall not make specific provision,
as the Board may determine.
(2) If the Company creates, pursuant to Bye-law 3(1) or otherwise, any new
class or series of shares, the Company shall take such action in
determining the voting rights of the holders of such class or series
as may be required to assure that the Company is not classified as a
"controlled foreign corporation" under Section 951 et. seq. of the
--- ---
Code, in each case applying any resulting restrictions on voting
rights equitably to all Shareholders (regardless of whether a
Shareholder is a United States person).
4. (1) Subject to the Companies Acts, any preference shares may, with
the sanction of a resolution of the Board, be issued on terms:
(a) that they are to be redeemed on the happening of a specified
event or on a given date; and/or,
(b) that they are liable to be redeemed at the option of the Company;
and/or,
(c) if authorised by the memorandum/Incorporating Act of the Company,
that they are liable to be redeemed at the option of the holder.
The terms and manner of redemption shall be provided for in such
resolution of the Board and shall be attached to but shall not form
part of these Bye-Laws.
(2) The Board may, at its discretion and without the sanction of a
Resolution, authorise the purchase by the Company of its own shares,
of any class, at any price (whether at par or above or below par), and
so that any shares to be so purchased may be selected in any manner
whatsoever, upon such terms as the Board may in its discretion
determine PROVIDED ALWAYS that such purchase is effected in accordance
with the provisions of the Companies Acts.
<PAGE>
9
MODIFICATION OF RIGHTS
5. Subject to the Companies Acts and except as otherwise set forth in these
Bye-Laws, all or any of the special rights for the time being attached to
any class of shares for the time being issued may from time to time
(whether or not the Company is being wound up) be altered or abrogated with
the consent in writing of the holders of not less than seventy five percent
of the issued shares of that class or with the sanction of a resolution
passed at a separate general meeting of the holders of such shares voting
in person or by proxy. To any such separate general meeting, all the
provisions of these Bye-Laws as to general meetings of the Company shall
mutatis mutandis apply, but so that the necessary quorum shall be two or
more persons holding or representing by proxy shares of the relevant class
representing a majority of the votes that may be cast by all holders of
shares of that class, that every holder of shares of the relevant class
shall be entitled on a poll to the number of votes for every such share
held by him determined in accordance with Bye-Laws 62 and 63 and that any
holder of shares of the relevant class present in person or by proxy may
demand a poll; provided, however, that if the Company or a class of
Shareholders shall have only one Shareholder, one Shareholder present in
person or by proxy shall constitute the necessary quorum.
6. For the purposes of this Bye-Law, unless otherwise expressly provided by
the rights attached to any shares or class of shares, those rights shall be
deemed to be altered by the reduction of the capital paid up on those
shares otherwise than by a purchase or redemption by the Company of its own
shares and by the allotment of other shares ranking in priority for payment
of a dividend or in respect of capital or which confer on the holders
voting rights more favourable than those conferred by such first mentioned
<PAGE>
10
shares but shall not otherwise be deemed to be altered by the creation or
issue of further shares ranking pari passu therewith or by the purchase or
redemption by the Company of any of its own shares.
SHARES
7. Subject to the provisions of these Bye-Laws, the unissued shares of the
Company (whether forming part of the original capital or any increased
capital) shall be at the disposal of the Board, which may offer, allot,
grant options over or otherwise dispose of them to such persons, at such
times and for such consideration and upon such terms and conditions as the
Board may determine.
8. The Board may in connection with the issue of any shares exercise all
powers of paying commission and brokerage conferred or permitted by law.
Subject to the provisions of the Companies Acts, any such commission or
brokerage may be satisfied by the payment of cash or by the allotment of
fully or partly paid shares or partly in one way and partly in the other.
9. Except as ordered by a court of competent jurisdiction or as required by
law or as specifically provided in these Bye-Laws, no person shall be
recognised by the Company as holding any share upon trust and the Company
shall not be bound by or required in any way to recognise (even when having
notice thereof) any equitable, contingent, future or partial interest in
any share or any interest in any fractional part of a share or (except only
as otherwise provided in these Bye-Laws, or by law) any other right in
respect of any share except an absolute right to the entirety thereof in
the registered holder.
<PAGE>
11
CERTIFICATES
10. The preparation, issue and delivery of certificates shall be governed by
the Companies Acts. In the case of a share held jointly by several
persons, delivery of a certificate to one of several joint holders shall be
sufficient delivery to all.
11. If a share certificate is defaced, lost or destroyed it may be replaced
without fee but on such terms (if any) as to evidence and indemnity and to
payment of the costs and out of pocket expenses of the Company in
investigating such evidence and preparing such indemnity as the Board may
think fit and, in case of defacement, on delivery of the old certificate to
the Company.
12. All certificates for share or loan capital or other securities of the
Company (other than letters of allotment, scrip certificates and other like
documents) shall, except to the extent that the terms and conditions for
the time being relating thereto otherwise provide, be issued under the
Seal. The Board may by resolution determine, either generally or in any
particular case, that any signatures on any such certificates need not be
autographic but may be affixed to such certificates by some mechanical
means or may be printed thereon or that such certificates need not be
signed by any persons, or may determine that a representation of the Seal
may be printed on any such certificates.
13. Nothing in these Bye-Laws shall prevent title to any securities of the
Company from being evidenced and/or transferred without a written
instrument in accordance with regulations made from time to time in this
regard under the Companies Acts, and the Board shall have power to
implement any arrangements which it may think fit for such evidencing
and/or transfer which accord with those regulations.
<PAGE>
12
LIEN
14. The Company shall have a first and paramount lien on every share (not being
a fully paid share) for all moneys, whether presently payable or not,
called or payable, at a date fixed by or in accordance with the terms of
issue of such share in respect of such share. The Company's lien on a share
shall extend to all dividends payable thereon. The Board may at any time,
either generally or in any particular case, waive any lien that has arisen
or declare any share to be wholly or in part exempt from the provisions of
this Bye-Law.
15. The Company may sell, in such manner as the Board may think fit, any share
on which the Company has a lien but no sale shall be made unless some sum
in respect of which the lien exists is presently payable nor until the
expiration of fourteen days after a notice in writing, stating and
demanding payment of the sum presently payable and giving notice of the
intention to sell in default of such payment, has been served on the holder
for the time being of the share.
16. The net proceeds of sale by the Company of any shares on which it has a
lien shall be applied in or towards payment or discharge of the debt or
liability in respect of which the lien exists so far as the same is
presently payable, and any residue shall (subject to a like lien for debts
or liabilities not presently payable as existed upon the share prior to the
sale) be paid to the person who was the holder of the share immediately
before such sale. For giving effect to any such sale the Board may
authorise some person to transfer the share sold to the purchaser thereof.
The purchaser shall be registered as the holder of the share and he shall
not be bound to see to the application of the
<PAGE>
13
purchase money, nor shall his title to the share be affected by any
irregularity or invalidity in the proceedings relating to the sale.
17. Whenever any law for the time being of any country, state or place imposes
or purports to impose any immediate or future or possible liability upon
the Company to make any payment or empowers any government or taxing
authority or government official to require the Company to make any payment
in respect of any shares registered in any of the Company's registers as
held either jointly or solely by any Shareholder or in respect of any
dividends, bonuses or other monies due or payable or accruing due or which
may become due or payable to such Shareholder by the Company on or in
respect of any shares registered as aforesaid or for or on account or in
respect of any Shareholder and whether in consequence of:-
(a) the death of such Shareholder;
(b) the non-payment of any income tax or other tax by such Shareholder;
(c) the non-payment of any estate, probate, succession, death, stamp, or
other duty by the executor or administrator of such Shareholder or by
or out of his estate;
(d) any other act or thing;
in every such case (except to the extent that the rights conferred upon
holders of any class of shares render the Company liable to make additional
payments in respect of sums withheld on account of the foregoing):-
(i) the Company shall be fully indemnified by such Shareholder or his
executor or administrator from all liability;
(ii) the Company shall have a lien upon all dividends and other monies
payable in respect of the shares registered in any of the Company's
registers as held either jointly or solely by such Shareholder for all
<PAGE>
14
monies paid or payable by the Company in respect of such shares or in
respect of any dividends or other monies as aforesaid thereon or for
or on account or in respect of such Shareholder under or in
consequence of any such law together with interest at the rate of
fifteen percent per annum thereon from the date of payment to date of
repayment and may deduct or set off against such dividends or other
monies payable as aforesaid any monies paid or payable by the Company
as aforesaid together with interest as aforesaid;
(iii) the Company may recover as a debt due from such Shareholder or his
executor or administrator wherever constituted any monies paid by the
Company under or in consequence of any such law and interest thereon
at the rate and for the period aforesaid in excess of any dividends or
other monies as aforesaid then due or payable by the Company;
(iv) the Company may if any such money is paid or payable by it under any
such law as aforesaid refuse to register a transfer of any shares by
any such Shareholder or his executor or administrator until such money
and interest as aforesaid is set off or deducted as aforesaid or in
case the same exceeds the amount of any such dividends or other monies
as aforesaid then due or payable by the Company until such excess is
paid to the Company.
Subject to the rights conferred upon the holders of any class of shares
nothing herein contained shall prejudice or affect any right or remedy
which any law may confer or purport to confer on the Company and as between
the Company and every such Shareholder as aforesaid, his executor,
administrator and estate wheresoever constituted or situate, any right or
remedy which such law shall confer or purport to confer on the Company
shall be enforceable by the Company.
<PAGE>
15
CALLS ON SHARES
18. The Board may from time to time make calls upon the Shareholders in respect
of any moneys unpaid on their shares (whether on account of the par value
of the shares or by way of premium) and not by the terms of issue thereof
made payable at a date fixed by or in accordance with such terms of issue,
and each Shareholder shall (subject to the Company serving upon him at
least fourteen days notice specifying the time or times and place of
payment) pay to the Company at the time or times and place so specified the
amount called on his shares. A call may be revoked or postponed as the
Board may determine.
19. A call may be made payable by instalments and shall be deemed to have been
made at the time when the resolution of the Board authorising the call was
passed.
20. The joint holders of a share shall be jointly and severally liable to pay
all calls in respect thereof.
21. If a sum called in respect of the share shall not be paid before or on the
day appointed for payment thereof the person from whom the sum is due shall
pay interest on the sum from the day appointed for the payment thereof to
the time of actual payment at such rate as the Board may determine, but the
Board shall be at liberty to waive payment of such interest wholly or in
part.
22. Any sum which, by the terms of issue of a share, becomes payable on
allotment or at any date fixed by or in accordance with such terms of
issue, whether on account of the nominal amount of the share or by way of
premium, shall for all the purposes of these Bye-Laws be deemed to be a
call duly made, notified and payable on the date on which, by the terms of
issue,
<PAGE>
16
the same becomes payable and, in case of non-payment, all the relevant
provisions of these Bye-Laws as to payment of interest, forfeiture or
otherwise shall apply as if such sum had become payable by virtue of a call
duly made and notified.
23. The Board may on the issue of shares differentiate between the allottees or
holders as to the amount of calls to be paid and the times of payment.
FORFEITURE OF SHARES
24. If a Shareholder fails to pay any call or instalment of a call on the day
appointed for payment thereof, the Board may at any time thereafter during
such time as any part of such call or instalment remains unpaid serve a
notice on him requiring payment of so much of the call or instalment as is
unpaid, together with any interest which may have accrued.
25. The notice shall name a further day (not being less than 14 days from the
date of the notice) on or before which, and the place where, the payment
required by the notice is to be made and shall state that, in the event of
non-payment on or before the day and at the place appointed, the shares in
respect of which such call is made or instalment is payable will be liable
to be forfeited. The Board may accept the surrender of any share liable to
be forfeited hereunder and, in such case, references in these Bye-Laws to
forfeiture shall include surrender.
26. If the requirements of any such notice as aforesaid are not complied with,
any share in respect of which such notice has been given may at any time
thereafter, before payment of all calls or instalments and interest due in
respect thereof has been made, be forfeited by a resolution of the Board to
<PAGE>
17
that effect. Such forfeiture shall include all dividends declared in
respect of the forfeited shares and not actually paid before the
forfeiture.
27. When any share has been forfeited, notice of the forfeiture shall be served
upon the person who was before forfeiture the holder of the share; but no
forfeiture shall be in any manner invalidated by any omission or neglect to
give such notice as aforesaid.
28. A forfeited share shall be deemed to be the property of the Company and may
be sold, re-offered or otherwise disposed of either to the person who was,
before forfeiture, the holder thereof or entitled thereto or to any other
person upon such terms and in such manner as the Board shall think fit, and
at any time before a sale, re-allotment or disposition the forfeiture may
be cancelled on such terms as the Board may think fit.
29. A person whose shares have been forfeited shall thereupon cease to be a
Shareholder in respect of the forfeited shares but shall, notwithstanding
the forfeiture, remain liable to pay to the Company all moneys which at the
date of forfeiture were presently payable by him to the Company in respect
of the shares with interest thereon at such rate as the Board may determine
from the date of forfeiture until payment, and the Company may enforce
payment without being under any obligation to make any allowance for the
value of the shares forfeited.
30. An affidavit in writing that the deponent is a Director of the Company or
the Secretary and that a share has been duly forfeited on the date stated
in the affidavit shall be conclusive evidence of the facts therein stated
as against all persons claiming to be entitled to the share. The Company
may receive the consideration (if any) given for the share on the sale, re-
allotment or disposition thereof and the Board may authorise some person to
transfer the
<PAGE>
18
share to the person to whom the same is sold, re-allotted or disposed of,
and he shall thereupon be registered as the holder of the share and shall
not be bound to see to the application of the purchase money (if any) nor
shall his title to the share be affected by any irregularity or invalidity
in the proceedings relating to the forfeiture, sale, re-allotment or
disposal of the share.
REGISTER OF SHAREHOLDERS
31. The Company shall establish and maintain the Register in the manner
prescribed by the Companies Acts. Unless the Board otherwise determines,
the Register shall be open to inspection in the manner prescribed by the
Companies Acts between 9.00 a.m. and 5.00 p.m. in Bermuda, on every working
day. Unless the Board so determines, no Shareholder or intending
Shareholder shall be entitled to have entered in the Register any
indication of any trust or any equitable, contingent, future or partial
interest in any share or any interest in any fractional part of a share and
if any such entry exists or is permitted by the Board it shall not be
deemed to abrogate any of the provisions of Bye-Law 9.
32. Subject to the provisions of the Companies Acts, the Company may keep one
or more overseas or branch registers in any place, and the Board may make,
amend and revoke any such regulations as it may think fit respecting the
keeping of such registers.
REGISTER OF DIRECTORS AND OFFICERS
33. The Company shall establish and maintain a register of the Directors and
Officers of the Company as required by the Companies Acts. The register of
Directors and Officers shall be open to inspection in the manner prescribed
<PAGE>
19
by the Companies Acts between 9:00 a.m. and 5:00 p.m. in Bermuda on every
working day.
TRANSFER OF SHARES
34. (1) Subject to the Companies Acts, to the provisions of Bye-Laws
34(2) and 34(3) and to such of the restrictions contained in
these Bye-Laws as may be applicable, any Shareholder may transfer
all or any of his shares by an instrument of transfer in the
usual common form or in any other form which the Board may
approve.
(2) Any transfer of shares (or any interest therein) that results in
a Shareholder (other than Pacific Capital, GKW, CIBC, Loews or
MRCo, or their Affiliates or, solely upon a foreclosure on the
Shares constituting collateral for a loan, any bona fide third
party lender to any of them) beneficially owning (within the
provisions of Section 13(d) of the Exchange Act), directly or
indirectly, Controlled Shares in excess of the Maximum Percentage
of the outstanding common shares of the Company without the
approval of a majority of the members of the Board of Directors
and Shareholders holding 75% of the votes that may be cast by all
holders of common shares of the Company shall not be registered
in the share register of the Company and shall be void and of no
effect.
(3) The restrictions on transfer authorised or imposed by these Bye-
Laws shall not be imposed in any circumstances in a way that
would interfere with the settlement of trades or transactions
entered into through the facilities of the Nasdaq Stock Market or
any other exchange on which the
<PAGE>
20
Company's common shares may at any time be listed or traded;
provided, however, that the Company may decline to register
transfers in accordance with these Bye-Laws and resolutions of
the Board after a settlement has taken place.
(4) For the purposes of this Bye-law 34, "Maximum Percentage" means
(x) in the case of a natural person, 5%, and (y) in the case of
any Shareholder (other than a natural person) or any group (as
used in Section 13(d) of the Exchange Act), 9.5%.
35. The instrument of transfer of a share shall be signed by or on behalf of
the transferor and where any share is not fully-paid, the transferee and
the transferor shall be deemed to remain the holder of the share until the
name of the transferee is entered in the Register in respect thereof. All
instruments of transfer when registered may be retained by the Company.
The Board may, in its absolute discretion and without assigning any reason
therefor, decline to register any transfer of any share which is not a
fully-paid share. The Board may also decline to register any transfer
unless:-
(1) the instrument of transfer is duly stamped and lodged with the
Company, at such place as the Board shall appoint for the purpose,
accompanied by the certificate for the shares (if any has been issued)
to which it relates, and such other evidence as the Board may
reasonably require to show the right of the transferor to make the
transfer,
(2) the instrument of transfer is in respect of only one class of share,
(3) all applicable consents, authorisations, permissions or approvals of
any governmental body or agency in Bermuda, the United States or any
other applicable jurisdiction required to be obtained prior to such
transfer shall have been obtained.
Subject to any directions of the Board from time to time in force, the
Secretary may exercise the powers and discretions of the Board under this
Bye-Law and Bye-Law 36.
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21
36. If the Board declines to register a transfer it shall, within ten (10) days
after the date on which the instrument of transfer was lodged, send to the
transferor and the transferee notice of such refusal.
37. A fee may be charged by the Company for registering any transfer, probate,
letters of administration, certificate of death or marriage, power of
attorney, distringas or stop notice, order of court or other instrument
relating to or affecting the title to any share, or otherwise making an
entry in the Register relating to any share.
TRANSMISSION OF SHARES
38. In the case of the death of a Shareholder, the survivor or survivors, where
the deceased was a joint holder, and the estate representative, where he
was sole holder, shall be the only person recognised by the Company as
having any title to his shares; but nothing herein contained shall release
the estate of a deceased holder (whether the sole or joint) from any
liability in respect of any share held by him solely or jointly with other
persons. For the purpose of this Bye-Law, estate representative means the
person to whom probate or letters of administration has or have been
granted in Bermuda or, failing any such person, such other person as the
Board may in its absolute discretion determine to be the person recognised
by the Company for the purpose of this Bye-Law.
39. Any person becoming entitled to a share in consequence of the death of a
Shareholder or otherwise by operation of applicable law may, subject to
Bye-Laws 34 and 35, and subject as hereafter provided and upon such
evidence being produced as may from time to time be required by the Board
as to his entitlement, either be registered himself as the holder of the
share or
<PAGE>
22
elect to have some person nominated by him registered as the transferee
thereof. If the person so becoming entitled elects to be registered
himself, he shall deliver or send to the Company a notice in writing signed
by him stating that he so elects. If he shall elect to have his nominee
registered, he shall signify his election by signing an instrument of
transfer of such share in favour of his nominee. All the limitations,
restrictions and provisions of these Bye-Laws relating to the right to
transfer and the registration of transfer of shares shall be applicable to
any such notice or instrument of transfer as aforesaid as if the death of
the Shareholder or other event giving rise to the transmission had not
occurred and the notice or instrument of transfer was an instrument of
transfer signed by such Shareholder.
40. A person becoming entitled to a share in consequence of the death of a
Shareholder or otherwise by operation of applicable law shall (upon such
evidence being produced as may from time to time be required by the Board
as to his entitlement) be entitled to receive and may give a discharge for
any dividends or other moneys payable in respect of the share, but he shall
not be entitled in respect of the share to receive notices of or to attend
or vote at general meetings of the Company or, save as aforesaid, to
exercise in respect of the share any of the rights or privileges of a
Shareholder until he shall have become registered as the holder thereof.
The Board may at any time give notice requiring such person to elect either
to be registered himself or to transfer the share and, if the notice is not
complied with within sixty days, the Board may thereafter withhold payment
of all dividends and other moneys payable in respect of the shares until
the requirements of the notice have been complied with.
41. Subject to any directions of the Board from time to time in force, the
Secretary may exercise the powers and discretions of the Board under Bye-
Laws 38, 39 and 40.
<PAGE>
23
INCREASE OF CAPITAL
42. The Company may from time to time increase its capital by such sum to be
divided into shares of such par value as the Company by Resolution shall
prescribe.
43. The Company may, by the Resolution increasing the capital, direct that the
new shares or any of them shall be offered in the first instance either at
par or at a premium or (subject to the provisions of the Companies Acts) at
a discount to all the holders for the time being of shares of any class or
classes in proportion to the number of such shares held by them
respectively or make any other provision as to the issue of the new shares.
44. Except as otherwise determined by the Company (but subject always to Bye-
law 3(2) the new shares shall be subject to all the provisions of these
Bye-Laws with reference to lien, the payment of calls, forfeiture,
transfer, transmission and otherwise.
ALTERATION OF CAPITAL
45. The Company may from time to time by Resolution:-
(1) divide its shares into several classes and attach thereto respectively
any preferential, deferred, qualified or special rights, privileges or
conditions;
(2) consolidate and divide all or any of its share capital into shares of
larger par value than its existing shares;
(3) sub-divide its shares or any of them into shares of smaller par value
than is fixed by its memorandum, so, however, that in the sub-division
the proportion between the amount paid and the amount, if
<PAGE>
24
any, unpaid on each reduced share shall be the same as it was in the
case of the share from which the reduced share is derived;
(4) make provision for the issue and allotment of shares which do not
carry any voting rights;
(5) cancel shares which, at the date of the passing of the resolution in
that behalf, have not been taken or agreed to be taken by any person,
and diminish the amount of its share capital by the amount of the
shares so cancelled; and
(6) change the currency denomination of its share capital.
Where any difficulty arises in regard to any division, consolidation, or
sub-division under this Bye-Law, the Board may settle the same as it thinks
expedient and, in particular, may arrange for the sale of the shares
representing fractions and the distribution of the net proceeds of sale in
due proportion amongst the Shareholders who would have been entitled to the
fractions, and for this purpose the Board may authorise some person to
transfer the shares representing fractions to the purchaser thereof, who
shall not be bound to see to the application of the purchase money nor
shall his title to the shares be affected by any irregularity or invalidity
in the proceedings relating to the sale.
46. Subject to the Companies Acts and to any confirmation or consent required
by law or these Bye-Laws, the Company may by Resolution from time to time
convert any preference shares into redeemable preference shares.
REDUCTION OF CAPITAL
47. Subject to the Companies Acts, its memorandum and any confirmation or
consent required by law or these Bye-Laws, the Company may from time to
time by Resolution authorise the reduction of its issued share capital or
any share premium or contributed surplus account in any manner.
<PAGE>
25
48. In relation to any such reduction, the Company may by Resolution determine
the terms upon which such reduction is to be effected including in the case
of a reduction of part only of a class of shares, those shares to be
affected.
GENERAL MEETINGS AND WRITTEN RESOLUTIONS
49. (1) The Board shall convene and the Company shall hold general meetings as
Annual General Meetings in accordance with the requirements of the
Companies Acts at such times and places as the Board shall appoint.
The Board may, whenever it thinks fit, and shall, when requisitioned
by shareholders pursuant to the provisions of the Companies Acts,
convene general meetings other than Annual General Meetings which
shall be called Special General Meetings.
(2) Except in the case of the removal of auditors and Directors, anything
which may be done by resolution of the Company in general meeting or
by resolution of a meeting of any class of the Shareholders of the
Company may, without a meeting and without any previous notice being
required, be done by resolution in writing, signed by all of the
Shareholders or their proxies, or in the case of a Shareholder that is
a corporation (whether or not a company within the meaning of the
Companies Acts) on behalf of such Shareholder, being all of the
Shareholders of the Company who at the date of the resolution in
writing would be entitled to attend a meeting and vote on the
resolution. Such resolution in writing may be signed by, or in the
case of a Shareholder that is a corporation (whether or not a company
within the meaning of the Companies Acts), on behalf of, all the
Shareholders of the Company, or any class thereof, in as many
counterparts as may be necessary.
<PAGE>
26
(3) For the purposes of this Bye-Law, the date of the resolution in
writing is the date when the resolution is signed by, or in the case
of a Shareholder that is a corporation (whether or not a company
within the meaning of the Companies Acts), on behalf of, the last
Shareholder to sign and any reference in any enactment to the date of
passing of a resolution is, in relation to a resolution in writing
made in accordance with this section, a reference to such date.
(4) A resolution in writing made in accordance with this Bye-Law is as
valid as if it had been passed by the Company in general meeting or,
if applicable, by a meeting of the relevant class of Shareholders of
the Company, as the case may be. A resolution in writing made in
accordance with this section shall constitute minutes for the purposes
of the Companies Acts and these Bye-Laws.
NOTICE OF GENERAL MEETINGS
50. An Annual General Meeting shall be called by not less than 30 days notice
in writing and a Special General Meeting shall be called by not less than
30 days notice in writing. The notice shall be exclusive of the day on
which it is served or deemed to be served and of the day for which it is
given, and shall specify the place, day and time of the meeting, and, the
nature of the business to be considered. Notice of every general meeting
shall be given in any manner permitted by Bye-Laws 135 and 136 to all
Shareholders other than such as, under the provisions of these Bye-Laws or
the terms of issue of the shares they hold, are not entitled to receive
such notice from the Company and to each Director, and to any Resident
Representative who or which has delivered a written notice upon the
Registered Office requiring that such notice be sent to him or it.
<PAGE>
27
51. The accidental omission to give notice of a meeting or (in cases where
instruments of proxy are sent out with the notice) the accidental omission
to send such instrument of proxy to, or the non-receipt of notice of a
meeting or such instrument of proxy by, any person entitled to receive such
notice shall not invalidate the proceedings at that meeting.
52. A Shareholder present, either in person or by proxy, at any meeting of the
Company or of the holders of any class of shares in the Company shall be
deemed to have received notice of the meeting and, where requisite, of the
purposes for which it was called.
GENERAL MEETINGS AT MORE THAN ONE PLACE
53. (1) The provisions of this Bye-Law shall apply if any general meeting is
convened at or adjourned to more than one place.
(2) The notice of any meeting or adjourned meeting may specify the
Specified Place and the Board shall make arrangements for simultaneous
attendance and participation at other places (whether adjoining the
Specified Place or in a different and separate place or places
altogether or otherwise) by Shareholders, provided that persons
attending at any particular place shall be able to see and hear and be
seen and heard (whether by audio visual links or otherwise howsoever
enabling the same) by persons attending at the other places at which
the meeting is convened.
(3) The Board may from time to time make such arrangements for the purpose
of controlling the level of attendance at any such place (whether
involving the issue of tickets or the imposition of some means of
selection or otherwise) as they shall in their absolute discretion
consider appropriate, and may from time to time vary any such
arrangements or make new arrangements in place of them,
<PAGE>
28
provided that a Shareholder who is not entitled to attend, in person
or by proxy, at any particular place shall be entitled so to attend at
one of the other places; and the entitlement of any Shareholder so to
attend the meeting or adjourned meeting at such place shall be subject
to any such arrangements as may be for the time being in force and by
the notice of meeting or adjourned meeting stated to apply to the
meeting.
(4) For the purposes of all other provisions of these Bye-Laws any such
meeting shall be treated as being held at the Specified Place.
(5) If a meeting is adjourned to more than one place, notice of the
adjourned meeting shall be given notwithstanding any other provision
of these Bye-Laws.
PROCEEDINGS AT GENERAL MEETINGS
54. No business shall be transacted at any general meeting unless a quorum is
present when the meeting proceeds to business, but the absence of a quorum
shall not preclude the appointment, choice or election of a chairman which
shall not be treated as part of the business of the meeting. Save as
otherwise provided by these Bye-Laws, at least two Shareholders present in
person or by proxy and entitled to vote and holding shares representing
more than 50% of the votes that may be cast by all holders of shares shall
be a quorum for all purposes; provided, however, that if the Company or a
class of Shareholders shall have only one Shareholder, one Shareholder
present in person or by proxy shall constitute the necessary quorum.
55. If within five minutes (or such longer time as the chairman of the meeting
may determine to wait) after the time appointed for the meeting, a quorum
is not present, the meeting, if convened on the requisition of
Shareholders, shall be dissolved. In any other case, it shall stand
adjourned to such other
<PAGE>
29
day and such other time and place as the chairman of the meeting may
determine and at such adjourned meeting two Shareholders present in person
or by proxy and entitled to vote and holding shares representing more than
50% of the votes that may be cast by all holders of shares shall be a
quorum, provided that if the Company or a class of Shareholders shall have
only one Shareholder, one Shareholder present in person or by proxy shall
constitute the necessary quorum. The Company shall give not less than 7
days notice of any meeting adjourned through want of a quorum and such
notice shall state that the sole Shareholder or, if more than one, two
Shareholders present in person or by proxy and entitled to vote and holding
shares representing more than 50% of the votes that may be cast by all
holders of shares shall be a quorum. If at the adjourned meeting a quorum
is not present within fifteen minutes after the time appointed for holding
the meeting, the meeting shall be dissolved.
56. A meeting of the Shareholders or any class thereof may be held by means of
such telephone, electronic or other communication facilities as permit all
persons participating in the meeting to communicate with each other
simultaneously and instantaneously and participation in such a meeting
shall constitute presence in person at such meeting.
57. The Resident Representative, if any, upon giving the notice referred to in
-------------------------------------
Bye-Law 50 above, shall be entitled to attend any general meeting of the
----------------
Company and each Director shall be entitled to attend and speak at any
general meeting of the Company.
58. The Chairman or Co-Chairman (if any) of the Board or, in their absence, the
President or Chief Executive Officer shall preside as chairman at every
general meeting. If there is no such Chairman or Co-Chairman or President
or Chief Executive Officer, or if at any meeting none of the Chairman, Co-
<PAGE>
30
Chairman, Chief Executive Officer or President is present within five
minutes after the time appointed for holding the meeting, or if neither of
them is willing to act as chairman, the Directors present shall choose one
of their number to act or if one Director only is present he shall preside
as chairman if willing to act. If no Director is present, or if each of
the Directors present declines to take the chair, the persons present and
entitled to vote on a poll shall elect one of their number to be chairman.
59. The chairman of the meeting may, with the consent of any meeting at which a
quorum is present (and shall if so directed by the meeting), adjourn the
meeting from time to time and from place to place but no business shall be
transacted at any adjourned meeting except business which might lawfully
have been transacted at the meeting from which the adjournment took place.
In addition, the chairman may adjourn the meeting to another time and place
without such consent if it appears to him that it is likely to be
impracticable to hold or continue that meeting because of the number of
members wishing to attend who are not present. When a meeting is adjourned
for three months or more or for an indefinite period, at least seven clear
days' notice shall be given of the adjourned meeting as in the case of an
original meeting.
60. Save as expressly provided by these Bye-Laws, it shall not be necessary to
give any notice of an adjournment or of the business to be transacted at an
adjourned meeting.
VOTING
61. If an amendment shall be proposed to any resolution under consideration but
shall in good faith be ruled out of order by the chairman of the meeting,
the proceedings on the substantive resolution shall not be invalidated by
any
<PAGE>
31
error in such ruling. With the consent of the chairman of the meeting, an
amendment may be withdrawn by its proposer before it is voted upon.
62. Save where a greater majority is required by the Companies Acts or these
Bye-Laws, any question proposed for consideration at any general meeting
shall be decided on by a simple majority of votes that may be cast by all
holders of shares.
63. (1) Subject to Bye-law 63(2) and to any rights or restrictions attached to
any class of shares, at any meeting of the Company, each Shareholder
present in person shall be entitled to one vote on any question to be
decided on a show of hands and each Shareholder present in person or
by proxy shall be entitled on a poll to one vote for each share held
by him.
(2) In the case of a Shareholder who is an Over-the-Threshold Shareholder
as defined below, each issued common share constituting a part of the
Controlled Shares held by such Shareholder shall confer only a
fraction of a vote according to the following formula (the "Cut-back
Formula"): AV multiplied by the applicable Voting Cap (rounded down to
the nearest whole number) divided by CS.
In determining the votes allocable to common shares beneficially owned
by CIBC the preceding formula shall be applied to all of the common
shares beneficially owned by persons constituting a part of CIBC, in
the aggregate. In determining the votes allocable to common shares
beneficially owned by any member of a group (within the meaning of
Section 13(d) of the Exchange Act), the preceding formula shall be
applied to all of the common shares beneficially owned by persons
constituting a part of the group, in the aggregate.
<PAGE>
32
Where: "AV" is the aggregate number of votes conferred by all the
issued and outstanding common shares, and "CS" is the number of
Controlled Shares of such Shareholder.
A number of votes equal to the excess (the Re-allocable Votes) of (i)
the number of votes that could have been cast by the Controlled Shares
held by all Over-the-Threshold Shareholders if the Cut-back Formula
were not applicable over (ii) the number of votes that may be cast by
such Controlled Shares after application of the Cut-back Formula shall
be reallocated among the common shares that are not included in such
Controlled Shares and that are not held by other Over-the-Threshold
Shareholders in accordance with the following formula (the
"Reallocation Formula"):
RV
---------------
AV-ACS
Where: "AV" is used in the manner defined in the Cut-back
Formula, ACS is the aggregate number of Controlled Shares of all
Over-the-Threshold Shareholders and "RV" is the Re-allocable
Votes.
If the application of the Reallocation Formula causes any Shareholder
to become an Over-the-Threshold Shareholder, the Cut-back Formula
shall be applied to such Shareholder's controlled Shares (taking into
account the additional votes of such shares after the application of
the Reallocation Formula), and the Cut-back Formula and the
Reallocation Formula shall continue to be applied until there are no
Over-the-Threshold Shareholders.
<PAGE>
33
(3) The Board shall have the power and authority to make all
determinations that may be required to effectuate the provisions of
this Bye-law, including any required determination of the number of
Shares that may be deemed to be held by any Shareholder, and such
determinations shall be conclusive in the absence of manifest error.
All record and beneficial owners of Shares shall be deemed to have
agreed, by virtue of their ownership thereof, to provide to the Board,
at such times and in such detail as the Board may reasonably request,
any information that the Board may require in order to make such
determinations.
(4) The following definitions shall apply for the purposes of this Bye-
law:
"Maximum Vote" means (x) in the case of all Shareholders other
than CIBC, 9.5% of the votes that may be cast by all holders of common
shares of the Company and (y) in the case of CIBC in the aggregate,
the number of votes that may be cast by all holders of shares of the
Company multiplied by 35% over (B) the number of votes that may be
cast by all holders of shares of the Company who are [officers,
directors or affiliates of CIBC]. The percent set out in clause (x)
and the number determined under clause (2) expressed as a percentage
of the aggregate number of votes that may be cast by all holders of
shares of the Company shall each be referred to as the "Voting Cap".
An "Over-the-Threshold Shareholder" for the purposes of this Bye-Law
is a Shareholder in respect of whom, by virtue of their holding of
Controlled Shares would, upon giving effect to the principle that
holders of common shares shall have one vote for each common share so
registered, have greater than the Maximum Vote.
64. At any general meeting, a resolution put to the vote of the meeting shall
be decided on a poll.
<PAGE>
34
65. On a poll, votes may be cast either personally or by proxy.
66. A person entitled to more than one vote on a poll need not use all his
votes or cast all the votes he uses in the same way.
67. In the case of an equality of votes, the chairman of such meeting shall not
be entitled to a second or casting vote and the resolution shall fail.
68. In the case of joint holders of a share, the vote of the senior who tenders
a vote, whether in person or by proxy, shall be accepted to the exclusion
of the votes of the other joint holders, and for this purpose seniority
shall be determined by the order in which the names stand in the Register
in respect of the joint holding.
69. A Shareholder who is a patient for any purpose of any statute or applicable
law relating to mental health or in respect of whom an order has been made
by any Court having jurisdiction for the protection or management of the
affairs of persons incapable of managing their own affairs may vote,
whether on a show of hands or on a poll, by his receiver, committee,
curator bonis or other person in the nature of a receiver, committee or
curator bonis appointed by such Court and such receiver, committee, curator
bonis or other person may vote on a poll by proxy, and may otherwise act
and be treated as such Shareholder for the purpose of general meetings.
70. No Shareholder shall, unless the Board otherwise determines, be entitled to
vote at any general meeting unless all calls or other sums presently
payable by him in respect of shares in the Company have been paid.
71. If;
(1) any objection shall be raised to the qualification of any voter; or,
<PAGE>
35
(2) any votes have been counted which ought not to have been counted or
which might have been rejected; or,
(3) any votes are not counted which ought to have been counted,
the objection or error shall not vitiate the decision of the meeting or
adjourned meeting on any resolution unless the same is raised or pointed
out at the meeting or, as the case may be, the adjourned meeting at which
the vote objected to is given or tendered or at which the error occurs.
Any objection or error shall be referred to the chairman of the meeting and
shall only vitiate the decision of the meeting on any resolution if the
chairman decides that the same may have affected the decision of the
meeting. The decision of the chairman on such matters shall be final and
conclusive.
PROXIES AND CORPORATE REPRESENTATIVES
72. The instrument appointing a proxy shall be in writing under the hand of the
appointor or of his attorney authorised by him in writing or, if the
appointor is a corporation, either under its seal or under the hand of an
officer, attorney or other person authorised to sign the same.
73. Any Shareholder may appoint a standing proxy or (if a corporation)
representative by depositing at the Registered Office, or at such place or
places as the Board may otherwise specify for the purpose, a proxy or (if a
corporation) an authorisation and such proxy or authorisation shall be
valid for all general meetings and adjournments thereof or, resolutions in
writing, as the case may be, until notice of revocation is received at the
Registered Office, or at such place or places as the Board may otherwise
specify for the purpose. Where a standing proxy or authorisation exists,
its operation shall be deemed to have been suspended at any general meeting
or adjournment thereof at which the Shareholder is present or in respect to
which the Shareholder has specially appointed a proxy or representative.
The Board
<PAGE>
36
may from time to time require such evidence as it shall deem necessary as
to the due execution and continuing validity of any such standing proxy or
authorisation and the operation of any such standing proxy or authorisation
shall be deemed to be suspended until such time as the Board determines
that it has received the requested evidence or other evidence satisfactory
to it. A person so authorised as a representative of a corporation shall be
entitled to exercise the same power on behalf of the grantor of the
authority as the grantor could exercise if it were an individual
Shareholder of the Company and the grantor shall for the purposes of these
Bye-Laws be deemed to be present in person at any such meeting if a person
so authorised is present at it.
74. Subject to Bye-Law 73, the instrument appointing a proxy together with such
other evidence as to its due execution as the Board may from time to time
require, shall be delivered at the Registered Office (or at such place or
places as may be specified in the notice convening the meeting or in any
notice of any adjournment or, in either case or the case of a written
resolution, in any document sent therewith) not less than 24 hours or such
other period as the Board may determine, prior to the holding of the
relevant meeting or adjourned meeting at which the person named in the
instrument proposes to vote or, in the case of a poll taken subsequently to
the date of a meeting or adjourned meeting, before the time appointed for
the taking of the poll, or, in the case of a written resolution, prior to
the effective date of the written resolution and in default the instrument
of proxy shall not be treated as valid.
75. Instruments of proxy shall be in any common form or in such other form as
the Board may approve and the Board may, if it thinks fit, send out with
the notice of any meeting or any written resolution forms of instruments of
proxy for use at that meeting or in connection with that written
resolution.
<PAGE>
37
The instrument of proxy shall be deemed to confer authority to demand or
join in demanding a poll and to vote on any amendment of a written
resolution or amendment of a resolution put to the meeting for which it is
given as the proxy thinks fit. The instrument of proxy shall unless the
contrary is stated therein be valid as well for any adjournment of the
meeting as for the meeting to which it relates.
76. A vote given in accordance with the terms of an instrument of proxy shall
be valid notwithstanding the previous death or unsoundness of mind of the
principal, or revocation of the instrument of proxy or of the authority
under which it was executed, provided that no intimation in writing of such
death, insanity or revocation shall have been received by the Company at
the Registered Office (or such other place as may be specified for the
delivery of instruments of proxy in the notice convening the meeting or
other documents sent therewith) one hour at least before the commencement
of the meeting or adjourned meeting, or the taking of the poll, or the day
before the effective date of any written resolution at which the instrument
of proxy is used.
77. Subject to the Companies Acts, the Board may at its discretion waive any of
the provisions of these Bye-Laws related to proxies or authorisations and,
in particular, may accept such verbal or other assurances as it thinks fit
as to the right of any person to attend and vote on behalf of any
Shareholder at general meetings or to sign written resolutions.
APPOINTMENT AND REMOVAL OF DIRECTORS
78. (1) At the date of adoption of these Bye-Laws, the Board of Directors
shall consist of the following persons: -
<PAGE>
38
Gary Winnick
Lod Cook
Abbott Brown
David Lee
Barry Porter
Jay Bloom
Dean Kehler
Jay Levine
William Phoenix
Bruce Raben
Hillel Weinberger
Michael Steed
William Conway Jr
Teshiaki Ogasawara
Jeffrey Kent
Jack Scanlon
(3) Each of Abbott Brown, Barry Porter, Dean Kehler, Jay Levine and
William Conway Jr are hereby designated as "A" Directors for the
purposes of this Bye-law. Each of Lod Cook, David Lee, Bruce Raben,
Jeffrey Kent and Jack Scanlon are hereby designated "B" Directors and
each of Gary Winneck, Jay Bloom, William Phoenix, Hillel Weinberger,
Michael Steed and Teshiaki Ogasawara are hereby designated as "C"
Directors.
(4) Upon the resignation or removal of a Director, if any new Director
shall be appointed to the Board, they shall be designated to fill the
vacancy arising and shall, for the purposes of these Bye-Laws,
constitute a member of the class represented by the person that they
replaced. If there are more than two vacancies on the Board, then the
Shareholders or the Directors, when appointing a person to fill a
vacancy, shall designate class of director they shall belong to, by
the resolution appointing such person.
79. (1) The A Directors shall serve initially until the conclusion of the
Annual General Meeting of the Company held in the calendar year
<PAGE>
39
1999, at which consideration is made of financial statements for the
period ending 31st December 1998 and thereafter, shall serve for a
three year term, concluding at the Third Annual General Meeting after
his appointment or reappointment.
(2) The B Directors shall serve initially until the conclusion of the
Annual General Meeting of the Company held in the calendar year 2000
or in 2001, at which consideration is made of financial statements for
the period ending 31st December 1999 and thereafter, shall serve for a
three year term, concluding at the Third Annual General Meeting after
his appointment or reappointment.
(3) The C Directors shall serve initially until the conclusion of the
Annual General Meeting of the Company held in the calendar year 2001,
at which consideration is made of financial statements for the period
ending 31st December 2000 and thereafter, shall serve for a three year
term, concluding at the Third Annual General Meeting after his
appointment or reappointment.
80. If the Company, at the meeting at which a Director retires by rotation or
otherwise, does not fill the vacancy, the retiring Director shall, if
willing to act, be deemed to have been reappointed unless at the meeting it
is resolved not to fill the vacancy or unless a resolution for the
reappointment of the Director is put to the meeting and lost.
81. No person other than a Director retiring by rotation shall be appointed a
Director at any general meeting unless:-
(a) he is recommended by the Board; or
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40
(b) not less than [60] nor more than [90] clear days before the date
appointed for the meeting, notice executed by a Shareholder qualified
to vote at the meeting (not being the person to be proposed) has been
given to the Company of the intention to propose that person for
appointment setting forth as to each person whom the Shareholder
proposes to nominate for election or re-election as a Director, (i)
the name, age, business address and residence address of the person,
(ii) the principal occupation or employment of the person, (iii) the
class, series and number of shares of the Company which are
beneficially owned by the person (iv) particulars which would, if he
were so appointed, be required to be included in the Company's
register of Directors and Officers, and (v) all other information
relating to that person that is required to be disclosed in
solicitations for proxies for the election of Directors pursuant to
the Rules and Regulations of the Securities and Exchange Commission
under Section 14 of the Securities Exchange Act of 1934 of the United
States of America as amended, together with notice executed by that
person of his willingness to serve as a Director if so elected.
82. Except as otherwise authorised by the Companies Acts, the appointment of
any person proposed as a Director shall be effected by a separate
resolution.
83. All Directors (other then the initial Directors set forth herein), upon
election or appointment, must provide written acceptance of their
appointment, in such form as the Board may think fit, by notice in writing
to the Registered Office within thirty days of their appointment.
84. The Company shall at the Annual General Meeting and may by Resolution (a)
determine the minimum number of Directors, which shall be not less than
eleven and (b) the maximum number of Directors which shall not be
<PAGE>
41
more than eighteen and may by Resolution determine that one or more
vacancies in the Board shall be deemed casual vacancies for the purposes of
these Bye-Laws. Without prejudice to the power of the Company by Resolution
in pursuance of any of the provisions of these Bye-Laws to appoint any
person to be a Director, the Board, so long as a quorum of Directors
remains in office, shall have power at any time and from time to time to
appoint any individual to be a Director so as to fill a casual vacancy. A
Director so appointed shall hold office only until the next following
Annual General Meeting and shall not be taken into account in determining
the Directors who are to retire by rotation at the meeting. If not
reappointed at such Annual General Meeting, he shall vacate office at the
conclusion thereof.
85. The Shareholders may in a Special General Meeting called for that purpose
remove a Director provided notice of any such meeting shall be served upon
the Director concerned not less than 14 days before the meeting and he
shall be entitled to be heard at that meeting. Any vacancy created by the
removal of a Director at a Special General Meeting may be filled at the
Meeting by the election of another Director in his place or, in the absence
of any such election, by the Board.
RESIGNATION AND DISQUALIFICATION OF DIRECTORS
86. The office of a Director shall be vacated upon the happening of any of the
following events:
(1) if he resigns his office by notice in writing delivered to the
Registered Office or tendered at a meeting of the Board;
(2) if he becomes of unsound mind or a patient for any purpose of any
statute or applicable law relating to mental health and the Board
resolves that his office is vacated;
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42
(3) if he becomes bankrupt under the laws of any country or compounds with
his creditors;
(4) if he is prohibited by law from being a Director;
(5) if he ceases to be a Director by virtue of the Companies Acts or these
Bye-Laws or is removed from office pursuant to these Bye-Laws;
(6) he shall for more than six consecutive months have been absent without
permission of the Board from meetings of the Board held during that
period and his Alternate Director (if any) shall not during such
period have attended in his stead and the Board resolves that his
office be vacated;
(7) he is requested to resign in writing by not less than three quarters
of the other Directors. In calculating the number of Directors who
are required to make such a request to the Director, (i) there shall
be excluded any Alternate Director appointed by him acting in his
capacity as such; and (ii) a Director and any Alternate Director
appointed by him and acting in his capacity as such shall constitute a
single Director for this purpose, so that the signature of either
shall be sufficient.
ALTERNATE DIRECTORS
87. Any Director (other than an Alternate Director) may appoint any [other
Director, or any other] person approved by resolution of the Board and
willing to act, to be an Alternate Director and may remove from office an
Alternate Director so appointed by him. Any appointment or removal of an
Alternate Director by a Director shall be effected by depositing a notice
of appointment or removal with the Secretary at the Registered Office,
signed by such Director, and such appointment or removal shall become
effective on the date of receipt by the Secretary. Any Alternate Director
may also be
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43
removed by resolution of the Board. An Alternate Director may also be a
Director in his own right and may act as alternate to more than one
Director.
88. An Alternate Director shall cease to be an Alternate Director:-
(a) if his appointor ceases to be a Director; but, if a Director retires
by rotation or otherwise but is reappointed or deemed to have been
reappointed at the meeting at which he retires, any appointment of an
Alternate Director made by him which was in force immediately prior to
his retirement shall continue after his reappointment;
(b) on the happening of any event which, if he were a Director, would
cause him to vacate his office as Director;
(c) if he is removed from office pursuant to Bye-Law 85; or
(d) if he resigns his office by notice to the Company.
89. An Alternate Director shall be entitled to receive notices of all meetings
of Directors, to attend, be counted in the quorum and vote at any such
meeting at which any Director to whom he is alternate is not personally
present, and generally to perform all the functions of any Director to whom
he is alternate in his absence.
90. Every person acting as an Alternate Director shall (except as regards
powers to appoint an alternate and remuneration) be subject in all respects
to the provisions of these Bye-Laws relating to Directors and shall alone
be responsible to the Company for his acts and defaults and shall not be
deemed to be the agent of or for any Director for whom he is alternate. An
Alternate Director may be paid expenses and shall be entitled to be
indemnified by the Company to the same extent mutatis mutandis as if he
were a Director. Every person acting as an Alternate Director shall have
one vote for each Director for whom he acts as alternate (in addition to
his own vote if he is also a Director). The signature of an Alternate
Director to any
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44
resolution in writing of the Board or a committee of the Board shall,
unless the terms of his appointment provides to the contrary, be as
effective as the signature of the Director or Directors to whom he is
alternate.
DIRECTORS' FEES AND ADDITIONAL REMUNERATION AND EXPENSES
91. The ordinary remuneration of the Directors who do not hold executive office
for their services (excluding amounts payable under any other provision of
these Bye-Laws) shall be such amount as the Company may from time to time
by Resolution determine and in the absence of a determination to the
contrary such fees shall be deemed to accrue from day to day. Subject
thereto, each such Director shall be paid a fee (which shall be deemed to
accrue from day to day) at such rate as may from time to time be determined
by the Board. Each Director may be paid his reasonable travel, hotel and
incidental expenses in attending and returning from meetings of the Board
or committees constituted pursuant to these Bye-Laws or general meetings
and shall be paid all expenses properly and reasonably incurred by him in
the conduct of the Company's business or in the discharge of his duties as
a Director. Any Director who, by request, goes or resides abroad for any
purposes of the Company or who performs services which in the opinion of
the Board go beyond the ordinary duties of a Director may be paid such
extra remuneration (whether by way of salary, commission, participation in
profits or otherwise) as the Board may determine, and such extra
remuneration shall be in addition to any remuneration provided for by or
pursuant to any other Bye-Law.
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45
DIRECTORS' INTERESTS
92. (1) A Director may hold any other office or place of profit with the
Company (except that of auditor) in conjunction with his office of
Director for such period and upon such terms as the Board may
determine, and may be paid such extra remuneration therefor (whether
by way of salary, commission, participation in profits or otherwise)
as the Board may determine, and such extra remuneration shall be in
addition to any remuneration provided for by or pursuant to any other
Bye-Law.
(2) A Director may act by himself or his firm in a professional capacity
for the Company (otherwise than as auditor) and he or his firm shall
be entitled to remuneration for professional services as if he were
not a Director.
(3) Subject to the provisions of the Companies Acts, a Director may
notwithstanding his office be a party to, or otherwise interested in,
any transaction or arrangement with the Company or in which the
Company is otherwise interested; and be a director or other officer
of, or employed by, or a party to any transaction or arrangement with,
or otherwise interested in, any body corporate promoted by the Company
or in which the Company is interested. The Board may also cause the
voting power conferred by the shares in any other company held or
owned by the Company to be exercised in such manner in all respects as
it thinks fit, including the exercise thereof in favour of any
resolution appointing the Directors or any of them to be directors or
officers of such other company, or voting or providing for the payment
of remuneration to the directors or officers of such other company.
(4) So long as, where it is necessary, he declares the nature of his
interest at the first opportunity at a meeting of the Board or by
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46
writing to the Directors as required by the Companies Acts, a Director
shall not by reason of his office be accountable to the Company for
any benefit which he derives from any office or employment to which
these Bye-Laws allow him to be appointed or from any transaction or
arrangement in which these Bye-Laws allow him to be interested, and no
such transaction or arrangement shall be liable to be avoided on the
ground of any interest or benefit.
(5) A Director who has disclosed his interest in a transaction or
arrangement with the Company, or in which the Company is otherwise
interested, may be counted in the quorum and vote at any meeting at
which such transaction or arrangement is considered by the Board;
Provided that notwithstanding the foregoing, (i) when the Board is
considering a resolution to fill a vacancy on the Board or (ii) the
Board is voting on a resolution for the nomination or recommendation
of the slate of Directors as required under Bye-law 81, Gary Winnick,
so long as he is a Director shall not be entitled to vote on any of
such resolutions and may not be counted in the quorum of the meeting.
(6) Subject to the Companies Acts and any further disclosure required
thereby, a general notice to the Directors by a Director or Officer
declaring that he is a director or officer or has an interest in a
person and is to be regarded as interested in any transaction or
arrangement made with that person, shall be a sufficient declaration
of interest in relation to any transaction or arrangement so made.
(7) For the purposes of these Bye-Laws, without limiting the generality of
the foregoing, a Director is deemed to have an interest in a
transaction or arrangement with the Company if he is the holder of or
beneficially interested in five per cent or more of any class of the
equity share capital of any body corporate (or any other body
corporate through which his interest is derived) or of the voting
<PAGE>
47
rights available to members of the relevant body corporate with which
the Company is proposing to enter into a transaction or arrangement,
provided that there shall be disregarded any shares held by such
Director as bare or custodian trustee and in which he has no
beneficial interest, any shares comprised in a trust in which the
Director's interest is in reversion or remainder if and so long as
some other person is entitled to receive the income thereof, and any
shares comprised in an authorised unit trust in which the Director is
only interested as a unit holder. For the purposes of this Bye-law,
an interest of a person who is connected with a Director shall be
treated as an interest of the Director.
POWERS AND DUTIES OF THE BOARD
93. Subject to the provisions of the Companies Acts and these Bye-Laws and to
any directions given by the Company by Resolution, the Board shall manage
the business of the Company and may pay all expenses incurred in promoting
and incorporating the Company and may exercise all the powers of the
Company. No alteration of these Bye-Laws and no such direction shall
invalidate any prior act of the Board which would have been valid if that
alteration had not been made or that direction had not been given. The
powers given by this Bye-Law shall not be limited by any special power
given to the Board by these Bye-Laws and a meeting of the Board at which a
quorum is present shall be competent to exercise all the powers,
authorities and discretions for the time being vested in or exercisable by
the Board.
94. The Board may exercise all the powers of the Company to borrow money and to
mortgage or charge all or any part of the undertaking, property and assets
(present and future) and uncalled capital of the Company and to issue
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48
debentures and other securities, whether outright or as collateral security
for any debt, liability or obligation of the Company or of any other
persons.
95. All cheques, promissory notes, drafts, bills of exchange and other
instruments, whether negotiable or transferable or not, and all receipts
for money paid to the Company shall be signed, drawn, accepted, endorsed or
otherwise executed, as the case may be, in such manner as the Board shall
from time to time by resolution determine.
GRATUITIES, PENSIONS AND INSURANCE
96. (1) The Board may (by establishment of or maintenance of schemes or
otherwise) provide benefits, whether by the payment of gratuities or
pensions or by insurance or otherwise, for any past or present
Director or employee of the Company or any of its subsidiaries or any
body corporate associated with, or any business acquired by, any of
them, and for any member of his family (including a spouse and a
former spouse) or any person who is or was dependent on him, and may
(as well before as after he ceases to hold such office or employment)
contribute to any fund and pay premiums for the purchase or provision
of any such benefit.
(2) Without prejudice to the provisions of Bye-Laws 141 and 142, the Board
shall have the power to purchase and maintain insurance for or for the
benefit of any persons who are or were at any time Directors,
Officers, or employees of the Company, or of any other Company which
is its holding company or in which the Company or such holding company
has any interest whether direct or indirect or which is in any way
allied to or associated with the Company, or of any subsidiary
undertaking of the Company or any such other company, or who are or
were at any time trustees of any pension
<PAGE>
49
fund in which employees of the Company or any such other company or
subsidiary undertaking are interested, including (without prejudice to
the generality of the foregoing) insurance against any liability
incurred by such persons in respect of any act or omission in the
actual or purported execution or discharge of their duties or in the
exercise or purported exercise of their powers or otherwise in
relation to their duties, powers or offices in relation to the Company
or any such other company, subsidiary undertaking or pension fund.
(3) No Director or former Director shall be accountable to the Company or
the Shareholders for any benefit provided pursuant to this Bye-Law and
the receipt of any such benefit shall not disqualify any person from
being or becoming a Director of the Company.
DELEGATION OF THE BOARD'S POWERS
97. The Board may by power of attorney appoint any company, firm or person or
any fluctuating body of persons, whether nominated directly or indirectly
by the Board, to be the attorney or attorneys of the Company for such
purposes and with such powers, authorities and discretions (not exceeding
those vested in or exercisable by the Board under these Bye-Laws) and for
such period and subject to such conditions as it may think fit, and any
such power of attorney may contain such provisions for the protection and
convenience of persons dealing with any such attorney and of such attorney
as the Board may think fit, and may also authorise any such attorney to
sub-delegate all or any of the powers, authorities and discretions vested
in him.
98. The Board may entrust to and confer upon any Director, Officer or, without
prejudice to the provisions of Bye-Law 99, other individual any of the
powers exercisable by it upon such terms and conditions with such
restrictions as it thinks fit, and either collaterally with, or to the
exclusion of,
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50
its own powers, and may from time to time revoke or vary all or any of such
powers but no person dealing in good faith and without notice of such
revocation or variation shall be affected thereby.
99. The Board may delegate any of its powers, authorities and discretions to
committees, consisting of such person or persons (whether a member or
members of its body or not) as it thinks fit. Any committee so formed
shall, in the exercise of the powers, authorities and discretions so
delegated, and in conducting its proceedings conform to any regulations
which may be imposed upon it by the Board. If no regulations are imposed
by the Board the proceedings of a committee with two or more members shall
be, as far as is practicable, governed by the Bye-Laws regulating the
proceedings of the Board.
PROCEEDINGS OF THE BOARD
100. The Board may meet for the despatch of business, adjourn and otherwise
regulate its meetings as it thinks fit. Questions arising at any meeting
shall be determined by the affirmative vote of a majority of votes cast at
a meeting of the Board of Directors then in office. In the case of an
equality of votes the motion shall be deemed to have been lost. A Director
may, and the Secretary on the requisition of a Director shall, at any time
summon a meeting of the Board.
101. Notice of a meeting of the Board shall be deemed to be duly given to a
Director if it is given to him personally or by word of mouth or sent to
him by post, cable, telex, telecopier or other mode of representing or
reproducing words in a legible and non-transitory form at his last known
address or any other address given by him to the Company for this purpose.
A Director
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51
may retrospectively waive the requirement for notice of any meeting by
consenting in writing to the business conducted at the meeting.
102. (1) The quorum necessary for the transaction of the business of the Board
may be fixed by the Board and, unless so fixed at any other number,
shall be two individuals. Any Director who ceases to be a Director at
a meeting of the Board may continue to be present and to act as a
Director and be counted in the quorum until the termination of the
meeting if no other Director objects and if otherwise a quorum of
Directors would not be present.
(2) The Resident Representative shall, upon delivering written notice of
an address for the purposes of receipt of notice, to the Registered
Office, be entitled to receive notice of, attend and be heard at, and
to receive minutes of all meetings of the Board.
103. So long as a quorum of Directors remains in office, the continuing
Directors may act notwithstanding any vacancy in the Board but, if no such
quorum remains, the continuing Directors or a sole continuing Director may
act only for the purpose of calling a general meeting.
104. The Chairman or Co-Chairman (or President) or, in his absence, the Deputy
Chairman or Co-Chairman (or Vice-President), shall preside as chairman at
every meeting of the Board. If at any meeting the Chairman or Deputy
Chairman (or the President or Vice-President) is not present within five
minutes after the time appointed for holding the meeting, or is not willing
to act as chairman, the Directors present may choose one of their number to
be chairman of the meeting.
105. The meetings and proceedings of any committee consisting of two or more
members shall be governed by the provisions contained in these Bye-Laws
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52
for regulating the meetings and proceedings of the Board so far as the same
are applicable and are not superseded by any regulations imposed by the
Board.
106. A resolution in writing signed by all the Directors for the time being
entitled to receive notice of a meeting of the Board or by all the members
of a committee for the time being shall be as valid and effectual as a
resolution passed at a meeting of the Board or, as the case may be, of such
committee duly called and constituted. Such resolution may be contained in
one document or in several documents in the like form each signed by one or
more of the Directors or members of the committee concerned.
107. A meeting of the Board or a committee appointed by the Board may be held by
means of such telephone, electronic or other communication facilities as
permit all persons participating in the meeting to communicate with each
other simultaneously and instantaneously and participation in such a
meeting shall constitute presence in person at such meeting. Such a
meeting shall be deemed to take place where the largest group of those
participating in the meeting is physically assembled, or, if there is no
such group, where the chairman of the meeting then is. The word "meeting"
in these Bye-Laws shall be construed accordingly.
108. All acts done by the Board or by any committee or by any person acting as a
Director or member of a committee or any person duly authorised by the
Board or any committee, shall, notwithstanding that it is afterwards
discovered that there was some defect in the appointment of any member of
the Board or such committee or person acting as aforesaid or that they or
any of them were disqualified or had vacated their office, be as valid as
if every such person had been duly appointed and was qualified and had
continued to be a Director, member of such committee or person so
authorised.
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53
109. The Company may by Resolution suspend or relax to any extent, either
generally or in respect of any particular matter, any provision of these
Bye-Laws prohibiting a Director from voting at a meeting of the Board or of
a committee of the Board, or ratify any transaction not duly authorised by
reason of a contravention of any such provisions.
110. Where proposals are under consideration concerning the appointment
(including fixing or varying the terms of appointment) of two or more
Directors to offices or employments with the Company or any body corporate
in which the Company is interested, the proposals may be divided and
considered in relation to each Director separately and in such cases each
of the Directors concerned (if not debarred from voting) provision of
paragraph 5 of Bye-law 97 shall be entitled to vote and be counted in the
quorum in respect of each resolution except that concerning his own
appointment.
111. If a question arises at a meeting of the Board or a committee of the Board
as to the entitlement of a Director to vote or be counted in a quorum, the
question may, before the conclusion of the meeting, be referred to the
chairman of the meeting and his ruling in relation to any Director other
than himself shall be final and conclusive except in a case where the
nature or extent of the interests of the Director concerned have not been
fairly disclosed. If any such question arises in respect of the chairman
of the meeting, it shall be decided by resolution of the Board (on which
the chairman shall not vote) and such resolution will be final and
conclusive except in a case where the interests of the chairman have not
been fairly disclosed.
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54
OFFICERS
112. The Officers of the Company shall include a President and a Vice-President
or a Chairman and Co-Chairman and a Deputy Chairman who shall be Directors
and shall be elected by the Board as soon as possible after the statutory
meeting and each Annual General Meeting. In addition, the Board may
appoint any person whether or not he is a Director to hold such office as
the Board may from time to time determine. Any person elected or appointed
pursuant to this Bye-Law shall hold office for such period and upon such
terms as the Board may determine and the Board may revoke or terminate any
such election or appointment. Any such revocation or termination shall be
without prejudice to any claim for damages that such Officer may have
against the Company or the Company may have against such Officer for any
breach of any contract of service between him and the Company which may be
involved in such revocation or termination. Save as provided in the
Companies Acts or these Bye-Laws, the powers and duties of the Officers of
the Company shall be such (if any) as are determined from time to time by
the Board.
EXECUTIVE DIRECTORS
113. Subject to the provisions of the Companies Acts, the Board may appoint one
or more of its body to be the holder of any executive office (except that
of auditor) under the Company and may enter into any agreement or
arrangement with any Director for his employment by the Company or for the
provision by him of any services outside the scope of the ordinary duties
of a Director. Any such appointment, agreement or arrangement may be made
upon such terms, including terms as to remuneration, as the Board
determines, and any remuneration which is so determined may be in addition
to or in lieu of any ordinary remuneration as a Director. The Board may
<PAGE>
55
revoke or vary any such appointment but without prejudice to any rights or
claims which the person whose appointment is revoked or varied may have
against the Company by reason thereof.
114. Any appointment of a Director to an executive office shall terminate if he
ceases to be a Director but without prejudice to any rights or claims which
he may have against the Company by reason of such cesser. A Director
appointed to an executive office shall not ipso facto cease to be a
Director if his appointment to such executive office terminates.
115. The emoluments of any Director holding executive office for his services as
such shall be determined by the Board, and may be of any description, and
(without limiting the generality of the foregoing) may include admission to
or continuance of membership of any scheme (including any share acquisition
scheme) or fund instituted or established or financed or contributed to by
the Company for the provision of pensions, life assurance or other benefits
for employees or their dependants, or the payment of a pension or other
benefits to him or his dependants on or after retirement or death, apart
from membership or any such scheme or fund.
MINUTES
116. The Board shall cause minutes to be made and books kept for the purpose of
recording -
(1) all appointments of Officers made by the Board;
(2) the names of the Directors and other persons (if any) present at each
meeting of the Board and of any committee;
(3) of all proceedings at meetings of the Company, of the holders of any
class of shares in the Company, of the Board and of committees
appointed by the Board or the Shareholders;
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56
(4) of all proceedings of its managers (if any).
Shareholders shall only be entitled to see the Register of Directors
and Officers, the Register, the financial information provided for in
Bye-Law 132 and the minutes of meetings of the Shareholders of the
Company.
SECRETARY AND RESIDENT REPRESENTATIVE
117. The Secretary (including one or more deputy or assistant secretaries) and,
-------------------------------------------------------
if required, the Resident Representative, shall be appointed by the Board
at such remuneration (if any) and upon such terms as it may think fit and
any Secretary and Resident Representative so appointed may be removed by
the Board. The duties of the Secretary and the duties of the Resident
Representative shall be those prescribed by the Companies Acts together
with such other duties as shall from time to time be prescribed by the
Board.
118. A provision of the Companies Acts or these Bye-Laws requiring or
authorising a thing to be done by or to a Director and the Secretary shall
not be satisfied by its being done by or to the same person acting both as
Director and as, or in the place of, the Secretary.
THE SEAL
119. (1) The Seal shall consist of a circular metal device with the name of the
Company around the outer margin thereof and the country and year of
incorporation across the centre thereof. Should the Seal not have
been received at the Registered Office in such form at the date of
adoption of this Bye-Law then, pending such receipt, any document
requiring to be sealed with the Seal shall be sealed by affixing a red
wafer seal to the document with the name of the Company, and the
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57
country and year of incorporation type written across the centre
thereof.
(2) The Board shall provide for the custody of every Seal. A Seal shall
only be used by authority of the Board or of a committee constituted
by the Board. Subject to these Bye-Laws, any instrument to which a
Seal is affixed shall be signed by either two Directors, or by the
Secretary and one Director, or by the Secretary or by any one person
whether or not a Director or Officer, who has been authorised either
generally or specifically to affirm the use of a Seal; provided that
the Secretary or a Director may affix a Seal over his signature alone
to authenticate copies of these Bye-Laws, the minutes of any meeting
or any other documents requiring authentication.
DIVIDENDS AND OTHER PAYMENTS
120. The Board may from time to time declare dividends or distributions out of
contributed surplus to be paid to the Shareholders according to their
rights and interests including such interim dividends as appear to the
Board to be justified by the position of the Company. The Board, in its
discretion, may determine that any dividend shall be paid in cash or shall
be satisfied, subject to Bye-Law 128, in paying up in full shares in the
Company to be issued to the Shareholders credited as fully paid or partly
paid or partly in one way and partly the other. The Board may also pay any
fixed cash dividend which is payable on any shares of the Company half
yearly or on such other dates, whenever the position of the Company, in the
opinion of the Board, justifies such payment.
121. Except insofar as the rights attaching to, or the terms of issue of, any
share otherwise provide:-
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(1) all dividends or distributions out of contributed surplus may be
declared and paid according to the amounts paid up on the shares in
respect of which the dividend or distribution is paid, and an amount
paid up on a share in advance of calls may be treated for the purpose
of this Bye-Law as paid-up on the share;
(2) dividends or distributions out of contributed surplus may be
apportioned and paid pro rata according to the amounts paid-up on the
shares during any portion or portions of the period in respect of
which the dividend or distribution is paid.
122. The Board may deduct from any dividend, distribution or other moneys
payable to a Shareholder by the Company on or in respect of any shares all
sums of money (if any) presently payable by him to the Company on account
of calls or otherwise in respect of shares of the Company.
123. No dividend, distribution or other moneys payable by the Company on or in
respect of any share shall bear interest against the Company.
124. Any dividend, distribution or interest, or part thereof payable in cash,
or any other sum payable in cash to the holder of shares may be paid by
cheque or warrant sent through the post addressed to the holder at his
address in the Register or, in the case of joint holders, addressed to the
holder whose name stands first in the Register in respect of the shares at
his registered address as appearing in the Register or addressed to such
person at such address as the holder or joint holders may in writing
direct. Every such cheque or warrant shall, unless the holder or joint
holders otherwise direct, be made payable to the order of the holder or, in
the case of joint holders, to the order of the holder whose name stands
first in the Register in respect of such shares, and shall be sent at his
or their risk and payment of the cheque or warrant by the bank on which it
is drawn shall constitute a good discharge to the Company.
<PAGE>
59
Any one of two or more joint holders may give effectual receipts for any
dividends, distributions or other moneys payable or property distributable
in respect of the shares held by such joint holders.
125. Any dividend or distribution out of contributed surplus unclaimed for a
period of six years from the date of declaration of such dividend or
distribution shall be forfeited and shall revert to the Company and the
payment by the Board of any unclaimed dividend, distribution, interest or
other sum payable on or in respect of the share into a separate account
shall not constitute the Company a trustee in respect thereof.
126. The Board may also, in addition to its other powers, direct payment or
satisfaction of any dividend or distribution out of contributed surplus
wholly or in part by the distribution of specific assets, and in particular
of paid-up shares or debentures of any other company, and where any
difficulty arises in regard to such distribution or dividend the Board may
settle it as it thinks expedient, and in particular, may authorise any
person to sell and transfer any fractions or may ignore fractions
altogether, and may fix the value for distribution or dividend purposes of
any such specific assets and may determine that cash payments shall be made
to any Shareholders upon the footing of the values so fixed in order to
secure equality of distribution and may vest any such specific assets in
trustees as may seem expedient to the Board provided that such dividend or
distribution may not be satisfied by the distribution of any partly paid
shares or debentures of any company without the sanction of a Resolution.
RESERVES
127. The Board may, before recommending or declaring any dividend or
distribution out of contributed surplus, set aside such sums as it thinks
<PAGE>
60
proper as reserves which shall, at the discretion of the Board, be
applicable for any purpose of the Company and pending such application may,
also at such discretion, either be employed in the business of the Company
or be invested in such investments as the Board may from time to time think
fit. The Board may also without placing the same to reserve carry forward
any sums which it may think it prudent not to distribute.
CAPITALIZATION OF PROFITS
128. The Board may, from time to time, resolve to capitalise all or any part of
any amount for the time being standing to the credit of any reserve or fund
which is available for distribution or to the credit of any share premium
account and accordingly that such amount be set free for distribution
amongst the Shareholders or any class of Shareholders who would be entitled
thereto if distributed by way of dividend and in the same proportions, on
the footing that the same be not paid in cash but be applied either in or
towards paying up amounts for the time being unpaid on any shares in the
Company held by such Shareholders respectively or in payment up in full of
unissued shares, debentures or other obligations of the Company, to be
allotted and distributed credited as fully paid amongst such Shareholders,
or partly in one way and partly in the other, provided that for the purpose
of this Bye-Law, a share premium account may be applied only in paying up
of unissued shares to be issued to such Shareholders credited as fully paid
and provided further that any sum standing to the credit of a share premium
account may only be applied in crediting as fully paid shares of the same
class as that from which the relevant share premium was derived.
129. Where any difficulty arises in regard to any distribution under the last
preceding Bye-Law, the Board may settle the same as it thinks expedient
and, in particular, may authorise any person to sell and transfer any
fractions
<PAGE>
61
or may resolve that the distribution should be as nearly as may be
practicable in the correct proportion but not exactly so or may ignore
fractions altogether, and may determine that cash payments should be made
to any Shareholders in order to adjust the rights of all parties, as may
seem expedient to the Board. The Board may appoint any person to sign on
behalf of the persons entitled to participate in the distribution any
contract necessary or desirable for giving effect thereto and such
appointment shall be effective and binding upon the Shareholders.
RECORD DATES
130. Notwithstanding any other provisions of these Bye-Laws, the Company may by
Resolution or the Board may fix any date as the record date for any
dividend, distribution, allotment or issue and for the purpose of
identifying the persons entitled to receive notices of general meetings.
Any such record date may be on or at any time not more than 60 days before
any date on which such dividend, distribution, allotment or issue is
declared, paid or made or not more than 60 days nor less than 10 days
before the date of any such meetings.
ACCOUNTING RECORDS
131. The Board shall cause to be kept accounting records sufficient to give a
true and fair view of the state of the Company's affairs and to show and
explain its transactions, in accordance with the Companies Acts.
132. The records of account shall be kept at the Registered Office or at such
other place or places as the Board thinks fit, and shall at all times be
open to inspection by the Directors: PROVIDED that if the records of
account are kept at some place outside Bermuda, there shall be kept at an
office of the
<PAGE>
62
Company in Bermuda such records as will enable the Directors to ascertain
with reasonable accuracy the financial position of the Company at the end
of each three month period. No Shareholder (other than an Officer of the
Company) shall have any right to inspect any accounting record or book or
document of the Company except as conferred by law or authorised by the
Board or by Resolution.
133. A copy of every balance sheet and statement of income and expenditure,
including every document required by law to be annexed thereto, which is to
be laid before the Company in general meeting, together with a copy of the
auditors' report, shall be sent to each person entitled thereto in
accordance with the requirements of the Companies Acts.
AUDIT
134. Save and to the extent that an audit is waived in the manner permitted by
the Companies Acts, auditors shall be appointed and their duties regulated
in accordance with the Companies Acts, any other applicable law and such
requirements not inconsistent with the Companies Acts as the Board may from
time to time determine.
SERVICE OF NOTICES AND OTHER DOCUMENTS
135. Any notice or other document (including a share certificate) may be served
on or delivered to any Shareholder by the Company either personally or by
sending it through the post (by airmail where applicable) in a pre-paid
letter addressed to such Shareholder at his address as appearing in the
Register or by delivering it to or leaving it at such registered address.
In the case of joint holders of a share, service or delivery of any notice
or other document on or to one of the joint holders shall for all purposes
be deemed as sufficient
<PAGE>
63
service on or delivery to all the joint holders. Any notice or other
document if sent by post shall be deemed to have been served or delivered
seven days after it was put in the post, and in proving such service or
delivery, it shall be sufficient to prove that the notice or document was
properly addressed, stamped and put in the post.
136. Any notice of a general meeting of the Company shall be deemed to be duly
given to a Shareholder, or other person entitled to it, if it is sent to
him by cable, telex, telecopier or other mode of representing or
reproducing words in a legible and non-transitory form at his address as
appearing in the Register or any other address given by him to the Company
for this purpose. Any such notice shall be deemed to have been served
twenty-four hours after its despatch.
137. Any notice or other document delivered, sent or given to a Shareholder in
any manner permitted by these Bye-Laws shall, notwithstanding that such
Shareholder is then dead or bankrupt or that any other event has occurred,
and whether or not the Company has notice of the death or bankruptcy or
other event, be deemed to have been duly served or delivered in respect of
any share registered in the name of such Shareholder as sole or joint
holder unless his name shall, at the time of the service or delivery of the
notice or document, have been removed from the Register as the holder of
the share, and such service or delivery shall for all purposes be deemed as
sufficient service or delivery of such notice or document on all persons
interested (whether jointly with or as claiming through or under him) in
the share.
DESTRUCTION OF DOCUMENTS
138. The Company shall be entitled to destroy all instruments of transfer
of shares which have been registered, and all other documents on the basis of
which
<PAGE>
64
any entry is made in the register, at any time after the expiration of six years
from the date of registration thereof and all dividends mandates or variations
or cancellations thereof and notifications of change of address at any time
after the expiration of two years from the date of recording thereof and all
share certificates which have been cancelled at any time after the expiration of
one year from the date of cancellation thereof and all paid dividend warrants
and cheques at any time after the expiration of one year from the date of actual
payment thereof and all instruments of proxy which have been used for the
purpose of a poll at any time after the expiration of one year from the date of
such use and all instruments of proxy which have not been used for the purpose
of a poll at any time after one month from the end of the meeting to which the
instrument of proxy relates and at which no poll was demanded. It shall
conclusively be presumed in favour of the Company that every entry in the
register purporting to have been made on the basis of an instrument of transfer
or other document so destroyed was duly and properly made, that every instrument
of transfer so destroyed was a valid and effective instrument duly and properly
registered, that every share certificate so destroyed was a valid and effective
certificate duly and properly cancelled and that every other document
hereinbefore mentioned so destroyed was a valid and effective document in
accordance with the recorded particulars thereof in the books or records of the
Company, provided always that:-
(a) the provisions aforesaid shall apply only to the destruction of a
document in good faith and without notice of any claim (regardless of
the parties thereto) to which the document might be relevant;
(b) nothing herein contained shall be construed as imposing upon the
Company any liability in respect of the destruction of any such
document earlier than as aforesaid or in any other circumstances which
would not attach to the Company in the absence of this Bye-Law; and
(c) references herein to the destruction of any document include
references to the disposal thereof in any manner.
<PAGE>
65
UNTRACED SHAREHOLDERS
139. (1) The Company shall be entitled to sell, at the best price reasonably
obtainable, or if the shares are listed on a Stock Exchange, to
purchase at the trading price on the date of purchase, the shares of a
Shareholder or the shares to which a person is entitled by virtue of
transmission on death, bankruptcy, or otherwise by operation of law if
and provided that:-
(a) during the period of twelve years prior to the date of the
publication of the advertisements referred to in paragraph (b)
below (or, if published on different dates, the first thereof) at
least three dividends in respect of the shares in question have
been declared and all dividend warrants and cheques which have
been sent in the manner authorised by these Bye-Laws in respect
of the shares in question have remained uncashed; and
(b) the Company shall as soon as practicable after expiry of the said
period of twelve years have inserted advertisements both in a
national daily newspaper and in a newspaper circulating in the
area of the last known address of such Shareholder or other
person giving notice of its intention to sell or purchase the
shares; and
(c) during the said period of twelve years and the period of three
months following the publication of the said advertisements the
Company shall have received no indication either of the
whereabouts or of the existence of such Shareholder or person;
and
(d) if the shares are listed on The Stock Exchange, notice shall have
been given to the relevant department of The Stock
<PAGE>
66
Exchange of the Company's intention to make such sale or purchase
prior to the publication of advertisements.
If during any twelve year period referred to in paragraph (a) above,
further shares have been issued in right of those held at the
beginning of such period or of any previously issued during such
period and all the other requirements of this Bye-Law (other than the
requirement that they be in issue for twelve years) have been
satisfied in regard to the further shares, the Company may also sell
or purchase the further shares.
(2) To give effect to any such sale or purchase, the Board may authorise
some person to execute an instrument of transfer of the shares sold or
purchased to, or in accordance with the directions of, the purchaser
and an instrument of transfer executed by that person shall be as
effective as if it had been executed by the holder of, or person
entitled by transmission to, the shares. The transferee of any shares
sold shall not be bound to see to the application of the purchase
money, nor shall his title to the shares be affected by any
irregularity in, or invalidity of, the proceedings in reference to the
sale.
(3) The net proceeds of sale or purchase of shares shall belong to the
Company which, for the period of 6 years after the transfer or
purchase, shall be obliged to account to the former Shareholder or
other person previously entitled as aforesaid for an amount equal to
such proceeds and shall enter the name of such former Shareholder or
other person in the books of the Company as a creditor for such
amount. No trust shall be created in respect of the debt, no interest
shall be payable in respect of the same and the Company shall not be
required to account for any money earned on the net proceeds, which
may be employed in the business of the Company or invested in such
investments as the Board from time to time thinks fit. After the said
<PAGE>
67
6 year period has passed, the net proceeds of share shall become the
property of the Company, absolutely, and any rights of the former
Shareholder or other person previously entitled as aforesaid shall
terminate completely.
WINDING UP
140. If the Company shall be wound up, the liquidator may, with the sanction of
a Resolution of the Company and any other sanction required by the
Companies Acts, divide amongst the Shareholders in specie or kind the whole
or any part of the assets of the Company (whether they shall consist of
property of the same kind or not) and may for such purposes set such values
as he deems fair upon any property to be divided as aforesaid and may
determine how such division shall be carried out as between the
Shareholders or different classes of Shareholders. The liquidator may,
with the like sanction, vest the whole or any part of such assets in
trustees upon such trust for the benefit of the contributories as the
liquidator, with the like sanction, shall think fit, but so that no
Shareholder shall be compelled to accept any shares or other assets upon
which there is any liability.
INDEMNITY
141. Subject to the proviso below, every Director, Officer of the Company and
member of a committee constituted under Bye-Law 99 and any Resident
Representative shall be indemnified out of the funds of the Company against
all liabilities, loss, damage or expense (including but not limited to
liabilities under contract, tort and statute or any applicable foreign law
or regulation and all reasonable legal and other costs and expenses
properly payable) incurred or suffered by him as such Director, Officer,
committee member or Resident Representative and the indemnity contained in
this Bye-Law shall
<PAGE>
68
extend to any person acting as a Director, Officer, committee member or
Resident Representative in the reasonable belief that he has been so
appointed or elected notwithstanding any defect in such appointment or
election PROVIDED ALWAYS that the indemnity contained in this Bye-Law shall
not extend to any matter which would render it void pursuant to the
Companies Acts.
142. Every Director, Officer, member of a committee duly constituted under Bye-
Law 99 or Resident Representative of the Company shall be indemnified out
of the funds of the Company against all liabilities incurred by him as such
Director, Officer, committee member or Resident Representative in defending
any proceedings, whether civil or criminal, in which judgement is given in
his favour, or in which he is acquitted, or in connection with any
application under the Companies Acts in which relief from liability is
granted to him by the court.
143. To the extent that any Director, Officer, member of a committee duly
constituted under Bye-Law 99 or Resident Representative is entitled to
claim an indemnity pursuant to these Bye-Laws in respect of amounts paid or
discharged by him, the relative indemnity shall take effect as an
obligation of the Company to reimburse the person making such payment or
effecting such discharge.
144. Each Shareholder and the Company agree to waive any claim or right of
action he or it may at any time have, whether individually or by or in the
right of the Company, against any Director, Officer, or member of a
committee duly constituted under Bye-Law 99 on account of any action taken
by such Director, Officer, or member of a committee or the failure of such
Director, Officer, or member of a committee to take any action in the
performance of his duties with or for the Company PROVIDED
<PAGE>
69
HOWEVER that such waiver shall not apply to any claims or rights of action
arising out of the fraud of such Director, Officer, or member of a
committee duly constituted under Bye-Law 99 or to recover any gain,
personal profit or advantage to which such Director, Officer, or member of
a committee duly constituted under Bye-Law 99 is not legally entitled.
145. Subject to the Companies Acts, expenses incurred in defending any
civil or criminal action or proceeding for which indemnification is required
pursuant to Bye-Laws 141 and 142 shall be paid by the Company in advance of the
final disposition of such action or proceeding upon receipt of an undertaking by
or on behalf of the indemnified party to repay such amount if it shall
ultimately be determined that the indemnified party is not entitled to be
indemnified pursuant to Bye-Laws 142 and 143 provided that no monies shall be
paid hereunder unless payment of the same shall be authorised in the specific
case upon a determination that indemnification of the Director or officer would
be proper in the circumstances because he has met the standard of conduct which
would entitle him to the indemnification thereby provided and such determination
shall be made:
(a) by the Board, by a majority vote at a meeting duly constituted by a
quorum of Directors not party to the proceedings or matter with regard
to which the indemnification is, or would be, claimed; or
(b) in the case such a meeting cannot be constituted by lack of a
disinterested quorum, by independent legal counsel in a written
opinion; or
(c) by a majority vote of the Shareholders.
Each Shareholder of the Company, by virtue of its acquisition and continued
holding of a share, shall be deemed to have acknowledged and agreed that the
advances of funds may be made by the Company as aforesaid, and when made by the
Company under this Bye-Law 145 are made to meet expenditures incurred for
<PAGE>
70
the purpose of enabling such Director, Officer, or member of a committee duly
constituted under Bye-Law 99 to properly perform his or her duties as an officer
of the Company.
AMALGAMATION
146. Any Resolution proposed for consideration at any general meeting to approve
the amalgamation of the Company with any other company, wherever
incorporated, shall require the approval of a simple majority of votes cast
at such meeting and the quorum for such meeting shall be that required in
Bye-Law 54 and a poll may be demanded in respect of such Resolution in
accordance with the provisions of Bye-Law 64.
CONTINUATION
147. Subject to the Companies Act, the Shareholders may by Resolution approve
the discontinuation of the Company in Bermuda and the continuation of the
Company in a jurisdiction outside Bermuda. The Shareholders, having
resolved to approve the discontinuation of the Company, may by Resolution
further resolve not to proceed with any application to discontinue the
Company in Bermuda or may vary such application as they see fit.
ALTERATION OF BYE-LAWS
148. (1) These Bye-Laws may be amended, from time to time by resolution of the
Board, subject to approval by resolution at a General Meeting of the
Shareholders.
(2) The vote or consent of the holders of 75% of the issued shares and the
approval of a majority of the Board shall be required to effect:-
<PAGE>
71
(a) any amendments to the provisions of Bye-Laws 3, 34, 63 and this
Bye-law 148 provided that if the provisions of Bye-law 3, 43 or
63 are so amended or the Board and Shareholders by such requisite
vote approve an otherwise prohibited transfer under Bye-Law
34(2), the Company will indemnify each holder of shares who
becomes subject to treatment as a "United States shareholder" for
purposes of Section 951 et. seq. of the Code as a result of such
--- ---
amendment from and against any and all losses, costs, damages,
liabilities and expenses arising out of, directly or indirectly,
such treatment.
(b) any amendment to the maximum or minimum number of Directors
specified in Bye-Law 84.
<PAGE>
[FRONT SIDE OF STOCK CERTIFICATE]
EXHIBIT 4.1
- --------------------------------------------------------------------------------
INCORPORATED UNDER THE LAWS OF BERMUDA |See reverse side for certain definitions
CUSIP
- --------------------------------------------------------------------------------
LOGO GLOBAL CROSSING LTD.
- --------------------------------------------------------------------------------
NUMBER | This certifies that
- --------------------------|
|
|
- --------------------------| is the owner of
SHARES |
- --------------------------|
|
|
- --------------------------| FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON
| STOCK OF THE PAR VALUE OF $0.01 PER SHARE OF GLOBAL
| CROSSING LTD. transferable on the books of the
GLOBAL CROSSING LTD. | Company in person or by duly authorized attorney
CORPORATE BERMUDA | upon surrender of this certificate properly
| endorsed. This certificate and the shares
SEAL | represented hereby are issued and shall be held
| subject to all of the provisions of the Memorandum
| of Association and Articles of Association and
| amendments thereto of the Company, to all of which
| the holder by acceptance hereof assents. The
| certificate is not valid until countersigned and
| registered by the Transfer Agent and Registrar.
| WITNESS THE FACSIMILE SEAL OF THE CORPORATION AND
| THE FACSIMILE SIGNATURES OF ITS DULY AUTHORIZED
| OFFICERS.
|
| Countersigned and Registered:
| First Chicago Trust Company
| of New York
| Transfer Agent and Registrar by:
|
|
|
- ------------------------- |
COMMON STOCK | Dated: Authorized Signature
- --------------------------------------------------------------------------------
| |
| |
| |
| Chief Executive Officer | Secretary
- --------------------------------------------------------------------------------
<PAGE>
[REVERSE SIDE OF STOCK CERTIFICATE]
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on | The Company will furnish without charge to each stockholder who
the face of this certificate, shall be construed as though | so requests, the designations, powers, preferences and relative
they were written out in full according to applicable laws | participating, optional or other special rights of each class
or regulations. Additional abbreviations may also be used | of stock or series thereof of the Company and the qualifications,
though not in this list below. | limitaitons or restrictions of such preferences and/or rights.
- -------------------------------------------------------------| Any such request should be made to the Secretary of the Company or
TEN COM: as tenants in common | TEN ENT: as tenants by the | to the Transfer Agent and Registrar named on the face of this
| entireties | certificate.
JT TEN: as joint tenants with right of survivorship and not |
as tenants in common |
- -------------------------------------------------------------|
|
UNIF GIFT MIN ACT: Custodian |
under Uniform Gifts to Minor Act |
- -------------------------------------------------------------|
(Cust) (Minor) (State) |
- -------------------------------------------------------------|
|
FOR VALUE RECEIVED, HEREBY SELL, ASSIGN AND TRANSFER UNTO.|
- -------------------------------------------------------------|
|
|
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER |
OF ASSIGNEE: |
- -------------------------------------------------------------|
|
PLEASE INSERT NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, |
OF ASSIGNEE: |
- -------------------------------------------------------------|
|
|
|
|
|
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
shares of the Common Stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------------------------------------------------------------------
attorney to transfer the said Common Stock on the books of the within-named Corporation with full power of
substitution in the premises.
- ----------------------------------------------------------------------------------------------------------------------------------
| | |
| | |
| | |
| DATED | X | X
|----------------------------------------------------------------------------------------------------------
| NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF
| THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
|----------------------------------------------------------------------------------------------------------
| |
| |
| SIGNATURE(S) GUARANTEED BY |
| ---------------------------------------------------------------------------------------------------------
| THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, |
| STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP |
| IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. |
| RULE 17AD-15. |
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of [ ], 1998, by and among Global Crossing Ltd., a
company organized under the laws of Bermuda (the "Company"), and the persons
named on the signature pages hereto (each, an "Investor," and collectively, the
"Investors").
WHEREAS, the Investors are shareholders of Global Crossing Ltd, LDC, a
company organized under the laws of the Cayman Islands ("CaymansCo").
WHEREAS, CaymansCo is the owner of all of the issued and outstanding
shares of Common Stock (as defined below) of the Company.
WHEREAS, CaymansCo desires to distribute all of the shares of Common
Stock owned by it to its shareholders, including, without limitation, the
Investors, and to liquidate.
WHEREAS, it is a condition to the willingness of the Investors to
approve such distribution and liquidation that the Company enter into this
Agreement.
WHEREAS, the Company desires that CaymansCo make such distribution in
order to facilitate the Company's initial public offering of shares of Common
Stock (the "IPO").
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
SECTION 1. Definitions.
-----------------------
As used in this Agreement, the following terms shall have the
following meanings:
Advice: See Section 5 hereof.
------
Affiliate means, with respect to any specified person, any other
---------
person directly or indirectly controlling or controlled by or under direct or
indirect common
<PAGE>
control with such specified person. For the purposes of this definition,
"control" when used with respect to any specified person means the power to
-------
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
----------- ----------
foregoing.
BCLP means, collectively, Abbott Brown, Lodwrick Cook, David Lee,
----
Barry Porter, Galenight Corp., a Delaware corporation, Ridgestone Corp., a
Delaware corporation, San Pasqual Corp., a Delaware corporation, and the David
and Ellen Lee Family Trust, a California trust.
BCLP Demand Notice: See Section 2(a)(v) hereof.
------------------
BCLP Demand Registration: See Section 2(a)(v) hereof.
------------------------
BCLP Holder means each person included in BCLP and any Transferee of
-----------
BCLP Registrable Securities.
BCLP Registrable Securities means Registrable Securities owned as of
---------------------------
the date of this Agreement by any person included in BCLP or subsequently
acquired by any person included in BCLP.
Business Day means any day that is not a Saturday, a Sunday or a legal
------------
holiday on which banking institutions in the State of New York are not required
to be open.
Capital Stock means, with respect to any person, any and all shares,
-------------
interests, participations or other equivalents (however designated) of corporate
stock issued by such person, including each class of common stock and preferred
stock of such person.
CaymansCo: See the first WHEREAS clause hereof.
---------
CIBC means CIBC Wood Gundy (Capital) SFC, Inc., a _________
----
corporation, [and 2 partnerships]
CIBC Demand Notice: See Section 2(a)(ii) hereof.
------------------
CIBC Demand Registration: See Section 2(a)(ii) hereof.
------------------------
2
<PAGE>
CIBC Holder means CIBC and any Transferee of CIBC Registrable
-----------
Securities.
CIBC Registrable Securities means Registrable Securities owned as of
---------------------------
the date of this Agreement by CIBC or subsequently acquired by CIBC.
Common Stock means the Common Stock, par value $.01 per share, of the
------------
Company or any other shares of Capital Stock or other securities into which such
shares of Common Stock shall be reclassified or changed, including, without
limitation, by reason of a merger, consolidation, exchange, reorganization or
recapitalization. If the Common Stock has been so reclassified or changed, or
if the Company pays a dividend or makes a distribution on the Common Stock in
shares of Capital Stock or other securities, or subdivides (or combines) its
outstanding shares of Common Stock into a greater (or smaller) number of shares
of Common Stock, a share of Common Stock shall be deemed to be such number of
shares of Capital Stock and amount of other securities to which a holder of a
share of Common Stock outstanding immediately prior to such change,
reclassification, exchange, dividend, distribution, subdivision or combination
would be entitled.
Company: See the introductory clauses hereof.
-------
Continental means Continental Casualty Company, a __________
-----------
corporation.
Continental Demand Notice: See Section 2(a)(iv) hereof.
-------------------------
Continental Demand Registration: See Section 2(a)(iv) hereof.
-------------------------------
Continental Holder means Continental and any Transferee of Continental
------------------
Registrable Securities.
Continental Registrable Securities means Registrable Securities owned
----------------------------------
as of the date of this Agreement by Continental or subsequently acquired by
Continental.
Delay Period: See Section 2(c) hereof.
------------
3
<PAGE>
Demand Notice means the BCLP Demand Notice, CIBC Demand Notice, Lender
-------------
Demand Notice, Continental Demand Notice, MRCo Demand Notice, PCG/GKW Demand
Notice or TDC Demand Notice, as the case may be.
Demand Registration means the BCLP Demand Registration, CIBC Demand
-------------------
Registration, Lender Demand Registration, Continental Demand Registra tion,
MRCo Demand Registration, PCG/GKW Demand Registration or TDC Demand
Registration, as the case may be.
Demand Registration Statement means a Registration Statement intended
-----------------------------
to effect a Demand Registration.
Effectiveness Period: See Section 2(c) hereof.
--------------------
Exchange Act means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations of the SEC promulgated thereunder.
Foreclosure: See Section 2(a)(vii) hereof.
-----------
GKW Unified means GKW Unified Holdings, LLC, a Delaware limited
-----------
liability company.
Hold-Back Period: See Section 4 hereof.
----------------
Holder means a person who owns Registrable Securities and is either
------
(i) an Investor or (ii) a Transferee of Registrable Securities owned as of the
date of this Agreement by an Investor or subsequently acquired by an Investor.
Inspector: See Section 5(j) hereof.
---------
Interruption Period: See the last paragraph of Section 5 hereof.
-------------------
Investor(s): See the introductory clauses hereof.
-----------
IPO: See the last WHEREAS clause hereof.
---
Lender: See Section 2(a)(vii) hereof.
------
Lender Demand Notice: See Section 2(a)(vii) hereof.
--------------------
4
<PAGE>
Lender Demand Registration: See Section 2(a)(vii) hereof.
--------------------------
MRCo means MRCo., Inc., a Delaware corporation.
----
MRCo Holder means MRCo and any Transferee of MRCo Registrable
-----------
Securities.
MRCo Demand Notice: See Section 2(a)(iii) hereof.
------------------
MRCo Demand Registration: See Section 2(a)(iii) hereof.
------------------------
MRCo Registrable Securities means Registrable Securities owned as of
---------------------------
the date of this Agreement by MRCo or subsequently acquired by MRCo.
Other Security Holder: See Section 2(f) hereof.
---------------------
PCG means Pacific Capital Group, Inc., a California corporation.
---
PCG/GKW means, collectively, PCG, GKW and Gary Winnick.
-------
PCG/GKW Demand Notice: See Section 2(a)(i) hereof.
---------------------
PCG/GKW Demand Registration: See Section 2(a)(i) hereof.
---------------------------
PCG/GKW Holder means any person included in PCG/GKW and any Transferee
--------------
of PCG/GKW Registrable Securities.
PCG/GKW Registrable Securities means Registrable Securities owned as
------------------------------
of the date of this Agreement by any person included in PCG/GKW or subsequently
acquired by any person included in PCG/GKW.
person means any individual, corporation, partnership, limited
------
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
Piggyback Registration: See Section 3(a) hereof.
----------------------
Prospectus means the prospectus included in any Registration Statement
----------
(including, without limitation, a prospectus that discloses information
previously
5
<PAGE>
omitted from a prospectus filed as part of an effective registration statement
in reliance upon Rule 430A), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of the
Registrable Securities covered by such Registration Statement and all other
amendments and supplements to the prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such prospectus.
Registrable Securities means shares of Common Stock that are owned as
----------------------
of the date of this Agreement by an Investor or subsequently acquired by an
Investor. Shares of Common Stock shall cease to be Registrable Securities (and
shall be excluded from the calculation of the number of outstanding Registrable
Securities) when they have been distributed to the public pursuant to an
offering registered under the Securities Act or sold to the public through a
broker, dealer or market maker in compliance with Rule 144 or Rule 145(d) under
the Securities Act or any successor rules. Notwithstanding the foregoing, a
security will not cease to be a Registrable Security until all stop transfer
instructions and notations and restrictive legends with respect to such security
have been lifted or removed. For purposes of this Agreement, a person will be
deemed to be a Holder or owner of Registrable Securities whenever such person
has the right to acquire, directly or indirectly, such securities (upon exercise
of warrants, options or otherwise, so long as such warrants, options or other
rights are then exercisable), regardless of whether such acquisition has
actually been effected.
Registration means registration under the Securities Act of the
------------
offering of Registrable Securities pursuant to a Shelf Registration, a Demand
Registration or a Piggyback Registration.
Registration Statement means any registration statement of the Company
----------------------
under the Securities Act that covers any of the Registrable Securities pursuant
to the provisions of this Agreement, including the Prospectus included therein,
amendments and supplements to such registration statement, including pre-and
post-effective amendments, all exhibits, and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
SEC means the Securities and Exchange Commission or any successor
---
thereto.
6
<PAGE>
Securities Act means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the SEC promulgated thereunder.
Shelf Registration means the registration under the Securities Act of
------------------
the offering of Registrable Securities on a delayed or continuous basis pursuant
to Rule 415 under the Securities Act (or any similar rule that may be adopted by
the SEC).
Shelf Registration Statement means a Registration Statement intended
----------------------------
to effect a Shelf Registration.
TDC means, collectively, Sasson International Holdings, Inc., a
---
corporation organized under the laws of the British Virgin Islands, and Yao-Hwa
Company Management Commission.
TDC Demand Notice: See Section 2(a)(vi) hereof.
-----------------
TDC Demand Registration: See Section 2(a)(vi) hereof.
-----------------------
TDC Holder means any person included in TDC and any Transferee of TDC
----------
Registrable Securities.
TDC Registrable Securities means Registrable Securities owned as of
--------------------------
the date of this Agreement by any person included in TDC or subsequently
acquired by any person included in TDC.
Transferee means a person that has agreed in writing to be bound by
----------
the terms of this Agreement as if such person were an Investor and is (i) a
transferee or assignee of Registrable Securities, (ii) the executor of the
estate of a deceased Investor or such Investor's heirs, devisees, legatees or
assigns, or (iii) upon the disability of any Investor, any guardian or
conservator of such Investor.
underwritten registration or underwritten offering means a
--------------------------------------------------
registration under the Securities Act in which securities of the Company are
sold to an underwriter for reoffering to the public.
SECTION 2. Demand Registration.
-------------------
(a) Number of Registrations. Commencing on the first
-----------------------
anniversary of the consummation of the IPO,
7
<PAGE>
(i) PCG/GKW Holders owning a majority of the PCG/GKW Registrable
Securities shall have the right, by written notice (a "PCG/GKW Demand Notice")
given to the Company in accordance with the provisions of Section 9.1 hereof, to
request the Company to register under and in accordance with the provisions of
the Securities Act all or part of the PCG/GKW Registrable Securities designated
by such PCG/GKW Holders (a "PCG/GKW Demand Registration"); provided, however,
-------- -------
that the aggregate number of PCG/GKW Registrable Securities requested to be
registered pursuant to any such PCG/GKW Demand Notice shall be not less than ten
percent (10%) nor more than twenty-five percent (25%) of the PCG/GKW Registrable
Securities owned as of the date hereof. Upon receipt of any such PCG/GKW Demand
Notice, the Company shall notify all other PCG/GKW Holders of the receipt of
such PCG/GKW Demand Notice within 10 days of the receipt thereof and shall
include in such PCG/GKW Demand Registration all PCG/GKW Registrable Securities
with respect to which the Company has received written requests for inclusion
therein within 10 business days after the date on which such notice is given;
provided, further, that if the total amount of PCG/GKW Registrable Securities
- -------- -------
requested by PCG/GKW Holders to be included in such PCG/GKW Demand Registration
exceeds the maximum number of PCG/GKW Registrable Securities permitted to be
included in such PCG/GKW Demand Registration pursuant to this Section 2(a)(i),
then the amount of PCG/GKW Registrable Securities of each PCG/GKW Holder to be
included in such PCG/GKW Demand Registration shall be reduced pro rata in
--- ----
proportion to the respective number of PCG/GKW Registrable Securities owned by
each such PCG/GKW Holder. The PCG/GKW Holders shall be entitled to five PCG/GKW
Demand Registrations pursuant to this Section 2(a)(i); provided, however, that
-------- -------
if (A) any such PCG/GKW Demand Registration did not become effective or was not
maintained effective for the period (whether or not continuous) set forth in
Section 2(c) hereof, or (B) in connection with the registration of PCG/GKW
Registrable Securities covered by such PCG/GKW Demand Notice, the number of such
securities to be offered by the PCG/GKW Holders is reduced to less than fifty
percent (50%) of the PCG/GKW Registrable Securities requested to be included in
such Demand Registration by the PCG/GKW Holders (after taking into account any
reduction pursuant to the second proviso in the preceding sentence) because of
the inclusion of other shares of Common Stock in accordance with the provisions
of Section 2(e) hereof, then the PCG/GKW Holders shall be entitled, in each such
case, to one additional PCG/GKW Demand Registration pursuant hereto. The
PCG/GKW Holders may not request more than one PCG/GKW Demand Registration during
any 12 month period; provided, however, that such restriction shall not apply if
-------- -------
any of the events set forth in clauses
8
<PAGE>
(A) and (B) of the proviso the preceding sentence shall have occurred with
respect to the previous PCG/GKW Demand Registration requested by the PCG/GKW
Holders.
(ii) CIBC Holders owning a majority of the CIBC Registrable
Securities shall have the right, by written notice (a "CIBC Demand Notice")
given to the Company in accordance with the provisions of Section 9.1 hereof, to
request the Company to register under and in accordance with the provisions of
the Securities Act all or part of the CIBC Registrable Securities designated by
such CIBC Holders (a "CIBC Demand Registration"); provided, however, that the
-------- -------
aggregate number of CIBC Registrable Securities requested to be registered
pursuant to any such CIBC Demand Notice shall be not less than ten percent (10%)
nor more than twenty-five percent (25%) of the CIBC Registrable Securities owned
as of the date hereof. Upon receipt of any such CIBC Demand Notice, the Company
shall notify all other CIBC Holders of the receipt of such CIBC Demand Notice
within 10 days of the receipt thereof and shall include in such CIBC Demand
Registration all CIBC Registrable Securities with respect to which the Company
has received written requests for inclusion therein within 10 business days
after the date on which such notice is given; provided, further, that if the
-------- -------
total amount of CIBC Registrable Securities requested by CIBC Holders to be
included in such CIBC Demand Registration exceeds the maximum number of CIBC
Registrable Securities permitted to be included in such CIBC Demand Registration
pursuant to this Section 2(a)(ii), then the amount of CIBC Registrable
Securities of each CIBC Holder to be included in such CIBC Demand Registration
shall be reduced pro rata in proportion to the respective number of CIBC
--- ----
Registrable Securities owned by each such CIBC Holder. The CIBC Holders shall
be entitled to five CIBC Demand Registrations pursuant to this Section 2(a)(ii);
provided, however, that if (A) any such CIBC Demand Registration did not become
- -------- -------
effective or was not maintained effective for the period (whether or not
continuous) set forth in Section 2(c) hereof, or (B) in connection with the
registration of CIBC Registrable Securities covered by such CIBC Demand Notice,
the number of such securities to be offered by the CIBC Holders is reduced to
less than fifty percent (50%) of the CIBC Registrable Securities requested to be
included in such Demand Registration by the CIBC Holders (after taking into
account any reduction pursuant to the second proviso in the preceding sentence)
because of the inclusion of other shares of Common Stock in accordance with the
provisions of Section 2(e) hereof, then the CIBC Holders shall be entitled, in
each such case, to one additional CIBC Demand Registration pursuant hereto. The
CIBC Holders may not request more than one CIBC Demand Registration during any
12 month period; provided, however, that such restriction shall not apply if any
-------- -------
of the events set forth in clauses (A) and (B) of
9
<PAGE>
the proviso the preceding sentence shall have occurred with respect to the
previous CIBC Demand Registration requested by the CIBC Holders.
(iii) MRCo Holders owning a majority of the MRCo Registrable
Securities shall have the right, by written notice (a "MRCo Demand Notice")
given to the Company in accordance with the provisions of Section 9.1 hereof, to
request the Company to register under and in accordance with the provisions of
the Securities Act all or part of the MRCo Registrable Securities designated by
such MRCo Holders (a "MRCo Demand Registration"); provided, however, that the
-------- -------
aggregate number of MRCo Registrable Securities requested to be registered
pursuant to any such MRCo Demand Notice shall be not less than ten percent (10%)
nor more than (x) twenty-five percent (25%) prior to the second anniversary of
the IPO and (y) fifty percent (50%) commencing on the second anniversary of the
IPO of the MRCo Registrable Securities owned as of the date hereof. Upon
receipt of any such MRCo Demand Notice, the Company shall notify all other MRCo
Holders of the receipt of such MRCo Demand Notice within 10 days of the receipt
thereof and shall include in such MRCo Demand Registration all MRCo Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within 10 business days after the date on which such notice is
given; provided, further, that if the total amount of MRCo Registrable
-------- -------
Securities requested by MRCo Holders to be included in such MRCo Demand
Registration exceeds the maximum number of MRCo Registrable Securities permitted
to be included in such MRCo Demand Registration pursuant to this Section
2(a)(iii), then the amount of MRCo Registrable Securities of each MRCo Holder to
be included in such MRCo Demand Registration shall be reduced pro rata in
--- ----
proportion to the respective number of MRCo Registrable Securities owned by each
such MRCo Holder. The MRCo Holders shall be entitled to two MRCo Demand
Registrations pursuant to this Section 2(a)(iii); provided, however, that if (A)
-------- -------
any such MRCo Demand Registration did not become effective or was not maintained
effective for the period (whether or not continuous) set forth in Section 2(c)
hereof, or (B) in connection with the registration of MRCo Registrable
Securities covered by such MRCo Demand Notice, the number of such securities to
be offered by the MRCo Holders is reduced to less than fifty percent (50%) of
the MRCo Registrable Securities requested to be included in such Demand
Registration by the MRCo Holders (after taking into account any reduction
pursuant to the second proviso in the preceding sentence) because of the
inclusion of other shares of Common Stock in accordance with the provisions of
Section 2(e) hereof, then the MRCo Holders shall be entitled, in each such case,
to one additional MRCo Demand Registration pursuant hereto. The MRCo Holders
may not request more than one MRCo Demand
10
<PAGE>
Registration during any 12 month period; provided, however, that such
-------- -------
restriction shall not apply if any of the events set forth in clauses (A) and
(B) of the proviso the preceding sentence shall have occurred with respect to
the previous MRCo Demand Registration requested by the MRCo Holders.
(iv) Continental Holders owning a majority of the Continental
Registrable Securities shall have the right, by written notice (a "Continental
Demand Notice") given to the Company in accordance with the provisions of
Section 9.1 hereof, to request the Company to register under and in accordance
with the provisions of the Securities Act all or part of the Continental
Registrable Securities designated by such Continental Holders (a "Continental
Demand Registration"); provided, however, that the aggregate number of
-------- -------
Continental Registrable Securities requested to be registered pursuant to any
such Continental Demand Notice shall be not less than ten percent (10%) nor more
than (x) twenty-five percent (25%) prior to the second anniversary of the IPO
and (y) fifty percent (50%) commencing on the second anniversary of the IPO of
the Continental Registrable Securities owned as of the date hereof. Upon
receipt of any such Continental Demand Notice, the Company shall notify all
other Continental Holders of the receipt of such Continental Demand Notice
within 10 days of the receipt thereof and shall include in such Continental
Demand Registration all Continental Registrable Securities with respect to which
the Company has received written requests for inclusion therein within 10
business days after the date on which such notice is given; provided, further,
-------- -------
that if the total amount of Continental Registrable Securities requested by
Continental Holders to be included in such Continental Demand Registration
exceeds the maximum number of Continental Registrable Securities permitted to be
included in such Continental Demand Registration pursuant to this Section
2(a)(iv), then the amount of Continental Registrable Securities of each
Continental Holder to be included in such Continental Demand Registration shall
be reduced pro rata in proportion to the respective number of Continental
--- ----
Registrable Securities owned by each such Continental Holder. The Continental
Holders shall be entitled to two Continental Demand Registrations pursuant to
this Section 2(a)(iv); provided, however, that if (A) any such Continental
-------- -------
Demand Registration did not become effective or was not maintained effective for
the period (whether or not continuous) set forth in Section 2(c) hereof, or (B)
in connection with the registration of Continental Registrable Securities
covered by such Continental Demand Notice, the number of such securities to be
offered by the Continental Holders is reduced to less than fifty percent (50%)
of the Continental Registrable Securities requested to be included in such
Demand Registration by the Continental Holders (after taking into account any
reduction pursuant to the second proviso in the preceding sentence) because of
the inclusion of other shares of
11
<PAGE>
Common Stock in accordance with the provisions of Section 2(e) hereof, then the
Continental Holders shall be entitled, in each such case, to one additional
Continental Demand Registration pursuant hereto. The Continental Holders may not
request more than one Continental Demand Registration during any 12 month
period; provided, however, that such restriction shall not apply if any of the
-------- -------
events set forth in clauses (A) and (B) of the proviso the preceding sentence
shall have occurred with respect to the previous Continental Demand Registration
requested by the Continental Holders.
(v) BCLP Holders owning a majority of the BCLP Registrable Securities
shall have the right, by written notice (a "BCLP Demand Notice") given to the
Company in accordance with the provisions of Section 9.1 hereof, to request the
Company to register under and in accordance with the provisions of the
Securities Act all or part of the BCLP Registrable Securities designated by such
BCLP Holders (a "BCLP Demand Registration"); provided, however, that the
-------- -------
aggregate number of BCLP Registrable Securities requested to be registered
pursuant to any such BCLP Demand Notice shall be not less than twenty-five
percent (25%) of the BCLP Registrable Securities owned as of the date hereof.
Upon receipt of any such BCLP Demand Notice, the Company shall notify all other
BCLP Holders of the receipt of such BCLP Demand Notice within 10 days of the
receipt thereof and shall include in such BCLP Demand Registration all BCLP
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within 10 business days after the date on which
such notice is given; provided, further, that if the total amount of BCLP
-------- -------
Registrable Securities requested by BCLP Holders to be included in such BCLP
Demand Registration exceeds the maximum number of BCLP Registrable Securities
permitted to be included in such BCLP Demand Registration pursuant to this
Section 2(a)(v), then the amount of BCLP Registrable Securities of each BCLP
Holder to be included in such BCLP Demand Registration shall be reduced pro rata
--- ----
in proportion to the respective number of BCLP Registrable Securities owned by
each such BCLP Holder. The BCLP Holders shall be entitled to one BCLP Demand
Registration pursuant to this Section 2(a)(v); provided, however, that if (A)
-------- -------
such BCLP Demand Registration did not become effective or was not maintained
effective for the period (whether or not continuous) set forth in Section 2(c)
hereof, or (B) in connection with the registration of BCLP Registrable
Securities covered by such BCLP Demand Notice, the number of such securities to
be offered by the BCLP Holders is reduced to less than fifty percent (50%) of
the BCLP Registrable Securities requested to be included in such Demand
Registration by the BCLP Holders (after taking into account any reduction
pursuant to the second proviso in the preceding sentence) because of the
inclusion of other shares of Common Stock in accordance with the provisions of
Section 2(e) hereof, then the
12
<PAGE>
BCLP Holders shall be entitled, in each such case, to one additional BCLP Demand
Registration pursuant hereto.
(vi) TDC Holders owning a majority of the TDC Registrable Securities
shall have the right, by written notice (a "TDC Demand Notice") given to the
Company in accordance with the provisions of Section 9.1 hereof, to request the
Company to register under and in accordance with the provisions of the
Securities Act all or part of the TDC Registrable Securities designated by such
TDC Holders (a "TDC Demand Registration"); provided, however, that the aggregate
-------- -------
number of TDC Registrable Securities requested to be registered pursuant to any
such TDC Demand Notice shall be not less than twenty-five percent (25%) of the
TDC Registrable Securities owned as of the date hereof. Upon receipt of any
such TDC Demand Notice, the Company shall notify all other TDC Holders of the
receipt of such TDC Demand Notice within 10 days of the receipt thereof and
shall include in such TDC Demand Registration all TDC Registrable Securities
with respect to which the Company has received written requests for inclusion
therein within 10 business days after the date on which such notice is given;
provided, further, that if the total amount of TDC Registrable Securities
- -------- -------
requested by TDC Holders to be included in such TDC Demand Registration exceeds
the maximum number of TDC Registrable Securities permitted to be included in
such TDC Demand Registration pursuant to this Section 2(a)(vi), then the amount
of TDC Registrable Securities of each TDC Holder to be included in such TDC
Demand Registration shall be reduced pro rata in proportion to the respective
--- ----
number of TDC Registrable Securities owned by each such TDC Holder. The TDC
Holders shall be entitled to one TDC Demand Registration pursuant to this
Section 2(a)(vi); provided, however, that if (A) such TDC Demand Registration
-------- -------
did not become effective or was not maintained effective for the period (whether
or not continuous) set forth in Section 2(c) hereof, or (B) in connection with
the registration of TDC Registrable Securities covered by such TDC Demand
Notice, the number of such securities to be offered by the TDC Holders is
reduced to less than fifty percent (50%) of the TDC Registrable Securities
requested to be included in such Demand Registration by the TDC Holders (after
taking into account any reduction pursuant to the second proviso in the
preceding sentence) because of the inclusion of other shares of Common Stock in
accordance with the provisions of Section 2(e) hereof, then the TDC Holders
shall be entitled, in each such case, to one additional TDC Demand Registration
pursuant hereto.
(vii) Any bona fide third party lender (a "Lender"), upon each
foreclosure (a "Foreclosure") of a pledge of, or security interest granted in,
any Continental Registrable Securities, MRCo Registrable Securities, TDC
Registrable
13
<PAGE>
Securities or BCLP Registrable Securities to secure the indebtedness of
Continental, MRCo, any person included in TDC or any person included in BCLP,
respectively, shall have the right, by written notice (a "Lender Demand Notice")
given to the Company in accordance with the provisions of Section 9.1 hereof, to
request the Company to register under and in accordance with the provisions of
the Securities Act all but not less than all Registrable Securities subject to
such Foreclosure (a "Lender Demand Registration").
(b) Registration. As soon as practicable after each date on which
------------
the Company first receives a Demand Notice pursuant to Section 2(a) hereof, the
Company shall use its best efforts to file with the SEC a Registration Statement
on the appropriate form for the registration and sale of the total number of
Registrable Securities specified in such Demand Notice in accordance with the
intended method or methods of distribution specified by the Holders in such
Demand Notice. The Company shall use its best efforts to cause such
Registration Statement to be declared effective by the SEC as soon as
practicable after the date of the Company's earliest receipt of a Demand Notice.
(c) Effectiveness. The Company agrees to use its commercially
-------------
reasonable efforts to keep any Registration Statement filed pursuant to this
Section 2 continuously effective and usable for the sale of Registrable
Securities (i)(A) in the case of a Shelf Registration, until 180 days from the
date on which the SEC declares such Shelf Registration Statement effective, and
(B) in the case of a Registration which is not a Shelf Registration, until 60
days from the date on which the SEC declares such Registration Statement
effective, or (ii) until all the Registrable Securities covered by such
Registration Statement have been disposed of pursuant to such Registration
Statement, if earlier, in either case as such period may be extended by this
Section 2. Notwithstanding any other provision of this Agreement, the Company
shall have the right to delay the filing of any Registration Statement otherwise
required to be prepared and filed by the Company pursuant to this Section 2, or
to suspend the use of any Registration Statement, (i) for a period not in excess
of 90 days (a "Section 2(c)(i) Delay Period") if any executive officer of the
Company determines that in such executive officer's reasonable judgment and good
faith the registration and distribution of the Registrable Securities covered or
to be covered by such Registration Statement would materially interfere with any
pending financing, acquisition or corporate reorganization or other material
transaction involving the Company or any of its subsidiaries or would require
disclosure of any other material corporate development that the Company is not
otherwise required to disclose, or (ii) for a period not in excess of 180 days
if the Company intends to file within 60 days
14
<PAGE>
a registration statement under the Securities Act with respect to a public
offering of Common Stock for its own account or on Form S-4 or any successor
form thereto (a "Section 2(c)(ii) Delay Period," and, together with Section
2(c)(i) Delay Periods, "Delay Period"). The Company will promptly give the
Holders written notice of such determination and an approximation of the period
of the anticipated delay; provided, however, that the aggregate number of days
-------- -------
included in all Section 2(c)(i) Delay Periods during any consecutive 12 months
shall not exceed the aggregate of (x) 180 days minus (y) the number of days
occurring during the Hold-Back Periods and Interruption Periods during such
consecutive 12 months. Each Holder agrees to cease all disposition efforts under
such Registration Statement with respect to Registrable Securities held by such
Holder immediately upon receipt of notice of the beginning of any Delay Period.
The Company shall provide written notice to the Holders of the end of each Delay
Period. The Company shall not be entitled to initiate a Delay Period unless it
shall concurrently prohibit sales by such other security holders under
registration statements covering securities held by such other security holders
and have in place a policy that prohibits sales of securities of the Company by
senior executive officers during such period. The time period for which the
Company is required to maintain the effectiveness of a Registration Statement
referred to above shall be extended by the aggregate number of days of all Hold-
Back Periods and Interruption Periods affecting such Registration, and such
period and any extension thereof is hereinafter referred to as the
"Effectiveness Period."
(d) Inclusion of Registrable Securities. Within 15 days after
-----------------------------------
receipt of any Demand Notice, the Company shall given written notice of such
registration request to all Holders of Registrable Securities, and the Company
shall include in such registration all Registrable Securities with respect to
which the Company has received written requests for inclusion therein with 20
business days after the date on which notice is given. Each such request shall
specify the number of Registrable Securities to be registered and the intended
method of disposition thereof. Notwithstanding that one or more of the Holders
may elect to participate in the Demand Registration, the Demand Notice will only
count toward the number of Demand Notices permitted to the particular Holders
(e.g., the BCLP Holders) that initiated the Demand Registration. The Company
may also include in such Demand Registration shares of Common Stock for the
account of the Company and any other persons owning Common Stock.
(e) Priority on Demand Registrations. If a Demand Registration is an
--------------------------------
underwritten registration and the managing underwriters participating in such
offering conclude that the total amount of Common Stock requested by the
15
<PAGE>
Holders, the Company and any other persons owning Common Stock desiring to
participate in such Demand Registration to be included in such Demand
Registration exceeds the amount which can be sold in (or during the time of)
such offering without delaying or jeopardizing the success of the offering
(including the price per share of the securities to be sold), then the amount of
Common Stock to be offered for the account of the Company shall be reduced to
zero, if necessary, and if, after such cut back, such managing underwriters
conclude that the total amount of securities to be included in such Demand
Registration still could so delay or jeopardize the success of such offering,
then the amount of Common Stock to be offered for the account of any other
persons (other than Holders) desiring to participate in such Demand Registration
shall be reduced or limited (pro rata in proportion to the respective number of
---- ----
shares of Common Stock owned by each such person or in any other manner) to
zero, if necessary, and if, after such cut back, such managing underwriters
conclude that the total amount of securities to be included in such Demand
Registration still could so delay or jeopardize the success of such offering,
then the amount of Registrable Securities to be offered for the account of the
Holders shall be reduced or limited pro rata in proportion to the respective
--- ----
number of Registrable Securities owned by each such Holder (except in the case
of a Lender Demand Registration, in which case all Holders other than Lender
shall be so reduced or limited).
(f) Other Registration Agreements. The Company shall not enter into
-----------------------------
any agreement granting any person (an "Other Security Holder") demand or
piggyback registration rights with respect to such Other Security Holder's
securities of the Company in any registration on a basis more favorable to such
Other Security Holder than is provided to the Holders pursuant to this
Agreement.
(g) Effective Registration Statement. Notwithstanding any other
--------------------------------
provision of Sections 2 and 6 of this Agreement, a Demand Registration requested
pursuant to Section 2(a) hereof shall not be deemed to have been effected (i)
unless a Registration Statement with respect thereto has become effective;
provided, however, that if such Registration Statement does not become effective
- -------- -------
after the Company has filed it solely by reason of the refusal to proceed by the
Holders who initiated such Demand Registration (other than a refusal to proceed
based upon the advice of counsel relating to a matter with respect to the
Company), then such registration shall be deemed to have been effected unless
the Holders who initiated such Demand Registration shall have elected to pay all
Registration Expenses referred to in Section 6 hereof in connection with such
Demand Registration, (ii) if, after the Registration Statement that relates to
such Demand Registration has become effective, such Registration Statement
becomes subject to any stop order, injunction or any
16
<PAGE>
order or requirement of the Commission or other governmental agency or court for
any reason and such order, injunction or requirement is not promptly withdrawn
or lifted, or (iii) the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection with such Demand
Registration are not satisfied, other than by reason of some act or omission by
Holders who initiated such Demand Registration.
SECTION 3. Piggyback Registration.
----------------------
(a) Right to Piggyback. If at any time the Company proposes to file
------------------
a registration statement under the Securities Act with respect to a public
offering of Common Stock pursuant to a firm commitment underwritten offering (i)
for the account of any persons holding Common Stock (other than Holders) or (ii)
solely for cash for its own account (other than a registration statement (x) on
Form S-8 or any successor forms thereto, or (y) filed solely in connection with
a dividend reinvestment plan or employee benefit plan covering officers or
directors of the Company or its Affiliates), then the Company shall give written
notice of such proposed filing to the Holders at least 15 business days before
the anticipated filing date. Such notice shall offer the Holders the
opportunity to register such amount of Registrable Securities as they may
request (a "Piggyback Registration"). Subject to Section 3(b) hereof, the
Company shall include in each such Piggyback Registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within ten days after notice has been given to the Holder.
The Holder shall be permitted to withdraw all or part of the Registrable
Securities from a Piggyback Registration at any time prior to the effective date
of such Piggyback Registration; provided, however, that if such withdrawal
-------- -------
occurs after the filing of the Registration Statement with respect to such
Piggyback Registration, the withdrawing Holders shall reimburse the Company for
the portion of the registration expenses payable with respect to the Registrable
Securities so withdrawn.
(b) Priority on Piggyback Registrations. The Company shall permit
-----------------------------------
the Holders to include all such Registrable Securities on the same terms and
conditions as any similar securities, if any, of the Company or any other
persons holding Common Stock included therein. Notwithstanding the foregoing,
if the Company or the managing underwriters participating in such offering
advise the Holders in writing that the total amount of securities requested to
be included in such Piggyback Registration exceeds the amount which can be sold
in (or during the time of) such offering without delaying or jeopardizing the
success of the offering (including the price per share of the securities to be
sold), then the amount of
17
<PAGE>
Common Stock to be offered for the account of any other persons (other than
Holders) who have piggyback registration rights with respect to such Piggyback
Registration shall be reduced or limited (pro rata in proportion to the
--- ----
respective number of shares of Common Stock owned by each such person or in any
other manner) to zero, if necessary, and if, after such cut back, such managing
underwriters conclude that the total amount of securities to be included in such
Piggyback Registration still could so delay or jeopardize the success of such
offering, then the amount of Registrable Securities to be offered for the
account of the Holders shall be reduced or limited pro rata in proportion to the
--- ----
respective number of Registrable Securities owned by each such Holder.
(c) Right to Abandon. Nothing in this Section 3 shall create any
----------------
liability on the part of the Company to the Holders if the Company in its sole
discretion should decide not to file a registration statement proposed to be
filed pursuant to Section 3(a) or to withdraw such registration statement
subsequent to its filing, regardless of any action whatsoever that a Holder may
have taken, whether as a result of the issuance by the Company of any notice
hereunder or otherwise.
SECTION 4. Hold-Back Agreements. Each of the PCG/GKW Holders, the
--------------------
CIBC Holders, the Continental Holders and the MRCo Holders, so long as it is a
beneficial owner (as defined in Section 13(d) of the Securities Act) of at least
five percent of the outstanding shares of the Common Stock, agrees, if requested
by the managing underwriters in any underwritten offering by the Company
(whether for the account of the Company or otherwise), not to effect any public
sale or distribution of any of the Company's equity securities (except as part
of such underwritten registration) during a period of up to 90 days following
the effective date of the applicable Registration Statement (each such period, a
"Hold-Back Period").
SECTION 5. Registration Procedures.
-----------------------
In connection with the registration obligations of the Company
pursuant to and in accordance with Sections 2 and 3 hereof (and subject to the
Company's rights under Sections 2 and 3), the Company will use its best efforts
to effect such registration to permit the sale of such Registrable Securities in
accordance with the Holders' intended method or methods of disposition thereof,
and pursuant thereto the Company shall as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement for the
sale of the Registrable Securities on any form for which the Company then
18
<PAGE>
qualifies and which counsel for the Company shall deem appropriate in accordance
with such Holders' intended method or methods of distribution thereof and,
subject to Section 2(c) and the Company's right to terminate or abandon a
registration pursuant to Section 3(c), use its best efforts to cause such
Registration Statement to become effective and remain effective as provided
herein;
(b) prepare and file with the SEC such amendments (including post-
effective amendments) to the Registration Statement, and such supplements to the
Prospectus, as may be required by the Securities Act during the applicable
period in accordance with the intended methods of disposition specified by the
Holders owning any Registrable Securities covered by such Registration
Statement, make generally available earnings statements satisfying the
provisions of Section 11(a) of the Securities Act (provided that the Company
shall be deemed to have complied with this clause if it has complied with Rule
158 under the Securities Act), and cause the Prospectus as so supplemented to be
filed pursuant to Rule 424 under the Securities Act; provided, however, that
-------- -------
before filing a Registration Statement or Prospectus, or any amendments or
supplements thereto (other than reports required to be filed by it under the
Exchange Act), the Company will furnish to the Holders owning Registrable
Securities covered by such Registration Statement, and their counsel, for review
and comment, copies of all documents required to be filed;
(c) notify the Holders owning any Registrable Securities covered by
such Registration Statement promptly and (if requested) confirm such notice in
writing, (i) when a Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the SEC for amendments or supplements to a Registration Statement or
related Prospectus or for additional information regarding such Holders, (iii)
of the issuance by the SEC of any stop order suspending the effectiveness of a
Registration Statement or the initiation or threatening of any proceedings for
that purpose, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification
of any of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, and (v) of the
happening of any event that requires the making of any changes in such
Registration Statement, Prospectus or documents incorporated or deemed to be
incorporated therein by reference so that they will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading;
19
<PAGE>
(d) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement or the lifting of any
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction in the United States;
(e) furnish to the Holders disposing of Registrable Securities
covered by such Registration Statement, counsel for such Holders and each
managing underwriter, if any, without charge, one conformed copy of the
Registration Statement, as declared effective by the SEC, and of each post-
effective amendment thereto, in each case including financial statements and
schedules and all exhibits and reports incorporated or deemed to be incorporated
therein by reference; and deliver, without charge, such number of copies of the
preliminary prospectus, any amended preliminary prospectus, each final
Prospectus and any post-effective amendment or supplement thereto, as such
Holder may reasonably request in order to facilitate the disposition of the
Registrable Securities covered by the Registration Statement in conformity with
the requirements of the Securities Act;
(f) prior to any public offering of Registrable Securities, use its
best efforts to register or qualify such Registrable Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions in the United
States as the Holders disposing of Registrable Securities covered by the
Registration Statement shall reasonably request in writing; provided, however,
-------- -------
that the Company shall in no event be required to qualify generally to do
business as a foreign corporation or as a dealer in any jurisdiction where it is
not at the time so qualified or to execute or file a general consent to service
of process in any such jurisdiction where it has not theretofore done so or to
take any action that would subject it to general service of process or taxation
in any such jurisdiction where it is not then subject;
(g) except during any Delay Period, upon the occurrence of any event
contemplated by paragraph 5(c)(v) above, prepare a supplement or post-effective
amendment to the Registration Statement or related Prospectus or any document
incorporated or deemed to be incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers of the
Registrable Securities being sold thereunder, such Prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
20
<PAGE>
(h) use its best efforts to cause all Registrable Securities covered
by the Registration Statement to be listed on each securities exchange or
automated interdealer quotation system, if any, on which similar securities
issued by the Company are then listed or quoted;
(i) on or before the effective date of the Registration Statement,
provide the transfer agent of the Company for the Registrable Securities with
printed certificates for the Registrable Securities in a form eligible for
deposit with The Depositary Trust Company;
(j) if such offering is an underwritten offering, make available for
inspection by any Holder disposing of Registrable Securities included in such
Registration Statement, any underwriter of such offering, and any attorney,
accountant or other agent retained by any such Holder or underwriter
(collectively, the "Inspectors"), all financial and other records and other
information, pertinent corporate documents and properties of any of the Company
and its subsidiaries (collectively, the "Records"), as shall be reasonably
necessary to enable them to exercise their due diligence responsibility;
provided, however, that the Records that the Company determines, in good faith,
- -------- -------
to be confidential shall not be disclosed to any Inspector unless (i) such
Inspector signs a confidentiality agreement reasonably satisfactory to the
Company or (ii) the release of such Records is ordered pursuant to a subpoena or
other order from a court of competent jurisdiction; provided, further, that each
-------- -------
Holder shall, promptly after learning that disclosure of such Records is sought
in a court having jurisdiction, give notice to the Company and allow the
Company, at the Company's expense, to undertake appropriate action to prevent
disclosure of such Records;
(k) if such offering is an underwritten offering, enter into such
agreements (including an underwriting agreement in form, scope and substance as
is customary in underwritten offerings) and take all such other appropriate and
reasonable actions requested by the Holders owning a majority of the Registrable
Securities being sold in connection therewith (including those reasonably
requested by the managing underwriters) in order to expedite or facilitate the
disposition of such Registrable Securities, and in such connection, (i) use its
best efforts to obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters and counsel to the Holders disposing
of Registrable Securities), addressed to each Holder selling Registrable
Securities covered by such Registration Statement and each of the underwriters
as to the matters customarily covered in
21
<PAGE>
opinions requested in underwritten offerings and such other matters as may be
reasonably requested by such counsel and underwriters, (ii) use its best efforts
to obtain "cold comfort" letters and updates thereof from the independent
certified public accountants of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of the Company or of
any business or assets acquired by the Company for which financial statements
and financial data are, or are required to be, included in the Registration
Statement), addressed to each Holder selling Registrable Securities covered by
the Registration Statement (unless such accountants shall be prohibited from so
addressing such letters by applicable standards of the accounting profession)
and each of the underwriters, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters in connection
with underwritten offerings, and (iii) if requested and if an underwriting
agreement is entered into, provide indemnification provisions and procedures
substantially to the effect set forth in Section 8 hereof with respect to all
parties to be indemnified pursuant to said Section. The above shall be done at
each closing under such underwriting or similar agreement, or as and to the
extent required thereunder;
(l) permit any Holder which, in its sole and exclusive judgment,
might be deemed to be an underwriter or a controlling person of the Company, to
participate in the preparation of such registration or comparable statement and
to require the insertion therein of material, furnished to the Company in
writing, which in the reasonable judgment of such Holder and its counsel should
be included; and
(m) make appropriate representatives of management available, upon
reasonable notice and to the extent reasonably requested by the managing
underwriter for any underwritten offering, to participate in customary efforts
to sell the Registrable Securities covered by such Registration Statement,
including, without limitation, participating in "road shows;" provided, however,
-------- -------
that Company shall not be obligated to so participate in connection with more
than two PCG/GKW Demand Registrations, two CIBC Demand Registrations, one
Continental Demand Registration and one MRCo Demand Registration.
With respect to any Registration under Section 2 or Section 3 hereof,
the Company may require each Holder disposing of Registrable Securities covered
by such Registration to furnish such information regarding the Holder and such
Holder's intended disposition of Registrable Securities as the Company may from
time to time reasonably request in writing. If any such information with
respect to the Holder is
22
<PAGE>
not furnished within a reasonable period of time after receipt of such request,
the Company may exclude such Holder's Registrable Securities from such
Registration.
Upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 5(c)(ii), 5(c)(iii), 5(c)(iv) or 5(c)(v)
hereof, each Holder shall (i) forthwith discontinue disposition of any
Registrable Securities covered by such Registration Statement or Prospectus
until receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5(g) hereof, or until such Holder is advised in writing
(the "Advice") by the Company that the use of the applicable Prospectus may be
resumed, and has received copies of any amended or supplemented Prospectus or
any additional or supplemental filings which are incorporated, or deemed to be
incorporated, by reference in such Prospectus (such period during which
disposition is discontinued being an "Interruption Period") and (ii) if
requested by the Company, deliver to the Company (at the expense of the Company)
all copies then in its possession, other than permanent file copies then in its
possession, of the Prospectus covering such Registrable Securities at the time
of receipt of such request. No Holder shall utilize any material other than the
applicable current preliminary prospectus or Prospectus in connection with the
offering of Registrable Securities pursuant to Section 2 or Section 3 hereunder.
SECTION 6. Registration Expenses.
---------------------
The Company will pay all costs, fees and expenses incident to the
Company's performance of or compliance with this Agreement including, without
limitation, (i) all registration and filing fees, including NASD filing fees,
(ii) fees and expenses of compliance with securities or Blue Sky laws, including
reasonable fees and disbursements of counsel in connection therewith, (iii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is requested by the Holders or the managing
underwriter, if any), (iv) messenger, telephone and delivery expenses, (v) fees
and disbursements of counsel for the Company, (vi) fees and disbursements of all
independent certified public accountants of the Company (including, without
limitation, expenses of any "cold comfort" letters required in connection with
this Agreement) and all other persons retained by the Company in connection with
the Registration Statement, (vii) reasonable fees and disbursements of one
counsel, other than the Company's counsel, selected to represent all such
Holders by Holders owning a majority of the Registrable Securities being
registered and (ix) all other costs, fees and expenses incident to the Company's
performance or compliance with this Agreement (collectively, the "Registration
Expenses") (v) with
23
<PAGE>
respect to the first three PCG/GKW Demand Registrations, (w) with respect to the
first three CIBC Demand Registrations, (x) with respect to the first Continental
Demand Registration, (y) with respect to the first MRCo Demand Registration and
(z) with respect to any Piggyback Registration; provided, however, that if any
-------- -------
of the PCG/GKW Holders, CIBC Holders, MRCo Holders or Continental Holders is
entitled to an additional Demand Registration pursuant to the penultimate
sentence of Section 2(a)(i), (ii), (iii) or (iv) hereof, respectively, with
respect to a Demand Registration for which the Company was required to pay
Registration Expenses pursuant to this Section 6, then such group of Holders
shall be entitled to have the Company pay the Registration Expenses for each
such additional Demand Registration pursuant to this Section 6. Notwithstanding
the foregoing, the fees and expenses of any persons (other than as contemplated
by clause (vii) above) retained by a Holder, and any discounts, commissions or
brokers' fees or fees of similar securities industry professionals and any
transfer taxes relating to the disposition of Registrable Securities by a
Holder, will be payable by such Holder, and the Company will not have any
obligation to pay any such amounts. Except as provided in the first sentence of
this Section 6, all costs, fees and expenses, including, without limitation,
Registration Expenses, in connection with each registration requested under
Section 2 hereof shall be allocated pro rata among the persons on whose behalf
--- ----
securities of the Company are included in such registration, on the basis of the
respective amounts of the securities then being registered on their behalf.
SECTION 7. Underwriting Requirements.
-------------------------
(a) Subject to Section 7(b) hereof, any Holder shall have the right,
by written notice, to specify that it intends to dispose of Registrable
Securities covered by a Registration pursuant to an underwritten offering.
(b) In the case of any underwritten offering pursuant to a Demand
Registration, Holders owning a majority of the Registrable Securities to be sold
pursuant to such underwritten offering shall select the institution or
institutions that shall manage or lead the offering, subject to the reasonable
satisfaction of the Company. In the case of any underwritten offering pursuant
to a Piggyback Registration, the Company, in its sole discretion, shall select
the institution or institutions that shall manage or lead such offering. No
Holder shall be entitled to participate in an underwritten offering unless and
until such Holder has entered into an underwriting or other agreement with such
institution or institutions for such offering in such form as the Company and
such institution or institutions shall determine, subject to the provisions of
Section 5(k) hereof.
24
<PAGE>
SECTION 8. Indemnification.
---------------
(a) Indemnification by the Company. The Company shall, without
------------------------------
limitation as to time, indemnify and hold harmless, to the full extent permitted
by law, each Holder whose Registrable Securities are covered by a Registration
Statement or Prospectus, the officers, directors, agents and employees of each
of them, each Person who controls each such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of each such controlling person, to
the fullest extent lawful, from and against any and all losses, claims, damages,
liabilities, judgment, costs (including, without limitation, costs of
preparation and reasonable attorneys' fees) and expenses (collectively,
"Losses"), as incurred, arising out of or based upon any untrue or alleged
untrue statement of a material fact contained in such Registration Statement or
Prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or based upon any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are based upon
information included therein in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of such Holder with respect
to such Holder expressly for use therein; provided, however, that the Company
-------- -------
shall not be liable to any Holder to the extent that any such Losses arise out
of or are based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in any preliminary prospectus if (i) in the case of any
offering other than an underwritten offering, having previously been furnished
by or on behalf of the Company with copies of the Prospectus, such Holder failed
to send or deliver a copy of the Prospectus with or prior to the delivery of
written confirmation of the sale of Registrable Securities by such Holder to the
person asserting the claim from which such Losses arise and (ii) the Prospectus
would have corrected in all material respects such untrue statement or alleged
untrue statement or such omission or alleged omission; and provided, further,
-------- -------
that the Company shall not be liable in any such case to the extent that any
such Losses arise out of or are based upon an untrue statement or alleged untrue
statement or omission or alleged omission in the Prospectus, if (x) such untrue
statement or alleged untrue statement, omission or alleged omission is corrected
in all material respects in an amendment or supplement to the Prospectus and (y)
in the case of any offering other than an underwritten offering, having
previously been furnished by or on behalf of the Company with copies of the
Prospectus as so amended or supplemented, such Holder thereafter fails to
deliver such Prospectus as so amended or supplemented, prior to or concurrently
with the sale of Registrable Securities.
25
<PAGE>
(b) Indemnification by Holder of Registrable Securities. In
---------------------------------------------------
connection with any Registration Statement in which a Holder is participating,
and as a condition to such participation, such Holder shall (i) furnish to the
Company in writing such information as the Company reasonably requests for use
in connection with any Registration Statement or Prospectus and (ii) be deemed
to have agreed to indemnify, to the full extent permitted by law, the Company,
its directors, officers, agents and employees, each Person who controls the
Company (within the meaning of Section 15 of the Securities Act and Section 20
of the Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, from and against all Losses arising out of or based upon
any untrue or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus or any amendment or supplement thereto, or
any preliminary prospectus, or arising out of or based upon any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, to the extent, but only to the
extent, that such untrue or alleged untrue statement or omission or alleged
omission is based upon any information included therein in reliance upon and in
conformity with information so furnished in writing by or on behalf of such
Holder with respect to such Holder to the Company expressly for use in such
Registration Statement or Prospectus.
(c) Conduct of Indemnification Proceedings. If any Person shall be
--------------------------------------
entitled to indemnity hereunder (an "indemnified party"), such indemnified party
shall give prompt notice to the party from which such indemnity is sought (the
"indemnifying party") of any claim or of the commencement of any proceeding with
respect to which such indemnified party seeks indemnification or contribution
pursuant hereto; provided, however, that the delay or failure to so notify the
-------- -------
indemnifying party shall not relieve the indemnifying party from any obligation
or liability except to the extent that the indemnifying party has been
materially prejudiced by such delay or failure. The indemnifying party shall
have the right, exercisable by giving written notice to an indemnified party
promptly after the receipt of written notice from such indemnified party of such
claim or proceeding, to assume, at the indemnifying party's expense, the defense
of any such claim or proceeding, with counsel reasonably satisfactory to such
indemnified party; provided, however, that an indemnified party shall have the
-------- -------
right to employ separate counsel in any such claim or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless: (l) the indemnifying
party agrees to pay such fees and expenses; (2) the indemnifying party fails
promptly to assume the defense of such claim or proceeding or fails to employ
counsel reasonably satisfactory to such indemnified party; or (3) the named
parties to
26
<PAGE>
any proceeding (including impleaded parties) include both such indemnified party
and the indemnifying party, and such indemnified party shall have been advised
by counsel that there may be one or more legal defenses available to it which
are different from or additional to those available to the indemnifying party;
in which case the indemnified party shall have the right to employ counsel and
to assume the defense of such claim or proceeding; and provided, further, that
-------- -------
the indemnifying party shall not, in connection with any one such claim or
proceeding or separate but substantially similar or related claims or
proceedings in the same jurisdiction, arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one firm of attorneys (together with appropriate local counsel) at any time for
all of the indemnified parties, or for fees and expenses that are not
reasonable. Whether or not such defense is assumed by the indemnifying party, no
indemnified party will be subject to any liability for any settlement made
without its written consent. The indemnifying party shall pay the fees and
expenses of separate counsel for which it is responsible pursuant to this
Section 8(c) as they are incurred, provided that the indemnified party agrees in
--------
writing to promptly reimburse the indemnified party for all such fees and
expenses if it shall be finally judicially determined that the indemnified party
is not entitled to indemnification pursuant to this Section 8. The indemnifying
party shall not consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release, in form and
substance reasonably satisfactory to the indemnified party, from all liability
in respect of such claim or litigation for which such indemnified party would be
entitled to indemnification hereunder.
(d) Contribution. If the indemnification provided for in this
------------
Section 8 is unavailable to an indemnified party in respect of any Losses (other
than in accordance with its terms) or is insufficient to hold such indemnified
party harmless, then each applicable indemnifying party, in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the indemnifying party, on the one
hand, and such indemnified party, on the other hand, in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such
indemnifying party, on the one hand, and indemnified party, on the other hand,
shall be determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact, has been taken by, or
relates to information supplied by, such indemnifying party or indemnified
party, and the
27
<PAGE>
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent any such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include any
legal or other fees or expenses incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
--------
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provision of this Section 8(d), an indemnifying party that
is a Holder shall not be required to contribute any amount which is in excess of
the amount by which the total proceeds received by such Holder from the sale of
Registrable Securities (net of all underwriting discounts and commissions and
other expenses) exceeds the amount of any damages that such indemnifying party
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
SECTION 9. Miscellaneous.
-------------
9.1 Notices. All notices or communications hereunder shall be in
-------
writing (including facsimile or similar writing), addressed as follows:
To the Company:
Global Crossing Ltd.
Wessex House
45 Reid Street
Hamilton HM12, Bermuda
Attention: K. Eugene Shutler
Facsimile No.: (441)-296-8606
28
<PAGE>
With a copy (which shall not constitute notice) to:
Global Crossing Ltd.
150 El Camino Drive, Suite 204
Beverly Hills, California 90212
Attention: Abbott L. Brown
Facsimile No.: (310) 281-4942
To the Holders (and the parties designated to receive copies) at their
addresses set forth in Schedule I hereto.
Any such notice or communication shall be deemed given (i) when made,
if made by hand delivery, (ii) upon confirmation of receipt, if sent by
facsimile (iii) one business day after being deposited with a next-day courier,
charges prepaid, or (iv) three business days after being sent United States
certified or registered mail, return receipt requested, postage prepaid, in each
case addressed as above (or to such other address as such party may designate in
writing from time to time).
9.2 Separability. If any provision of this Agreement shall be
------------
declared to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
9.3 Assignment. This Agreement shall be binding upon and inure to
----------
the benefit of the parties hereto and their respective successors and
Transferees.
9.4 Entire Agreement. This Agreement represents the entire agreement
----------------
of the parties and shall supersede any and all previous contracts, arrangements
or understandings between the parties hereto with respect to the subject matter
hereof.
9.5 Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
without the written consent of (i) the Company and (ii) the Holders of at least
a majority of the Registrable Securities owned by each of BCLP, CIBC,
Continental, MRCo and/or PCG/GKW, to the extent each such class or group is
affected thereby.
29
<PAGE>
9.6 Expenses. Whether or not the transactions contemplated hereby
--------
are consummated, except as otherwise provided herein, all costs and expenses
incurred in connection with the execution of this Agreement shall be paid by the
party incurring such costs or expenses, except as otherwise set forth herein.
9.7 Interpretation. The headings contained in this Agreement are for
--------------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.8 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when two or more such counterparts have been signed by
each of the parties and delivered to the other party.
9.9 GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT SHALL
-----------------------------------------
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK INCLUDING, WITHOUT LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK
GENERAL OBLIGATIONS LAW AND RULE 327(b) OF THE NEW YORK CIVIL PRACTICE LAWS AND
RULES. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN
THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN
THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT
OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, AND ANY OBJECTION THAT IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
EACH PARTY AGREES TO ACCEPT, AT THE ADDRESS REFERRED TO IN SECTION 9.1 HEREOF,
SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURTS WITH
RESPECT TO THIS AGREEMENT.
30
<PAGE>
9.10 Calculation of Time Periods. Except as otherwise indicated, all
---------------------------
periods of time referred to herein shall include all Saturdays, Sundays and
holidays; provided, however, that if the date to perform the act or give any
-------- -------
notice with respect to this Agreement shall fall on a day other than a Business
Day, such act or notice may be timely performed or given if performed or given
on the next succeeding Business Day.
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
THE COMPANY:
GLOBAL CROSSING LTD.
By:
-----------------------------------
Name:
Title:
INVESTORS:
CIBC WOOD GUNDY (CAPITAL) SFC, INC.
By:
-----------------------------------
Name:
Title:
[CIBC PARTNERSHIP I]
By:
-----------------------------------
Name:
Title:
[CIBC PARTNERSHIP II]
By:
-----------------------------------
Name:
Title:
S-1
<PAGE>
CONTINENTAL CASUALTY COMPANY
By:
-----------------------------------
Name:
Title:
MRCO, INC.
By:
-----------------------------------
Name:
Title:
-----------------------------------
GARY WINNICK
PACIFIC CAPITAL GROUP, INC.
By:
-----------------------------------
Name:
Title:
GKW UNIFIED HOLDINGS, LLC
By:
-----------------------------------
Name:
Title:
S-2
<PAGE>
--------------------------------------
ABBOTT L. BROWN
RIDGESTONE CORP.
By:
-----------------------------------
Name:
Title:
--------------------------------------
BARRY PORTER
GALENIGHT CORP.
By:
-----------------------------------
Name:
Title:
--------------------------------------
DAVID LEE
SAN PASQUAL CORP.
By:
-----------------------------------
Name:
Title:
S-3
<PAGE>
DAVID AND ELLEN LEE FAMILY TRUST
By:
-----------------------------------
Name:
Title:
--------------------------------------
LODWRICK COOK
YAO-HWA COMPANY MANAGEMENT COMMISSION
By:
-----------------------------------
Name:
Title:
SASSOON INTERNATIONAL HOLDINGS, INC.
By:
-----------------------------------
Name:
Title:
S-4
<PAGE>
SCHEDULE I
HOLDERS
-------
CIBC WOOD GUNDY (CAPITAL) SFC, INC.
[CIBC PARTNERSHIP 1]
[CIBC PARTNERSHIP 2]
425 Lexington Avenue
New York, New York 10017
Attention:
Facsimile No.: (212)
With a copy (which shall not constitute notice) to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Attention: Roger Meltzer
Facsimile No.: (212) 269-5420
CONTINENTAL CASUALTY COMPANY
Chicago, Illinois
Attention:
Facsimile No.: (312)
With a copy (which shall not constitute notice) to:
CONTINENTAL CASUALTY COMPANY
Chicago, Illinois
Attention: Lynne Gugenheim
Facsimile No.: (312)
I-1
<PAGE>
MRCO, INC.
Washington, D.C.
Attention: Michael Steed
Facsimile No.: (202)
With a copy (which shall not constitute notice) to:
Paul, Hastings, Janofsky & Walker LLP
555 S. Flower Street, 23rd Floor
Los Angeles, California 90071
Attention: Alan J. Barton
Facsimile No.:
GARY WINNICK
PACIFIC CAPITAL GROUP, INC.
GKW UNIFIED HOLDINGS, LLC
150 S. El Camino Drive, Suite 204
Beverly Hills, California 90212
Attention: Gary Winnick
Facsimile No.: (310) 281-4942
With a copy (which shall not constitute notice) to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attention: Jeffrey H. Cohen
Facsimile No.: (213) 687-5600
ABBOTT L. BROWN
RIDGESTONE CORP.
150 S. El Camino Drive, Suite 204
Beverly Hills, California 90212
Attention: Abbott L. Brown
Facsimile No.: (310) 281-4942
With a copy (which shall not constitute notice) to:
[________________]
I-2
<PAGE>
BARRY PORTER
GALENIGHT CORP.
150 S. El Camino Drive, Suite 204
Beverly Hills, California 90212
Attention: Barry Porter
Facsimile No.: (310) 281-4942
With a copy (which shall not constitute notice) to:
[__________________________]
DAVID LEE
SAN PASQUAL CORP.
DAVID AND ELLEN LEE FAMILY TRUST
150 S. El Camino Drive, Suite 204
Beverly Hills, California 90212
Attention: David Lee
Facsimile No.: (310) 281-4942
With a copy (which shall not constitute notice) to:
[______________________]
LODWRICK COOK
150 S. El Camino Drive, Suite 204
Beverly Hills, California 90212
Facsimile No.: (310) 281-4942
With a copy (which shall not constitute notice) to:
[________________________]
I-3
<PAGE>
YAO-HWA COMPANY MANAGEMENT COMMISSION
15 Foo-Chow Street
Taipei, Taiwan, R.O.C.
Attention: Dr. Shih-Chien Yang
Facsimile No.: (011) 886-2-341-1640
With a copy (which shall not constitute notice) to:
[_____________________]
SASSOON INTERNATIONAL HOLDINGS, INC.
No. 1, Innovation Road
Hsinchu Science-Based Industrial Park
Hsinchu 30077, Taiwan, R.O.C.
Attention: Patrick Wang
Facsimile No.: (011) 886-3-577-7121
With a copy (which shall not constitute notice) to:
[_____________________]
I-4
<PAGE>
EXHIBIT 4.8
[EXECUTION COPY]
SECOND AMENDMENT AND CONSENT
TO CREDIT AGREEMENT
THIS SECOND AMENDMENT AND CONSENT TO CREDIT AGREEMENT (this "Amendment"),
---------
dated as of June 12, 1998, to the Existing Credit Agreement (as defined below),
is made by ATLANTIC CROSSING LTD. (formerly known as Global Telesystems Ltd.), a
corporation organized and existing under the laws of Bermuda (the "Borrower"),
--------
the Lenders (such capitalized term and other capitalized terms used in this
preamble and the recitals below to have the meanings set forth in Article I)
---------
signatories hereto, DEUTSCHE BANK AG, NEW YORK BRANCH, and CANADIAN IMPERIAL
BANK OF COMMERCE, acting by and/or through one or more of its branches, agencies
or affiliates ("CIBC"), as lead agents for the Lenders (in such capacity, the
----
"Lead Agents"), DEUTSCHE BANK AG, NEW YORK BRANCH, as administrative agent for
- ------------
the Lenders (in such capacity, the "Administrative Agent"), and CIBC, as
--------------------
syndication agent for the Lenders (in such capacity, the "Syndication Agent"),
-----------------
documentation agent for the Lenders (in such capacity, the "Documentation
-------------
Agent") and issuer of the Letters of Credit (in such capacity, the "Issuing
-------
Bank").
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower, the Lenders, the Lead Agents, the Administrative
Agent, the Syndication Agent, the Documentation Agent and the Issuing Bank are
parties to the Credit Agreement, dated as of June 27, 1997 (as amended by the
First Amendment and Consent thereto, dated as of December 15, 1997, and as
otherwise amended, supplemented, amended and restated or otherwise modified
prior to the date hereof, the "Existing Credit Agreement", and as amended by
-------------------------
this Amendment and as the same may be further amended, supplemented, amended and
restated or otherwise modified from time to time, the "Credit Agreement");
----------------
WHEREAS, the Borrower desires to modify and obtain the requisite Lenders'
consent with respect to certain provisions of the Existing Credit Agreement, and
the requisite Lenders are willing to so modify the Existing Credit Agreement and
give their consent on the terms and subject to the conditions set forth herein;
and
WHEREAS, the parties hereto wish to modify the Existing Credit Agreement to
allow for the foregoing and related matters, all as set forth below;
<PAGE>
NOW, THEREFORE, for and in consideration of the premises and of the mutual
agreements contained herein, the parties hereto hereby covenant and agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Certain Definitions. The following terms when used in this
-------------------
Amendment shall have the following meanings (such meanings to be equally
applicable to the singular and plural forms thereof):
"Administrative Agent" is defined in the preamble.
-------------------- --------
"Amendment" is defined in the preamble.
--------- --------
"Amendment Effective Date" is defined in Article IV.
------------------------ ----------
"Borrower" is defined in the preamble.
-------- --------
"Credit Agreement" is defined in the first recital.
---------------- ----- -------
"Documentation Agent" is defined in the preamble.
------------------- --------
"Existing Credit Agreement" is defined in the first recital.
------------------------- ----- -------
"Issuing Bank" is defined in the preamble.
------------ --------
"Lead Agents" is defined in the preamble.
----------- --------
"Syndication Agent" is defined in the preamble.
----------------- --------
SECTION 1.2 Other Definitions. Terms for which meanings are provided in
-----------------
the Credit Agreement are, unless otherwise defined herein or the context
otherwise requires, used in this Amendment with such meanings.
ARTICLE II
AMENDMENTS TO CREDIT AGREEMENT
Effective on (and subject to the occurrence of) the Amendment Effective
Date, the provisions of the Existing Credit Agreement referred to below are
hereby amended in
-2-
<PAGE>
accordance with this Article II. Except as expressly so amended, the Existing
----------
Credit Agreement shall continue in full force and effect in accordance with its
terms.
SECTION 2.1 Modification of Article I (Definitions). Article I of the
---------------------------------------
Existing Credit Agreement is hereby amended in accordance with Sections 2.1.1
--------------
through 2.1.2.
-----
SECTION 2.1.1. Section 1.1 of the Existing Credit Agreement is hereby
amended by inserting the following definitions in such Section in the
appropriate alphabetical sequence:
"Amendment No. 2" means the Second Amendment and Consent to Credit
---------------
Agreement, dated as of June 5, 1998, to this Agreement.
"Backhaul Capacity" means capacity on inland telecommunication systems
-----------------
owned or controlled by parties other than the Borrower and its Subsidiaries
which connect (directly or indirectly) to any cable station on the System.
"Backhaul Inventory" means, at any time of determination, Backhaul
------------------
Capacity acquired by the Borrower or any of its Subsidiaries which has not
been sold or otherwise transferred to a third party at such time in
accordance with the terms of this Agreement.
"Backhaul Reserve Account" means the special account designated by
------------------------
that name established by the Administrative Agent pursuant to Section 8.32.
------------
"Backhaul Service Costs" means all costs of the Borrower and its
----------------------
Subsidiaries directly and solely related to the purchase of Backhaul
Capacity and the related payments in respect of OA&M Expenses.
"Backhaul Service Revenue" means all revenues derived by the Borrower
------------------------
and its Subsidiaries in connection with sales and other transfers by the
Borrower and its Subsidiaries of Backhaul Capacity to third parties in
accordance with the terms of this Agreement.
"Borrower's Second Amendment Request Letter" means the letter, dated
------------------------------------------
May 27, 1998, from the Borrower to the Lenders requesting the amendments
set forth herein.
"Committed For Backhaul Inventory" means, at any time of
--------------------------------
determination, Backhaul Inventory to the extent there are firm commitments
pursuant to definitive agreements from third parties at such time to
purchase such Backhaul Inventory.
"First Permitted System Upgrade" means a System Upgrade to the System
------------------------------
contemplated by Article 6A of the Supply Contract to increase capacity on
each fiber pair of the System by 10Gb/s per fiber pair.
-3-
<PAGE>
"System Upgrade Reserve Account" means the special account designated
------------------------------
by that name established by the Administrative Agent pursuant to Section
-------
8.33.
----
"Uncommitted For Backhaul Inventory" means, at any time of
----------------------------------
determination, Backhaul Inventory not constituting Committed For Backhaul
Inventory at such time.
SECTION 2.1.2. Section 1.1 of the Existing Credit Agreement is hereby
further amended by (a) amending and restating the definition of "Backhaul
Service" contained therein to read in its entirety as follows:
"Backhaul Service" means the acquisition and disposition of Backhaul
----------------
Capacity, and activities incidental thereto. Notwithstanding anything
contained in this Agreement to the contrary, (a) the Borrower and its
Subsidiaries shall always be permitted to purchase Backhaul Capacity and
pay the related Backhaul Service Costs and make swaps of Capacity or other
capacity in accordance with Section 6.23, provided that Uncommitted For
------------ -------- ----
Backhaul Inventory does not exceed two STM-16 backhaul circuits in the
United States and two STM-16 backhaul circuits in the United Kingdom and
(b) subject to the proviso contained in clause (a) above, the Borrower and
----------
its Subsidiaries shall be permitted to pay (but shall only be permitted to
pay) Backhaul Service Costs with funds available in the Backhaul Reserve
Account and with swaps of capacity in accordance with Section 6.23.
------------
and (b) amending the definition of "System Activities" contained therein by
inserting "and exchanges of Capacity and other capacity permitted in accordance
with the first sentence of Section 6.23" at the end thereof before the period.
------------
SECTION 2.2 Modification of Article II (The Commitments). Article II of
--------------------------------------------
the Existing Credit Agreement is hereby amended in accordance with Section
-------
2.2.1.
- -----
SECTION 2.2.1. Section 2.11 of the Existing Credit Agreement is hereby
amended by amending clause (c)(ii) thereof in its entirety to read as follows:
"(ii) by an amount equal to 100% of the Net Cash Proceeds of an
incurrence of Indebtedness by the Borrower after the Closing Date (other
than Indebtedness permitted by Section 6.01) in accordance with Section
------------ -------
8.15(b); and"
-------
SECTION 2.3 Modification of Article V (Affirmative Covenants). Article V
-------------------------------------------------
of the Existing Credit Agreement is hereby amended in accordance with Section
-------
2.3.1 and 2.3.2.
- ----- -----
SECTION 2.3.1. Section 5.02(a) of the Existing Credit Agreement is hereby
amended by adding, at the end of the first sentence thereof, the following:
"and a report which sets forth in reasonable detail the respective aggregate
Uncommitted For Backhaul Inventory as of the end of such quarter."
-4-
<PAGE>
SECTION 2.3.2. Section 5.12 of the Existing Credit Agreement is hereby
amended by deleting the references to Backhaul Service and Interim Restoration
contained at the end of the second sentence thereof (which had been added
pursuant to Amendment No. 1).
SECTION 2.4 Modification of Article VI (Negative Covenants). Article VI
-----------------------------------------------
of the Existing Credit Agreement is hereby amended in accordance with Sections
--------
2.4.1 through 2.4.3.
- ----- -----
SECTION 2.4 Section 6.04(a) of the Existing Credit Agreement is hereby
amended by adding the words "or other capacity" after the word "Capacity"
appearing therein.
SECTION 2.4.2. Section 6.17 of the Existing Credit Agreement is hereby
amended by adding, at the end thereof, the following:
"or (d) paid for with the dispositions of Capacity and other capacity
permitted under Section 6.23."
------------
SECTION 2.4.3 Section 6.23 of the Existing Credit Agreement is hereby
amended in its entirety to read as follows:
"SECTION 6.23. Sales of Capacity. The Borrower shall not, and shall
-----------------
not permit the Subsidiaries to, sell or otherwise dispose of Capacity,
capacity provided through Backhaul Service, the Denmark Extension or
Interim Restoration or capacity on other telecommunication systems acquired
in accordance with the terms hereof except (a) pursuant to Capacity Sale
Agreements substantially in the form of Exhibit L, (b) pursuant to other
---------
agreements or arrangements which are on commercially reasonable terms
(which shall include the disposition of Capacity without cash compensation
in exchange for mutual restoration agreements or for reasonably
equivalently valued capacity on other subsea fiber or terrestrial fiber
telecommunication systems, subject to the last sentence of this Section)
and (c) with respect to capacity related to Backhaul Service, the Denmark
Extension or Interim Restoration or capacity on other subsea fiber or
terrestrial fiber telecommunication systems acquired in accordance with the
terms hereof, pursuant to agreements or arrangements in exchange for
reasonably equivalent value and which are on commercially reasonable terms
(which may include dispositions for non-cash consideration); provided that,
in any event, (i) all such agreements and arrangements shall provide that
amounts payable to the Borrower shall be paid to the Revenue Account, (ii)
no agreement providing for future payments shall prohibit the granting of a
security interest in such agreement by the Borrower to the Lenders and
(iii) without derogation of the provisions of Section 6.24 and except for
------------
the non-cash exchanges expressly contemplated above, such agreements shall
provide that payments thereunder shall be in cash and at least 80% of such
payments shall be due and payable before the Maturity Date; and provided,
--------
further, that (A) no individual sale
-------
-5-
<PAGE>
shall defer more than $4,000,000 beyond the Maturity Date without the prior
written consent of the Lead Agents and (B) once the aggregate amount of
payments deferred beyond the Maturity Date exceeds $20,000,000, no further
deferral of payments beyond the Maturity Date shall be permitted without
the prior written consent of the Majority Lenders (or the Lead Agents if,
as of any date of determination, the cumulative Capacity Sales Revenue
received by the Borrower and the Subsidiaries as of such date exceeds 175%
of the cumulative Capacity Sales Revenue set forth in Section 6.24(a) with
--------------
respect to such date) (and subject, in any event, to clause (A) above).
---------
Prior to the date upon which a Certificate of Commercial Service has been
issued under the Supply Contract for the United Kingdom to Germany Segment
of the System, the Borrower and its Subsidiaries may dispose of up to 10%
of the System's initial Capacity for non-cash consideration permitted under
this Agreement and constituting System Activities and, thereafter, if and
when the option under the Supply Contract for the First Permitted System
Upgrade has been duly exercised by the Borrower, up to 20% (in the
aggregate and inclusive of dispositions theretofore made pursuant to this
sentence) of the System's initial Capacity, in each case on commercially
reasonable terms, provided that in the event that any such non-cash
--------
consideration received by the Borrower and/or its Subsidiaries is
ultimately disposed of for cash, the corresponding capacity on the System
will no longer be deemed to have been disposed of for non-cash
consideration."
SECTION 2.5 Modification of Article VIII (Accounts). Article VIII of the
---------------------------------------
Existing Credit Agreement is hereby amended in accordance with Sections 2.5.1
--------------
through 2.5.6.
-----
SECTION 2.5.1. Clause (a) of Section 8.08 of the Existing Credit Agreement
is hereby amended and restated in its entirety to read as follows:
"(a) Presale Proceeds. The Administrative Agent shall, upon receipt
----------------
by it of a certificate of the Borrower prior to the Commercial Operation
Date (which shall be delivered no more frequently than once a month, except
for (i) certificates delivered with respect to amounts payable pursuant to
clause first, which may be delivered three times a month, and (ii) a
------ -----
certificate to be delivered on the Amendment Effective Date (as defined in
Amendment No. 2)), and in any event on the Commercial Operation Date,
distribute, from the cash available in the Revenue Account, the following
amounts in the following order of priority:
first, to the Sales Agent, all Sales Commissions earned in
-----
accordance with the Sales Agency Agreement but not yet paid under the
Sales Agency Agreement as indicated in such certificate;
second, (A) to the Operator (or such other Person as may be
------
entitled thereto), all Annex H Costs of the Borrower then due and
payable, and to the payment of all Advisory Services Fees then due and
payable and (B) to each Subsidiary's Subsidiary Account, a portion of
the amounts due and owing to
-6-
<PAGE>
such Subsidiary under the Intercompany Agreement equal to all Annex H
Costs of such Subsidiary then due and payable;
third, to the Backhaul Reserve Account to be applied in
-----
accordance with Section 8.32, until the Working Capital Loans
------------
outstanding on the Amendment Effective Date (as defined in Amendment
No. 2) attributable to Backhaul Service Costs and Interim Restoration
(and all accrued interest thereon to the date of payment) have been
paid in full, an amount sufficient to prepay such Working Capital
Loans, together with accrued interest thereon, and, thereafter, at the
Borrower's option, up to an amount equal to the sum of (x) 60% of
Backhaul Service Revenue received since the last certificate received
by the Administrative Agent under this Section 8.08(a) and (y)
---------------
$20,000,000 from sales of Capacity;
fourth, until such time as there shall be a balance of
------
$10,000,000 in the aggregate therein from distributions pursuant to
this clause fourth on or prior to the Commercial Operation Date, to
-------------
the Construction Contingency Reserve Account, to be applied in
accordance with Section 8.16;
------------
fifth, until such time as there shall be a balance of $48,000,000
-----
in the aggregate therein from distributions pursuant to this clause
------
fifth on or prior to the Commercial Operation Date, to the Debt
-----
Reserve Account, to be applied in accordance with Section 8.10;
------------
sixth, until such time as there shall be a balance of $14,820,000
-----
in the aggregate therein from distributions pursuant to this clause
------
sixth on or prior to the Commercial Operation Date, to the Operating
-----
Reserve Account, to be applied in accordance with Section 8.12;
------------
seventh, until such time as $200,000,000 in the aggregate shall
-------
have been distributed from distributions pursuant to this clause
------
seventh on or prior to the Commercial Operation Date, to the
-------
Administrative Agent, for the account of the Lenders, to be applied to
the prepayment of the Loans, together with accrued interest thereon
and any amounts due pursuant to Section 2.16, in accordance with
------------
Section 2.11(a);
---------------
eighth, until such time as there shall be a balance of $9,000,000
------
in the aggregate therein from distributions pursuant to this clause
------
eighth on or prior to the Commercial Operation Date, to the Holdings
------
Interest Reserve Account, to be applied in accordance with Section
-------
8.11;
----
ninth, until such time as there shall be a balance of $75,000,000
-----
in the aggregate therein from distributions pursuant to this clause
------
ninth on or prior to
-----
-7-
<PAGE>
the Commercial Operation Date, to the System Upgrade Reserve Account
to be applied in accordance with Section 8.33;
-----------
tenth, to the Administrative Agent, for the account of the
-----
Lenders, up to an amount sufficient to pay all Loans in full, together
with accrued interest thereon and all other amounts payable under this
Agreement and the other Loan Documents;
eleventh, thereafter, to the Escrow Payment Account, an aggregate
--------
amount not to exceed the remaining Commitments (or, if less, the
remaining amounts payable under the Supply Contract), whereupon such
Commitments shall be reduced dollar for dollar in accordance with
Section 2.08; and
------------
twelfth, thereafter, to the Borrower, to be applied to such
-------
purposes (including the making of equity dividends) as the Borrower
may direct."
In addition, all references in the Existing Credit Agreement to Section 8.08(a)
and to specific clauses contained therein are hereby amended to give effect to
the modifications to Section 8.08(a) effected by this Amendment.
SECTION 2.5.2 Clause (b) of Section 8.08 of the Existing Credit Agreement
is hereby amended as follows:
(a) The first sentence of such clause (b) is hereby amended by adding
the words "and to make deposits into the Backhaul Reserve Account in an
amount up to 60% of Backhaul Service Revenue" immediately before the words
"from the Revenue Account" appearing at the end of such sentence.
(b) The third sentence of such clause (b) is hereby amended by adding
a new clause (E) to the end thereof, such new clause to read as follows:
"and (E) to the Backhaul Reserve Account, the amount requested therefor by
the Borrower in the Expense Certificate referred to above."
SECTION 2.5.3. Clause (d) of Section 8.08 of the Existing Credit Agreement
is hereby amended by redesignating subclauses "second" through "sixth" contained
therein as subclauses "third" through "seventh" and inserting a new clause
"second" to read as follows:
"second, to the Backhaul Reserve Account, to be applied in accordance
------
with Section 8.32, an amount equal to 60% of Backhaul Service Revenue
------------
received;"
SECTION 2.5.4 Clause (b) of each of Sections 8.10, 8.11, 8.12 and 8.16 of
the Existing Credit Agreement are hereby amended by deleting the amount
"$6,500,000" appearing in each such clause and inserting in replacement therefor
the amount "$7,410,000" (as such amount may be increased in accordance with the
terms of the OA&M Agreement).
-8-
<PAGE>
SECTION 2.5.5. Clause (b) of Section 8.15 of the Existing Credit Agreement
is hereby amended and restated to read in its entirety as follows:
"(b) if any such amounts are Net Cash Proceeds of an incurrence of
Indebtedness by the Borrower after the Closing Date (other than
Indebtedness permitted by Section 6.01), such Net Cash Proceeds shall be
------------
applied to the prepayment of the Loans in accordance with Section
-------
2.11(c)(ii); and"
-----------
SECTION 2.5.6. A new Section 8.32 to Existing Credit Agreement is hereby
added as follows:
"SECTION 8.32 Backhaul Reserve Account. The Administrative Agent
------------------------
shall deposit in the Backhaul Reserve Account amounts in accordance with
Sections 8.08(a) and 8.08(b). The Administrative Agent shall pay from
---------------- -------
amounts on deposit in the Backhaul Reserve Account (a) until all Working
Capital Loans outstanding on the Amendment Effective Date (as defined in
Amendment No. 2) attributable to Backhaul Service Costs and Interim
Restoration and all accrued interest thereon to the date of payment have
been paid in full, all such Working Capital Loans (and all accrued interest
thereon) and (b), at the Borrower's written request, Backhaul Service Costs
(whether or not set forth in the then current Operating Budget) as
requested by the Borrower. The Borrower's request shall be accompanied by
a certificate setting forth in reasonable specificity the appropriate
payment instructions and the Backhaul Capacity in respect of which such
payment is to be made. In addition, at the Borrower's written request, the
Administrative Agent shall release the funds requested by the Borrower from
the Backhaul Reserve Account and apply them as revenues in accordance with
the provisions of Section 8.08."
------------
SECTION 2.5.7. A new Section 8.33 to Existing Credit Agreement is hereby
added as follows:
"SECTION 8.33 System Upgrade Reserve Account. The Administrative
------------------------------
Agent shall deposit amounts in the System Upgrade Reserve Account from
amounts on deposit in the Revenue Account as specified in Section 8.08(a).
---------------
At the Borrower's written request, the Administrative Agent shall pay to
the Contractor from amounts on deposit in the System Upgrade Reserve
Account the amount certified by the Borrower and confirmed by the
Independent Engineer to be due and owing in respect of the First Permitted
System Upgrade."
SECTION 2.5.8. The Expense Certificate shall be deemed amended to include a
new item whereby the Borrower can request that Backhaul Service Revenue be
deposited in the Backhaul Reserve Account.
-9-
<PAGE>
ARTICLE III
CONSENTS
Effective on (and subject to the occurrence of) the Amendment Effective
Date, certain consents are hereby granted in accordance with this Article III.
-----------
SECTION 3.1 Advisory Services Fee Consent. The Majority Lenders hereby
-----------------------------
consent to the execution and delivery of an amendment to the Advisory Services
Agreement in the form attached hereto as Exhibit A, provided that such consent
--------
shall only be effective to the extent the fees provided for therein are computed
on revenues actually deposited into the Revenue Account.
SECTION 3.2 System Upgrade Consent. The Majority Lenders hereby consent
----------------------
to the execution by the Borrower of an Intention to Proceed with respect to the
First Permitted System Upgrade in accordance with the terms set forth in the
Borrower's Second Amendment Request Letter.
SECTION 3.3 Sale of Receivables Consent. The Majority Lenders hereby
---------------------------
consent to the sale by the Borrower, so long as no Event of Default has occurred
and is continuing, in each case both before and immediately after giving effect
thereto, of receivables and related rights on commercially reasonable terms for
fair value; provided that (a) such sale is without recourse to the Borrower for
--------
credit defaults of the obligors thereunder, (b) such receivables relate to a
Segment of the System as to which a Certificate of Commercial Service has been
issued under the Supply Contract, (c) the discount factor applicable to any sale
does not exceed 10%, and provided that the Borrower retains a residual interest
in the discounted amount, and (d) the proceeds thereof shall be deposited
forthwith in the Revenue Account.
SECTION 3.4 Consent to Creation of New U.K. Subsidiary. The Lead Agents
------------------------------------------
hereby consent to the creation of a new, direct, wholly-owned, United Kingdom
subsidiary of the Borrower (the "New Subsidiary") and, in connection therewith,
--------------
the Majority Lenders acknowledge and agree to such arrangements and hereby
consent to the transfer of the Capital Stock of each of the Borrower's existing
Subsidiaries to the New Subsidiary subject to the existing liens in favor of the
Administrative Agent on such Capital Stock, provided that (a) the Administrative
--------
Agent shall receive a first perfected Lien on all the Capital Stock of the New
Subsidiary and a guarantee from the New Subsidiary, in each case similar in form
to the documents delivered by the existing U.K. Subsidiary, and (b) the New
Subsidiary's activities shall be limited, and the arrangements under which such
matters shall be effected, in a manner and pursuant to arrangements effected
within a reasonable time and reasonably satisfactory to the Lead Agents.
-10-
<PAGE>
ARTICLE IV
CONDITIONS TO EFFECTIVENESS
This Amendment shall become effective as of the date first above written
upon satisfaction of each of the conditions precedent set forth in this Article
-------
IV to the satisfaction of the Administrative Agent (the first date as of which
- --
each such condition has been satisfied being herein called the "Amendment
---------
Effective Date").
- --------------
SECTION 4.1 Counterparts. The Administrative Agent shall have received
------------
counterparts hereof executed on behalf of the Borrower and the Required Lenders.
SECTION 4.2 Fees and Expenses. The Administrative Agent shall have
-----------------
received all expenses due and payable pursuant to Section 6.5 (to the extent
-----------
then invoiced).
SECTION 4.3 Legal Details, etc. All documents executed or submitted
------------------
pursuant hereto shall be reasonably satisfactory in form and substance to the
Administrative Agent and its counsel. The Administrative Agent and its counsel
shall have received all information and such counterpart originals or such
certified or other copies or such materials, as the Administrative Agent or its
counsel may reasonably request, and all legal matters incident to the
transactions contemplated by this Amendment shall be satisfactory to the
Administrative Agent and its counsel.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders, the Issuing Bank and the Agents to enter
into this Amendment, the Borrower hereby represents and warrants as follows:
SECTION 5.1 Restatement of Representations and Warranties. As of the
---------------------------------------------
Amendment Effective Date, each of the representations and warranties of the
Borrower and its Subsidiaries contained in the Credit Agreement and each other
Loan Document are true and correct in all material respects (unless any such
representation or warranty relates solely to an earlier date, in which case it
shall have been true and correct in all material respects as of such earlier
date, except that for these purposes, the references to the term "Closing Date"
in Sections 3.17 and 3.18 of the Credit Agreement shall be deemed to be
references to the Amendment Effective Date) and additionally represents and
warrants unto the Lenders, the Issuing Bank and the Agents as set forth in this
Article V.
- ---------
SECTION 5.2 Validity, etc. This Amendment constitutes the legal, valid
--------------
and binding obligation of the Borrower, enforceable in accordance with its terms
subject to the effect of any applicable bankruptcy, insolvency, moratorium or
similar laws affecting
-11-
<PAGE>
creditors' rights generally and subject to general principles of equity,
regardless of whether considered in a proceeding in equity or at law.
SECTION 5.3 No Default. No Default or Event of Default has occurred and
----------
is continuing.
SECTION 5.4 Disclosure. The Borrower's Second Amendment Request Letter
----------
(excluding any financial projections and other estimates or views of future
circumstances), taken as a whole, does not contain, as of May 27, 1998, any
untrue statements of material fact and does not omit to state, as of May 27,
1998, any material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
materially misleading.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 Cross References. References in this Amendment to any article
----------------
or section are, unless otherwise specified, to such article or section of this
Amendment.
SECTION 6.2 Loan Document Pursuant to Credit Agreement. This Amendment is
------------------------------------------
a Loan Document executed pursuant to the Existing Credit Agreement and shall be
construed, administered and applied in accordance with all of the terms and
provisions of the Existing Credit Agreement.
SECTION 6.3 Successors and Assigns. This Amendment shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
SECTION 6.4 Counterparts. This Amendment may be executed by the parties
------------
hereto in several counterparts, all of which shall be deemed to be an original
and which shall constitute together but one and the same agreement.
SECTION 6.5 Expenses. The Borrower hereby agrees to pay to or reimburse
--------
the Administrative Agent, upon demand, all of their reasonable expenses in
connection with the development, negotiation, preparation, execution and closing
of this Amendment, including all reasonable fees and other charges of Mayer,
Brown & Platt in connection therewith.
SECTION 6.6 Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers hereunder duly authorized as of the date
and year first above written.
ATLANTIC CROSSING LTD.
By: /s/ K. Eugene Shutler
-----------------------
Name: K. Eugene Shutler
Title:
DEUTSCHE BANK AG, NEW YORK
BRANCH, as a Lead Agent and as
Administrative Agent
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
CANADIAN IMPERIAL BANK OF
COMMERCE, acting through one or more
of its branches, agencies or affiliates
as a Lead Agent, as Syndication Agent,
as Documentation Agent and as Issuing
Bank
By:________________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers hereunder duly authorized as of the date
and year first above written.
ATLANTIC CROSSING LTD.
By:________________________________
Name:
Title:
DEUTSCHE BANK AG, NEW YORK
BRANCH, as a Lead Agent and as
Administrative Agent
By: /s/ Lydia Zaininger
-------------------------------
Name: Lydia Zaininger
Title: Vice President
By: /s/ Alain M. Bolea
------------------------------
Name: Alain M. Bolea
Title: Managing Director
CANADIAN IMPERIAL BANK OF
COMMERCE, acting through one or more
of its branches, agencies or affiliate
as a Lead Agent, as Syndication Agent,
as Documentation Agent and as Issuing
Bank
By:________________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers hereunder duly authorized as of the date
and year first above written.
ATLANTIC CROSSING LTD.
By:_______________________________
Name:
Title:
DEUTSCHE BANK AG, NEW YORK
BRANCH, as a Lead Agent and as
Administrative Agent
By:________________________________
Name:
Title:
By:________________________________
Name:
Title:
CANADIAN IMPERIAL BANK OF
COMMERCE, acting through one or more
of its branches, agencies or affiliate
as a Lead Agent, as Syndication Agent,
as Documentation Agent and as Issuing
Bank
By: /s/ Louis Bell
-------------------------------
Name: Louis Bell
Title: Executive Director, CIBC
Oppeneheime
Securities Corp. As Agent
<PAGE>
CIBC INC.
By: /s/ Louise Bell
-------------------------------
Name: Louise Bell
Title: Director, CIBC Oppenheimer
Corp., as Agent
<PAGE>
DEUTSCHE BANK AG, NEW YORK
BRANCH AND/OR CAYMAN ISLANDS
BRANCH
By: /s/ Lydia Zaininger
--------------------------------
Name: Lydia Zaininger
Title: Vice President
By: /s/ Alain M. Bolea
-------------------------------
Name: Alain M. Bolea
Title: Managing Director
<PAGE>
BERLINER BANK
AKTIENGESELLSCHAFT
By: /s/ Graf Fugger
-------------------------------
Name: Graf Fugger
Title: Director
By: /s/ Klaus Pommer
-------------------------------
Name: Klaus Pommer
Title: Director
<PAGE>
BANK OF MONTREAL
By: /s/ Patrick Keleher
-------------------------------
Name: PATRICK KELEHER
Title: DIRECTOR
<PAGE>
BHF-BANK AKTIENGESELLSCHAFT
By: /s/ Heidimarie Skor
-------------------------------
Name: HEIDIMARIE SKOR
Title: VICE PRESIDENT
By: /s/ Maria Lags
--------------------------------
Name: Maria Lags
Title: AVP
<PAGE>
INDUSTRIAL BANK OF JAPAN, LTD.
By: [SIGNATURE ILLEGIBLE]
-------------------------------
Name:
Title:
<PAGE>
KZH-SOLEIL CORPORATION
By: /s/ V Conway
--------------------------------
Name: Virginia Conway
Title: Authorized Agent
By:________________________________
Name:
Title:
<PAGE>
NATIONAL CITY BANK
By: /s/ Andrew J. Walshaw
-------------------------------
Name: Andrew J. Walshaw
Title: Assistant Vice President
<PAGE>
BANK OF SCOTLAND
By: /s/ Ian C. Gordon
------------------------------
Name: Ian C. Gordon
Title: Director, Project Finance
<PAGE>
CREDITANSTALT-BANKVEREIN
By: /s/ Martin Frank
-------------------------------
Name: Martin Frank
Title: Assistant General Manager
By: /s/ Martin Benger
-------------------------------
Name: Martin Benger
Title: Deputy Manager
<PAGE>
DE NATIONALE INVESTERINGS-
BANK, N.V.
By:/s/ H.L. Huizing /s/ U. Uvan de Meen
---------------------------------------------
Name: H.L. Huizing U. Uvan de Meen
Title:Senior Vice President Vice President
<PAGE>
THE MITSUBISHI TRUST AND
BANKING CORPORATION
By:/s/ Beatrice E. Kossodo
-------------------------------
Name: Beatrice E. Kossodo
Title:Senior Vice President
<PAGE>
SOUTHERN PACIFIC BANK
By:/s/ Cheryl A. Wasilewski
----------------------------
Name: Cheryl A. Wasilewski
Title: Vice President
<PAGE>
THE TOYO TRUST & BANKING
COMPANY, LTD.
By:/s/ T. Mikumo
--------------------------
Name: T. Mikumo
Title: Vice President
<PAGE>
GULF INTERNATIONAL BANK B.S.C.
By:/s/ Abdel F. Tahoun
----------------------------
Name: Abdel-Fattah Tahoun
Title:Senior Vice President
By: /s/ Haytham F. Khalil
--------------------------------
Name: Haytham F. Khalil
Title: Assistant Vice President
<PAGE>
KZH HOLDING CORPORATION III
By:/s/ V Conway
---------------------------
Name: Virginia Conway
Title: Authorized Agent
<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE
By: /s/ Charles Columbus
--------------------------------
Name: Charles Columbus
Title: Managing Director
By:/s/ E. Keith Min
---------------------------------
Name: E. Keith Min
Title:Vice President
Global Structured Finance
<PAGE>
BANK BRUSSELS LAMBERT, NEW
YORK BRANCH
By:/s/ Luc Verbeken
----------------------------
Name: Luc Verbeken
Title:Senior Vice President
By:/s/ Mallika Kambhampati
----------------------------
Name: Mallika Kambhampati
Title:Vice President and Manager
Credit Analysis
<PAGE>
DRESDNER BANK AG, NEW YORK DRESDNER BANK AG, NEW YORK
AND GRAND CAYMAN BRANCHES AND GRAND CAYMAN BRANCHES
By: /s/ Lucas Missong By:/s/ John Padilla
--------------------- ------------------------
NAME: Lucas Missong NAME: John Padilla
TITLE: Vice President TITLE: Vice President
<PAGE>
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By:/s/ Jeffrey Maillet
---------------------------
Name: Jeffrey Maillet
Title: Senior Vice President & Director
<PAGE>
EXHIBIT 5.1
July 1, 1998
Global Crossing Ltd.
Wessex House, 1st Floor
45 Reid Street
HAMILTON HM 12
Bermuda
Dear Sirs:
RE: GLOBAL CROSSING LTD. (THE "COMPANY")
Registration Statement Form S-1 No. 333-53393
- --------------------------------------------------
We have acted as legal counsel in Bermuda to the Company in connection with
the proposed offer by the Company of common shares (the "Shares") pursuant to a
prospectus (the "Prospectus"), forming part of the Registration Statement on
Form S-1 (No. 333-53393) (the "Registration Statement") filed with the
Securities and Exchange Commission on May 22, 1998.
Unless otherwise defined herein, capitalised terms have the meanings
assigned to them in the Prospectus.
DOCUMENTS EXAMINED
- ------------------
For the purposes of this opinion we have examined and relied upon the
following:
(A) A faxed copy of the Prospectus.
(B) A copy of the permission of the Bermuda Monetary Authority under the
Exchange Control Act (1972) and related regulations for the issue of the
Shares.
<PAGE>
2
(C) A certified copy of the Minutes of the Meeting of the Board of Directors
of the Company held on July 1, 1998 and the unanimous written resolutions
of the Shareholder of the Company dated July 1, 1998 (the "Resolutions").
(D) The entries and filings shown in respect of the Company in the register of
companies at the office of the Registrar of Companies in Hamilton,
Bermuda, as revealed by a search on July 1, 1998.
(E) The entries and filings shown in the Supreme Court Causes Book at the
Registry of the Supreme Court in Hamilton, Bermuda, as revealed by a
search on July 1, 1998 in respect of the Company.
(F) Certified copies dated July 1, 1998 of the Certificate of Incorporation,
Memorandum of Association and Bye-laws adopted for the Company
(collectively referred to as the "Constitutional Documents").
ASSUMPTIONS
- -----------
In stating our opinion we have assumed:-
(i) the authenticity, accuracy and completeness of all documents (including,
without limitation, public records) submitted to us as originals and the
conformity to authentic original documents of all documents submitted to
us as certified, conformed, notarised or photostatic copies;
(ii) the genuineness of all signatures on the documents;
(iii) the authority, capacity and power of each of the persons signing any of
the documents (other than the Company);
(iv) that any factual statements made in any of the documents are true,
accurate and complete;
(v) that there are no provisions of the laws or regulations of any
jurisdiction other than Bermuda which would be contravened by the
transaction envisaged in the Prospectus or which would have any
implication in relation to the opinion expressed herein and that, in so
far as any obligation under, or action to be taken under, the Prospectus
is required to be performed or taken in any jurisdiction outside Bermuda,
the performance of such obligation or the taking of such action will
constitute a valid and binding obligation of each of the parties thereto
under the laws of that jurisdiction and will not be illegal by virtue of
the laws of that jurisdiction;
(vi) that the searches made on July 1, 1998 in the register of companies at the
office of the Registrar of Companies and in the Supreme Court Causes Book
at the Registry of the
<PAGE>
3
Supreme Court referred to in paragraphs (D) and (E) of this opinion
respectively, were complete and accurate at the time of such search and
disclosed all information which is material for the purposes of this
opinion and such information has not since such date been materially
altered; and
(vii) that the Resolutions, are in full force and effect and have not been
rescinded, either in whole or in part and accurately record the
resolutions duly passed by the Board of Directors of the Company and
adopted by the Shareholder as the case may be.
OPINION
- -------
Based upon and subject to the foregoing and subject to the reservations
set out below and to any matters not disclosed to us, we are of the opinion
that:-
(1) The Company is an exempted company incorporated with limited liability
under the laws of Bermuda.
(2) All necessary corporate action required pursuant to Bermuda law has been
taken by or on behalf of the Company and all the necessary authorisations
and approvals of Governmental Authorities in Bermuda have been duly
obtained for the issue of the Shares and when issued and paid for in
accordance with the terms of the Prospectus, the Shares will be duly
issued and will be outstanding as fully paid and non-assessable shares of
the Company.
RESERVATIONS
- ------------
We have the following reservations:-
(a) We express no opinion as to the availability of equitable remedies such as
specific performance or injunctive relief, or as to any matters which are
within the discretion of the courts of Bermuda in respect of any
obligations of the Company as set out in the Prospectus. Further, we
express no opinion as to the validity or binding effect of any waiver of
or obligation to waive either any provision of law (whether substantive or
procedural) or any right or remedy.
(b) We express no opinion as to any law other than Bermuda law and none of the
opinions expressed herein relates to compliance with or matters governed
by the laws of any jurisdiction except Bermuda. This opinion is limited to
Bermuda law as applied by the Courts of Bermuda at the date hereof.
(c) In order to issue this opinion we have carried out the searches referred
to in paragraphs D and E at 10:30 a.m. on July 1, 1998 and have not
enquired as to whether there have been any changes since that date.
<PAGE>
4
(d) Any reference in this opinion to shares being "non-assessable" shall mean,
in relation to fully paid shares of the Company and subject to any contrary
provision in any agreement in writing between such company and the holder
of such shares, that no shareholder shall be bound by an alteration to the
Memorandum of Association or Bye-laws of the Company after the date on
which he became a shareholder, if and so far as the alteration requires him
to take, or subscribe for additional shares, or in any way increases his
liability to contribute to the share capital of, or otherwise to pay money
to the Company.
DISCLOSURE
- ----------
Further, this opinion speaks as of its date and is strictly limited to the
matters stated herein. We hereby consent to the filing of this opinion as an
Exhibit to the Registration Statement.
This opinion is governed by and is to be construed in accordance with
Bermuda law. It is given on the basis that it will not give rise to any legal
proceedings with respect thereto in any jurisdiction other than Bermuda.
Yours faithfully,
<PAGE>
EXHIBIT 9.1
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT (this "Agreement"), dated as of [ ],
1998, is entered into by and among Global Crossing Ltd., a company organized
under the laws of Bermuda (the "Company"), and those persons whose names appear
on the signature pages attached hereto. For purposes of this Agree ment, the
persons listed on Schedule A, together with those persons who, subsequent to the
date hereof, agree to be bound hereby, shall be referred to individually as a
"Stockholder" and collectively as the "Stockholders."
WHEREAS, the Stockholders are shareholders of Global Crossing Ltd,
LDC, a company organized under the laws of the Cayman Islands ("CaymansCo").
WHEREAS, CaymansCo is the owner of all of the issued and outstanding
shares of Common Stock (as defined below) of the Company.
WHEREAS, CaymansCo desires to distribute all of the shares of Common
Stock owned by it to its shareholders, including, without limitation, the
Stockholders, and to liquidate.
WHEREAS, it is a condition to the willingness of the Stockholders to
approve such distribution and liquidation that the Company enter into this
Agreement.
WHEREAS, the Company desires that CaymansCo make such distribution in
order to facilitate the Company's initial public offering of shares of Common
Stock.
WHEREAS, the parties to this Agreement desire to enter into this
Agreement for the purpose of regulating certain aspects of the Stockholders'
relationship with regard to the Company and each other on and after the date
hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto, intending to be legally
bound hereby, agree as follows:
Section 1. Transfer of Securities. No Stockholder shall, directly
----------------------
or indirectly, sell (whether by involuntary or judicial sale or otherwise),
transfer, grant a security interest in, pledge, hypothecate, assign, give or
otherwise (voluntarily
<PAGE>
or by operation of law) dispose of (any such act is hereinafter referred to as a
"Transfer") any Securities to any person (a "Transferee") other than a Transfer
made (a) to a Permitted Transferee, (b) in a manner that is not prohibited by
Sections 2, 3 or 4 hereof to a Transferee who agrees in writing to be bound by
this Agreement as if such person were a Stockholder, (c) by any bona fide third
party lender upon a foreclosure of a pledge of, or security interest granted in,
any Securities, (d) in a public offering pursuant to a registration statement
under the Securities Act or a Transfer pursuant to Rule 144 under the Securities
Act, or (e) in accordance with the provisions of this Agreement.
Section 2. Additional Restriction. No Stockholder shall Transfer
----------------------
any Securities to any person if such Transfer would, for purposes of section 541
et seq.of the Internal Revenue Code of 1986, as amended (the "Code"), result in
- -- ---
more than 50% of the value of the outstanding capital stock of the Company being
owned, directly or indirectly (taking into account the applicable attribution
and constructive ownership rules under the Code), by 5 or fewer individuals.
Section 3. Right of First Refusal.
----------------------
(a) Prior to the second anniversary of the date of this Agreement, no
Stockholder may Transfer any Securities to any person unless (i) such Transfer
is permitted under Section 1 or (ii) prior to any such Transfer, such
Stockholder (the "Offeror") shall provide written notice (the "Notice") to the
Company, which notice shall set forth (A) confirmation that such Offeror intends
to Transfer all or certain of its Securities in a bona fide transaction, (B) the
name and address of each proposed transferee or purchaser (the "Offeree"), (C)
the number of Securities proposed to be Transferred (the "Offered Shares"), (D)
the proposed amount and form of consider ation to be paid for the Offered
Shares, and (E) all other material terms of the proposed Transfer. Within 15
days of receipt of the Notice, the Company may elect to buy all of the Offered
Shares at the price, and on terms and conditions no less favorable to the
Offeror than those set forth in the Notice by delivery of a written notice to
the Offeror (the "Company Election Notice"), which notice shall constitute the
binding agreement of the Company to purchase and pay for all of such shares at
the price and on the terms and conditions set forth in the Company Election
Notice. Within 90 days of delivery of the Company Election Notice, the Company
shall deliver a certified check payable to such Offeror, or to such other person
as such Offeror may request, in the amount of the purchase price (as calculated
below) of such Offered Shares to be purchased by the Company. Upon receipt of
payment for the
2
<PAGE>
Offered Shares, such Offeror shall deliver certificates properly endorsed in
blank for transfer representing all such Offered Shares to the Company.
(b) If a Company Election Notice is not received by such Offeror from
the Company within the period specified in Section 3(a) or the Company elects to
purchase less than all of the Offered Shares or fails to deliver the purchase
price of the Offered Shares in accordance with the terms hereof, the Offeror
shall have the right to transfer, sell or otherwise dispose of the Securities
specified in the Notice to the Offeree, but only at a price and upon terms and
conditions no less favorable to the Offeror than those stated in the Notice and
only if such sale occurs on a date within 120 days from the date of the Company
Election Notice or, if no such notice is delivered, within 60 days of the date
of the Notice.
(c) For purposes of calculating the purchase price of any such
transfer, sale or disposition, if any portion of the consideration consists of
other than cash and/or readily marketable securities, the fair market value of
any non-cash consideration shall be determined by a nationally recognized
independent valuation consultant or appraiser (with experience evaluating such
type of property) selected by the Offeror and reasonably satisfactory to the
Company. All payments by the Company pursuant to this Section 3 shall be in
cash.
(d) The closing of the transactions contemplated by this Section 3
shall occur at the principal offices of the Company unless otherwise agreed to
in writing by the Company and the Offeror.
Section 4. Tag-Along Rights.
----------------
(a) 5% Tag-Along Rights.
-------------------
(i) Unless permitted under Section 1, if any 5% Holder (the
"5% Selling Stockholder"), directly or indirectly, at any time or from time to
time, enters into an agreement (whether oral or written) to Transfer, whether in
one transaction or a series of related transactions, five percent or more of the
outstanding Securities of the Company (a "5% Tag-Along Sale"), then each 5%
Holder other than the 5% Selling Stockholder (the "5% Other Holders") shall have
the right, but not the obligation, to participate in such 5% Tag-Along Sale by
selling the number of Securities respectively beneficially owned (as such term
is used in Section 13(d) of the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Securities and Exchange Commission promulgated
thereunder ("Section 13(d)")) by
3
<PAGE>
him as calculated in the following manner. Such Securities beneficially owned by
the 5% Other Holders are hereinafter referred to collectively as the "5%
Stockholders' Shares." The number of Securities that the 5% Other Holders shall
be entitled to include in such 5% Tag-Along Sale (the "5% Stockholders'
Allotment") shall equal the product of (i) the total number of Securities
proposed to be Transferred pursuant to the 5% Tag-Along Sale or such greater
number of shares that the proposed purchaser in the 5% Tag-Along Sale shall
agree to purchase or otherwise acquire, times (ii) a fraction, the numerator of
which shall equal the aggregate number of 5% Stockholders' Shares on the date of
the 5% Sale Notice (as defined below), and the denominator of which shall equal
the sum of (A) the aggregate number of Securities beneficially owned by the 5%
Selling Stockholder on the date of the 5% Sale Notice plus (B) the aggregate
number of 5% Stockholders' Shares on the date of the 5% Sale Notice.
(ii) Any such sales by the 5% Other Holders shall be on the
same terms and conditions as the proposed 5% Tag-Along Sale by the 5% Selling
Stockholder.
(iii) The 5% Selling Stockholder shall promptly provide each of
the 5% Other Holders and the Company with written notice (the "5% Sale Notice")
not less than 30 days prior to the proposed date of the 5% Tag-Along Sale (the
"5% Tag-Along Sale Date"). In order to facilitate the prompt delivery of the 5%
Sale Notice, the Company hereby covenants to provide the 5% Selling Stockholder
participating in a 5% Tag-Along Sale access to the stock record books and
related records of the Company. Each 5% Sale Notice shall set forth: (A) the
name and address of each proposed transferee or purchaser of Securities in the
5% Tag-Along Sale; (B) the name and address of the 5% Selling Stockholder and
the number of Securities proposed to be Transferred by such 5% Selling
Stockholder; (C) the proposed amount and form of consideration to be paid for
such Securities and the terms and conditions of payment offered by each proposed
transferee or purchaser; (D) the number of 5% Stockholders' Shares beneficially
owned as of the close of business on the date of the 5% Sale Notice (the "5%
Notice Date") by the 5% Other Holder to whom the notice is sent and the
aggregate number of 5% Stockholders' Shares outstanding on the 5% Notice Date;
(E) the aggregate number of Securities beneficially owned as of the 5% Notice
Date by the 5% Selling Stockholder; (F) the number of Securities that the 5%
Other Holder is entitled to include in the 5% Tag-Along Sale (as computed in
accordance with the equation set forth below) assuming each 5% Other Holder
elected to sell the maximum number of 5% Stockholders' Shares possible; (G) the
number of 5% Stockholders' Shares in the 5% Stockholders'
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<PAGE>
Allotment; (H) confirmation that the proposed purchaser or transferee has been
informed of the "5% Tag-Along Rights" provided for herein and has agreed to
purchase Securities in accordance with the terms hereof; and (I) the 5% Tag-
Along Sale Date.
(iv) Each 5% Other Holder who wishes to participate in the 5%
Tag-Along Sale shall provide written notice (or oral notice confirmed in
writing) (the "5% Tag-Along Notice") to the 5% Selling Stockholder and the
Company not less than ten days prior to the 5% Tag-Along Sale Date. The 5% Tag-
Along Notice shall set forth the number of Securities that such 5% Other Holder
elects to include in the 5% Tag-Along Sale, which shall not exceed the product
of (A) the 5% Stockholders' Allotment times (B) a fraction, the numerator of
which is equal to the aggregate number of 5% Stockholders' Shares beneficially
owned as of the 5% Notice Date by such 5% Other Holder and the denominator of
which is the aggregate number of 5% Stockholders' Shares beneficially owned by
all of the 5% Other Holders as of the 5% Notice Date. The 5% Tag-Along Notice
shall also specify the aggregate number of additional Securities beneficially
owned as of the 5% Notice Date by such 5% Other Holder, if any, which such 5%
Other Holder desires also to include in the 5% Tag-Along Sale ("5% Additional
Shares") in the event there is an undersubscription for the entire 5%
Stockholders' Allotment. In the event there is an undersubscription by the 5%
Other Holders for the entire 5% Stockholders' Allotment, the 5% Selling
Stockholder participating in the 5% Tag-Along Sale shall apportion the
unsubscribed 5% Stockholders' Shares to 5% Other Holders whose 5% Tag-Along
Notices specified an amount of 5% Additional Shares, which apportion ment shall
be on a pro rata basis among such 5% Other Holders in accordance with the number
of 5% Additional Shares specified by all such 5% Other Holders in their 5% Tag-
Along Notices.
(v) The 5% Selling Stockholder shall determine the aggre gate
number of Securities to be sold by each participating 5% Other Holder or in any
given 5% Tag-Along Sale in accordance with the terms hereof, and the 5% Tag-
Along Notices given by the 5% Other Holders shall constitute their binding
agreements to sell such shares at the price and on the terms and conditions
applicable to such sale.
(vi) If a 5% Tag-Along Notice is not received by the 5%
Selling Stockholder participating in the 5% Tag-Along Sale from a 5% Other
Holder prior to the commencement of the ten day period specified above, the 5%
Selling Stockholder shall have the right to Transfer the number of Securities
specified in the 5% Sale Notice to the proposed purchaser or transferee without
any participation by
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<PAGE>
such 5% Other Holder (subject to the right of 5% Other Holders to sell 5%
Additional Shares in the event of an undersubscription as described above), but
only at a price and upon terms and conditions no more favorable to the 5%
Selling Stockholder than those stated in such 5% Sale Notice and only if such
sale occurs on a date within 90 days of the 5% Tag-Along Sale Date.
(vii) Notwithstanding the foregoing, this Section 4(a) shall
not apply to (A) any Transfer of Securities made pursuant to an effective
registration statement under the Securities Act or (B) with respect to any
Transfer in which PCG/GKW is the 5% Selling Stockholder, in the event that Gary
Winnick, other than with his written consent, (1) is not elected as a director
of the Board of Directors of the Company (the "Board") and (2) is not appointed
sole chairman of the Board (or, in the alternative, is not appointed co-chairman
of the Board in the event that Lodwrick Cook is also appointed co-chairman of
the Board) or (C) any Transfer subject to Section 4(b) hereof.
(b) Change of Control Tag-Along Rights.
----------------------------------
(i) Unless permitted under Section 1, if one or more CoC
Holders (the "CoC Selling Stockholder"), at any time or from time to time,
enters into an agreement (whether oral or written) to Transfer, whether in one
transaction or a series of related transactions, any Securities which would
result in or have the effect of a Change of Control (a "CoC Tag-Along Sale"),
then each CoC Holder other than the CoC Selling Stockholder (the "CoC Other
Holders") shall have the right, but not the obligation, to participate in such
CoC Tag-Along Sale by selling the number of Securities respectively beneficially
owned by him as calculated in the following manner. Such Securities beneficially
owned by the CoC Other Holders are hereinafter referred to collectively as the
"CoC Stockholders' Shares." The number of Securities that each CoC Other Holder
shall be entitled to include in such CoC Tag-Along Sale (the "CoC Stockholders'
Allotment") shall equal the product of (i) the total number of Securities
beneficially owned by such CoC Other Holder times (ii) a fraction, the numerator
of which shall equal the aggregate number of Securities proposed to be
Transferred by the CoC Selling Stockholder, and the denominator of which shall
equal the aggregate number of Securities beneficially owned by the CoC Selling
Stockholder on the date of the CoC Sale Notice.
(ii) Any such sales by the CoC Other Holders shall be on the
same terms and conditions as the proposed CoC Tag-Along Sale by the CoC Selling
Stockholder.
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<PAGE>
(iii) The CoC Selling Stockholder shall provide each of the CoC
Other Holders and the Company with written notice (the "CoC Sale Notice")
promptly upon entering into any agreement for a CoC Tag-Along Sale and in any
event not less than 20 days prior to the proposed date of the CoC Tag-Along Sale
(the "CoC Tag-Along Sale Date"). In order to facilitate the prompt delivery of
the CoC Sale Notice, the Company hereby covenants to provide the CoC Selling
Stockholder participating in a CoC Tag-Along Sale access to the stock record
books and related records of the Company. Each CoC Sale Notice shall set forth:
(A) the name and address of each proposed transferee or purchaser of Securities
in the CoC Tag-Along Sale; (B) the name and address of the CoC Selling
Stockholder and the number of Securities proposed to be Transferred by such CoC
Selling Stockholder; (C) the proposed amount and form of consideration to be
paid for such Securities and the terms and conditions of payment offered by each
proposed transferee or purchaser; (D) the number of CoC Stockholders' Shares
beneficially owned as of the close of business on the date of the CoC Sale
Notice (the "CoC Notice Date") by the CoC Other Holder to whom the notice is
sent and the aggregate number of CoC Stockholders' Shares outstanding on the CoC
Notice Date; (E) the aggregate number of Securities beneficially owned as of the
CoC Notice Date by the CoC Selling Stock holder; (F) the number of CoC
Stockholders' Shares in such CoC Stockholders' Allotment; (G) confirmation that
the proposed purchaser or transferee has been informed of the "CoC Tag-Along
Rights" provided for herein and has agreed to purchase Securities in accordance
with the terms hereof; and (H) the CoC Tag-Along Sale Date.
(iv) Each CoC Other Holder who wishes to participate in the CoC
Tag-Along Sale shall provide written notice (or oral notice confirmed in
writing) (the "CoC Tag-Along Notice") to the CoC Selling Stockholder and the
Company on or before the later of the date (A) ten days prior to the CoC Tag-
Along Sale Date and (B) ten days after receipt by the CoC other Holder of the
CoC Tag-Along Notice. The CoC Tag-Along Notice shall set forth the number of
Securities that such CoC Other Holder elects to include in the CoC Tag-Along
Sale, which shall not exceed such CoC Other Holder's CoC Stockholders'
Allotment.
(v) The CoC Selling Stockholder shall determine the aggre gate
number of Securities to be sold by each participating CoC Other Holder or in any
given CoC Tag-Along Sale in accordance with the terms hereof, and the CoC Tag-
Along Notices given by the CoC Other Holders shall constitute their binding
agree-
7
<PAGE>
ments to sell such shares at the price and on the terms and conditions
applicable to such sale.
(vi) If a CoC Tag-Along Notice is not received by the CoC
Selling Stockholder participating in the CoC Tag-Along Sale from a CoC Other
Holder prior to the commencement of the ten day period specified above, the CoC
Selling Stockholder shall have the right to Transfer the number of Securities
specified in the CoC Sale Notice to the proposed purchaser or transferee without
any partici pation by such CoC Other Holder, but only at a price and upon terms
and conditions no more favorable to the CoC Selling Stockholder than those
stated in such CoC Sale Notice and only if such sale occurs on a date within 90
days of the CoC Tag-Along Sale Date.
Section 5. PCG/GKW Appraisal Rights.
------------------------
(a) So long as PCG/GKW beneficially owns (as such term is used in
Section 13(d)) at least 15% of the outstanding Securities of the Company, any
person included in PCG/GKW shall be entitled to seek an appraisal of the fair
value of the Securities beneficially owned by such person in connection with any
merger or consolidation of the Company or the sale, lease or transfer of all or
substantially all of the assets of the Company (a "Transaction"), if such
holder, in his capacity as a shareholder of the Company, shall not have voted in
favor of or given consent with respect to such Transaction and beneficially owns
the Securities as to which appraisal is sought immediately prior to consummation
of the Transaction.
(b) The Company shall, not less than 30 days prior to the effective
date of a Transaction, notify PCG/GKW of the Transaction that appraisal rights
are available for any or all Securities held by PCG/GKW, and shall include in
such notice a copy of this Section 5. Gary Winnick, the chief executive
officer of PCG or the manager of GKW (or the appropriate executive officer or
manager of any Permitted Transferee thereof) may, within 20 days after the date
of mailing of such notice, demand in writing from the Company or the surviving
or resulting entity in the Transaction (the "Surviving Corporation"), as the
case may be, the appraisal of Securities beneficially owned by any person
included in PCG/GKW. Such demand will be sufficient if it reasonably informs
the Company or Surviving Corporation of the identity of the holder and that the
holder intends thereby to demand the appraisal of such holder's Securities. If
such notice did not notify holders of the effective date of the Transaction,
either (i) the Company shall send a second notice before the effective date of
the Transaction notifying PCG/GKW of the effective date of the
8
<PAGE>
Transaction or (ii) the Company or Surviving Corporation shall send such a
second notice to PCG/GKW on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
- -------- -------
following the sending of the first notice, such second notice need only be sent
to each holder who is entitled to appraisal rights and who has demanded
appraisal of such holder's Securities in accordance with this subsection.
(c) Within 60 days after the effective date of the Transaction, the
Company or Surviving Corporation or any holder who has complied with subsections
(a) and (b) of this section and who is otherwise entitled to appraisal rights,
may file a demand for arbitration in accordance with subsection (b) of this
section demanding a determination of the value of the Securities of all such
holders. Notwithstanding the foregoing, at any time within 45 days after the
effective date of the Transaction, any holder shall have the right to withdraw
his demand for appraisal and to accept the terms offered upon the Transaction.
(d) The arbitrator shall appraise the Securities, determining their
fair value exclusive of any element of value arising from the accomplishment or
expectation of the Transaction, together with a fair rate of interest, if any,
to be paid upon the amount determined to be the fair value. In determining such
fair value, the arbitrator shall take into account all relevant factors and
shall be determined in accordance with cases interpreting, or decided under,
Section 262 of the Delaware General Corporation Law. In determining the fair
rate of interest, the arbitrator may consider all relevant factors, including
the rate of interest which the Company or Surviving Corporation would have had
to pay to borrow money during the pendency of the arbitration. Upon application
by the Company or Surviving Corporation or by any holder entitled to participate
in the arbitration, the arbitrator shall permit discovery or other
prearbitration proceedings. Any holder who is entitled to appraisal rights and
who has demanded appraisal of such holder's Securities in accordance with the
provisions of subsection (b) of this section may participate fully in the
arbitration and the Company shall permit such holder and his representatives
access to the books, records and employees of the Company in connection with
such arbitration.
(e) The arbitrator shall direct the payment of the fair value of the
Securities, together with interest, if any, by the Company or Surviving
Corporation to the holders entitled thereto. Interest may be simple or compound,
as the arbitrator may direct. Payment shall be so made to each such holder, upon
the surrender of the certificates representing such Securities.
9
<PAGE>
(f) The costs of the arbitration may be determined by the arbitrator
and taxed upon the parties as the arbitrator deems equitable in the
circumstances. Upon application of a holder, the arbitrator may order all or a
portion of the expenses incurred by any holder in connection with the
arbitrator, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the Securities entitled to an appraisal.
(g) From and after the effective date of the Transaction, no holder
who is entitled to appraisal rights and who has demanded appraisal of such
holder's Securities in accordance the provisions of subsection (b) of this
section shall be entitled to vote such Securities for any purpose or to receive
payment of dividends or other distributions on the Securities (except dividends
or other distributions payable to holders of record at a date which is prior to
the effective date of the Transaction); provided, however, that if no demand for
-------- -------
arbitration shall be filed within the time provided in subsection (c) of this
section, or if such holder shall deliver to the Company or Surviving Corporation
a written withdrawal of his demand for an appraisal and an acceptance of the
Transaction, either within 60 days after the effective date of the Transaction
as provided in subsection (b) of this section or thereafter with the written
approval of the Company or the Surviving Corporation, then the right of such
holder to an appraisal shall cease.
(h) Any demand for appraisal pursuant to this Section 5 shall be
submitted to binding arbitration with the American Arbitration Association
("AAA"). The arbitration shall commence as follows:
(i) Promptly following the giving of any notice of
arbitration, each party shall meet and attempt in good faith to select a single
arbitrator acceptable to both parties. If a single arbitrator is not selected by
mutual consent within five (5) business days after the giving of the notice of
arbitration, each party shall, within three (3) business days thereafter,
designate a representative and the two representatives shall, within three (3)
business days thereafter, select a single arbitrator acceptable to both
representatives. In the event that representatives fail to designate a single
arbitrator within said three (3) business day period, the rules of the AAA with
respect to the selection of an arbitrator shall apply. Notwithstanding any other
provision of this Section 5, the arbitrator shall be a person with demonstrable
knowledge regarding appraisal rights under the Delaware General Corporation Law.
(ii) The arbitration shall commence at a location in the County
of New York, New York to be chosen by the arbitrator and such arbitration
10
<PAGE>
shall continue on each consecutive business day therefrom until fully concluded,
unless continued by the arbitrator for good cause shown, but in no event shall
such arbitration continue for more than six (6) business days from the
commencement thereof, and the time allocated for the arbitration shall be evenly
allocated between the holders and the Company. Except as expressly provided
herein, such arbitration shall be conducted in accordance with the commercial
rules and procedures of the AAA then in effect; provided, however, that in the
event of any inconsistency between the rules of the AAA and procedures and the
terms of this Agreement, the terms of this Agreement shall prevail.
(iii) The award of the arbitrator when made and executed by him
shall be final and binding and enforceable in any court of competent
jurisdiction. The arbitrator shall retain jurisdiction to determine any dispute
which may arise between the parties until such time as the arbitrator's decision
has been carried out in full.
(iv) Nothing contained herein shall in any way deprive any
party of their right to obtain specific performance as provided in Section 7(j)
hereof.
Section 6. Additional Provisions.
---------------------
(a) In the event a Transfer of any Securities has taken place in
violation of the provisions of this Agreement, including, without limitation,
requirements as to notice periods and the content of notices, such Transfer
shall be void and of no effect, and no distribution of any kind shall be paid by
the Company to the transferee in respect of such Securities (all such dividends
and distributions being deemed waived), and the voting rights, if any, of such
Securities on any matter whatsoever shall remain vested in the transferor,
during the period commencing with such party's initial failure of compliance and
ending when compliance shall have occurred.
(b) In order to facilitate the operation of the provisions of this
Agreement, the Memorandum of Association and Bye-Laws of the Company, each
Stockholder agrees to keep the Company informed of all Securities that are
owned, both of record or beneficially, by such Stockholder, and to respond
promptly to any request by the Company for such ownership information.
11
<PAGE>
Section 7. Miscellaneous.
-------------
(a) After-Acquired Shares. All of the provisions of this Agreement
---------------------
shall apply to all Securities now owned or hereafter acquired any Stockholder.
(b) Rights of Transferees; Requirement to Become a Party. Any
----------------------------------------------------
Permitted Transferee that has agreed in writing to be bound by the terms of this
Agreement shall have the same rights hereunder as are given to, and shall be
subject to the same obligations as are imposed upon, the Stockholder by the
terms hereof with respect to the Securities that are the subject of the Transfer
to such person.
(c) Certain Definitions.
-------------------
(i) "BCLP" means, collectively, Abbott Brown, Lodwrick Cook,
David Lee, Barry Porter, Galenight Corp., a Delaware corporation, Ridgestone
Corp., a Delaware corporation, San Pasqual Corp., a Delaware corporation, the
David and Ellen Lee Family Trust, a California trust, and any Permitted
Transferee of any such person.
(ii) "Business Day" means any day other than a Saturday,
Sunday or any other day on which commercial banks in Bermuda or New York, New
York are authorized by law to be closed for business.
(iii) "Change of Control" means the acquisition by any (A)
person other than a COC Holder or a Permitted Transferee thereof or (B) group
(as such term is used in Section 13(d)) other than a group consisting solely of
CoC Holders and Permitted Transferees thereof) of direct or indirect beneficial
ownership (as such term is used in Section 13(d)) of voting securities of the
Company representing 35% or more of the voting power of the outstanding voting
securities of the Company (regardless of whether such person or group's ability
to vote such securities is restricted by the Bye-Laws or other governing
documents of the Company).
(iv) "CIBC" means CIBC Wood Gundy (Capital ) SFC, Inc. a
_________ corporation, [2 partnerships]..
(v) "CoC Holder" means CIBC, MRCo, Continental and PCG/GKW
and any Permitted Transferee thereof.
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<PAGE>
(vi) "Common Stock" means the Common Stock, par value $.01 per
share, of the Company or any other shares of capital stock or other securities
into which such shares of Common Stock shall be reclassified or changed,
including, without limitation, by reason of a merger, consolidation, exchange,
reorganization or recapitalization. If the Common Stock has been so
reclassified or changed, or if the Company pays a dividend or makes a
distribution on the Common Stock in shares of capital stock or other securities,
or subdivides (or combines) its outstanding shares of Common Stock into a
greater (or smaller) number of shares of Common Stock, a share of Common Stock
shall be deemed to be such number of shares of capital stock and amount of other
securities to which a holder of a share of Common Stock outstanding immediately
prior to such change, reclassification, exchange, dividend, distribution,
subdivision or combination would be entitled.
(vii) "Continental" means Continental Casualty Company, a
_________ corporation, and any Permitted Transferee thereof.
(viii) "5% Holder" means CIBC and PCG/GKW and any Permitted
Transferee thereof.
(ix) "GKW" means GKW Unified Holdings, LLC, a Delaware limited
liability company.
(x) "MRCo" means MRCo., Inc., a Delaware corporation and any
Permitted Transferee thereof.
(xi) "PCG" means Pacific Capital Group, Inc., a California
corporation.
(xii) "PCG/GKW" means PCG, GKW and Gary Winnick and any
Permitted Transferee of any such person.
(xiii) "Permitted Transferee" means (A) in the case of a
Stockholder who is an individual, such Stockholder's spouse, parents, members of
his immediate family (as defined in Instruction 2 of Item 404(a) of Regulation
S-K promulgated by the United States Securities and Exchange Commission) or his
lineal descendants or to a trust the beneficiary of which is solely such
Stockholder or any of such persons, (B) the executors, administrators,
testamentary trustees, legatees or beneficiaries of a deceased Stockholder, (C)
in the case of a Stockholder that is a trust, the beneficiaries of such trust
(provided, that either the transferor retains the
---------
13
<PAGE>
right to vote such Securities or PCG/GKW and CIBC consent in writing to such
Transfer), (D) in the case of a Stockholder that is a partnership or limited
liability company, any or all the partners of such partnership in accordance
with the terms of the partnership agreement of such partnership or any or all
the members of such limited liability company in accordance with the operating
agreement of such limited liability company, as the case may be, (E) in the case
of a Stockholder that is a corporation, an 80% or more owned subsidiary or a
person that owns 80% or more of the voting equity of such Stockholder or any
100% owned subsidiary of such person, or (F) in the case of any Stockholder, a
bona fide third party lender who receives the pledge of, or grant of a security
interest in, any or all Securities to secure indebtedness of such Stockholder
owing to such lender; provided, however, that each transferee pursuant to
-------- -------
clauses (A) through (E) agrees in writing to be bound by the terms of this
Agreement as if such person were a Stockholder.
(xiv) "person" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
(xv) "Securities Act" means the Securities Act of 1933, as
amended.
(xvi) "Securities" shall mean and include, without limitation,
(A) the Common Stock, (B) any option, warrant or right to acquire Common Stock
and (C) any security or other instrument exchangeable for, or convertible into,
Common Stock.
(xvii) "Subsidiary" shall mean, as to any person, (A) any
corporation more than 50% of whose stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time owned by such person and/or one
or more Subsidiaries of such person and (B) any partnership, association, joint
venture or other entity in which such person and/or one or more Subsidiaries of
such person have more than a 50% equity interest therein.
(d) Owner of Securities. The person in whose name Securities are (i)
-------------------
registered in the stock books of the Company or (ii) reported as being
beneficially
14
<PAGE>
owned pursuant to Section 6(b) hereof may be treated as the owner thereof for
all purposes under this Agreement, including without limitation, for the giving
of notices under this Agreement.
(e) Legend. So long as the provisions of this Agreement remain in
------
effect, all certificates evidencing Securities shall be endorsed with the
following legend:
THE SALE, TRANSFER, PLEDGE OR OTHER ENCUMBRANCE OF DISPOSITION OF THE
SECURITIES REPRESENTED BY THIS CERTIFI CATE IS SUBJECT TO AND RESTRICTED
BY A STOCKHOLDERS AGREEMENT DATED AS OF [ ], 1998, AS IT MAY BE
AMENDED FROM TIME TO TIME IN ACCORDANCE WITH THE PROVISIONS THEREOF (THE
"AGREEMENT"), WHICH CONTAINS RESTRICTIONS ON TRANSFER, RIGHTS OF FIRST
REFUSAL AND TAG-ALONG PROVISIONS. COPIES OF THE AGREEMENT MAY BE OBTAINED
FROM THE SECRETARY OF THE COMPANY.
At the request of any Stockholder, the Company shall reissue certificates
evidencing Securities without such legend in connection with a Transfer in a
public offering pursuant to a registration statement under the Securities Act or
a Transfer pursuant to Rule 144 under the Securities Act.
(f) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, air courier or
facsimile transmission:
(i) if to a Stockholder, at the most current address of the
Stockholder on the stock register of the Company;
(ii) if to the Company,
Global Crossing Ltd.
Wessex House
45 Reid Street
Hamilton HM12, Bermuda
Attention: K. Eugene Shutler
Facsimile No.: (441) 296-8606
15
<PAGE>
With a copy (which shall not constitute notice) to:
Global Crossing Ltd.
150 South El Camino Drive, Suite 204
Beverly Hills, California 90212
Attention: Abbott L. Brown
Facsimile No.: (310) 281-4942
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; three business days
after being timely dispatched delivery prepaid, if by air courier; and when
receipt acknowledged, if sent by facsimile transmission. Any of the above
addresses may be changed by notice made in accordance with this subsection.
(g) GOVERNING LAW; SUBMISSION TO JURISDICTION. EXCEPT AS EXPRESSLY
-----------------------------------------
PROVIDED IN SECTION 5 HEREOF, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCOR DANCE WITH THE LAWS OF THE STATE OF NEW YORK INCLUDING, WITHOUT
LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW
AND RULE 327(b) OF THE NEW YORK CIVIL PRACTICE LAWS AND RULES. EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK
STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY
FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN
RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH
OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO UNDER APPLICABLE LAW, AND ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY
AGREES TO ACCEPT, AT THE ADDRESS REFERRED TO IN SECTION 7(f) HEREOF, SERVICE OF
PROCESS IN ANY SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH COURTS WITH RESPECT TO
THIS AGREEMENT.
16
<PAGE>
(h) Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and their respective Permitted Transferees.
(i) Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
without the written consent of (i) the Company and (ii) the holders of at least
a majority of the Securities owned by each of BCLP, CIBC, Continental, MRCo
and/or PCG/GKW, to the extent each such class or group is affected thereby.
(j) Specific Enforcement. Each of the parties hereto acknowledges and
--------------------
agrees that (i) monetary damages would be an inadequate remedy for a breach of
any of the provisions of this Agreement, (ii) in addition to being entitled to
exercise all of their rights granted by law, including recovery of damages, the
other parties shall therefore be entitled to specific performance of its rights
under this Agreement and (iii) in the event of any action for specific
performance it shall waive the defense that a remedy at law would be adequate.
(k) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
(l) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(m) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
17
<PAGE>
(n) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement, and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
(o) This Agreement Controls. Each of the parties hereto agrees that
-----------------------
to the extent, if any, that any provision of this Agreement conflicts with the
Company's Articles of Association, the provisions of this Agreement shall
control.
(p) $. All references to "$" mean United States dollars.
-
(q) Term. This Agreement shall terminate on the first to occur of (i)
----
the tenth anniversary of the date of this Agreement and (ii) such date as all
of the Stockholders shall agree.
Section 8. Stockholder Disclosure.
----------------------
(a) Disclosure upon Demand of the Board of Directors of the Company.
---------------------------------------------------------------
Each Stockholder shall upon demand by the Board of Directors of the Company
disclose to the Company (or, at such Stockholder's option to a law firm of
national repute in the United States which advises the Company) in writing such
information with respect to:
(i) such Stockholder's ownership of Controlled Shares (as
defined in the Bye-Laws of the Company) and the number of votes conferred by
such Shares;
(ii) those persons who may be treated as owning any of the
Controlled Shares held by such Stockholder; and
(iii) any other affiliation or relationship between such
Stockholder and any other stockholder of the Company known to such Stockholder,
in each case, as the Board of Directors of the Company shall reasonably deem
necessary or appropriate to comply with the provisions of Code to determine the
ownership of the Company for purposes of determining whether any Stockholder is
a "United States stockholder" of the Company within the meaning of Section 951
of the Code, or to comply with the requirements of any United States taxing
authority
18
<PAGE>
or governmental agency which provisions or requirements are adopted or
promulgated after the date hereof.
(b) Standard of Care. In responding to such demands and preparing
----------------
such disclosures required by paragraph (a) above, each Stockholder shall
exercise due care and conduct a reasonable investigation. A Stockholder shall
be deemed to have satisfied such obligation if the Stockholder's conduct
conforms to the standards set forth in Section 9 hereof.
(c) Notice of Change of Ownership of a Stockholder. Each Stockholder
----------------------------------------------
shall give notice to the Company (or, at the Stockholder's option, to a law firm
of national repute in the United States which advises the Company which shall
treat all such information in the strictest of confidence) within ten days
following the date on which the Stockholder becomes aware that:
(i) in the case of a Stockholder that is a corporation (A) any
person that does not have beneficial ownership of 10% or more of the total value
of all of the shares in the share capital of such Stockholder becomes the
beneficial owner of 10% or more of the total value of all of the shares in the
share capital of such Stockholder, or (B) any person that has beneficial
ownership of 10% or more of all the shares in the share capital of a Stockholder
increases or decreases its ownership in the share capital of such Stockholder;
or
(ii) in the case of a Stockholder which is a partnership,
estate, trust, or any entity which is treated as a partnership, estate or trust
for U.S. federal income tax purposes, there has been a change in the
proportionate interest of the partners in the partnership or of the beneficial
owners of the trust or estate.
For purposes of this Section 8(c), beneficial ownership shall be determined in
accordance with Sections 318 and 958 of the Code. The notice to the Company (or
its law firm) shall specify the identity of such beneficial owner, and such
Stockholder shall furnish such other information as the Company shall reasonably
request in order for the Company to determine whether such change in beneficial
ownership could adversely affect the taxation of the Company or a U.S. Person
that is a stockholder of the Company under the Code or successor statutes.
"U.S. Person" shall mean an individual who is a citizen or resident of the
United States, a corporation, limited liability company or partnership created
or organized under the laws of the United States or any state thereof, or an
estate or trust, all of the income of which is
19
<PAGE>
includable in gross income for United States federal income tax purposes,
regardless of its source.
(d) Response to Government Inquiries. If the Internal Revenue Service
--------------------------------
makes a written request to the Company for information regarding the number of
Controlled Shares owned by a Stockholder, such Stockholder shall Certify to the
Company (or, at the Stockholder's option, to a law firm of national repute in
the United States which acts for Holdings) the proportionate ownership interest,
by capital commitment, in the Stockholder of each direct owner other than a
foreign corporation less than 10 percent of the value of whose shares is owned
by a U.S. Person.
Section 9. Due Care. A Stockholder shall be deemed to have
--------
satisfied its obligation to exercise due care and to conduct a reasonable
investigation in preparing the certifications, statements or affidavits required
pursuant to 8(a) of this Agreement if the Stockholder:
(a) obtains from the Company a list of the Stockholders ("Stock holder
List");
(b) sends a copy of the Stockholder List to each direct owner of the
Stockholder other than a foreign corporation less than 10 percent of the value
of whose shares is owned by a U.S. Person ("Domestic Owner");
(c) in writing asks each Domestic Owner of the Stockholder to confirm
in writing whether the Domestic Owner or any person or entity related to the
Domestic Owner (other than a foreign corporation less than 10 percent of the
value of whose shares is owned by a U.S. Person) is an owner of or partner with
any entity listed on the Stockholder List, and the percentage or capital
interest of the Stockholder which the Domestic Owners owns;
(d) keeps in its records copies of the written confirmations given by
each Domestic Owner to these inquiries;
(e) informs the Company of the total amount which Domestic Owners of
the Stockholder have stated, in response to the Stockholder's inquiries, that
they own in each person on the Stockholder List and in each person on the Stock
holder List with which such Domestic Owner is a partner, which information shall
be based on the written responses made to the Stockholder by Domestic Owners to
the questions which the Stockholder asked the Domestic Owners and of any other
20
<PAGE>
ownership by a Domestic Owner of an interest in a person on the Stockholder List
of which the Stockholder has actual knowledge;
(f) certifies to the Company any ownership of shares of common stock
of the Company which the Stockholder would be treated as owning by attribution
within the meaning of Section 958 of the Code of which the Stockholder has
actual knowledge;
(g) delivers to the Company (or, at the Stockholder's option, to the
Company's law firm of national repute in the United States which advises the
Company) a list of all direct owners of the Stockholder, and any indirect owners
of the Stockholder (other than a foreign corporation less than 10 percent of the
value of whose shares is owned by a U.S. Person) of which the Stockholder has
actual knowledge;
(h) if requested by the Company to enable the Company to determine the
proportionate ownership interest of a Domestic Owner of the Stockholder which is
also a shareholder or the Domestic Owner of another Stockholder, provides a
certification of the proportionate ownership interest (by capital commitment) in
the Stockholder of any Domestic Owner of the Stockholder; and
(i) responds to necessary inquiries (other than with regard to the
proportionate ownership of owners of a Stockholder) made by the Company relating
to the identity of an owner of the Stockholder to the extent the Stockholder has
or can reasonably obtain answers to such inquiries.
For purposes of determining a Stockholder's compliance with all information
reporting obligations for which the standard of "due care and reasonable
investiga tion" of this Section 9 is applicable, any entity or entities formed
for purposes of holding Share of the Company substantially owned by a single
entity shall be disregarded and the beneficial owner of any such entity shall be
considered Stockholders.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
GLOBAL CROSSING LTD.
By:
--------------------------------
Name:
Title:
CIBC WOOD GUNDY (CAPITAL) SFC, INC.
By:
--------------------------------
Name:
Title:
[CIBC PARTNERSHIP I]
By:
--------------------------------
Name:
Title:
[CIBC PARTNERSHIP II]
By:
--------------------------------
Name:
Title:
S-1
<PAGE>
CONTINENTAL CASUALTY COMPANY
By:
--------------------------------
Name:
Title:
MRCO, INC.
By:
--------------------------------
Name:
Title:
-----------------------------------
GARY WINNICK
PACIFIC CAPITAL GROUP, INC.
By:
--------------------------------
Name:
Title:
GKW UNIFIED HOLDINGS, LLC
By:
--------------------------------
Name:
Title:
S-2
<PAGE>
-----------------------------------
ABBOTT L. BROWN
RIDGESTONE CORP.
By:
--------------------------------
Name:
Title:
-----------------------------------
BARRY PORTER
GALENIGHT CORP.
By:
--------------------------------
Name:
Title:
-----------------------------------
DAVID LEE
SAN PASQUAL CORP.
By:
--------------------------------
Name:
Title:
S-3
<PAGE>
DAVID AND ELLEN LEE FAMILY TRUST
By:
--------------------------------
Name:
Title:
-----------------------------------
LODWRICK COOK
S-4
<PAGE>
EXHIBIT 10.2
PROJECT DEVELOPMENT
AND
CONSTRUCTION CONTRACT
BETWEEN AT&T SUBMARINE SYSTEMS, INC.
AND
GLOBAL TELESYSTEMS LTD.
<PAGE>
TABLE OF CONTENTS
GENERAL TERMS AND CONDITIONS
<TABLE>
<CAPTION>
Article PAGE
- ------- ----
<S> <C>
1 Provision of System................................................... 1
2 Documents Forming the Entire Contract................................. 2
3 Definitions........................................................... 2
4 Contract Price........................................................ 11
5 Terms of Payment by Purchaser......................................... 14
6 Contract Variations................................................... 17
6A. Optional Upgrades..................................................... 18
7 Responsibilities for Permits.......................................... 19
8 Route Survey.......................................................... 20
9 Acceptance............................................................ 21
10 Warranty.............................................................. 25
11 Contractor Support.................................................... 28
12 Purchaser's Obligations............................................... 28
13 Termination for Default............................................... 29
14 Termination for Convenience........................................... 31
15 Suspension............................................................ 34
16 Title and Risk of Loss................................................ 35
17 Force Majeure......................................................... 36
18 Intellectual Property................................................. 38
19 Infringement.......................................................... 43
20 Safeguarding of Information and Technology............................ 44
21 Export Control........................................................ 45
22 Liquidated Damages.................................................... 45
23 Limitation of Liability/Indemnification............................... 46
24 Counterparts.......................................................... 47
25 Design and Performance Responsibility................................. 47
26 Product Changes....................................................... 48
27 Risk and Insurance.................................................... 48
28 Plant and Work Rules.................................................. 51
29 Right of Access....................................................... 51
30 Quality Assurance..................................................... 53
31 Documentation......................................................... 53
32 Training.............................................................. 53
33 Settlement of Disputes/Arbitration.................................... 53
34 Applicable Law........................................................ 54
35 Notices............................................................... 54
36 Publicity and Confidentiality......................................... 55
37 Assignment............................................................ 55
38 Relationship of the Parties........................................... 56
39 Successors Bound...................................................... 56
40 Article Captions...................................................... 57
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Article PAGE
- ------- ----
<S> <C>
41 Severability......................................................... 57
42 Survival of Obligations.............................................. 57
43 Non-Waiver........................................................... 57
44 Language............................................................. 57
45 Entire Agreement..................................................... 57
46 Coming into Force.................................................... 58
</TABLE>
ii
<PAGE>
EXHIBIT 10.2
PROJECT DEVELOPMENT AND
CONSTRUCTION CONTRACT
BETWEEN AT&T SUBMARINE SYSTEMS, INC.
AND GLOBAL TELESYSTEMS LTD.
This Project Development and Construction Contract ("Contracts) is
made this 18th day of March 1997 between AT&T Submarine Systems, Inc., a
corporation organized and existing under the laws of the State of Delaware, of
the United States of America, and having an office at 340 Mt. Kemble Avenue,
Morristown, New Jersey, 07962-1923 of the United States of America (hereinafter
"Contractor") and Global Telesystems Ltd., a corporation organized and existing
under the laws of Bermuda, and having an office at Cedar House, 41 Cedar Avenue,
Hamilton HM12 Bermuda (hereinafter "Purchaser").
WHEREAS, Purchaser desires to establish a fiber optic submarine cable
system, to be known as the Atlantic Crossing 1 Submarine Cable System
(hereinafter, and as more fully defined herein, the "System"), which will be
used to provide service between and among the United States mainland, United
Kingdom and Germany; and
WHEREAS, the System will consist of the following Segments:
Segment 1: From United Kingdom to New York, United States;
Segment 2: From New York, United States to Germany; and
Segment 3: From Germany to United Kingdom; and
WHEREAS, Contractor is in the business of designing, constructing,
installing, supplying, delivering, manufacturing, operating, and maintaining
fiber optic submarine cable systems and is familiar with the general business of
the fiber optic submarine cable system industry; and
WHEREAS, Purchaser seeks to purchase and own the System and wishes to
engage Contractor to perform the Work and Upgrade Work; and
WHEREAS, Contractor is willing to perform the Work on a turn-key,
fixed-price basis in accordance with and subject to the terms hereof; and
WHEREAS, Contractor is willing to perform the Upgrade Work on a turn-
key, fixed-price basis in accordance with and subject to the terms hereof.
NOW THEREFORE, IT HAS BEEN AGREED AS FOLLOWS
ARTICLE 1 PROVISION OF SYSTEM
- -------------------------------
In consideration of the Contract Price and the Upgrade Prices, the
Contractor agrees to undertake the Work and the Upgrade Work and to provide the
Purchaser with the
<PAGE>
2
System meeting the System Performance Requirements on or before the Scheduled
RFS Date and the System Upgrades meeting the requirements of Article 6A, all in
accordance with the terms hereof.
ARTICLE 2 DOCUMENTS FORMING THE ENTIRE CONTRACT
- -------------------------------------------------
This Contract consists of these commercial Terms and Conditions and
the following documents (in the form of attachments, including appendices,
attached hereto), which shall be read and construed as part of the Contract:
. Technical Volume (includes Route Information), Appendix 5
. Plan of Work, Appendix 3, Upgrade Plan of Work, Appendix 3A
. Provisioning Schedule, Appendix 1, Upgrade Provisioning Schedule,
Appendix 1A
. Billing Schedule, Appendix 2, Upgrade Billing Schedule, Appendix 2A
. Invoice Format, Appendix 4
In the event of any inconsistency between the Terms and Conditions and
the above listed documents, the Terms and Conditions shall prevail. The
Appendices listed above have no order of precedence.
ARTICLE 3 DEFINITIONS
- -----------------------
Definitions are as described in the specific Articles. Except as
otherwise defined the following definitions shall apply throughout the Contract:
AAA has the meaning set forth in Sub-Article 33(B).
ACCEPTANCE TESTING means (i) with respect to a Segment or the System,
the tests described in the System Commissioning and Acceptance section of
the Technical Volume or developed pursuant to such section by mutual
agreement of the Parties (with 15 days prior notice to the Independent
Engineer) and reasonably designed to verify that such Segment or the System
meets the applicable Performance Requirements and (ii) with respect to any
System Upgrade, the tests described in the System Commissioning and
Acceptance section of the Technical Volume or developed pursuant to such
section by mutual agreement (with 15 days prior notice to the Independent
Engineer) of the Parties and reasonably designed to verify that the System
Upgrade meets the applicable Performance Requirements.
ACCESS RIGHTS means all ownership, easement and/or other property
rights necessary to access and occupy the sites for cable stations in order
to own, operate and maintain the System.
ACTUAL KNOWLEDGE means the actual knowledge of any executives with
management responsibility for the Contract.
<PAGE>
3
ASSIGNMENT has the meaning set forth in Sub-Article 37(A).
BANKRUPTCY EVENT means an event specified in Sub-Article 13(A)(3) or
13(A)(4) with Contractor as the "other Party".
BILLING SCHEDULE means a billing schedule attached hereto as Appendix
2.
CAPACITY PURCHASE AGREEMENT means the Capacity Purchase Agreement
substantially in the form agreed by the Parties on the date this Contract
comes into force in accordance with Article 46.
CERTIFICATE OF COMMERCIAL SERVICE means a certificate issued by
Purchaser to Contractor certifying that a Segment, the System or a System
Upgrade is Ready for Commercial Service.
CERTIFICATE OF FINAL ACCEPTANCE means a certificate issued by
Purchaser to Contractor certifying that the System or a System Upgrade is
Ready for Final Acceptance.
CERTIFICATE OF PROVISIONAL ACCEPTANCE means a certificate issued by
Purchaser to Contractor certifying that a Segment, the System or a System
Upgrade is Ready for Provisional Acceptance.
CIBC COMMITMENT LETTER means the Atlantic Crossing 1 Commitment Letter
to be entered into among the Purchaser, CIBC Wood Gundy Securities Corp.
and CIBC Inc. providing for loans to Purchaser in an aggregate amount of
$410,000,000.
COMMISSIONING REPORT has the meaning set forth in the System
Commissioning and Acceptance section of the Technical Volume.
CONFIDENTIAL INFORMATION has the meaning set forth in Sub-Article
36(B).
CONSENT means a Consent and Agreement to be entered into among
Contractor, Purchaser and the financing parties described in Sub-Article
37(C) and substantially in the form agreed by the Parties on the date this
Contract comes into force in accordance with Article 46.
CONTINGENCY ACCOUNT means the Contingency Account to be created under
the Escrow and Security Agreement.
CONTRACT means this agreement, specifically consisting of the
documents described in Article 2, and shall be deemed to include any
amendments thereto or Contract Variations pursuant to Article 6 (Contract
Variations).
CONTRACTOR means the entity that has executed this Contract as the
Contractor (AT&T Submarine Systems, Inc.) and that will be responsible for
the performance of
<PAGE>
4
the Work (and if applicable, Upgrade Work) under this
Contract and shall include its permitted successors and/or assigns.
CONTRACT PRICE means the Initial Contract Price, plus any variations
pursuant to Article 6 (Contract Variations), Taxes as set forth in Sub-
Article 4(B) and other adjustments to the Contract Price provided for in
this Contract.
CONTRACT TAXES has the meaning set forth in Sub-Article 4(B)(1).
CONTRACT VARIATION has the meaning set forth in Sub-Article 6(A).
DATE OF COMMERCIAL SERVICE, PROVISIONAL ACCEPTANCE OR FINAL ACCEPTANCE
means the date that Purchaser receives a Commissioning Report or an Upgrade
Commissioning Report, as the case may be, demonstrating that a Segment or
the System or a System Upgrade, as the case may be, is Ready for Commercial
Service, Ready for Provisional Acceptance or Ready for Final Acceptance.
DEFAULT means an Event of Default or any event, condition or
occurrence which with the giving of notice or passage of time or both would
be an Event of Default.
DELIVERABLE SOFTWARE has the meaning set forth in Sub-Article 18(C).
DELIVERABLE TECHNICAL MATERIAL has the meaning set forth in Sub-
Article 18(B).
DISPUTE ACCOUNT means the Dispute Account to be created under the
Escrow and Security Agreement.
ESCROW AGENT means The Chase Manhattan Bank, in its capacity as escrow
agent and security agent under the Escrow and Security Agreement, and its
successors in such capacity.
ESCROW AND SECURITY AGREEMENT means that Escrow and Security Agreement
to be entered into by and among AT&T Submarine Systems, Inc., Global
Telesystems Ltd. and The Chase Manhattan Bank, as amended from time to
time.
EVENT OF DEFAULT has the meaning set forth in Sub-Article 13(A).
EXCLUDED TAX means (i) any franchise, excess profits, net worth,
capital or capital gains Tax, as well as any Tax on doing business or
imposed on net or gross income or receipts (including minimum and
alternative minimum Taxes measured by any items of Tax preference), but in
each case excluding Taxes that are or are in the nature of sales, use,
excise, license, stamp, rental, ad valorem, value added or property Taxes;
(ii) any Taxes imposed by a jurisdiction other than one in which (a) the
Contractor is or is treated as engaged in activities contemplated by or in
fulfillment of
<PAGE>
5
the Contract or (b) the Purchaser or its affiliates has a nexus to such
jurisdiction and the Tax imposed is attributable to that nexus, (iii) Taxes
imposed on the Contractor as a result of Contractor's gross negligence or
willful misconduct and (iv) any import duty, other import related charges,
sales or use tax, VAT or property tax imposed by the United States or any
political subdivision thereof or Taxing authority therein in respect of
Supplies brought into the United States for testing, modification or other
similar purposes prior to being installed or used outside the United
States.
FINAL COMMISSIONING REPORT has the meaning set forth in the System
Commissioning and Acceptance section of the Technical Volume.
FINAL SURVEY REPORT means the final survey report described in Section
1.1.4.2 of the Route Survey, Cable Loading and Marine Operations section of
the Technical Volume.
FINANCING DOCUMENTS means the agreements relating to the financing
referred to in Sub-Article 37(C), including without limitation the
financing, security and related documentation referred to in the CIBC
Commitment Letter and the Holding Company Note Purchase Agreement and
related documents.
FINANCING EVENT OF DEFAULT means any event, condition or occurrence
which would permit any party or parties to a Financing Document to
terminate its commitments thereunder or accelerate Purchaser's obligations
thereunder.
FORCE MAJEURE has the meaning set forth in Sub-Article 17(A).
*
HOLDING COMPANY means Global Telesystems Holdings Ltd., a corporation
organized and existing under the laws of Bermuda.
HOLDING COMPANY NOTE PURCHASE AGREEMENT means a Note Purchase
Agreement to be entered into between the Holding Company and the purchasers
named therein providing for $150,000,000 in loans to Holding Company, as
amended from time to time.
INDEPENDENT ENGINEER means Conexart Technologies, Inc. or a similarly
qualified successor in the capacity as the engineer to the financing
sources specified in Sub-Article 37(C) who has agreed to be bound by the
confidentiality provisions of this Contract and who is not affiliated with
a competitor of Contractor.
INFORMATION has the meaning set forth in Sub-Article 20(A).
INITIAL CONTRACT PRICE has the meaning set forth in Sub-Article
4(A)(1).
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
6
INITIAL UPGRADE PRICE has the meaning set forth in Sub-Article
4(A)(2).
INTELLECTUAL PROPERTY has the meaning set forth in Sub-Article 18(A).
LAWS means any laws, ordinances, regulations, rules, orders,
proclamations, requirements of governmental authorities or treaties.
MANUFACTURING MATERIALS has the meaning set forth in Sub-Article
13(B).
NEXUS TAX means any Tax imposed by way of withholding in respect of or
in lieu of an Excluded Tax, but only to the extent such Tax would not have
been imposed but for the nexus (other than as a consequence of the
activities of the Contractor) of the Purchaser or its affiliate to the
jurisdiction imposing the Tax.
NON-SHIP COSTS has the meaning set forth in Sub-Article 10(A)(2).
NOTICE OF TERMINATION has the meaning set forth in Sub-Article 14(A).
OPERATIONS, ADMINISTRATION AND MAINTENANCE AGREEMENT means the
Operations, Administration and Maintenance Agreement to be entered into
between AT&T Submarine Systems, Inc. and Global Telesystems Ltd., as
amended from time to time.
OPTION PERIOD has the meaning set forth in Sub-Article 6A(B).
PARTY(IES) means either of the Purchaser and/or the Contractor, as
appropriate.
PAYMENT ACCOUNT means the Payment Account to be created under the
Escrow and Security Agreement.
PAYMENT ESCROW DATE means the first date after the date hereof on
which no funds remain in the Payment Account (or on which Contractor has
invoiced an aggregate amount equal to the lesser of $275,000,000 and the
aggregate amount deposited into the Payment Account and such amount has
been paid (or deposited into the Dispute Account) or is due (or required to
be deposited into the Dispute Account)).
PERFORMANCE REQUIREMENTS means (i) with respect to a Segment or the
System, the applicable System Performance Requirements set forth or to be
developed by mutual agreement pursuant to the Transmission Performance
section of the System Description section of the Technical Volume, (ii)
with respect to any System Upgrade, the System Performance Requirements set
forth in or to be developed by mutual agreement pursuant to the Technical
Volume or (iii) in each case, such other Segment, System or System Upgrade
performance levels as mutually agreed by the Parties, including impairment
budgets.
<PAGE>
7
PERMITS means all Access Rights, permits, pipeline and cable crossing
agreements, approvals, "no objections", permissions-in-principle,
authorizations, consents, customs clearances, registrations, certificates,
rights-of-way, certificates of occupancy, licenses, including without
limitation, landing licenses, orders, vessel and crew authorizations/visas,
permission for the operation of navigational aids and radio systems and
similar authorizations necessary to complete the Work and operate and
maintain the System (other than any of the foregoing (i) relating to the
ownership, operation and maintenance of the System and not necessary until
after the System is Ready for Final Acceptance, (ii) which is or would be
needed by Purchaser to engage in any business outside the business of
developing, owning and operating a submarine cable system or (iii) which is
or would be needed at any time by any purchaser or lessee of capacity on
the System).
PHASE 2 SEGMENT means Segment 2 or Segment 3.
PROVISIONING SCHEDULE means the price schedule attached hereto in
Appendix 1.
PURCHASER means Global Telesystems Ltd. and shall include its
permitted successors and assigns.
READY FOR COMMERCIAL SERVICE means (i) for any Segment, that (a) such
Segment has the ability to carry commercial traffic between the two landing
points of such Segment (at 5 Gb/s per fiber pair in the case of Segment 1
and at 10 Gb/s per fiber pair in the case of a Phase 2 Segment) meeting
performance criteria of ITU-T G.826 as defined in the System Performance
section of the Technical Volume and has line monitoring and protection
switching capability, (b) Contractor has tested and provided for STM-1
interconnectivity capability to the Segment terminal equipment according to
ITU-T G.826, (c) Contractor has substantially performed its obligations
under Article 18 (Intellectual Property) then required to be performed by
it, (d) all Permits are obtained for such Segment, and (e) unless both
Parties agree otherwise, with respect to a Phase 2 Segment, the other Phase
2 Segment shall have satisfied the conditions set forth above, (ii) for the
System, that the System has the ability to carry commercial traffic
throughout the System (at 10 Gb/s per fiber pair) meeting performance
criteria of ITU-T G.826 as defined in the System Performance section of the
Technical Volume with self healing ring protection capability and per
Segment protection capability, has line monitoring and per Segment
protection switching capability and has network management capability, (b)
Contractor has tested and provided for STM-1 interconnectivity capability
to the System terminal equipment according to ITU-T G.826, (c) Contractor
has substantially performed its obligations under Article 18 (Intellectual
Property) then required to be performed by it, (d) an interconnect
agreement is in place with a bona fide carrier at each landing point, and
(e) all Permits are obtained for the System and (iii) for any System
Upgrade, the System is Ready for Commercial Service at the capacity
specified for such System Upgrade.
<PAGE>
8
READY FOR FINAL ACCEPTANCE means (i) for the System, that (a)(l) the
System has successfully and continuously (other than by reason of Force
Majeure in which case the test period shall be extended for a time period
equal to the time period of such Force Majeure) functioned in compliance
with the System Performance Requirements during the period of ninety (90)
consecutive days after the Date of Provisional Acceptance or (II) if the
System shall have failed to meet the System Performance Requirements at any
time during such period (other than by reason of Force Majeure), the
Contractor has corrected such failure and the System has successfully and
continuously (other than by reason of Force Majeure in which case the test
period shall be extended for a time period equal to the time period of such
Force Majeure) functioned in compliance with the System Performance
Requirements for such additional period of time not to exceed ninety (90)
days (and not to end prior to the date 90 days after the Date of
Provisional Acceptance) as reasonably determined by the Independent
Engineer as being sufficient to confirm that such failure has been
corrected and that no other failures are likely to appear and (b) all
deficiencies noted in the Certificate of Provisional Acceptance have been
corrected (other than minor deficiencies which will not affect the
operation of the System, in respect of which an equitable adjustment to the
Contract Price will be made) and (c) Contractor has complied in all
material respects with Article 18 (Intellectual Property) and (ii) for any
System Upgrade, that (a)(l) the System Upgrade has successfully functioned
in compliance with the System Performance Requirements during the period of
ninety (90) days after the Date of Provisional Acceptance of the System
Upgrade or (II) if the System Upgrade shall have failed to meet the System
Performance Requirements during such period, the Contractor has corrected
such failure and the System Upgrade has successfully functioned in
compliance with the System Performance Requirements for such additional
period of time not to exceed ninety (90) days as reasonably determined by
the Independent Engineer as sufficient to confirm that such failure has
been corrected and (b) all deficiencies noted in the Certificate of
Provisional Acceptance have been corrected (other than minor deficiencies
which will not affect the operation of the System, in respect of which an
equitable adjustment of the Contract Price will be made) and (c) Contractor
has complied in all material respects with Article 18 (Intellectual
Property).
READY FOR PROVISIONAL ACCEPTANCE means (i) with respect to any
Segment, (a) such Segment is complete in all material respects (and in any
event is Ready for Commercial Service), (b) the results of Acceptance
Testing of such Segment demonstrate that such Segment has satisfied the
System Performance Requirements, (c) Contractor has substantially performed
its obligations under Article 18 (Intellectual Property) then required to
be performed by it, (d) all Permits are obtained for such Segment, and (e)
unless both Parties agree otherwise, with respect to a Phase 2 Segment, the
other Phase 2 Segment shall have satisfied the conditions set forth above,
(ii) with respect to the System, the System is complete in all material
respects (and in any event is Ready for Commercial Service), all three
Segments are Ready for Provisional Acceptance with self-healing ring
protection capability and per Segment protection capability and line
monitoring and network management capability and (iii) with respect to any
System Upgrade, the results of Acceptance Testing of such System
<PAGE>
9
Upgrade demonstrate that such System Upgrade is complete in all material
respects and is sufficient to realize the Performance Requirements.
REPRESENTATIVES has the meaning set forth in Article 36(B).
REQUIRED AMOUNT means initially *.
RETAINAGE means an amount equal to * of the Initial Contract Price.
RETAINAGE LETTER OF CREDIT means a letter of credit issued by a bank
reasonably satisfactory to Contractor with a face amount equal to the
amount of the Retainage and substantially in the form agreed by the Parties
on the date this Contract comes into force in accordance with Article 46.
RETESTING has the meaning set forth in Sub-Article 9(B)(3).
ROUTE SURVEY means the route survey described in the Route Survey,
Cable Loading and Marine Operations section of the Technical Volume.
SALES AGENCY AGREEMENT means the Sales Agency Agreement to be entered
into between AT&T Submarine Systems, Inc. and Global Telesystems Ltd., as
amended from time to time.
SCHEDULED RFS DATE has the meaning set forth in Sub-Article 9(A).
SCHEDULED UPGRADE DATE means for any System Upgrade, the date by which
the Contractor agrees such System Upgrade will be Ready for Provisional
Acceptance or Commercial Service.
SEGMENT means Segment 1, Segment 2 or Segment 3, as the case may be.
SEGMENT 1 means Segment C as defined in the Technical Volume from
United Kingdom to New York, United States and landing in locations capable
of interconnecting with major telecommunications carriers.
SEGMENT 2 means Segment A as defined in the Technical Volume from New
York, United States to Germany and landing in locations capable of
interconnecting with major telecommunications carriers.
SEGMENT 3 means Segment B as defined in the Technical Volume from
Germany to United Kingdom and landing in locations capable of
interconnecting with major telecommunications carriers.
SHIP COSTS has the meaning set forth in Sub-Article 10(A)(2).
SHIP PERIOD has the meaning set forth in Sub-Article 10(A).
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
10
SUPPLIES means any and all materials, plant, machinery, equipment,
hardware and items supplied by the Contractor under this Contract.
SUSPENSION means a suspension in pursuant to Sub-Article 15(A) or
15(B).
SYSTEM means the four fiber pair submarine cable system consisting of
Segments 1, 2 and 3 (at a per fiber pair capacity of * Gb/s at the Date of
Commercial Service or the Date of Provisional Acceptance, as the case may
be, of the System, with each Segment upgradeable to * Gb/s per fiber pair
at the Date of Provisional Acceptance) as more fully described in the
System Description section of the Technical Volume.
SYSTEM PERFORMANCE REQUIREMENTS has the meaning set forth in the
System Description section of the Technical Volume.
SYSTEM UPGRADE has the meaning set forth in Sub-Article 6A(A).
TAX means any tax, duty, levy, charge or custom (including, without
limitation, any sales or use tax, VAT or octroi duty relating to the
Contract items and fiscal stamps connected with Contract legalization)
imposed or collected by any taxing authority or agency (domestic or
foreign).
TECHNICAL VOLUME means the Technical Volume attached hereto as
Appendix 5.
UPGRADE BILLING SCHEDULE means the billing schedule attached hereto as
Appendix 2A.
UPGRADE COMMISSIONING REPORT has the meaning set forth in the System
Commissioning and Acceptance section of the Technical Volume.
UPGRADE PERIOD has the meaning set forth in Sub-Article 6A(E).
UPGRADE PLAN OF WORK means the plan of work attached hereto as
Appendix 3A.
UPGRADE PRICE means, for any System Upgrade, the Initial Upgrade Price
for such System Upgrade, plus any variations pursuant to Article 6
(Contract Variations), Taxes as set forth in Sub-Article 4(B) and other
adjustments to such Upgrade Price provided for in this Contract.
UPGRADE PROVISIONING SCHEDULE means the provisioning schedule attached
hereto as Appendix 1A.
UPGRADE WARRANTY PERIOD has the meaning set forth in Sub-Article
10(A).
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
11
UPGRADE WORK means the activities and services to be performed or
provided by Contractor under Article 6A.
UPGRADEABILITY LIABILITY LIMIT means at any time, the (i) the sum of
the Initial Contract Price plus all of the Initial Upgrade Prices less, if
----
the System shall have been upgraded to a capacity of * Gb/s or more per
fiber pair, (ii) the product of (A) the sum of the Initial Contract Price
plus all of the Initial Upgrade Prices and (B) the ratio of (I) the
aggregate capacity (for all four fiber pairs) to which the System has been
upgraded by System Upgrades to (II) * Gb/s.
WARRANTY PERIOD has the meaning set forth in Sub-Article 10(A).
WORK means all activities and services (other than the activities and
services specified in this Contract to be provided by Purchaser) necessary
to be performed or provided in developing, planning, designing,
manufacturing, constructing, delivering, installing and testing the System,
until the System is Ready for Final Acceptance, including without
limitation, designating, coordinating and obtaining on behalf of Purchaser
the Access Rights and obtaining all Permits. Whether or not used in
conjunction with the term "Supplies", the term "Work" shall always be
deemed to include the provision of the relevant Supplies, unless the
context requires otherwise.
ARTICLE 4 CONTRACT PRICE
- --------------------------
A. Contract Price
1. The initial Contract Price for the Work, in United States
Dollars (US$) is a fixed fee of 625,909,438 dollars (the "Initial
Contract Price"). The Initial Contract Price does not include the
cost of optional upgrades which are described in Article 6A
(Optional Upgrades), any contract variations as provided for in
Article 6 (Contract Variations), any Taxes, services performed
pursuant to the Operations, Administration and Maintenance
Agreement, or services performed pursuant to the Sales Agency
Agreement.
2. The initial Upgrade Price for any Upgrade Work, in United States
Dollars (US$) is the fixed fee set forth in Appendix 2A (the
"Initial Upgrade Price"). No Initial Upgrade Price includes the
cost any contract variations as provided for in Article 6
(Contract Variations), any Taxes, services performed pursuant to
the Operations, Administration and Maintenance Agreement, or
services performed pursuant to the Sales Agency Agreement.
B. Taxes, Levies and Duties
1. The Initial Contract Price and each Initial Upgrade Price, as
stated in Sub-Article 4(A) above, excludes any Tax. The Contract
Price and each
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
12
Upgrade Price shall without duplication be adjusted for any Tax
imposed on or in connection with this Contract (including,
without limitation, the execution and delivery of this Contract,
the Work, the Upgrade Work and the Supplies, but excluding any
Excluded Taxes) (any such Taxes, other than Excluded Taxes, are
hereinafter referred to as "Contract Taxes"). Contractor has
provided a good faith estimate of the Contract Taxes payable by
the Purchaser; it being understood that the Contractor shall have
no liability under this Contract or otherwise to the Purchaser
for any errors or omissions in such estimate or any losses
arising therefrom. The Contractor shall be responsible for any
Excluded Tax that might be incurred by the Contractor as well as
any Tax described in clause (iv) of the definition of Excluded
Tax.
2. The Purchaser will be ultimately responsible for the payment of
all Contract Taxes (including, without limitation, Contract Taxes
that are VAT, octroi duties relating to Contract items and fiscal
stamps, etc. connected with Contract legalizations to the
authorities in their countries). In the case of any Contract
Taxes paid by the Contractor, the Contractor shall submit payment
on the Purchaser's behalf and Contractor will be reimbursed by
the Purchaser in accordance with Article 5 (Terms of Payment by
Purchaser).
3. The Contractor agrees to use reasonable efforts including,
without limitation, by registering for VAT and any applicable
sales Taxes in any country, state or other jurisdiction where
legally required, to cooperate with and assist Purchaser in its
efforts (i) to have Supplies which are the subject of this
Contract made exempt from Contract Taxes, whether in the
manufacture of the Supplies or related to the importation or
location or installation of the Supplies, (ii) to request
revisions, drawbacks, remissions, reclassifications or the like
to the jurisdictions identified by the Purchaser; or (iii) to
reduce or eliminate Contract Taxes (including the provision of
applicable certifications and forms) and to obtain any available
refunds of Contract Taxes, provided that the Contractor shall not
---------
be required to act other than in accordance with the relevant
Laws then in force. The Purchaser shall reimburse the Contractor,
in accordance with Article 5, for any costs (including the
reasonable fees and expenses of legal counsel, accountants and
other advisors) incurred by the Contractor under this Sub-Article
4(B)(3) provided that Purchaser was notified and has consented to
--------
the incurrence of such costs, fees and expenses. Contractor shall
not be required to cooperate with and assist Purchaser in its
efforts under this Sub-Article 4(B)(3) or to take any action
hereunder which in the Contractor's good faith judgment would
incur any costs or if in Contractor's good faith judgment it
would be advisable to obtain the advice of counsel, accountants
or other advisors prior to cooperating with or assisting
purchaser or taking any action, unless in each case,
<PAGE>
13
Purchaser has agreed to reimburse Contractor under the foregoing
proviso.
4. Prior to the Date of Provisional Acceptance with respect to the
System or any System Upgrade, the Contractor shall provide
evidence of having made all payments for Taxes included in the
Contract Price or Upgrade Price or described in clause (iv) of
the definition of Excluded Taxes, other than VAT due on payments
of the Contract Price or Upgrade Price made on or after the Date
of Provisional Acceptance of the System or System Upgrade, which
evidence shall be provided within sixty (60) days of the date of
each such payment.
5. As part of Work or any Upgrade Work, the Contractor shall
obtain, on Purchaser's behalf, any import license or other
official authorization and carry out all customs formalities
necessary for the importation or exportation of goods in
connection with such Work or Upgrade Work. The Purchaser agrees
to be the Importer or Exporter of Record or designate an Importer
or Exporter of Record/Consignee on its behalf. Purchaser must
provide a Letter of Authorization from any third party designate
stating it agrees to be the Importer or Exporter of Record on
Purchaser's behalf and identify the name and address of the
designated Importer or Exporter of Record.
6. The Supplies to be installed or held on land shall be delivered
to the agreed point at the named place of destination and shall
be consigned to the Purchaser.
C. Withholding Tax
1. If withholding for any Tax is required in respect of any payment
to the Contractor, the Purchaser shall (i) withhold the
appropriate amount from such payment, (ii) pay such amount to the
relevant authorities in accordance with the applicable Laws and
(iii) in the case of any such withholding in respect of a
Contract Tax or a Nexus Tax and subject to the Contractor's
satisfying the obligations set forth in the last sentence of this
Sub-Article 4(C)(1), pay the Contractor an additional amount such
that the net amount received by the Contractor is the amount the
Contractor would have received in the absence of such
withholding. In such a case, the Purchaser shall provide to the
Contractor, as soon as reasonably practicable, a certified copy
of an official tax receipt for any Tax which is retained from any
payment due to the Contractor or for any Tax which is paid on
behalf of the Contractor. All such receipts shall be in the name
of the Contractor. The Contractor agrees to complete accurately
and timely provide to the Purchaser or, if required, to the
applicable Taxing authority, such forms, certifications or other
documents as may be requested in timely manner by Purchaser, in
order
<PAGE>
14
to allow it to make payments to the Contractor without any
deduction or withholding on account of withholding Taxes (or at a
reduced rate thereof) or to receive a refund of any amounts
deducted or withheld on account of withholding Taxes.
2. If the Contractor shall become aware that it is entitled to
receive a refund or credit from a relevant taxing or governmental
authority in respect of a Contract Tax or Nexus Tax as to which
the Purchaser has paid an additional amount pursuant to Sub-
Article 4(C)(1) above, the Contractor shall promptly notify the
Purchaser of the availability of such refund or credit and shall,
within 30 days after receipt of a request by the Purchaser
(whether as a result of notification that it has made to the
Purchaser or otherwise), make a claim to such taxing or
governmental authority for such refund or credit at the
Purchaser's expense. If the Contractor receives a refund or
credit in respect of a Contract or Nexus Tax as to which the
Purchaser has paid an additional amount pursuant to Sub-Article
4(C)(1 ) above, or if, as a result of the Purchaser's payment of
such additional amounts, the Contractor or any other member of an
affiliated group, as defined in section 1504(a) of the Code, of
which the Contractor is a member, receives a credit against Taxes
imposed on its income or franchise taxes imposed on it by the
country under the laws of which it is organized or any political
subdivision thereof, the Contractor shall promptly notify the
Purchaser of such refund or credit and shall within 30 days from
the date of receipt of such refund or benefit of such credit pay
over the amount of such refund or benefit of such credit
(including any interest paid or credited by the relevant taxing
or governmental authority with respect to such refund or credit)
to the Purchaser (but only to the extent of the additional
payments made by the Purchaser under Sub-Article 4(C)(1 ) above
with respect to the Contract or Nexus Tax giving rise to such
refund or credit), net of all out-of-pocket expenses of the
Contractor; provided, however, that the Purchaser, upon the
-------- -------
request of the Contractor agrees to repay the amount paid over to
the Purchaser (plus penalties, interest or other charges due to
the appropriate authorities in connection therewith) to the
Contractor in the event the Contractor is required to repay such
refund or credit to such relevant authority.
ARTICLE 5 TERMS OF PAYMENT BY PURCHASER
- ---------------------------------------
A. General Conditions of Payment
1. All payments shall be made and all invoices shall be rendered in
US Dollars (US$). The Purchaser shall be responsible for and
shall pay all costs and fees for payment, as well as the banking
and cabling costs. All banking documents and correspondence must
be in English.
<PAGE>
15
B. Invoice Procedures
1. All invoices for Work shall be submitted according to the
Billing Schedule. All invoices for Work shall have a certificate
in the form of Appendix 4-1 attached.
2. Any Contract Variations shall be invoiced and paid in accordance
with the terms of the Contract Variation as specified in Article
6 (Contract Variations).
3. Invoices for Upgrade Work shall be submitted according to the
Upgrade Billing Schedule and shall be paid in accordance with
this Article 5.
4. Invoices for amounts not described in Sub-Sections 1-3 above,
which may become payable hereunder shall be submitted after
applicable costs have been incurred or such other time as may be
specified in this Contract. Such invoices shall be accompanied by
a certificate of the Contractor explaining such amount and
certifying that it is payable.
5. The Contractor shall render all invoices to the following address
or facsimile number:
Global Telesystems Ltd.
Cedar House
41 Cedar Avenue
Hamilton HM12 Bermuda
Facsimile: 441-292-8666
Attn: Mr. David Lee
with a copy to
Conexart Technologies, Inc.
124 de Charante
Saint Lambert
Quebec, Canada J451 K3
Facsimile: 514-466-1093
Attn: Mr. Martin Fournier
C. Payment Procedures
1. The Purchaser shall pay the Contractor, and the Contractor shall
accept payment, in accordance with this Article 5 (Terms of
Payment by Purchaser).
<PAGE>
16
2. At the time this Contract comes into force pursuant to Article
46 hereof, the initial payment of * shall be paid by Purchaser to
Contractor, and Purchaser shall deposit with the Escrow Agent the
amount to be deposited pursuant to the Escrow Agreement to be
applied in accordance with the terms of the Escrow and Security
Agreement.
3. Invoices given to the Purchaser (and the Independent Engineer
and, until no funds remain in the Payment Account, the Escrow
Agent) on or before the last day of any month shall, subject to
Sub-Article 5(C)(5) below, be due and payable on the last day of
the next month or such other time as may be specified in this
Contract.
4. Invoices not paid when due shall accrue late payment charges
from the day, following the day, on which payment was due until
the day on which it is paid. Invoices for extended payment
charges shall not be issued for an amount less than U.S. $1,000.
Extended payment charges shall be computed at the rate of one
percent (1%) per month.
5. In the event that the Purchaser has an objection to any invoice
or other payment obligation or any amount owing by Contractor to
Purchaser shall not have been paid when due, the Purchaser shall
promptly notify the Contractor (and, until no funds remain in the
Payment Account, the Escrow Agent) of such objection and such
amount, and the Purchaser and Contractor shall make every
reasonable effort to settle promptly the dispute concerning the
payment(s) in question. In the event such dispute cannot be
settled, the Purchaser will have the right to withhold payment of
the disputed amount(s) (or withhold from the invoice amount a sum
equal to the amount purportedly owing by Contractor) so long as
(i) it provides a statement from the Independent Engineer (or,
prior to the date of the first draw under the Financing
Documents, the Purchaser) disputing the invoice or specifying
such amount owing by Contractor and (ii) it deposits, in full,
such disputed amount(s) into (or such amount is deposited,
pursuant to the Escrow and Security Agreement, into) the Dispute
Account.
(a) Provided such disputed amount is placed into the Dispute
Account in a timely manner, the Purchaser shall not be
deemed to be in breach of or in default for failing to pay
Contractor.
(b) The Escrow Agent will distribute the disputed amount in
accordance with the terms of the Escrow and Security
Agreement.
(c) In addition, the prevailing Party shall be entitled to
receive from the other Party an amount equal to (i) interest
on the distributed,
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
17
disputed amount at a rate of one percent (1%) per month less
(ii) interest distributed by the Escrow Agent under clause
(b) above.
Purchaser shall not set off against Contractor's obligations
except in accordance with this Sub-Article 5(C)(5).
6. The Purchaser shall make timely payments for that portion of the
invoice not in dispute in accordance with Sub-Article 5(C) or
such payments will be assessed extended payment charges as set
forth in Sub-Article 5(C)(4). Pending resolution of the dispute,
the Purchaser may not withhold payment (unless also subject to
dispute) on any other invoice concerning different goods and/or
services submitted by Contractor.
7. The Contractor will accept a letter of credit, to be issued in
form and substance satisfactory to it and issued by an
institution satisfactory to it, in lieu of the amount required to
be deposited in the Contingency Account.
ARTICLE 6 CONTRACT VARIATIONS
- -----------------------------
A. Either Party may request, during construction of the System or any
System Upgrade, by written order (with a copy to the Independent Engineer), a
contract variation requiring additions or alterations to, deviations or
deductions from the System or System Upgrade ("Contract Variation"). If the
other Party consents, in its sole discretion, this change will be formalized as
an amendment to this Contract by a Contract Variation.
B. A Contract Variation shall not become effective unless and until the
price adjustment, the terms and schedule of payment and the extension of time
and all other terms have been mutually agreed upon by the Parties and such
Contract Variation is signed by an authorized representative of each Party. Each
Contract Variation shall be incorporated as an amendment to the Contract.
C. Contractor may seek a Contract Variation for any change, after the
date hereof, of any Law (except those affecting only Taxes or wages) which
requires a change in the Work or the Upgrade Work or affects the costs (other
than wages) incurred or to be incurred by the Contractor or any combination of
the foregoing and Purchaser shall agree to any such change in Work or Upgrade
Work as may be required and to an equitable adjustment to the Contract Price or
the applicable Upgrade Price. As of the date hereof, neither Party has Actual
Knowledge of any proposed change in any Law that would require a change in the
Work or the Upgrade Work.
D. The Initial Contract Price is based on the assumption that Contractor
will acquire or build two cable stations and lease space in one cable station.
If fewer or more cable stations need to be built or acquired, both Parties will
agree to an equitable adjustment
<PAGE>
18
to the Contract Price and the terms and schedule of payments. No extension of
time will be granted solely because three cable stations will be built, unless
the Purchaser consents thereto.
E. Contractor may seek a Contract Variation to replace Germany as a
landing site with a landing site in the Netherlands and, so long as (i) the
Scheduled RFS Date is not delayed as a result thereof, (ii) the Contract Price
is equitably increased, if necessary, by no more than $3,000,000 and (iii) it is
reasonable to assume that the Netherlands landing license will be obtained by
the time required by the Financing Documents, the Purchaser shall agree to such
Contract Variation.
ARTICLE 6A. OPTIONAL UPGRADES
- --------------------------------
A. This Article includes the terms and conditions governing an option for
future upgrades to the System (each a "System Upgrade") that may be exercised by
Purchaser during the Option Period.
B. *
C. *
D. *
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
19
E. *
F. *
G. *
H. *
I. *
J. *
K. *
ARTICLE 7 RESPONSIBILITIES FOR PERMITS
- --------------------------------------
A. The Purchaser shall reasonably cooperate with and assist the
Contractor to obtain all Permits, to the extent that Purchaser's cooperation and
assistance are necessary for Contractor to expeditiously and cost-efficiently
obtain such Permits. The Purchaser agrees to respond promptly to any such
request from Contractor. Further, the Purchaser agrees that it will not impede
or interfere with Contractor's activities or Contractor's abilities to perform
its
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
20
obligations. Upon notice from Contractor with respect to a Permit or receipt by
Purchaser of a copy of a Permit, Purchaser shall fulfill all conditions of such
Permit and perform all responsibilities thereunder, except to the extent that
such conditions or responsibilities are those of the Contractor under Work.
B. Subject to paragraph C below, the Contractor shall have the
responsibility for obtaining all Permits on Purchaser's behalf.
C. Any delay in obtaining or failure to obtain any Permit shall
constitute a Force Majeure and be treated as described in Article 17 (Force
Majeure), except to the extent such delay is a result of Contractor's gross
negligence or willful misconduct.
D. The Contractor shall, before making any variations from the designs,
drawings, plans or procedures that may be necessitated by so complying with any
Laws and that would represent a material change to the overall design of the
System, give to the Purchaser written notice, specifying the variations proposed
to be made, and the reasons for making them. Except with respect to variations
necessitated by complying with any changes, after the date hereof, in any Laws
(the costs with respect to which shall be borne by the Purchaser), the
Contractor shall be responsible for the payment of any and all costs incurred as
a result of the need to vary design, drawings, plans or procedures to comply
with any of the circumstances set forth in this Article.
E. As of the date hereof, neither Party has Actual Knowledge of any
proposed changes in the foregoing which would necessitate any such variation.
F. The Contractor shall (i) give all notices required by any Laws to be
given to any authority and (ii) perform or permit the performance by authorized
persons of any inspection required by the said Laws, in each case as in effect
on the date hereof.
G. Within 30 days after the date of execution of this Contract, the
Contractor will prepare and deliver to the Purchaser a detailed list of Permits
that to its knowledge are required to be obtained under current law in order to
complete the Work and shall update such list from time to time if it becomes
aware of changes in Permit requirements. Such list, as updated from time to
time, shall set forth the projected dates of filing for such Permits and an
estimate of when such Permits are expected to be obtained. Without limiting
Contractor's liabilities in respect of Sub-Articles 7(B) and 7(C), Contractor
shall have no liability in respect of the information furnished under this Sub-
Article.
ARTICLE 8 ROUTE SURVEY
- ----------------------
A. The Contractor shall conduct the Route Survey and select the cable
route for the System in accordance with the information in the Final Survey
Report. Contractor shall be permitted to make changes, at its discretion, to the
route selection, if necessary for operational reasons without additional cost to
Purchaser.
<PAGE>
21
B. Any changes to the route selection requested by Purchaser shall be
treated as a Contract Variation in accordance with Article 6 (Contract
Variations).
ARTICLE 9 ACCEPTANCE
- --------------------
A. General
1. The Acceptance Testing shall be performed by the Contractor. The
Purchaser and its designated representatives (including the
Independent Engineer) may observe, at their own expense, the
Contractor's tests and review the test results. Purchaser may
request and conduct any additional tests, at its own expense, but
any delay caused by such process shall be a Force Majeure event.
2. Until the Date of Final Acceptance of the System or if a System
Upgrade is requested by Purchaser, the Date of Final Acceptance
of such System Upgrade, the Purchaser agrees to allow Contractor
access to all Segments of the System.
3. The Purchaser shall issue a Certificate of Commercial Service in
accordance with the provisions of Sub-Article 9(D)(1).
4. Once a Segment of the System, the System, or a System Upgrade is
Ready for Provisional Acceptance, the Purchaser shall issue a
Certificate of Provisional Acceptance.
5. Once the System or a System Upgrade is Ready for Final
Acceptance, the Purchaser shall issue a Certificate of Final
Acceptance.
6. The Purchaser shall not unreasonably withhold or delay issuance
of a Certificate of Commercial Service, a Certificate of
Provisional Acceptance or a Certificate of Final Acceptance.
7. The Contractor agrees that the Date of Provisional Acceptance or
Commercial Service of the System will occur by November 30, 1998
(as such date may be extended under Article 6 (Contract
Variations), Article 17 (Force Majeure) or otherwise under this
Contract or by agreement of the Parties, the "Scheduled RFS
Date"). The Contractor shall use reasonable efforts to be Ready
for Provisional Acceptance or Commercial Service with respect to
Segment 1 with a capacity of 5Gb/s per fiber pair by May 31,
1998.
8. The Date of Commercial Service, Provisional Acceptance and Final
Acceptance, as the case may be, shall be deemed to have occurred
with respect to a Segment, the System or a System Upgrade if a
Certificate
<PAGE>
22
of Commercial Service, a Certificate of Provisional Acceptance or
a Certificate of Final Acceptance is issued with respect thereto.
B. Notice of Acceptance or Rejection
1. Within thirty (30) days of receipt by Purchaser and Independent
Engineer of the Commissioning Report or Upgrade Commissioning
Report, as the case may be, the Purchaser must issue notification
to the Contractor of the following:
(a) issuance of a Certificate of Provisional Acceptance in
accordance with Sub-Article 9(C); or
(b) rejection of a Certificate of Provisional Acceptance, but
instead issuance of a Certificate of Commercial Service in
accordance with Sub-Article 9(D) below; or
(c) rejection of the Segment, the System or System Upgrade in
its existing condition and issuance of neither a Certificate
of Provisional Acceptance nor a Certificate of Commercial
Service, with a written explanation of reasons for
rejection.
If the Purchaser (or the Independent Engineer on its behalf)
fails to respond with such notification within thirty (30) days,
then the Date of Provisional Acceptance of the Segment, the
System or System Upgrade shall be deemed to be the date such
Commissioning Report or Upgrade Commissioning Report, as the case
may be, was received by the Purchaser.
2. On receipt of a notice from the Purchaser pursuant to Sub-
Articles 9(B)(1)(b) or (c) above, the Contractor shall be
entitled to address any disputes and explain any discrepancies to
the Purchaser regarding the results of the Acceptance Testing.
Unless Purchaser, for good cause, rejects such explanation, it
shall issue a new notice pursuant to Sub-Article 9(B)(1) above,
which shall be deemed to have been issued on the date of the
original notice.
3. In case of rejection, and if the explanation by the Contractor
as in Sub-Article 9(B)(2) above is not accepted, for good cause,
by the Purchaser, the Contractor shall carry out the necessary
corrective actions and will effect a new series of Acceptance
Testing ("Retesting"). After receipt by Purchaser and Independent
Engineer of the new Commissioning Report or Upgrade Commissioning
Report, as the case may be, describing the results of Retesting,
the Purchaser will be granted a new period of thirty (30) days to
analyze the new Report according to the provisions of Sub-Article
9(B)(1) and any new notice
<PAGE>
23
of the Purchaser shall apply from the date the Purchaser receives
such new Commissioning Report or Upgrade Commissioning Report, as
the case may be.
C. Provisional Acceptance
1. The Certificate of Provisional Acceptance may have annexed to it
a list of any outstanding deficiencies to be corrected by the
Contractor.
2. The Contractor shall, as soon as reasonably practicable, correct
such deficiencies and complete the Work or Upgrade Work indicated
on all such listed items so as to comply in all material respects
with the requirements of this Contract, provided that the
Purchaser allows Contractor the necessary access to the
Segment(s) as the Contractor needs to correct such deficiencies
and complete the Work or Upgrade Work. The Contractor shall give
the Purchaser reasonable notice of its requirement for such
access.
D. Commercial Service
1. A Certificate of Commercial Service shall be issued by Purchaser
with respect to a Segment, the System or System Upgrade if the
results of the Acceptance Testing demonstrate that such Segment,
the System or such System Upgrade does not justify the issuance
of a Certificate of Provisional Acceptance, but nevertheless,
such Segment, the System or such System Upgrade is Ready for
Commercial Service.
2. Each Certificate of Commercial Service shall have annexed to it a
mutually agreed list of all outstanding items to be completed by
the Contractor.
3. The Contractor shall, as soon as reasonably practicable, remedy
the outstanding items, provided that the Purchaser allows
Contractor the necessary access to the Segment(s) as the
Contractor needs to remedy such outstanding items. The Contractor
shall give the Purchaser reasonable notice of its requirement for
such access. Notwithstanding the above, provided that Contractor
has been allowed access to the Segment(s) as required in Sub-
Article 9(A)(2), the Contractor shall continue to carry the risk
of loss for any outstanding item until such item is no longer
outstanding.
4. When the outstanding items referenced in Sub-Article 9(D)(3)
above have been remedied, and the Segment(s) or System Upgrade is
otherwise Ready for Provisional Acceptance, the Purchaser will
promptly issue a Certificate of Provisional Acceptance.
<PAGE>
24
5. The issuance of a Certificate of Commercial Service with respect
to a Segment or System Upgrade shall in no way relieve the
Contractor from its obligation to provide a Segment or System
Upgrade conforming with the Performance Requirements at the time
of the issuance of a Certificate of Commercial Service.
E. Final Acceptance
1. Within thirty (30) days of the date of receipt by Purchaser and
Independent Engineer of the Final Commissioning Report, the
Purchaser shall issue a Certificate of Final Acceptance or reject
such Report. If the Purchaser neither issues a Certificate of
Final Acceptance nor rejects such Report within such thirty (30)
day period, then the Date of Final Acceptance of the System shall
be deemed to be the date such Final Commissioning Report was
received by the Purchaser.
F. Title and Risk of Loss
1. Upon payment of all amounts listed in the Billing Schedule with
respect to a Segment (other than in the case of a Phase 2
Segment, the Retainage with respect thereto) and the issuance of
a Certificate of Commercial Service or a Certificate of
Provisional Acceptance with respect to such Segment by the
Purchaser in accordance with this Contract, title (free and clear
of all liens deriving through or from Contractor (including any
subcontractor)) to such Segment shall vest in the Purchaser.
2. Upon (i) payment of all amounts listed in the Billing Schedule
with respect to the System (other than the Retainage) and the
issuance of the Retainage Letter of Credit and (ii) the issuance
of a Certificate of Commercial Service or a Certificate of
Provisional Acceptance with respect to the System by the
Purchaser in accordance with this Contract, title (free and clear
of all liens deriving through or from Contractor (including any
subcontractor)) to the System shall vest in the Purchaser.
3. Upon payment of the Upgrade Price with respect to a System
Upgrade and the issuance of a Certificate of Commercial Service
or a Certificate of Provisional Acceptance with respect to such
System Upgrade by the Purchaser in accordance with this
Contract, title to such System Upgrade shall vest in the
Purchaser.
4. As from the date of vesting of title in a Segment, the System or
a System Upgrade, the Purchaser shall, except as set forth in
the following sentence, assume the risk of loss in respect of
all parts of such Segment, the System or System Upgrade and
responsibility for its maintenance. As stated in Sub-Article
9(A)(2), the Contractor will be
<PAGE>
25
allowed access to such Segment, and, so long as the Contractor
has been allowed access to such Segment as may be required, the
Contractor shall continue to carry the risk of loss with respect
of each item outstanding under Sub-Article 9(C)(1) and 9(D)(2)
until such item is no longer outstanding.
ARTICLE 10 WARRANTY
- --------------------
A. The Contractor warrants that the System and each System Upgrade,
including its spares, shall be free from defects in supplies, workmanship and
design for a period of * years commencing from the Date of Provisional
Acceptance of the System or such System Upgrade, as the case may be,
(hereinafter Warranty Period" and "Upgrade Warranty Period"), with Ship Costs
being covered for the first two * of the Warranty Period (the "Ship Period") and
the Purchaser being responsible for all Ship Costs thereafter.
1. During the Warranty Period for the System or the Upgrade Warranty
Period for a System Upgrade, the Contractor shall make good, by
repair or replacement, at its sole option, any defects in the
System or such System Upgrade, as the case may be, including any
spares, which may become apparent or be discovered due to
imperfect workmanship, faulty design or faulty material supplied
by the Contractor, or any act, neglect or omission on the
Contractors part.
(a) If at any time within the Warranty Period or the Upgrade
Warranty Period for a System Upgrade any defect occurs which
causes the System or such System Upgrade, as the case may
be, to fail to meet its overall Performance Requirements,
the Contractor shall repair or replace such part or parts.
In making such repairs, Contractor may make changes to the
System or such System Upgrade, as the case may be, or
substitute equipment of later or comparable design, provided
the changes, modifications, or substitutions under normal
and proper use do not cause the System or such System
Upgrade as the case may be to fail to meet the Performance
Requirements.
(b) The Contractor shall use reasonable efforts to minimize the
period of time that any Segment or the System is out of
service for testing and repair. The Purchaser agrees to
cooperate with the Contractor to facilitate the Contractor's
repair activity.
(c) In the event that the Contractor fails to make the repair or
to make reasonable efforts to minimize the period of time
that the System is out of service for repair, the Purchaser
may repair the System or the System Upgrade and the
Contractor shall reimburse the Purchaser for Non-Ship Costs
and, with respect to any such repair relating to a defect
identified in good faith by
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
26
Purchaser in writing prior to the end of the Ship Period,
Ship Costs.
(i) The Contractor shall be given advance notice and be
entitled to have a representative on board ship to
observe at sea repairs and shall be given the earliest
possible notice of any such repair.
(ii) Subject to the foregoing, any repair by the Purchaser
shall not in any way diminish the Contractor's
obligation under the warranty. Any equipment discovered
to be defective or faulty and recovered during a
warranty repair shall be returned to the Contractor at
its request.
2. Contractor shall bear the Ship Costs of only those repairs of the
defects identified in good faith by Purchaser in writing prior to
the end of the Ship Period. However, the Contractor shall bear
the Non-Ship Costs of each repair, replacement or improvement
required during the Warranty Period.
As used herein, "Ship Cost" means the costs of operating a
vessel, including but not limited to running and standing charges
for the vessel (including but not limited to labor charges for
the vessel's crew, at sea insurance, port charges, fuel and lube
oils, consumables, cable loading, cable unloading, navigation and
Marisat) as well as the costs associated with the use and
operation of the SCARAB and the sea bed tractor, and "Non-Ship
Costs" means the costs of making a repair, including the cost of
components, equipment or materials requiring replacement, the
cost of any additional equipment necessary to effect the repair,
the cost of making the repair, including the cost of reburying
any previously buried portion, the cost of labor and engineering
assistance or development required to make the repair and all
necessary associated costs, such as, but not limited to, shipping
and customs and services that may be required to make the repair,
but excluding any of the foregoing which are Ship Costs.
3. The Contractor shall effect all warranty repairs of the System
and shall supply all necessary repair materials. However, the
Contractor may use, with the consent of the Purchaser, which
shall not be unreasonably withheld, the materials needed to
effect a repair from the Purchaser's available spare materials.
The Contractor shall promptly replace in kind such materials
supplied from the Purchaser's spare materials, or at the option
of the Purchaser, reimburse the Purchaser for such materials at
its original purchase price. The replacement of or reimbursement
for such materials shall be made at a time mutually agreed to by
the Purchaser and the Contractor.
<PAGE>
27
4. The Contractor warrants that services furnished hereunder will be
performed in a workmanlike manner using materials free from
defects except when such materials are provided by the Purchaser
(it being understood that all materials arranged for directly by
Contractor, whether or not purchased in the name of Purchaser,
are not materials provided by the Purchaser). If such services
prove to be not so performed and Purchaser notifies the
Contractor within six (6) months from the completion of the
service, the Contractor will promptly correct the defect.
5. Any part which replaces a defective part during the applicable
Warranty Period or Upgrade Warranty Period, shall be subject to
the remaining Warranty Period and Ship Period, if any, or Upgrade
Warranty Period, as the case may be, of the part which was
replaced. However, the Warranty Period shall never exceed five
(5) years from the Date of Provisional Acceptance of the System
and the Upgrade Warranty Period for any System Upgrade shall
never exceed five (5) years from the Date of Provisional
Acceptance of such System Upgrade. Further, Ship Costs shall be
included only with respect to defects identified in good faith by
Purchaser in writing during the first two (2) years from the Date
of Provisional Acceptance of the System.
B. *
C. The warranties provided above in Sub-Articles 10(A) and (B) by the
Contractor shall not apply to defects or failures of performance, which result
from damage caused by acts or omissions of the Purchaser or its agents,
employees or representatives or third parties (other than the Contractor), or
which result from modifications, misuse, neglect, accident or abuse, repair,
storage or maintenance by other than the Contractor or its agents, use in a
manner not in accordance with the System Description, or other causes beyond the
control of or without the fault of the Contractor or its employees, agents or
subcontractors including, but not restricted to, causes set forth in Article 12
(Purchaser's Obligations) or Article 17 (Force Majeure) hereof.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
28
D. THE FOREGOING WARRANTY IS EXCLUSIVE AND IS IN LIEU OF ALL OTHER
EXPRESS AND IMPLIED WARRANTIES INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WHICH ARE SPECIFICALLY
DISCLAIMED. THE PURCHASER'S SOLE AND EXCLUSIVE REMEDY UNDER THIS ARTICLE SHALL
BE THE CONTRACTOR'S OBLIGATION TO MAKE REPAIRS OR REPLACEMENTS AS SET FORTH IN
THIS ARTICLE.
E. The Contractor shall, in accordance with its normal operating
practices, investigate any defective part or parts repaired or replaced pursuant
to this Article 10 to determine the type of defect and the cause of failure of
the part or parts. The Contractor shall provide a written report to the
Purchaser on the results of the investigation, if any.
ARTICLE 11 CONTRACTOR SUPPORT
- ------------------------------
A. For a period of ten (10) years from the applicable Date of Provisional
Acceptance or Date of Commercial Service of the System whichever is earlier, the
Contractor will make available to the Purchaser replacement parts and repair
service for the System as may be reasonably necessary for its operation,
maintenance or repair. Where identical parts cannot be supplied, the Contractor
shall provide fully compatible parts with characteristics equal or superior to
those originally provided by the Contractor. Such parts and services shall be
provided under commercially reasonable conditions of price and delivery.
B. Notwithstanding Sub-Article 11(A), if for any reason the Contractor or
Contractor's suppliers intend to cease or ceases manufacturing or having
manufactured identical or fully compatible replacement parts, the Contractor
shall use reasonable efforts to give one year's prior written notice to the
Purchaser to allow the Purchaser to order from the Contractor any required
replacement parts and shall provide full details of the arrangements to provide
equivalents.
ARTICLE 12 PURCHASER'S OBLIGATIONS
- -----------------------------------
A. Purchaser agrees to pay all amounts payable by it when due under this
Contract and to perform all of its other obligations under this Contract.
B. In the event the Purchaser establishes a branch office in any of the
relevant jurisdictions, the Purchaser shall be solely responsible to perform all
activities necessary to establish such branch office.
C. If any loss, damage, delay or failure of performance of the System or
a System Upgrade results from the Purchaser's failure to perform its obligations
under this Contract and results in an increase in the costs of performance or
the time required for performance of any of the Contractor's duties or
obligations under this Contract, the Contractor shall be entitled, as
appropriate, to (i) an equitable adjustment in the Contract Price or applicable
Upgrade Price, (ii) an equitable extension of time for completion of its Work or
the Upgrade Work, (iii) reimbursement for all such additional costs incurred,
and (iv) to the extent necessary in
<PAGE>
29
light of Purchaser's failure and the adjustments made in accordance with clauses
(i), (ii) and (iii) above, an equitable adjustment of the Work and/or Upgrade
Work.
1. The Contractor shall inform the Purchaser promptly of any
occurrence covered under this Sub-Article 12(C), and shall use
reasonable efforts to minimize any such additional costs or
delay.
2. The Contractor shall promptly provide to the Purchaser an
estimate of the anticipated additional costs and time required to
complete the Work or Upgrade Work and request relief from
contractual obligations or duties, as appropriate. Purchaser
shall, upon notification, make advance payment to Contractor for
the estimated amount of anticipated additional costs; provided
--------
that Purchaser may deposit such amount into the Dispute Account
and Sub-Article 5(C)(5) shall apply. Contractor shall without
limiting Purchaser's obligations in the foregoing sentence,
discuss such costs with Purchaser upon Purchaser's request.
3. As soon as reasonably practicable after the actual costs become
known to the Contractor, the Contractor shall provide a statement
of such actual costs to the Purchaser.
4. If the estimated amount is greater than the amount of actual
costs, then the Contractor shall reimburse the Purchaser. If the
amount of actual costs incurred is greater than the estimated
amount, then the Purchaser shall reimburse the Contractor for any
shortfall in accordance with Article 5 (Terms of Payment of
Purchaser).
ARTICLE 13 TERMINATION FOR DEFAULT
- -----------------------------------
A. Either Party may, by written Notice of Termination for Default,
immediately upon receipt or such later date as specified in the notice,
terminate the whole or any part of this Contract in any one of the following
circumstances (each an "Event of Default"):
1. In the case of the Purchaser, if Contractor materially fails to
comply with the terms and conditions of this Contract and, if
such failure occurs prior to the Date of Commercial Service or
the Date of Provisional Acceptance, it would not be reasonable to
believe that the Contractor will be able to provide the System
which is Ready for Commercial Service or Provisional Acceptance,
as the case may be, within 200 days after the Scheduled RFS Date;
2. If the other Party defaults on any of its payment obligations
(or, in the case of the Contractor, if the amount in the
Contingency Account is less than the amount initially deposited
therein) and does not cure such default (or does not increase the
amount on deposit in the Contingency Account to the amount
initially deposited therein or provide the
<PAGE>
30
Contractor with a letter of credit for such deficiency in form
and substance and issued by a bank reasonably satisfactory to
Contractor) within a period of thirty (30) days (or such longer
period as the non-breaching Party may authorize in writing) after
receipt of written notice demanding cure;
3. If the other Party shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part
of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or
shall take any corporate action to authorize any of the
foregoing;
4. If an involuntary case or other proceeding shall be commenced
against the other Party seeking liquidation, reorganization or
other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or
other proceeding shall remain undismissed and unstayed for a
period of 45 days; or an order for relief shall be entered
against the other Party.
B. If this Contract is terminated by the Purchaser as provided in Sub-
Article 13(A), the Purchaser, in addition to any other rights provided in this
Article and upon payment to Contractor of all monies due and owing as set forth
in Sub-Article 13(C) below, may require the Contractor to transfer title and
deliver to the Purchaser in the manner and to the extent directed by the
Purchaser any completed equipment, material or supplies, and such partially
completed cable and materials, parts, tools, dies, jigs, fixtures, plans,
drawings, information, and contract rights (hereinafter collectively
"Manufacturing Materials") as the Contractor has had specifically produced or
specifically acquired for the performance of such part of this Contract as has
been terminated and which, if this Contract had been completed, would have been
required to be furnished to the Purchaser; and the Contractor shall, upon the
direction of the Purchaser, protect and preserve property in the Contractor's
possession in which the Purchaser has an interest.
C. If the Contract is terminated by Contractor as provided in Sub-Article
13(A), the Purchaser shall pay the total of:
1. the Contract Price (or after the Date of Final Acceptance of the
System, if a System Upgrade has been selected, the Upgrade Price)
less (a) the portion of the Contract Price or Upgrade Price paid
by Purchaser to
<PAGE>
31
Contractor under the Billing Schedule and (b) costs that will not
be incurred because of the termination;
2. the cost of settling and paying claims rising out of the
termination of Work under the contracts in orders, as provided in
Sub-Article 13(C)(3) below which are properly chargeable to the
terminated portion of this Contract; and
3. the reasonable costs of settlement including accounting, legal,
clerical and other expenses necessary for the preparation of
settlement claims and supporting data with respect to the
terminated portion of this Contract and for termination and
settlement of contracts thereunder, together with reasonable
storage, transportation and other costs incurred in connection
with the protection, preservation and disposition of property
proper to this Contract as well as additional costs incurred due
to Purchaser's Default.
D. Force Majeure events pursuant to Article 17 (Force Majeure) shall not
constitute a default or provide a basis for termination under this Article.
E. Regardless of any termination of this Contract as provided in Sub-
Article 13(A), neither Party shall be relieved from any liability for damages or
otherwise which may have been incurred by reason of any breach of this Contract.
F. Without limitation to the foregoing, in the event that Purchaser
terminates this Contract pursuant to Sub-Article 13(A), the Contractor shall be
liable to Purchaser (without duplication) for the total of all costs and
expenses reasonably incurred by Purchaser in completing the Work or in
correcting deficiencies in the Work to the extent that the payments made to
Contractor pursuant to this Contract, together with such costs and expenses,
exceed the Contract Price.
ARTICLE 14 TERMINATION FOR CONVENIENCE
- ---------------------------------------
A. The performance of Work under this Contract may be terminated by the
Purchaser in whole, or in part, at its discretion. The Purchaser shall deliver
to the Contractor a written notice specifying the extent to which performance of
Work under this Contract is terminated, and the date upon which such termination
becomes effective (a "Notice of Termination"). Upon termination, the Purchaser
will make payment to Contractor of all monies due and owing as set forth in Sub-
Article 14(D) below.
B. After receipt of such Notice of Termination, and except as otherwise
directed by the Purchaser, the Contractor shall:
1. Stop Work under this Contract on the date and to the extent
specified in the Notice of Termination;
<PAGE>
32
2. Place no further orders or contracts for materials, services or
facilities except as may be necessary for completion of such
portion of Work under this Contract as is not terminated;
3. Use reasonable efforts to terminate all orders and contracts to
the extent that they relate to the performance of Work terminated
by the Notice of Termination;
4. Assign to the Purchaser, in the manner, at the time, and to the
extent directed by the Purchaser, all of the Contractor's rights,
title and interest under the orders and contracts so terminated;
5. Use reasonable efforts to settle all outstanding liabilities and
all claims arising out of such termination of orders and
contracts, with the Purchaser's approval or ratification to the
extent required;
6. Transfer title and deliver to the Purchaser in the manner, at the
time and to the extent (if any) directed for the fabricated or
unfabricated parts, work in process, completed work, supplies and
other material produced as a part of, or acquired in connection
with, the performance of the Work terminated by the Notice of
Termination;
7. Use reasonable efforts to sell, in the manner, at the time, to
the extent and at the price or prices directed or authorized by
the Purchaser, any property of the types referred to in Sub-
Article 13(B)(6) above provided, however, that the Contractor:
-------- -------
(a) shall not be required to extend credit to any buyer; and
(b) may acquire any such property under the conditions
prescribed by and at a price approved by the Purchaser;
and provided further that the net proceeds of any such transfer
-------- -------
or disposition shall be applied in reduction of any payments to
be made by the Purchaser to the Contractor under this Contract
or, if no such payments are due, paid in such other manner as the
Purchaser may direct;
8. Complete performance of such part of the Work which was not
terminated by the Notice of Termination; and
9. Take such action as may be necessary, or as the Purchaser may
reasonably direct, for the protection and preservation of the
property related to this Contract which is in the Contractor's
possession and in which the Purchaser has acquired or may acquire
an interest.
<PAGE>
33
C. After such Notice of Termination, the Contractor shall submit to the
Purchaser a written termination claim. Such claim shall be submitted promptly,
but, unless otherwise extended, in no event later than six months from the
effective date of termination.
D. In the settlement of any such partial or total termination claim, the
Purchaser shall pay to the Contractor the total of:
1. (i) if the Contract is terminated in whole under this Article 14
prior to the Payment Escrow Date, all amounts invoiced in
accordance with the Contract plus, for Work or Supplies which
have not been invoiced, an amount calculated by reference to the
prices set forth in the Provisioning Schedule and to the amount
of such Work or Supplies done or provided and (ii) in all other
cases, the Contract Price (or after the Date of Final Acceptance
of the System, if a System Upgrade has been selected, the Upgrade
Price) less (a) the portion of the Contract Price or Upgrade
Price paid by Purchaser to Contractor under the Billing Schedule
allocable to the terminated Segment(s) of the System or System
Upgrade, (b) the portion of the Contract Price allocable to the
unterminated Segment(s) of the System and (c) costs that will not
be incurred because of the termination.
2. the cost of settling and paying claims rising out of the
termination of Work under the contracts in orders, as provided in
Sub-Article 14(D)(4) below which are properly chargeable to the
terminated portion of this Contract; and
3. the reasonable costs of settlement including accounting, legal,
clerical and other expenses necessary for the preparation of
settlement claims and supporting data with respect to the
terminated portion of this Contract and for termination and
settlement of contracts thereunder, together with reasonable
storage, transportation and other costs incurred in connection
with the protection and disposition of property proper to this
Contract.
E. In arriving at the amount due to the Contractor under this Article 14,
all unliquidated payments made to the Contractor, any liability which the
Contractor may have to the Purchaser, and the agreed price for, or the proceeds
of sale of any materials, supplies or other things acquired by the Contractor or
sold, pursuant to the provisions of this Article 14, and not otherwise recovered
by or credited to the Purchaser shall be deducted.
F. In addition, if the Contract is only partially terminated, prior to
the settlement of the terminated portion, the Contractor may file with the
Purchaser a request in writing for an equitable adjustment of the Contract Price
for the portion of the Contract not terminated by the Notice of Termination, and
the Purchaser shall grant Contractor an equitable adjustment to the Contract
Price, which shall be reflected in the Provisioning Schedule, Appendix 1.
<PAGE>
34
G. The Purchaser may, from time to time, under such terms and conditions
as they prescribe approve partial payments and payments on account against costs
incurred by the Contractor in connection with the terminated portion of this
Contract. If such payments total in excess of the amount finally agreed or
determined to be due under this Article 14, such excess shall be refunded, upon
demand, by the Contractor to the Purchaser.
H. For a period of one year after final settlement under this Contract,
the Contractor shall preserve and make available to the Purchaser at reasonable
times at the Contractor's office, but without direct charge to the Purchaser,
all supporting books, records and documents required to be kept relating to the
terminated Work.
ARTICLE 15 SUSPENSION
- ----------------------
A. The Purchaser may, at its convenience, order the Contractor to suspend
all or part of the Work for such period of time as the Purchaser determines to
be appropriate. If, as a result of such Suspension, the Contractor incurs
additional costs or losses in the discharge of its responsibilities under this
Contract, and where such suspension, losses or costs are not caused by the
Contractor's act or omission and could not have been reasonably prevented by the
Contractor, the Contractor shall be allowed an equitable adjustment to the
Contract Price or the Provisioning Schedule in Appendix 1 and an equitable
extension in the time required for performance.
B. Upon the occurrence of:
(i) (A) a Default by the Purchaser, (B) receipt by Purchaser prior
to the Date of Final Acceptance of a notice of a Financing Event of Default
or (C) on or prior to the Date of Final Acceptance, a failure to satisfy
the conditions precedent under a Financing Document which results in a
failed funding thereunder;
(ii) the termination without in each case reasonably satisfactory
replacement of (A) the CIBC Commitment Letter or (B) prior to the Date of
Final Acceptance (or if all of the notes contemplated to be sold under the
Holding Company Note Purchase Agreement have been sold, prior to the
repayment in full of all amounts outstanding thereunder), the Holding
Company Note Purchase Agreement, unless in each case, such failure is due
to the failure of the Contractor to perform its obligations when required
hereunder;
(iii) the failure to (A) consummate the transactions contemplated
in the CIBC Commitment Letter on substantially the terms set forth in the
summary of terms and conditions attached thereto and with definitive
documentation consistent with the terms of such summary, except for
inconsistencies with respect to terms which are either not material to the
interests of the Contractor or not adverse to the interests of the
Contractor and (B) make a draw under the Working Capital Facility referred
to therein, in each case on or prior to the date three months from the date
hereof unless the delay is due to the failure of the Contractor to perform
its obligations when required hereunder;
<PAGE>
35
(iv) the failure of Holding Company to make a draw contemplated by
the Note Purchase Agreement and contribute the net proceeds thereof to
Purchaser or of Purchaser to immediately deposit such net proceeds (net of
mutually agreed upon construction and development expenses of the
Purchaser) into the Payment Account, in each case prior to the time needed
by Purchaser to pay its obligations under this Contract;
(v) any transfer prior to the Date of Final Acceptance of any
portion of the System except in accordance with Article 37;
(vi) any supplement executed by a Transferee shall not be in full
force and effect;
(vii) the amendment of any Financing Document without Contractor's
consent, unless such amendment is with respect to terms which are either
not material to the interests of the Contractor or not adverse to the
interests of the Contractor;
(viii) the termination or reduction of the commitments or the
prepayment of any loans under the Financing Documents if the remaining
commitments, together with amounts on deposit in the Payment Account and
the Contingent Account, would not be sufficient to pay the remaining unpaid
portion of the Contract Price;
the Contractor, in addition to any other rights provided in Article 13, may
suspend performance of its obligations and all Work and (in the case of clause
(i)) Upgrade Work. Purchaser shall deliver a copy of each notice of default or
event of default simultaneously with the delivery thereof to any party to any
Financing Document and shall promptly notify Contractor of the occurrence of any
of the foregoing items listed in clauses (i) through (viii) above or of any
failure to satisfy any condition under any Financing Document which results in a
failed funding thereunder, and Purchaser shall deliver to Contractor a copy of
each Financing Document (other than the Holding Company Note Purchase Agreement
and the Financing Documents relating solely thereto) and each amendment to such
Financing Documents which has an impact on the Contractor promptly after
execution thereof.
C. Every forty-five (45) days, during the period of Suspension,
the Parties shall meet formally and review the circumstances surrounding the
Suspension including without limitation, the anticipated date of re-commencing
Work.
D. Thereafter, if the Suspension continues for a total of one
hundred and eighty (180) days, the Contractor may terminate the Contract by
notice to the Purchaser and the Contract shall be deemed to have been terminated
by Purchaser, effective on the date of Contractor's notice, in accordance with
Sub-Article 13(A) and the remaining provisions of Article 13 shall apply.
ARTICLE 16 TITLE AND RISK OF LOSS
- ----------------------------------
A. Except as provided in Article 18 (Intellectual Property),
Article 20 (Safeguarding of Information and Technology) and Article 21 (Export
Control), title to all
<PAGE>
36
Supplies provided by the Contractor hereunder for incorporation in or attachment
to a Segment shall pass to and vest in the Purchaser in accordance with Article
9 (Acceptance). Risk of loss or damage to all Supplies provided by the
Contractor for incorporation in or attachment to such Segment shall pass to and
vest in the Purchaser in accordance with Article 9. Upon termination of this
Contract pursuant to Article 13 (Termination for Default) or 14 (Termination for
Convenience), the Purchaser may require, upon full payment of all amounts due
thereunder (provided that, without limiting Purchaser's obligation to make any
--------
such payment, if this Contract is terminated by Purchaser because of a
Bankruptcy Event full payment shall not be required prior to the transfer of
title), that title to the equipment, materials and supplies, which has not
previously passed to the Purchaser, pass to the Purchaser, free and clear of all
liens, claims, charges and other encumbrances deriving through or in connection
with the Contractor or any supplier or sub-contractor of the Contractor.
B. Upon the passage of title in accordance with the terms of Article 13
(except a transfer described in the proviso of the last sentence of Sub-Article
16(A)), the Contractor warrants that all parts, materials, and equipment to
which title has passed will be free and clear of all liens, claims, charges and
other encumbrances deriving through or in connection with the Contractor or any
supplier or sub-contractor of the Contractor.
ARTICLE 17 FORCE MAJEURE
- -------------------------
A. The Contractor shall not be responsible for any loss, damage, delay or
failure of performance resulting directly or indirectly from any cause which is
beyond its reasonable control ("Force Majeure"), including but not limited to:
delay in obtaining or failure to obtain any Permits; acts of God or of the
public enemy; acts or failure to act of any governmental authority; war or
warlike operations, civil war or commotion, mobilizations or military call-up,
and acts of similar nature; revolution, rebellions, sabotage, and insurrections
or riots; fires, floods, epidemics, quarantine restrictions; strikes, and other
labor actions; freight embargoes; unworkable weather; trawler or anchor damage;
damage caused by other marine activity such as fishing, marine research and
marine development; general unavailability of any raw materials or components;
acts or omissions of transporters; or the acts or failure to act of any of the
Purchaser, of its representatives or agents, provided that (i) a loss by
--------
Contractor of employees (other than by reasons of Force Majeure), (ii) strikes
and other labor actions involving the Contractor's own work force, (iii) the
first 5 days of unworkable weather (unless any such day occurs during the 30
days immediately preceding the then Scheduled RFS Date), (iv) the failure (other
than by reason of force majeure) of any subcontractor, supplier or transporter
to perform its obligations to Contractor (including on account of insolvency)
unless such supplies or transportation or other services are generally
unavailable in the marketplace, (v) the unavailability of any raw materials or
components, unless such raw materials or components are generally unavailable in
the marketplace or are unavailable by reason of force majeure or (vi) any
increase in Contractor's costs shall not in and of itself constitute Force
Majeure.
B. If any such Force Majeure causes an increase in the time or costs
required for performance of any of its duties or obligations, the Contractor
shall be entitled to the
<PAGE>
37
following: (i) an equitable adjustment in the Contract Price, (ii) an equitable
extension of time for completion of the Work or the Upgrade Work, as the case
may be, (iii) reimbursement for all such additional costs incurred and (iv) to
the extent necessary in light of such Force Majeure and the adjustments made in
accordance with clauses (i), (ii) and (iii) above, an equitable adjustment to
the Work and/or Upgrade Work; provided that in no event shall the Purchaser be
--------
liable under clause (i) or (iii) of this Sub-Article 17(B) for (a) any loss of
or damage due to Force Majeure, to the extent such loss or damage is required by
Article 27 to be covered by insurance for the benefit of the Contractor or by
self insurance, or is otherwise actually covered by insurance for the benefit of
the Contractor, or (b) the amount by which the replacement cost of physical
assets exceeds the initial cost thereof or the cost of replacement parts
therefor unless such incremental replacement cost is uninsurable, or (c) the
initial cost of any lost or damaged physical assets or the cost of any repair or
replacement thereof (except in the case of replacement, as provided in clause
(b) above) except for losses caused by Purchaser or (d) (without limiting
Purchaser's obligations under any other provision of this Contract) any third
party claims against Contractor.
C. Increase in cost due to Purchaser will be as provided for in Article
12, Purchaser's Obligations.
D. The Contractor shall inform the Purchaser promptly with written
notification, and in all cases within fourteen (14) days of discovery and
knowledge, of any occurrence covered under this Article and shall use its
reasonable efforts to minimize such additional costs or delays. The Contractor
shall promptly provide an estimate of the anticipated additional costs, the time
required to complete the Work or the Upgrade Work and any changes to the Work or
the Upgrade Work, as the case may be. Contractor shall be entitled to an
extension of time equal to at least one day for each day of delay resulting from
the Force Majeure condition. As soon as reasonably practicable after the actual
costs become known to the Contractor, the Contractor shall provide a statement
of such actual costs to the Purchaser. Thereafter, the Purchaser shall reimburse
the Contractor for the actual costs incurred by the Contractor against
submission of corresponding invoices in accordance with Article 5 (Terms of
Payment by Purchaser).
E. Within thirty (30) days of receipt of such a notice from Contractor,
the Purchaser and the Independent Engineer may provide a written response. The
absence of a response shall be deemed as acceptance of Contractor's notice and
request for additional costs and time.
F. If a Force Majeure (other than for failure to procure a Permit through
fault of the Contractor) continues for a total of two hundred (200) days, either
Party may terminate the Contract by notice to the other and the Contract shall
be deemed to have been terminated by Purchaser, prior to the Payment Escrow Date
effective on the date of the terminating Party's notice, in accordance with Sub-
Article 14(A) and the remaining provisions of Article 14 shall apply to such
termination.
<PAGE>
38
ARTICLE 18 INTELLECTUAL PROPERTY
- ---------------------------------
A. Ownership
All right, title, and interest in and to any information, computer or
other apparatus programs, software, specifications, drawings, designs, sketches,
tools, market research or operating data, prototypes, records, documentation,
works of authorship or other creative works, ideas, concepts, methods,
inventions, discoveries, improvements, or other business, financial and/or
technical information (whether or not protectable or registrable under any
applicable intellectual property law) developed by Contractor in the course of
its performance under this Contract, or otherwise furnished by Contractor to
Purchaser as part of the delivery of the System under this Contract, is and
shall remain the sole property of Contractor (hereinafter individually and
collectively referred to as "Intellectual Property"). Unless otherwise expressed
in this Contract, no license is implied or granted herein to Purchaser to any
Intellectual Property by virtue of this Contract, nor by the transmittal or
disclosure of any such Intellectual Property to Purchaser. Any Intellectual
Property disclosed, furnished, or conveyed to Purchaser that is marked as
"Proprietary" or "Confidential", (or if transmitted orally is identified as
being proprietary or confidential), or under the totality of the circumstances
ought to reasonably be treated as being proprietary or confidential to
Contractor even if not so marked or identified, shall be treated in accordance
with the provision of Article 20 (Safeguarding of Information and Technology).
B. Licenses
Contractor shall furnish to Purchaser, upon the transfer of title to
any portion of the System or a System Upgrade pursuant to Article 9, copies of
all technical information, specifications, drawings, designs, sketches, tools,
operating data, records, documentation and/or other types of engineering or
technical data or information that a person of ordinary skill in the relevant
technical field would consider reasonably necessary to operate, maintain or
repair each component of such portion of the System or System Upgrade as
delivered by Contractor (the "Deliverable Technical Material"). Contractor
grants to Purchaser a perpetual, royalty-free, non-transferable (except under
the circumstances specified in Sub-Article 18(G) below) license to use and
reproduce the Deliverable Technical Materials owned, controlled, or developed by
Contractor to fulfill Purchaser's obligations under this Contract and to use and
operate the System (as upgraded by any System Upgrades) supplied by Contractor
with the right to employ third parties (under appropriate written obligations
respecting confidentiality) to assist Purchaser in fulfilling its obligations
under this Contract and in using and operating the System (as upgraded by any
System Upgrades), but with no right to sublicense. Contractor grants to
Purchaser a perpetual, royalty-free, nontransferable (except under the
circumstances specified in Sub-Article 18(G) below) license to use and reproduce
those portions of Deliverable Technical Materials owned or controlled by third
parties (but only to the extent of any rights which may have been granted to
Contractor by such third parties) to fulfill Purchaser's obligations under this
Contract and to use and operate the System supplied by Contractor with the right
to employ third parties (under appropriate written obligations respecting
confidentiality) to assist Purchaser in fulfilling its obligations under this
Contract and in using and operating the System (as upgraded by any System
Upgrades), but with no
<PAGE>
39
right to sublicense. Except as set forth in this provision, no license under
Contractor's patents, copyrights, trade or service marks, trade secrets or other
intellectual property rights protectable under law in the United States or any
foreign country is granted to Purchaser. It is expressly understood that it
shall not be a violation of this license for Purchaser, on its own behalf or
through third parties (under appropriate written obligations respecting
confidentiality) specifically employed for the purpose, to modify the System (as
upgraded by any System Upgrades) or connect the System (as upgraded by any
System Upgrades) to other systems, provided that Purchaser may not use the
Deliverable Technical Materials in achieving such modification or
interconnection for any purpose other than determining the technical
configuration, systems interface and/or interoperability requirements of the
System (as upgraded by any System Upgrades) as delivered by Contractor (subject
to the rights of third parties therein and thereto), and subject to the
limitations on Contractor's obligations as set forth in Articles 10(C) and 19(A)
concerning any such modification or interconnection.
C. Deliverable Software
Contractor shall furnish to the Purchaser, upon transfer of title to
any portion of the System or System Upgrade pursuant to Article 9, copies of all
computer or other apparatus programs and software, in executable form, and
related documentation, where such copies of programs and software shall consist
solely of executable code provided in offline media (e.g., tapes, or diskettes)
for restoration purposes, sufficient to operate, maintain or repair the computer
systems of such portion of the System or System Upgrade, as the case may be, as
delivered by Contractor (the Deliverable Software). Contractor shall furnish to
Purchaser, from time to time during the Warranty Period or any Upgrade Warranty
Period, copies of all computer or other apparatus programs and software, in
executable form, and related documentation, where such copies of programs and
software shall consist solely of executable code provided in offline media for
restoration purposes, that Contractor may develop to correct errors or to
maintain Deliverable Software previously furnished to Purchaser, which shall
also be treated as Deliverable Software for purposes of this Contract upon
delivery thereof to Purchaser. Contractor grants to Purchaser a perpetual,
royalty-free, non-transferable (except under the circumstances specified in Sub-
Article 18(G) below) license to use and reproduce the Deliverable Software
Materials owned, controlled, or developed by Contractor to fulfill Purchaser's
obligations under this Contract and to use and operate the System (as upgraded
by any System Upgrades) supplied by Contractor with the right to employ third
parties (under appropriate written obligations respecting confidentiality) to
assist Purchaser in fulfilling its obligations under this Contract and in using
and operating the System (as upgraded by any System Upgrades), but with no right
to sublicense. Contractor grants to Purchaser a perpetual, royalty-free,
nontransferable (except under the circumstances specified in Sub-Article 1 8(G)
below) license to use and reproduce those portions of Deliverable Software owned
or controlled by third parties (but only to the extent of any rights which may
have been granted to Contractor by such third parties) to fulfill Purchaser's
obligations under this Contract and to use and operate the System (as upgraded
by any System Upgrades) supplied by Contractor with the right to employ third
parties (under appropriate written obligations respecting confidentiality) to
assist Purchaser in fulfilling its obligations under this Contract and in using
and operating the System (as upgraded by any System Upgrades), but with no right
to sublicense. These licenses shall be limited to the right
<PAGE>
40
to use Deliverable Software only with the particular type of computer equipment
or substantially similar replacement equipment for which the Deliverable
Software was provided in the System (as upgraded by any System Upgrades) as
supplied by Contractor.
1. Confidentiality
Purchaser shall keep the Deliverable Software confidential in
accordance with Article 20 (Safeguarding of Information and
Technology) and Article 21 (Export Control) and agrees to use its
best efforts to see that its employees, consultants, and agents,
and other users of such software, comply with the provisions of
this Contract. Purchaser also agrees to refrain from taking any
steps, such as reverse assembly or decompilation, to derive a
source code equivalent of any object code that is furnished by
Contractor, provided that Contractor continues to maintain the
Deliverable Software in accordance with the terms of the
Operating, Administration and Maintenance Agreement or is willing
and able to enter into an agreement to maintain the Deliverable
Software upon terms reasonably comparable to the pertinent terms
of Operating, Administration and Maintenance Agreement after the
expiration or termination thereof or does not go insolvent or
bankrupt to thereby trigger *. In the case of insolvency or
bankruptcy of Contractor, Purchaser shall limit any derivation of
a source code equivalent to that portion of the Deliverable
Software that was developed by Contractor. Purchaser shall not
under any circumstances take any steps to derive a source code
equivalent from that portion of the Deliverable Software
comprising commercial, off-the-shelf software developed or
provided by third parties.
2. Backup Copies
Purchaser may make and retain two archive copies of the
Deliverable Software. Any copy will contain the same copyright
notice and proprietary markings as are on the original software
and shall be subject to the same restrictions as the originals.
3. Termination of Software Licenses
In the event of use of Deliverable Software other than that
permitted in Sub-Article 18(C) or any other material breach of
this Article 18 by Purchaser, Contractor, at its option, may
terminate the rights granted to Purchaser pursuant to this
Article, upon written notice to Purchaser. Upon termination,
Purchaser shall either return or destroy, at Contractor's option,
all copies of Deliverable Software furnished under this Contract.
4. Indemnification
In the event of use of Deliverable Software furnished hereunder
other than permitted in Sub-Article 18(C) or any other material
breach of this
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
41
Article 18 by Purchaser, the Purchaser shall indemnify and hold
Contractor harmless from any and all third party claims resulting
therefrom whether arising from a defect in the software or
otherwise.
D. Trademarks, Tradenames, etc.
No rights are granted herein to Purchaser to use any identification
(such as, but not limited to tradenames, trademarks, service marks or symbols,
and abbreviations, contractions, or simulations thereof) owned or used by
Contractor or its parent company and affiliates to identify Contractor or its
parent company and affiliates or any of its products or services. Purchaser
agrees that it will not, without the prior written permission of Contractor, use
such identification in advertising, publicity, packaging, labeling, or in any
other manner to identify itself or any of its products, services, or
organizations, or represent directly or indirectly that any product, service, or
organization of it is a product, service, or organization of Contractor or its
parent company or affiliates, or that any product or service of Purchaser is
made in accordance with or utilizes any Intellectual Property of Contractor or
its parent company or affiliates.
E. DISCLAIMER, LIMITATION OF LIABILITY
CONTRACTOR REPRESENTS THAT ANY INFORMATION OR INTELLECTUAL PROPERTY
FURNISHED IN CONNECTION WITH THIS CONTRACT SHALL BE TRUE AND ACCURATE TO THE
BEST OF ITS KNOWLEDGE AND BELIEF, BUT CONTRACTOR SHALL NOT BE HELD TO ANY
LIABILITY FOR UNINTENTIONAL ERRORS OR OMISSIONS THEREIN. EXCEPT AS EXPRESSLY
PROVIDED, CONTRACTOR MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESSLY OR
IMPLIEDLY. BY WAY OF EXAMPLE, BUT NOT OF LIMITATION, CONTRACTOR AND ITS PARENT
COMPANY AND AFFILIATES MAKES NO REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE OF INFORMATION OR
INTELLECTUAL PROPERTY DISCLOSED OR PROVIDED HEREUNDER WILL NOT INFRINGE ANY
PATENT OR OTHER INTELLECTUAL PROPERTY RIGHT OF A THIRD PARTY. CONTRACTOR AND ITS
PARENT AND AFFILIATES SHALL NOT BE HELD TO ANY LIABILITY WITH RESPECT TO ANY
CLAIM BY PURCHASER OR ANY THIRD PARTY CLAIM AGAINST PURCHASER ON ACCOUNT OF, OR
ARISING FROM, PURCHASER'S USE OF INFORMATION OR INTELLECTUAL PROPERTY DISCLOSED
OR PROVIDED BY CONTRACTOR.
F. Joint Development
In the event that the disclosure of Intellectual Property by
Contractor or the exchange of other information results in the creation or
development of new information from the substantial contribution of one or more
of Contractor's employees, agents, or consultants with one or more of
Purchaser's employees, agents, or consultants during the course of this
Contract, then such newly created information shall be subject to the terms of
Article 20 (Safeguarding of Information and Technology). Any such newly and
jointly developed
<PAGE>
42
information shall be jointly owned by the Parties. Notwithstanding the above,
the Parties acknowledge and agree that between them the ownership of any newly
created information comprising inventions, discoveries, improvements, conceived,
first reduced to practice, made or developed in anticipation of, in the course
or as a result of Work or Upgrade Work shall be determined in accordance with
Title 35 of the United States Code. With respect to any newly created
information that is patented and jointly owned by the Parties, each Party shall
have equal rights to license such patents or assign their interests to third
parties without accounting to or obtaining the consent of the other Party
hereto. The Parties shall by mutual agreement decide which Party shall file any
United States Patent application. The Party filing such application shall do so
at its own expense and shall have the right to elect to file in any foreign
country it so chooses. Each Party agrees that it will, without charge to the
other, have its employees, agent, consultants or other associates, sign all
papers and do all acts necessary, desirable, or convenient to enable the filing
Party at its expense to file and prosecute applications for patents on such
inventions, discoveries, or improvements, and to maintain patents granted
thereon.
G. Transferability
The license granted to Purchaser by Contractor in the Deliverable
Technical Materials and Deliverable Software are personal and non-transferable,
except that Purchaser may assign or transfer such licenses to an affiliated
entity under common control with the Purchaser or to any entity succeeding to
Purchaser's entire interest in the System (as upgraded by any System Upgrades)
as a result of reorganization or restructuring of the Purchaser or in the event
of a change of control of the Purchaser.
H. *
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
43
*
ARTICLE 19 INFRINGEMENT
- ------------------------
A. The Contractor agrees to defend or settle at its own expense all suits
for infringement of any patent, copyright, trademark or other form of
intellectual property right in any country of the world, for the use and
operation of the System (as upgraded by any System Upgrades) as supplied by
Contractor and for any component part thereof or material or equipment used
therein (or the manufacture of any material or the normal use thereof) provided
by the Contractor or on its behalf pursuant to this Contract and will hold the
Purchaser harmless from all expense of defending any such suit and all payments
for final judgment assessed on account of such infringement, except such
infringement or claim arising from:
1. The Contractor's adherence to the Purchaser's directions in the
design and configuration of the System (as upgraded by any System
Upgrades) or to use materials, parts or equipment of the
Purchaser's selection; or
2. Such material, parts or equipment furnished to the Contractor by
the Purchaser, other than in each case, items of the Contractor's
design or selection or the same as any of the Contractor's
commercial merchandise or in processes or machines of the
Contractor's design or selection used in the manufacture of such
standard products or parts; or
3. Use of the System (as upgraded by any System Upgrades) or the
materials, parts or equipment furnished by Contractor other than
for the purposes indicated in, or reasonably to be inferred from,
this Contract or in conjunction with other products; or
4. Modification of the System (as upgraded by any System Upgrades)
or the materials, parts or equipment furnished by the Contractor,
or connection of the System to another system by any person or
entity other than Contractor, without prior expressed written
approval by Contractor.
B. The Purchaser will, at its own expense, defend all suits against the
Contractor for such excepted infringement and hold the Contractor harmless from
all expense of defending any such suit and from all payments by final judgment
assessed against the Contractor on account of such excepted infringement.
C. The Contractor and the Purchaser agree to give each other prompt
written notice of claims and suits for infringement, full opportunity and
authority to assume the sole defense, including appeals and, upon request and at
its own expense, the other agrees to furnish all information and assistance
available to it for such defense.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
44
D. If all or any portion of the System (as upgraded by any System
Upgrades) or any material, part or equipment provided by the Contractor or on
its behalf is held to constitute an infringement (excluding such excepted
infringements specified in Sub-Article 19(A)) and is subject to an injunction
restraining its use or any order providing for its delivery up to or
destruction, or if in respect of any such claim of infringement the Contractor
deems it advisable to do so, the Contractor shall at its own expense either:
1. Procure for the Purchaser the right to retain and continue to use
the System, the affected portion thereof, or any such material,
part or equipment without interruption for the Purchaser;
2. Replace or modify the System, the affected portion thereof, or
any material, part or equipment so that it becomes noninfringing
while continuing to meet the Performance Requirements or
3. If the remedies specified in Sub-Articles 19(D)(1) an 19(D)(2)
are not feasible, refund to the Purchaser the full purchase price
paid for the System, the affected portion thereof, or any
material, part or equipment found to be infringing.
E. In no event shall the Purchaser make any admission or settle any claim
in relation with any claim for infringement without Contractor's consent.
ARTICLE 20 SAFEGUARDING OF INFORMATION AND TECHNOLOGY
- ------------------------------------------------------
A. In performance of this Contract, it may be mutually advantageous to
the Parties hereto to share certain specifications, designs, plans, drawings,
software, market research or operating data, prototypes, or other business,
financial, and or/technical information related to products, services, or
systems which are proprietary to the disclosing Party or its affiliates (and in
the case of Contractor, Contractor's parent company) (together with this
Contract and related documents, "Information"). The Parties recognize and agree
that Information includes information that was supplied in contemplation hereof
prior to execution of this Contract, and further agree that Information includes
information in both tangible and intangible form.
B. Unless such Information was previously known to the Party receiving
such Information free of any obligation to keep it confidential, or such
Information has been or is subsequently made public through other than
unauthorized disclosure by the receiving Party or is independently developed by
the receiving Party (as documented by the records of the receiving Party), it
shall be kept confidential by the Party receiving such Information, shall be
used only in the performance of this Contract, and may not be used for any other
purposes except upon such terms as may be agreed upon in writing by the Party
owning such Information. The receiving Party may disclose such Information to
other persons, upon the furnishing Party's prior written authorization, but
solely to perform acts which this Article expressly authorizes the receiving
Party to perform itself and further provided such other person agrees in writing
(a copy of which writing will be provided to the furnishing Party at its
request) to the same conditions respecting disclosure and use of Information
contained in
<PAGE>
45
this Article and to any other reasonable conditions requested by the furnishing
Party. Nothing herein shall prevent a Party from disclosing Information (a) upon
the order of any court or administrative agency, (b) upon the request or demand
of, or pursuant to any regulation of, any regulatory agency or authority, (c) to
the extent reasonably required in connection with the exercise of any remedy
hereunder and (d) to a Party's legal counsel or independent auditors.
C. The Purchaser may disclose Information to its lenders and their
representatives in connection with obtaining financing for the System, provided
that each such lender or third party enters into a confidentiality agreement
containing terms and conditions similar to those in this Contract. Any such
disclosure of Information shall be subject to the restrictions in Sub-Article
20(B).
ARTICLE 21 EXPORT CONTROL
- --------------------------
The Parties acknowledge that any products, software, and technical
information (including, but not limited to, services and training) provided by
either Party under this Contract are or may be subject to export laws and
regulations of the United States and the destination country(ies) and any use or
transfer of such products, software and technical information must be authorized
under those Laws. The Parties agree that they will not use, distribute, transfer
or transmit the products, software or technical information (even if
incorporated into other products) except in compliance with export Laws. If
requested by either Party, the other Party agrees to sign all necessary export-
related documents as may be required to comply with export Laws.
ARTICLE 22 LIQUIDATED DAMAGES
- ------------------------------
A. If the System is not Ready for Commercial Service or Provisional
Acceptance by the Scheduled RFS Date, as it may have been extended under:
1. Article 6 (Contract Variations);
2. Article 17 (Force Majeure); or
3. Other arrangements as agreed between the Purchaser and the Contractor
(with 15 days prior notice to the Independent Engineer);
Then Contractor shall pay to Purchaser for each day of delay, for up to 200
days, by way of pre-estimated and liquidated damages for the delay and not as a
penalty, an amount equal to * of the portion of the Initial Contract Price
allocable to the Segment(s) not Ready for Commercial Service (it being
understood for this purpose that each such Segment of the System must have a
capacity of * Gb/s per fiber pair) or Provisional Acceptance.
B. If a System Upgrade is not Ready for Commercial Service or Provisional
Acceptance by the Scheduled Upgrade Date, as it may have been extended under:
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
46
1. Article 6 (Contract Variations);
2. Article 17 (Force Majeure); or
3. Other arrangements as agreed between the Purchaser and the Contractor
(with 15 days prior notice to the Independent Engineer);
Then Contractor shall pay to Purchaser for each day of delay, for up to 90
days, by way of pre-estimated and liquidated damages for the delay and not as a
penalty, an amount equal to * of the Initial Upgrade Contract Price.
ARTICLE 23 LIMITATION OF LIABILITY/INDEMNIFICATION
- ---------------------------------------------------
A. NOTWITHSTANDING ANY OTHER PROVISION IN THIS CONTRACT, AND IRRESPECTIVE
OF ANY FAULT, NEGLIGENCE OR GROSS NEGLIGENCE OF ANY KIND, IN NO EVENT SHALL
EITHER PARTY OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS BE LIABLE
FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, RELIANCE OR SPECIAL (INCLUDING
PUNITIVE) DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS OF REVENUE, LOSS OF
BUSINESS OPPORTUNITY OR THE COSTS ASSOCIATED WITH THE USE OF RESTORATION
FACILITIES RESULTING FROM ITS FAILURE TO PERFORM, PURSUANT TO THE TERMS AND
CONDITIONS OF THIS CONTRACT, PROVIDED THAT THE CONTRACT PRICE LESS COSTS SAVED
(AND IF ANY SYSTEM UPGRADE HAS BEEN SELECTED, THE UPGRADE PRICE LESS COSTS
SAVED) AND ANY LIABILITIES INCURRED BY CONTRACTOR TO THIRD PARTIES IN CONNECTION
WITH THIS CONTRACT SHALL BE DEEMED TO BE DIRECT DAMAGES.
B. EXCEPT AS SET FORTH BELOW IN THE LAST TWO SENTENCES OF THIS SUB-
ARTICLE 23(B), THE CONTRACTOR'S MAXIMUM AGGREGATE LIABILITY, WHETHER IN TORT,
CONTRACT OR OTHERWISE, EXCEPT FOR CLAIMS RELATING TO SYSTEM UPGRADES, SHALL BE
DIRECT DAMAGES PROVEN NOT TO EXCEED * OF THE CONTRACT PRICE. THE CONTRACTOR'S
MAXIMUM AGGREGATE LIABILITY FOR CLAIMS RELATING TO SYSTEM UPGRADES (IF
CONTRACTOR CAN SHOW THAT THE SYSTEM WAS DESIGNED WITH SUFFICIENT TRANSMISSION
MARGIN AND THUS SUCH CLAIMS DO NOT ARISE UNDER CLAUSE (ii) OF SUB-ARTICLE 10(B))
SHALL BE DIRECT DAMAGES PROVEN NOT TO EXCEED * OF THE APPLICABLE UPGRADE PRICE.
THE FOREGOING LIMITATION SHALL NOT APPLY TO CLAIMS UNDER SUB-ARTICLES 19(A) AND
23(C). IF CONTRACTOR CANNOT SHOW THAT THE SYSTEM WAS DESIGNED WITH SUFFICIENT
TRANSMISSION MARGIN FOR A SYSTEM UPGRADE, THE CONTRACTOR'S MAXIMUM AGGREGATE
LIABILITY FOR CLAIMS ARISING UNDER CLAUSE (ii) OF SUB-ARTICLE 10(B) SHALL BE
DIRECT DAMAGES PROVEN NOT TO EXCEED * OF THE APPLICABLE UPGRADEABILITY LIABILITY
LIMIT.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
47
C. Contractor, at its expense, shall defend, indemnify and hold harmless
Purchaser, its agents, subcontractors and employees against any and all claims,
demands, and judgments for losses due to any act or omission, arising out of, or
in connection with this Contract or, prior to risk of loss passing to Purchaser,
the operation and maintenance of the System, to the extent such losses were
caused by the negligence or willful misconduct of the Contractor, its
subcontractors, employees or agents. The defense, indemnification and save
harmless obligation is specifically conditioned on the following: (i) Purchaser
providing prompt notification in writing of any such claim or demand when it
obtains Actual Knowledge thereof, unless such failure shall not have materially
impaired Contractor's ability to defend against such claim; (ii) Contractor
having control of the defense of any such action, claim or demand and of all
negotiations for its settlement or compromise; and (iii) Purchaser cooperating,
at Contractor's expense, in a reasonable way to facilitate the defense of such
claim or demand or the negotiations for its settlement.
D. Purchaser, at its expense, shall defend, indemnify and hold harmless
Contractor, its agents, subcontractors and employees against any and all claims,
demands, and judgments for losses due to any act or omission, arising out of, or
in connection with this Contract or, after risk of loss passes to Purchaser, the
operation or maintenance of the System, to the extent such losses were caused by
the negligence or willful misconduct of the Purchaser, its subcontractors,
employees or agents (other than AT&T Submarine Systems, Inc.). The defense,
indemnification and save harmless obligation is specifically conditioned on the
following (i) Contractor providing prompt notification in writing of any such
claim or demand when it obtains Actual Knowledge thereof, unless such failure
shall not have materially impaired Purchaser's ability to defend against such
claim; (ii) Purchaser having control of the defense of any such action, claim or
demand and of all negotiations for its settlement or compromise; and (iii)
Contractor cooperating, at Purchaser's expense, in a reasonable way to
facilitate the defense of such claim or demand or the negotiations for its
settlement.
ARTICLE 24 COUNTERPARTS
- ------------------------
This Contract may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
ARTICLE 25 DESIGN AND PERFORMANCE RESPONSIBILITY
- -------------------------------------------------
A. The Contractor shall be solely responsible for the design of and for
all details of the System and the System Upgrades and for the adequacy thereof.
B. The Contractor's responsibility for design of the System and the
System Upgrades shall not in any way be diminished nor shall the Contractor's
design approach be restricted or limited by the Purchaser's acceptance of the
Contractor's guidance or recommendations as to engineering standards and design
specifications, or by the Purchaser's suggestions or recommendations on any
aspect of the design.
<PAGE>
48
C. Purchaser shall use reasonable efforts in assisting the Contractor to
obtain in a timely manner accurate information required for the Contractor to
perform the Work and the Upgrade Work, which Contractor cannot expeditiously and
cost-effectively obtain from any source other than the Purchaser.
ARTICLE 26 PRODUCT CHANGES
- ---------------------------
The Contractor may at any time make changes to the System or System
Upgrades furnished pursuant to this Contract, or modify the drawings and
published specifications relating thereto, or substitute equipment of later
design, provided the changes, modifications, or substitutions under normal and
proper use do not impact upon the form, fit, expected life or function of the
System as provided in the System Performance Requirements.
ARTICLE 27 RISK AND INSURANCE
- ------------------------------
A. The Contractor shall at all times maintain, and upon request, the
Contractor shall furnish the Purchaser with certificates, or other reasonable
evidence, that Contractor maintains, the following insurance or has adequate
self-insurance (other than as required to comply with any statutory insurance
requirements):
1. Workmen's Compensation and Employers Liability Insurance (with a
limit of not less than * for any one incident or series of
incidents arising from one event or such higher limit as may be
required by the laws of any jurisdiction) covering the officers
and employees of the Contractor for all compensation or other
benefits required of the Contractor by the laws of any nation or
political sub-division thereof to which the Contractor and its
operations under this Contract are subject in respect of injury
of death of any such employee.
2. Comprehensive General Public Liability Insurance, covering
personal injury and/or property damage, with combined single
limits of not less than * for claims of injury or death
of any persons or loss of or damage to property resulting from
any one accident. This insurance to be extended to provide Marine
Comprehensive General Liability including liabilities arising out
of the operation of subsea equipment.
3. Comprehensive Automobile Liability insurance covering all
vehicles and automotive equipment owned, hired, or in the custody
and control of Contractor and complying with all applicable
legislation with limits not less than * combined single
limit for the death or injury of any person per accident and not
less than * for the loss or damage to property resulting
from any one accident.
4. All Risk Insurance in respect of all property of Contractor, its
respective officers, agents and employees connected with the
performance of the Work against all loss or damage from whatever
cause.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
49
5. Conventional Marine Hull and Machinery Insurance including War
Risks or any vessel(s) owned, operated or chartered by the
Contractor, in an amount equal to the full value thereof. In the
event of damage to or loss of such vessel(s), the Contractor
agrees to look to its insurance carrier for payment of such loss
or damage and hereby releases the Purchaser and waives any claims
against the Purchaser for the loss of such vessel(s) unless due
to the negligence of Purchaser, its agent or representatives
(other than Contractor).
6. All vessels are to be entered in a Mutual Protection and
Indemnity Association with a full and unlimited entry or to have
Marine Protection and Indemnity Insurance with a limit of not
less than * including coverage far illness, injury or
death of crew members (unless covered under Workmen's
Compensation Insurance), Contractual Liability Coverage,
Collision and Tower's Liability, Removal of Wreck and Debris and
Third Party Liability.
7. Excess Liability Coverage over that required in Sub-Articles
27(A)(1), (2) and (3) with minimum limits of * for any
one accident or occurrence.
8. Specialist Operations Insurance with a limit of not less than
* as per London Wording 1993 or equivalent.
9. Transit Insurance including inland, air, and Marine Cargo
coverage including War (other than on land) in an amount
sufficient to cover the expected highest value of any one
shipment. Coverage to include Institute Cargo Clauses, all risks
1.1.63, Institute War Clauses, London Malicious Damage Clause,
and Institute Strikes Riots and Civil Commotion Clauses or their
equivalent.
10. Marine Cargo or equivalent is required to protect, for full cost,
against all risks of physical loss or damage to the plant,
equipment and supplies to be included in the System (other than
War Risks) beginning with when each such item is ready for
shipping and ending when the submersible plant and equipment are
placed overside the cable laying vessel and when the equipment
and supplies are delivered to the cable stations, central
offices, or network operation center. The coverage continues to
cover cable lying on the seabed.
11. Sea Bed or equivalent coverage (including an Old Mines and
Torpedoes Clause, including other derelict weapons of War) is
required to protect, for full cost, against all risks of physical
loss or damage to the submersible plant and equipment described
in Sub-Article 27(A)(10) above. See last paragraph.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
50
12. War Risks or equivalent coverage is required to protect against
damage to, seizure by and/or destruction of the System by means
of war, piracy, takings at sea and other warlike operations until
discharge of the submersible plant and equipment. For the
purposes of this Article "discharge of the submersible plant and
equipment" shall be deemed to take place when the plant and
equipment reaches the sea bottom, as far as the submersible plant
and equipment is concerned, and when the plant is off-loaded in
the respective terminal country, as far as non-submersible plant
is concerned.
13. Pollution Liability (EIL) insurance for installation operations
and as arising from the use of vessels in an amount not less than
* or such higher sum as may be required to meet any legal
requirement in area of operations.
The Comprehensive General Liability Insurance required pursuant to
Sub-Article 27(A)(2) above, shall include Contractual Liability Coverage which
shall specifically apply to the obligations assumed by the Contractor under the
Terms and Conditions of this Contract.
B. 1. All the foregoing insurances shall be effected with a
creditworthy insurer and shall be endorsed to provide Purchaser
with at least thirty (30) days prior written notice of
cancellation or material change.
2. All the foregoing insurances shall name Purchaser as an
additional insured as to operations hereunder, in which event the
Contractor's insurance shall be primary to any insurance carried
by Purchaser.
3. The limits specified herein are minimum requirements and shall
not be construed in any way as limits of liability or as
constituting acceptance by Purchaser of such responsibility for
financial liabilities in excess of such limits. The Contractor
shall bear all deductibles applicable to any insurance.
4. If it is judicially determined that the monetary limits of
insurance required hereunder or of any indemnity voluntarily
assumed under the Terms and Conditions of this Contact which the
Contractor agrees will be supported either by available liability
insurance or voluntarily self-insured, in part or whole, exceeds
the maximum limits permitted under applicable law, it is agreed
that said insurance requirements or indemnity shall automatically
be amended to conform to the maximum monetary limits permitted
under such law.
5. Contractor shall take reasonable steps to provide that any sub-
contractor engaged by it has in effect or will effect Employer's
Liability, Workmen's Compensation, Hull and Machinery and
Protection and
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
51
Indemnity insurances and any other insurances required by law,
together with such other insurances as the Contractor may
consider necessary.
6. If the Contractor fails to effect or keep in force any of the
insurances required under this Contract, Purchaser may effect and
keep in force any such insurances and pay such premiums as may be
necessary for that purpose and from time to time deduct the
amount so paid by Purchaser from any money due or which may
become due to the Contractor hereunder or recover the same as a
debt due from the Contractor, provided that Purchaser is not in
Default.
7. Each Party shall give the other prompt notification of any claim
with respect to any of the insurances to be provided hereunder,
accompanied by full details giving rise to such claim. Each Party
shall afford the other all such assistance as may be required for
the preparation and negotiation of insurance claims.
8. Contractor shall report to Purchaser as soon as practicable all
accidents or occurrences resulting in injuries to Contractor's
employees or third parties, or damage to property of third
parties, arising out of our during the course of services for
Purchaser by Contractor.
C. The Contractor may organize such levels of deductibles, excesses and
self-insurance as it considers appropriate.
D. The insurance requirements of this Article 27 will remain in place
with respect to each Segment, the System or System Upgrade, as the case may be,
and will not in any way be diminished or reduced until the transfer of title and
risk of loss shall have passed to Purchaser of such Segment, System or System
Upgrade, as the case may be, even in the event of the sale of substantially all
the assets of the Contractor by way of a merger, consolidation or sale of
assets.
ARTICLE 28 PLANT AND WORK RULES
- --------------------------------
Employees and agents of each Party shall, while on the premises of the
other or its subcontractors, comply with all plant rules and governmental
regulations.
ARTICLE 29 RIGHT OF ACCESS
- ---------------------------
A. The Contractor shall, upon reasonable notice of not less than ten (10)
working days, during normal business hours and in a manner to avoid any
disruption of the work on the premises including performance of other contracts,
permit access by the Purchaser or its Quality Assurance (QA) Representative
(other than a competitor of the Contractor or any affiliate of a competitor) to
the Contractor's premises where the work will be performed, and will use its
best endeavors to secure rights of access to premises of its subcontractors
where the work will be performed, having subcontracts or orders in the amount
of, or equivalent to
<PAGE>
52
U.S. $125,000 or more, in accordance with the Contractor's contractual
arrangements with its subcontractors, and allow the Purchaser or its QA
Representative to:
1. audit the Contractor's quality assurance system and its
application to the Work and Upgrade Work, including manufacture,
development and raw materials and components provision;
2. inspect all parts of the Work and Upgrade Work to the extent
reasonably practicable to ensure that their quality meets the
Specification.
This right of access shall allow for the Purchaser and/or its QA representative
(up to a total of three (3) persons). The Purchaser shall provide the name(s),
nationality and title of each such visitor prior to the visit. The Contractor
shall not be responsible for any costs, including travel and accommodation
costs, of the Purchaser or its representatives.
B. The right of access shall also allow for the Purchaser and/or
representatives (up to a total of three (3) persons) to be aboard the vessel(s)
during installation and the route survey, provided accommodations are available.
The Contractor shall not be responsible for any costs of the Purchaser or its
representatives, except for living expenses on board the vessel which includes
one (1 ) daily telex or fax, all other travel and accommodation costs for the
Purchaser or its QA Representatives shall be for the account of the Purchaser.
C. Any right of access shall not be construed as creating any obligation
requiring the Contractor or its subcontractors to disclose trade secrets or
proprietary information. Further, such right of access may be conditioned on the
execution of a confidentiality and non-disclosure agreement and/or subject to
routine building or security rules, regulations or procedures.
D. Any exercise of any right of the Purchaser hereunder to inspect,
audit, visit or to serve any part of the Work or System Upgrades shall not be
construed as limiting any obligation of Contractor hereunder, including without
limitation, under Articles 1 and 10 hereof.
E. Contractor will have access to the System as necessary to accomplish
its responsibilities under this Contract and in order to make repairs and to
make System Upgrades. Contractor will provide reasonable notice of its need for
access and will take reasonable steps to minimize disruptions to the operation
of the System.
F. Contractor shall give the Purchaser reasonable prior written notice of
each monthly project management review meeting with respect to the status of the
construction and/or installation of the System, and Purchaser's representatives
(up to three such representatives) and the Independent Engineer shall at their
cost be permitted to attend and participate in such meetings.
<PAGE>
53
ARTICLE 30 QUALITY ASSURANCE
- -----------------------------
All equipment, material and supplies provided under this Contract
shall be inspected and tested by representatives designated by the Contractor to
the extent reasonably practical to assure that the quality of the equipment,
materials and supplies being incorporated is sufficient to realize the System
Performance Requirements. The inspection and test program established for such
equipment, materials and supplies shall be consistent with commercial practices
normally employed by the Contractor in the construction of submarine cable
systems. The foregoing shall not be construed as limiting any of the
Contractor's obligations under this Contract.
ARTICLE 31 DOCUMENTATION
- -------------------------
The Contractor shall furnish to the Purchaser one copy of the
standard documentation in the English language for the System provided
hereunder. Such documentation shall be provided prior to the Acceptance testing.
Additional copies of the documentation are available at additional cost.
ARTICLE 32 TRAINING
- --------------------
The Contractor will provide, until the Date of Final Acceptance, any
and all training necessary for the operation and maintenance of the System.
ARTICLE 33 SETTLEMENT OF DISPUTES/ARBITRATION
- ----------------------------------------------
A. The Parties shall endeavor to settle amicably by mutual discussions
any disputes, differences, or claims whatsoever related to this Contract.
B. Failing such amicable settlement, any controversy, claim or dispute
arising under or relating to this Contract, including the existence, validity,
interpretation, performance, termination or breach thereof, shall finally be
settled by arbitration in accordance with the International Arbitration Rules of
the American Arbitration Association ("AAA"). Unless the Parties agree to a sole
arbitrator, there shall be three (3) arbitrators, with each Party appointing one
arbitrator, who collectively will select a third. The language of the
arbitration shall be English. The Arbitrator will not have authority to award
punitive damages to either Party. Each Party shall bear its own expenses, but
the Parties shall share equally the fees and expenses of the Arbitration
Tribunal and the AAA. This Contract shall be enforceable, and any arbitration
award shall be final, and judgment thereon may be entered in any court of
competent jurisdiction. In any such arbitration, the decision in any prior
arbitration under this Contract shall not be deemed conclusive of the rights as
among themselves of the Parties hereunder. The arbitration shall be held in New
York, New York. U.S.A.
<PAGE>
54
ARTICLE 34 APPLICABLE LAW
- --------------------------
This Contract shall be construed and governed in accordance with the
laws of the State of New York, United States, excluding its conflicts of law
provisions and excluding the Convention for the International Sale of Goods.
ARTICLE 35 NOTICES
- -------------------
A. Any notices, consent, approval, or other communication pursuant to
this Contract shall be in writing, in the English language, and shall be deemed
to be duly given or served on a Party if sent to the Party at the address
stipulated in Sub-Article 35(B) and if sent by any one of the following means
only:
1. Sent by hand: Such communication shall be deemed to have been
received on the day of delivery provided receipt of delivery is
obtained.
2. Sent by facsimile: Such communication shall be deemed to have
been received, under normal service conditions, twenty-four
(24) hours following the time of dispatch or on confirmation by
the receiving Party, whichever is earlier.
3. Sent by registered or certified mail: Such communication shall
be deemed to have been received, under normal service
conditions, on the day it was received or on the tenth day
after it was dispatched, whichever is earlier.
B. For purposes of this Article, the names, addresses and fax numbers
of the Parties are as detailed below. Any change to the name, address, and
facsimile numbers may be made at any time by giving thirty (30) days prior
written notice.
AT&T Submarine Systems, Inc.
Room S120
340 Mt. Kemble Ave.
Morristown, New Jersey 07960 U.S.A.
FAX: +1 201 326 2704
Global Telesystems Ltd.
Cedar House
41 Cedar Avenue
Hamilton HM12 Bermuda
FAX 441-292-8666
Attn: Mr. David Lee
<PAGE>
55
ARTICLE 36 PUBLICITY AND CONFIDENTIALITY
- -----------------------------------------
A. No information relating to this Contract shall be released by either
Party to any newspaper, magazine, journal or other written, oral or visual
medium without the prior written approval of an authorized representative of the
other Party; provided that, subject to Article 20 (Safeguarding of Information
--------
and Technology) and the following Sub-Article, this Article shall not restrict
either Party from (i) responding to customary press inquiries or otherwise
making public or private statements in the normal course of business, so long as
consistent with a mutually agreed press-release and (ii) assisting in the
obtaining of financing in accordance with Sub-Article 37(C), including the
publication of a financial tombstone.
B. This Contract and any non-public information, written or oral, with
respect to this Contract, "Confidential Information", will be kept confidential
and shall not be disclosed, in whole or in part, to any person other than
affiliates, officers, directors, employees, agents or representatives of a Party
(collectively, "Representatives") who need to know such Confidential Information
for the purpose of negotiating and executing this Contract. Each Party agrees to
inform each of its Representatives of the non-public nature of the Confidential
Information and to direct such persons to treat such Confidential Information in
accordance with the terms of this Article. Nothing herein shall prevent a Party
from disclosing Confidential Information (a) upon the order of any court or
administrative agency, (b) upon the request or demand of, or pursuant to any
regulation of, any regulatory agency or authority, (c) to the extent reasonably
required in connection with the exercise of any remedy hereunder, (d) to a
Party's legal counsel or independent auditors, (e) prospective lenders to the
Purchaser or Holding Company, and (f) to any actual or proposed assignee of all
or part of its rights hereunder provided that such actual or proposed assignee
agrees in writing to be bound by the provisions of this Article.
ARTICLE 37 ASSIGNMENT
- -----------------------
A. Except as provided in this Article, neither Party shall assign this
Contract or any right or interest under this Contract, nor delegate any work or
obligation to be performed under this Contract ("Assignment"), without the other
Party's prior written consent which shall not be unreasonably withheld (it being
understood that it shall be deemed to be reasonable to withhold consent to the
assignment of this Contract or any rights, interest or obligations hereunder to
a competitor of Contractor or an affiliate of a competitor or uncreditworthy
party). Nothing herein shall preclude a Party from employing a subcontractor in
carrying out its obligations under this Contract. A Party's use of such
subcontractor shall not release the Party from its obligations or liability
under this Contract.
B. The Contractor has the right to assign all of its rights under this
Contract or to delegate all of its duties hereunder at any time without the
Purchaser's consent to any successor to substantially all the assets of the
Contractor by way of a merger, consolidation or sale of assets provided that in
the case of any assignment or delegation pursuant to this Sub-Article 37(B) such
assignee shall assume in writing all warranties, representations and obligations
of Contractor under this Contract. The Contractor shall give the Purchaser
written notice of the assignment.
<PAGE>
56
C. The Parties acknowledge that Purchaser may finance construction of
the System on a Project finance" basis and that in connection therewith the
financing parties will require that such financing be secured by certain assets
of Purchaser (including but not limited to this Contract). The Purchaser may, in
connection with any such project financing grant a collateral assignment of its
rights and obligation under this Contract to any such financing parties which
executes and delivers a Consent, and in connection therewith, the Contractor
will execute and deliver a Consent, and Purchaser may transfer in accordance
with such Consent.
D. The Purchaser has the right to assign all of its rights and delegate
all of its duties under this Contract to any other entity (a Transferee") to
whom all of the Financing Documents and all Permits in Purchaser's name have
been assigned in accordance with the terms thereof and to whom all of
Purchaser's rights and interests in the System have been transferred. Purchaser
also has the right (i) to assign all of its rights hereunder with respect to any
particular Landing, Assets to any Transferee, (ii) to assign Permits with
respect to such Landing Assets, or have Permits with respect to such Landing
Assets issued in the name of, such Transferee and (iii) to transfer such Landing
Assets or have such Landing Assets transferred directly to, such Transferee;
provided that (a) such Transferee shall execute a supplement to this Contract
- --------
whereby it becomes jointly and severally liable, together with Purchaser, for
all of Purchaser's obligations under this Contract and (b) Purchaser's and
Holding Company's lenders permit such assignments and transfers without causing
a reduction in the financing committed for the System. "Landing Assets" means,
with respect to each jurisdiction where a portion of the System is located, all
or part of such portion of the System located therein. It is understood that the
Purchaser, at its option, may assign and transfer rights with respect to Landing
Assets in different jurisdiction to different Transferees. Purchaser shall not
transfer any of its rights under this Contract or the System except in
accordance with the foregoing. Any assignment or transfer not expressly
permitted by this Sub-Article 37(D) shall be of no force and effect. Any
assignment or transfer which results in any increase in costs or any loss,
damage, delay or failure of performance shall constitute a Force Majeure, and,
without limiting the applicability of Article 17 (Force Majeure), Purchaser
shall be responsible for any increase in costs resulting therefrom.
ARTICLE 38 RELATIONSHIP OF THE PARTIES
- ---------------------------------------
All work performed by a Party under this Contract shall be performed
as an independent contractor and not as an agent of the other and no persons
furnished by a Party shall be considered the employees or agents of the other.
Each Party shall be responsible for its employees' compliance with all Laws
while performing under this Contract. This Contract shall not form a joint
venture or partnership between the Parties.
ARTICLE 39 SUCCESSORS BOUND
- ----------------------------
This Contract shall be binding on the Contractor and the Purchaser
and their respective successors and assigns.
<PAGE>
57
ARTICLE 40 ARTICLE CAPTIONS
- ----------------------------
The captions of the Articles do not form part of this Contract and
shall not have any effect on the interpretation thereof.
ARTICLE 41 SEVERABILITY
- ------------------------
If any of the provisions of this Contract shall be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate or
render unenforceable the entire Contract, but rather the entire Contract shall
be construed as if not containing the particular invalid or unenforceable
provision or provisions and the rights and obligations of the Contractor and the
Purchaser shall be construed and enforced accordingly. In the event such invalid
or unenforceable provision is an essential and material element of this
Contract, the Parties shall promptly negotiate a replacement provision.
ARTICLE 42 SURVIVAL OF OBLIGATIONS
- -----------------------------------
The Parties' rights and obligations, which, by their nature would
continue beyond the termination, cancellation or expiration of this Contract,
including, but not limited to, those contained in Sub-Article 4(B) (Taxes,
Levies and Duties) and Sub-Article 4(C) (Withholding Tax), Article 18
(Intellectual Property), Article 20 (Safeguarding of Information and
Technology), Article 21 (Export Control) and Article 23 (Limitation of
Liability/Indemnification) shall survive termination, cancellation or expiration
hereof. Article 10 (Warranty) and Article 11 (Contractor Support), shall survive
termination, cancellation or expiration hereof, if and only if, this Contract is
terminated by Purchaser pursuant to Sub-Article 13(A).
ARTICLE 43 NON-WAIVER
- ----------------------
A waiver of any of the terms and conditions of this Contract, or the
failure of either Party strictly to enforce any such term or condition, on one
or more occasions shall not be construed as a waiver of the same or of any other
term or condition of this Contract on any other occasion.
ARTICLE 44 LANGUAGE
- --------------------
This Contract has been executed in the English language and English
will be the controlling language for interpretation of this Contract.
ARTICLE 45 ENTIRE AGREEMENT
- ----------------------------
This Contract supersedes all prior oral or written understanding
between the Parties and constitutes the entire agreement with respect to the
subject matter herein. Such terms and conditions shall not be modified or
amended except by a writing signed by authorized representatives of all Parties.
<PAGE>
58
ARTICLE 46 COMING INTO FORCE
- -----------------------------
A. This Contract agreed to between the Purchaser and Contractor will
not enter into force unless
(I) each of the following documents is executed and delivered on or before March
25, 1997, in a form and substance satisfactory, in its sole discretion, to each
Party hereto:
1. Operations, Administration and Maintenance Agreement;
2. Sales Agency Agreement;
3. Escrow and Security Agreement;
4. CIBC Commitment Letter;
5. Holding Company Note Purchase Agreement; and
6. Guaranty;
(II) the form of the following have been agreed to: (i) Retainage Lender of
Credit, (ii) Appendix 4-1 (Invoice Certificate), (iii) Consent and (iv) Capacity
Purchase Agreement; and
(III) Purchaser shall have made the payments described in Sub-Article 5(C)(2).
B. When all the conditions indicated in Sub-Article 46(A) above are
complied with, then the Purchaser shall immediately notify the Contractor, and,
so long as the date of such notice is on or before March 25, 1997, the Contract
shall come into force on the date of such notice.
<PAGE>
59
This Contract is executed in Toronto, Canada by duly authorized
representatives of the Parties as set forth below.
AT&T Submarine Systems, Inc. Global Telesystems Ltd.
By:____________________ By:____________________
Signature Signature
Title:_________________ Title:_________________
Date:__________________ Date:__________________
<PAGE>
EXHIBIT 10.2 (CONTINUED)
SUPPLEMENT NO. 1
Supplement No. 1, dated as of June 27, 1997 (this "Supplement"), to
----------
the Project Development and Construction Contract described below, among AT&T
Submarine Systems, Inc. (the "Contractor"), Global Telesystems Ltd. ("GTL"), GT
---------- ---
Landing Corp., a Delaware corporation (the "U.S. Subsidiary"), SSI Atlantic
---------------
Crossing LLC, a Delaware limited liability company (the "SSI Subsidiary"), GT
--------------
U.K. Ltd., a corporation organized under the laws of England (the "U.K.
----
Subsidiary") and Global Telesystems GmbH, a corporation organized under the laws
- ----------
of Germany (the "German Subsidiary"; together with the U.S. Subsidiary, the SSI
-----------------
Subsidiary and the U.K. Subsidiary, the "Assignees").
---------
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, unless otherwise defined herein, capitalized terms used
herein shall have the meanings given to them in the Contract;
WHEREAS, the Contractor and GTL have entered into the Project
Development and Construction Contract, dated March 18, 1997 (as the same may
from time to time be amended, modified or supplemented, the "Contract"),
--------
pursuant to which the Contractor has agreed to design, manufacture, construct,
install and deliver a fiber optic cable system connecting (a) the United States
to the United Kingdom, (b) the United Kingdom to Germany and (c) Germany to the
United States, all as more fully described in the Contract;
WHEREAS, the Contractor and GTL have also entered into the Operations,
Administration and Maintenance Agreement, dated as of March 25, 1997, pursuant
to which the Contractor has agreed, in accordance with the terms thereof, to
operate, administer and maintain the System;
WHEREAS, the Contractor and GTL have also entered into the Sales
Agency Agreement, dated as of March 25, 1997;
WHEREAS, the U.S. Subsidiary, the U.K. Subsidiary, and the German
Subsidiary are wholly-owned subsidiaries of GTL, and were formed for the purpose
of owning and providing capacity on certain Landing Assets and Rights;
WHEREAS, the SSI Subsidiary is a wholly-owned subsidiary of SSI
Atlantic Crossing Holdings LLC, a Delaware limited liability company (the "SSI
---
Holdings Subsidiary"), which in turn is a wholly-owned subsidiary of the
- -------------------
Contractor, and was formed for the purpose of owning or leasing and controlling
the U.S. Landing Assets and Rights;
WHEREAS, GTL wishes to transfer all rights under the Contract (i) with
respect to the U.S. Real Property Landing Assets and Rights to the U.S.
Subsidiary, (ii) with respect to the U.S. Personal Property Landing Assets and
Rights to the SSI Subsidiary, (iii) with respect to the U.K. Landing Assets and
Rights to the U.K. Subsidiary and (iv) with respect to the German Landing Assets
and Rights to the German Subsidiary;
<PAGE>
WHEREAS, GTL, the Contractor and Deutsche Telekom AG have entered into
a Memorandum of Understanding, dated April 21, 1997, relating to the German
Landing Assets and Rights (the "DT-MOU");
------
WHEREAS, the U.S. Subsidiary will lease the U.S. Real Property Landing
Assets and Rights to the SSI Subsidiary so that the SSI Subsidiary will have
control over all U.S. Landing Assets and Rights;
WHEREAS, the SSI Subsidiary will grant an indefeasible right of use to
the U.S. Subsidiary with respect to the U.S. Landing Assets and Rights;
WHEREAS, GTL will own and control all of the System other than the
Landing Assets and Rights;
WHEREAS, Sub-Article 37(D) of the Contract contemplates the assignment
by GTL to a Transferee or Transferees of its rights under the Contract with
respect to any particular Landing Assets;
WHEREAS, Sub-Article 37(D) of the Contract requires that, in
connection with such assignment by GTL, the Transferees, GTL and the Contractor
shall execute a supplement to the Contract describing their respective rights
and obligations; and
WHEREAS, the Contractor, GTL, the U.S. Subsidiary, the SSI Subsidiary,
the U.K. Subsidiary and the German Subsidiary wish to supplement the provisions
of the Contract to reflect their agreement with respect to the Landing Assets;
NOW THEREFORE, in consideration of the premises, the parties hereto
hereby agree as follows:
1. Defined Terms. (a) Unless otherwise defined herein, capitalized
-------------
terms which are defined in the Contract are used herein as therein defined.
(b) The Contract is hereby amended by deleting the definition of
"Landing Assets" appearing in the third sentence of Sub-Article 37(D) of the
--------------
Contract, and by inserting a new definition of "Landing Assets" in Article 3 of
--------------
the Contract as follows:
"'Landing Assets' means, with respect to each Landing Country where a
--------------
portion of the System is located, all real and personal property (including
leasehold interests therein) comprising the System from time to time and
located within the territory of such Country, including both the portions
of such property on the land of such Country and the portion of such
property under the territorial waters of such Country, and the portion of
such underwater property extending to a point one-half mile beyond the
territorial limit of such Country."
<PAGE>
3
(c) Article 3 of the Contract is hereby amended to add the following
definitions:
"Contingency Letter of Credit" shall mean the letter of credit
----------------------------
described in Sub-Article 5(C)(7) hereof.
"Credit Agreement" means the Credit Agreement, dated as of the date
----------------
hereof, among GTL, the financial institutions from time to time parties
thereto as lenders, Deutsche Bank AG, New York Branch and Canadian Imperial
Bank of Commerce, as lead agents, Deutsche Bank AG, New York Branch, as
administrative agent, and Canadian Imperial Bank of Commerce, as
syndication agent, documentation agent and issuing bank.
"DT-MOU" has the meaning given such term in Supplement No. 1.
------
"German Landing Assets and Rights" means Landing Assets and Rights
--------------------------------
located in Germany, including without limitation, the real and personal
property to be listed on Schedule 3 to Supplement No. 1.
"German Landing Assets and Rights Price" has the meaning set forth in
--------------------------------------
Section 4(d) of Supplement No. 1.
"GTL" shall mean Global Telesystems Ltd., a corporation organized and
---
existing under the laws of Bermuda.
"IRU and Option Agreement" means an Indefeasible Right of Use and
------------------------
Option Agreement to be entered into between the SSI Subsidiary and the U.S.
Subsidiary in substantially the form of Exhibit A to Supplement No. 1, as
the same may from time to time be amended, modified or supplemented.
"IRU Price" has the meaning given such term in Section 6 of Supplement
---------
No. 1.
"Landing Assets and Rights" means, with respect to each Landing
-------------------------
Country, the Landing Assets in such Landing Country together with all
Permits necessary to own or lease, operate and maintain such Landing Assets
and all rights or licenses under Articles 18, 19, 20 of the Contract
relating to such Landing Assets, including all Deliverable Software and
Deliverable Technical Material relating to such Landing Assets.
"Landing Countries" means the United States of America, the United
------------------
Kingdom and Germany.
"Lender Pledge Agreement" means the Pledge Agreement, dated as of the
-----------------------
date hereof, made by the SSI Holdings Subsidiary in favor of the
Administrative Agent for
<PAGE>
4
the lenders under the Credit Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.
"SSI Subsidiary" has the meaning given such term in Supplement No. 1.
--------------
"Subordinated Pledge Agreement" means the Subordinated Pledge
-----------------------------
Agreement, dated as of the date hereof, made by the SSI Holdings Subsidiary
in favor of the U.S. Subsidiary.
"Supplement No. 1" means Supplement No. 1, dated as of June 27, 1997,
----------------
to the Contract, among GTL, the Contractor, the U.S. Subsidiary, the UK
Subsidiary, the German Subsidiary and the SSI Subsidiary.
"U.K. Landing Assets and Rights" means all Landing Assets and Rights
------------------------------
located in the United Kingdom, including without limitation, the property
to be listed on Schedule 2 to Supplement No. 1.
"U.K. Landing Assets and Rights Price" has the meaning given such
------------------------------------
term in Section 4(c) of Supplement No. 1 .
"U.K. Subsidiary" has the meaning given such term in Supplement No. 1.
---------------
"U.S. Landing Assets and Rights" means all Landing Assets and Rights
------------------------------
in the United States, including, without limitation, the property to be
listed on Schedule 1 to Supplement No. 1.
"U.S. Personal Property Landing Assets and Rights" means all the U.S.
------------------------------------------------
Landing Assets and Rights other than the U.S. Real Property Landing Assets
and Rights.
"U.S. Personal Property Landing Assets and Rights Price" has the
------------------------------------------------------
meaning given such term in Section 4(b) of Supplement No. 1.
"U.S. Real Property Landing Assets and Rights" means all U.S. Landing
--------------------------------------------
Assets and Rights that consists of real property, including, without
limitation, the property to be set forth on Part 2 of Schedule 1 to
Supplement No. 1.
"U.S. Real Property Landing Assets and Rights Price" has the meaning
--------------------------------------------------
given such term in Section 4(a) of Supplement No. 1.
"U.S. Subsidiary" has the meaning given such term in Supplement No. 1.
---------------
2. Assignments of Rights. (a) GTL hereby assigns and transfers all
----------------------
of its right, title and interest under the Contract with respect to the U.S.
Real Property Landing Assets and Rights to the U.S. Subsidiary and the U.S.
Subsidiary hereby accepts such
<PAGE>
5
assignment and transfer and assumes all of the obligations and liabilities of
Purchaser under the Contract with respect to the U.S. Real Property Landing
Assets and Rights;
(b) GTL hereby assigns and transfers all of its right, title and
interest under the Contract with respect to the U.K. Landing Assets and Rights
to the U.K. Subsidiary and the U.K. Subsidiary hereby accepts such assignment
and transfer and assumes all of the obligations and liabilities of Purchaser
under the Contract with respect to the U.K. Landing Assets and Rights.
(c) GTL hereby assigns and transfers all of its right, title and
interest under the Contract with respect to the German Landing Assets and Rights
to the German Subsidiary and the German Subsidiary hereby accepts such
assignment and transfer and assumes all of the obligations and liabilities of
Purchaser under the Contract with respect to the German Landing Assets and
Rights.
(d) GTL hereby assigns and transfers all of its right, title and
interest under the Contract with respect to the U.S. Personal Property Landing
Assets and Rights to the SSI Subsidiary and the SSI Subsidiary hereby accepts
such assignment and transfer and assumes all of the obligations and liabilities
of Purchaser under the Contract with respect to the U.S. Personal Property
Landing Assets and Rights.
(e) The Contractor hereby acknowledges, consents and agrees to the
assignments and assumptions referred to in paragraphs (a) through (d) of this
Section 2.
(f) For purposes of determining the submerged Landing Assets subject
to the foregoing transfer, it is assumed that under the current law of each
Landing Country, the territorial waters of such Country extend twelve nautical
miles seaward from the coast of such Country. If such assumption shall prove to
be incorrect, or if a law shall change such assumption and in fact the
territorial waters of any country extend beyond twelve nautical miles, the
parties shall adjust the Landing Assets subject to this Agreement.
(g) Without limiting the generality of the foregoing, the U.S.
Subsidiary, the SSI Subsidiary, the U.K. Subsidiary and the German Subsidiary
each acknowledges and agrees that it will be subject to the same restrictions on
the transfer of its Landing Assets and Rights as GTL under Sub-Article 37(D) of
the Contract, Sub-Article 25(D) of the OA&M Agreement and Sub-Article 18(D) of
the Sales Agency Agreement (the "Transfer Restrictions") and further agrees that
---------------------
it will cause each direct or indirect transferee of any of its Landing Assets
and Rights to acknowledge and agree that such transferee is also subject to the
Transfer Restrictions.
(h) GTL represents and warrants that the U.S. Subsidiary, the U.K.
Subsidiary and the German Subsidiary are each direct, wholly-owned subsidiaries
and acknowledges and agrees that any transfer of any interest in the U.S.
Subsidiary, the U.K. Subsidiary or the German Subsidiary (or any other person or
entity with any Landing Assets and Rights) will be subject to the Transfer
Restrictions to the same extent as a transfer of Landing Assets and further
agrees that it will cause each direct or indirect transferee of any
<PAGE>
6
such interest to acknowledge and agree that such transferee is also subject to
the Transfer Restrictions with respect to such interest.
3. Joint and Several Liability. (a) Notwithstanding the
---------------------------
assignments and assumptions set forth in Section 2 above, GTL shall remain
liable to pay and perform all of the obligations and liabilities under the
Contract with respect to the assigned Landing Assets and Rights, including,
without limitation, the payment obligations under Section 4 hereof.
(b) The U.S. Subsidiary and the U.K. Subsidiary shall be jointly and
severally liable, together with GTL, for all of GTL's obligations under the
Contract, including, without limitation, GTL's obligations under paragraph (a)
above.
(c) The German Subsidiary shall be jointly and severally liable,
together with GTL, for all obligations of Purchaser under the Contract with
respect to the German Landing Assets and Rights, but for no other obligations
under the Contract.
(d) GTL and the U.K. Subsidiary shall be jointly and severally liable
with the U.S. Subsidiary to pay the IRU Price.
(e) Notwithstanding anything to the contrary herein or in the
Contract, from and after the date of effectiveness of the IRU and Option
Agreement until the date of termination thereof, so long as the IRU Price is
paid to the SSI Subsidiary (i) none of GTL, the U.S. Subsidiary or the U.K.
Subsidiary shall be liable to pay the U.S. Personal Property Landing Assets and
Rights Price and (ii) the failure of the SSI Subsidiary to perform its
obligations under Section 4(b) shall not in and of itself constitute a payment
default or otherwise excuse the Contractor from performing all of its
obligations with respect to the U.S. Personal Property Landing Assets and
Rights, unless such failure is directly caused by an intentional action by the
U.S. Subsidiary or any of its assignees or transferees (including the
Administrative Agent and the lenders under the Credit Agreement).
4. Amounts Payable under the Contract. (a) The U.S. Subsidiary
----------------------------------
hereby agrees to pay all amounts payable under the Contract, when and as due
thereunder, with respect to the U.S. Real Property Landing Assets and Rights
(the "U.S. Real Property Landing Assets and Rights Price"). The portion of the
--------------------------------------------------
Initial Contract Price with respect to the U.S. Real Property Landing Assets and
Rights is to be set forth on Part 1 of Schedule 1 and is subject to adjustment
as provided in Section 4(e) hereof.
(b) The SSI Subsidiary hereby agrees to pay, if and only if the IRU
Price is received by it when and as due under Section 6 hereof, all amounts
payable under the Contract, when and as due thereunder, with respect to the U.S.
Personal Property Landing Assets and Rights (the "U.S. Personal Property Landing
------------------------------
Assets and Rights Price"). The portion of the Initial Contract Price with
- -----------------------
respect to the U.S. Personal Property Landing Assets and Rights is to be set
forth on Part 2 of Schedule 1 hereto and is subject to adjustment as provided in
Section 4(e) hereof.
<PAGE>
7
(c) The U.K. Subsidiary agrees to pay all amounts payable under the
Contract, when and as due thereunder, with respect to the U.K. Landing Assets
and Rights (the "U.K. Landing Assets and Rights Price"). The portion of the
------------------------------------
Initial Contract Price with respect to the U.K. Landing Assets and Rights is to
be set forth on Schedule 2 and is subject to adjustment as provided in Section
4(e) hereof .
(d) The German Subsidiary hereby agrees to pay all amounts payable
under the Contract, when and as due thereunder, with respect to the German
Landing Assets and Rights (the "German Landing Assets and Rights Price"). The
--------------------------------------
portion of the Initial Contract Price with respect to the German Landing Assets
and Rights is to be set forth on Schedule 3 hereto and is subject to adjustment
as provided in Section 4(e) hereof.
(e) The amounts set forth in Schedules 1, 2 and 3 represent the
portions of the Initial Contract Price attributable to the respective Landing
Assets and Rights, are not in addition to the Initial Contract Price, and are
subject to adjustments and additions pursuant to the Contract to the same extent
as the Initial Contract Price.
(f) The Contractor will send separate invoices to the appropriate
Transferee for payment for Landing Assets.
(g) All amounts received by the SSI Subsidiary from the Contractor
under the Contract shall be promptly turned over to the U.S. Subsidiary.
5. Delivery of Landing Assets. Notwithstanding anything in the
--------------------------
Contract to the contrary, the Contractor hereby agrees to deliver, transfer and
assign, or cause to be delivered, transferred and assigned (i) all right, title
and interest in the U.S. Real Property Landing Assets and Rights to the U.S.
Subsidiary, (b) all right, title and interest in the U.S. Personal Property
Landing Assets and Rights to the SSI Subsidiary, (c) all right, title and
interest in the U.K. Landing Assets and Rights to the U.K. Subsidiary and (d)
all right, title and interest in the German Landing Assets and Rights to the
German Subsidiary.
6. IRU and Option Agreement. The SSI Subsidiary and the U.S.
------------------------
Subsidiary agree to enter into the IRU and Option Agreement as soon as
practicable. As the price for the indefeasible right of use granted by the SSI
Subsidiary (the "IRU Price"), the U.S. Subsidiary shall pay to the SSI
---------
Subsidiary an amount equal to the U.S. Personal Property Landing Assets and
Rights Price, which Price shall be payable at the same time or times as the U.S.
Personal Property Landing Assets and Rights Price is due and payable. The
Contractor, the SSI Subsidiary and the U.S. Subsidiary agree, for United States
federal, state and local income tax purposes, (a) to treat the U.S. Subsidiary
as the owner of the U.S. Personal Property Landing Assets and Rights as of the
date or dates the Contractor transfers title to the SSI Subsidiary and (b) to
treat payments of the IRU Price by the U.S. Subsidiary as payments to the
Contractor in respect of such assets and rights, unless such treatment is
challenged by a taxing authority (subject to the contest provisions of the
Indemnity Agreement of even date herewith) or, in respect of such treatment by
the Contractor or the SSI Subsidiary, Davis Polk & Wardwell or other independent
tax counsel selected by the
<PAGE>
8
Contractor and reasonably satisfactory to GTL provides an opinion that such
treatment is more likely than not the incorrect tax treatment of the IRU Price.
7. Lease. The U.S. Subsidiary hereby agrees to lease the U.S. Real
-----
Property Landing Assets and Rights to the SSI Subsidiary pursuant to a Site
Lease substantially in the form of Exhibit B hereto. The SSI Subsidiary and the
U.S. Subsidiary agree to enter into the Site Lease as soon as practicable.
8. Arrangement with Deutsche Telekom AG. The parties hereto hereby
------------------------------------
acknowledge and agree that nothing contained in the DT-MOU or in any subcontract
between Contractor and Deutsche Telekom AG shall change, limit or otherwise
alter the respective obligations and rights of the Contractor, on the one hand,
and GTL and its Transferees, on the other hand, under the Contract, and the
Contractor remains primarily liable and obligated to pay and perform all of its
obligations under the Contract, (including, without limitation, those
obligations under the Contract).
9. Use of the Term "Purchaser" and "Party" in the Supply Contract.
--------------------------------------------------------------
(a) The parties hereto agree that the term "Purchaser" shall mean GTL or any of
its direct or indirect assignees or transferees (including the assignees or
transferees hereunder) in:
(i) the definitions of "Excluded Tax", "Nexus Tax", "Permits" and
"Work";
(ii) Sub-Article 6A(K);
(iii) the second line of Sub-Article 7(A);
(iv) the eighth line of Sub-Article 10(A)(1)(c);
(v) Sub-Article 10(A)(1)(c)(ii), Sub-Articles 10(A)(2), 10(A)(3),
10(A)(4), 10(A)(5) and 10(C);
(vi) the first line of Sub-Article 12(B) and the first sentence of
Sub-Article 12(C);
(vii) Sub-Article 13(C)(3);
(viii) Sub-Article 15(B)(i);
(ix) Sub-Articles 17(A), 17(B) and 17(C);
(x) Sub-Article 18(A), the second sentence of Sub-Article 18(C), Sub-
Article 18(C)(3), Sub-Article 18(C)(4), the penultimate line of
Sub-Article 18(D), the last sentence of Sub-Article 18(E) and
Sub-Article 18(F);
(xi) Sub-Articles 19(A)(1), 19(A)(2) and 19(E);
<PAGE>
9
(xii) Sub-Article 23(D) (excluding the first occurrence);
(xiii) Sub-Article 25(C) (excluding the first occurrence); and
(xiv) Sub-Article 27(A)(5), 27(B)(6) and 27(D);
in each case, in the Contract.
(b) The parties hereto agree that the term "Party" or "Parties" shall
mean GTL or any of its direct or indirect assignees or transferees (including
the assignees and transferees hereunder) on the one hand and the Contractor on
the other in:
(i) Sub-Articles 13(A)(2), 13(A)(3) and 13(A)(4) (but, so long as the
SSI Subsidiary is owned by SSI, not including, in the case of
clauses (3) and (4), the SSI Subsidiary, unless, in the case of
clause (4), such event with respect to the SSI Subsidiary was not
commenced by SSI);
(ii) Sub-Article 13(E);
(iii) Sub-Article 36(A); and
(iv) Sub-Article 37(A),
in each case in the Contract.
(c) GTL and its direct and indirect assignees and transferees shall
act collectively under the Contract and through GTL as its agent with respect to
Consents, Performance Requirements, Acceptance Testing, Contract Variations,
System Upgrades, termination and suspension of all or any part of the Contract
and acceptance of the System or any Segment (including, without limitation, the
issuance of Certificates of Commercial Service, Provisional Acceptance and Final
Acceptance), and any notices, certificates or requests by GTL with respect to
any of the foregoing shall be deemed to have been given by GTL and its direct
and indirect transferees and assignees and any notices, certificates or requests
by any other person with respect to the foregoing shall have no force or effect.
Without limiting the foregoing, the parties acknowledge and agree that no title
to any portion of a Segment or the System shall be transferred to GTL or any of
its assignees or transferees unless all requirements under the Contract for
transfer of the entire Segment or the System, as the case may be, have been
satisfied in full.
(d) GTL shall act as agent for its direct and indirect assignees and
transferees for the receipt of notices (excluding invoices), reports and
information (including the single copy of the documentation provided under
Article 31 of the Contract) from the Contractor, and notices, reports and
information delivered to GTL by the Contractor shall be deemed to have been
delivered to GTL and its direct and indirect transferees. GTL shall
<PAGE>
10
furnish copies of all such notices, reports and information to the U.S.
Subsidiary, the U.K. Subsidiary and the German Subsidiary.
10. Insurance. The Contractor hereby agrees to amend its insurance
---------
policies maintained pursuant to Sub-Article 27(A) of the Contract to name each
Assignee as an additional insured, to the same extent as GTL is so named
pursuant to Sub-Article 27(B) of the Contract, as to operations under the
Contract with respect to the Landing Assets and Rights transferred to such
Assignee hereunder, in which event the Contractor's insurance shall be primary
to any insurance carried by such Assignee.
11. Schedules. (a) The U.S. Subsidiary, GTL and the Contractor agree
---------
to use their best efforts to complete Schedule 1 hereto as soon as is
practicable.
(b) The U.K. Subsidiary, GTL and the Contractor agree to use their
best efforts to complete Schedule 2 hereto as soon as is practicable.
(c) The German Subsidiary, GTL and the Contractor agree to use their
best efforts to complete Schedule 3 hereto as soon as is practicable.
12. Representation by GTL. GTL represents and warrants that GTL's
---------------------
and Holding Company's lenders will permit the foregoing assignments and
transfers without causing a reduction in the financing committed for the System.
13. Covenants of the Contractor. (a) The Contractor will not (i)
---------------------------
vote to enable, or take any other action to permit the SSI Holdings Subsidiary
to issue limited liability company interests or other ownership or equity
securities of any nature or to issue any other securities convertible into or
granting the right to purchase or exchange for any limited liability company
interests or other ownership or equity securities of any nature of the SSI
Holdings Subsidiary, (ii) sell, assign, transfer, exchange or otherwise dispose
of, or grant any option with respect to, the Contractor's right, title and
interest in the SSI Holdings Subsidiary or (iii) take any action which could
result in the Contractor's right, title and interest in the SSI Holdings
Subsidiary becoming subject to a lien, trust, pledge or security interest.
(b) The Contractor shall cause the SSI Holdings Subsidiary to not (i)
vote to enable, or take any other action to permit the SSI Subsidiary to issue
limited liability company interests or other ownership or equity securities of
any nature or to issue any other securities convertible into or granting the
right to purchase or exchange for any limited liability company interests or
other ownership or equity securities of any nature of the SSI Subsidiary, (ii)
sell, assign, transfer, exchange or otherwise dispose of, or grant any option
with respect to, the SSI Holdings Subsidiary's right, title and interest in the
SSI Subsidiary or (iii) take any action which could result in the SSI Holdings
Subsidiary's right, title and interest in the SSI Subsidiary becoming subject to
a lien, trust, pledge or security interest, except for the security interests
created by the Lender Pledge Agreement and the Subordinated Pledge Agreement.
<PAGE>
11
14. Acceptance of the System. Without limiting any of the
------------------------
Contractor's rights or any of GTL's obligations, the Contractor and GTL agree
that any Certificate of Provisional Acceptance, Certificate of Commercial
Service or Certificate of Final Acceptance under the Contract issued by GTL
shall be deemed not to have been issued unless GTL shall have received the prior
written consent of Deutsche Bank AG, New York Branch, as administrative agent
for the Lenders (as defined in the Credit Agreement). The Contractor further
acknowledges and agrees that none of the Lenders nor any Agent Related Person
(as defined in the Credit Agreement) shall have any liability under the Contract
if the Independent Engineer (as defined in the Credit Agreement) shall issue a
rejection (including as to a Segment) under the Contract.
15. Amendment to Sub-Article 13. Sub-Article 13(A) of the Contract
---------------------------
is hereby amended by deleting paragraph (2) therein in its entirety and
inserting in lieu thereof the following:
"If the other Party defaults on any of its payment
obligations (or, in the case of the Contractor, if the
amount in the Contingency Account or the amount
available to be drawn under the Contingency Letter of
Credit and the Retainage Letter of Credit is less than
the Required Amount, unless the period of time during
which the Retainage Letter of Credit has to be
outstanding has expired) and does not cure such default
(or does not increase the amount on deposit in the
Contingency Account or increase the amount available to
be drawn under the Contingency Letter of Credit and the
Retainage Letter of Credit to the Required Amount)
within a period of thirty (30) days (or such longer
period as the non-breaching party may authorize in
writing) after receipt of written notice demanding
cure;".
16. Contractor's Acknowledgments.
----------------------------
(a) The Contractor acknowledges and agrees that the Purchaser has
complied with Sub-Article 15(B)(iii) of the Contract, notwithstanding that it
complied later than the required date.
(b) Contractor has had the opportunity to review copies of the
Financing Documents listed on Exhibit C hereto (other than the Holding Company
Note Purchase Agreement and the Financing Documents relating solely thereto) and
the Contractor has no objection to the terms thereof.
(c) The Contractor acknowledges that the Purchaser has granted liens
and security interests on the Purchaser's right, title and interest in and to
the System in favor of its lenders pursuant to the Financing Documents and
agrees that such liens and security interests are assignments and transfers
permitted by and in accordance with Article 37 of the Contract.
<PAGE>
12
17. Notices. Any notices, consent, approval, or other communication
-------
pursuant to this Supplement shall be in writing, in the English language, and
shall be effected in the manner provided for in Sub-Article 35(A) of the
Contract, and in the case of the U.S. Subsidiary, the SSI Subsidiary, the U.K.
Subsidiary and the German Subsidiary, at the address specified below its
signature hereto or to GTL as its agent for notices.
18. Parties. As between the Contractor, GTL and each Assignee that
-------
becomes a party hereto, this Supplement shall be treated as, and shall be
enforceable as, an agreement between the Contractor, GTL and such Assignee and
therefor it is not necessary for all Assignees to become parties hereto in order
for this Supplement to become valid and enforceable as between the Contractor,
GTL and each Assignee which does become a party hereto.
19. Governing Law. This Supplement shall be governed by, and
-------------
construed and interpreted in accordance with, the laws of the State of New York,
United States.
20. Netherlands. The parties agree that none of the foregoing shall
-----------
limit the Contractor's rights under Sub-Article 6(E) of the Contract.
21. Miscellaneous. Except as expressly amended or supplemented
-------------
herein, the Contract shall continue to be, and shall remain, in full force and
effect in accordance with its terms. This Supplement may be executed by the
parties in any number of separate counterparts (including by facsimile
transmission) and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this Supplement
to be duly executed and delivered in the location set forth below its signature
by its proper and duly authorized officer as of the date hereof.
AT&T SUBMARINE SYSTEMS, INC.
By: /s/ [SIGNATURE ILLEGIBLE]^^
---------------------------------
Title: President
Signed in:
GLOBAL TELESYSTEMS LTD.
By:_________________________________
Title:
Signed in:
GT LANDING CORP.
By:_________________________________
Title:
Signed in:
Address:
SSI ATLANTIC CROSSING LLC
By: /s/ [SIGNATURE ILLEGIBLE]^^
---------------------------------
Title: Treasurer
Signed in:
Address: 340 Mount Kemble Avenue
Morristown, New Jersey 07960
Telecopy: (201) 326-5664
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this Supplement
to be duly executed and delivered in the location set forth below its signature
by its proper and duly authorized officer as of the date hereof.
AT&T SUBMARINE SYSTEMS, INC.
By:_________________________________
Title:
Signed in:
GLOBAL TELESYSTEMS LTD.
By: /s/ [SIGNATURE ILLEGIBLE]^^
---------------------------------
Title: President
Signed in:
GT LANDING CORP.
By:_________________________________
Title:
Signed in:
Address:
SSI ATLANTIC CROSSING LLC
By:_________________________________
Title:
Signed in:
Address:
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this Supplement
to be duly executed and delivered in the location set forth below its signature
by its proper and duly authorized officer as of the date hereof.
AT&T SUBMARINE SYSTEMS, INC.
By:_________________________________
Title:
Signed in:
GLOBAL TELESYSTEMS LTD.
By:_________________________________
Title:
Signed in:
GT LANDING CORP.
By: /s/ [SIGNATURE ILLEGIBLE] ^^
---------------------------------
Title: President
Signed in:
Address: c/o Pacific Capital Group, Inc.
150 El Camino Drive, Suite 204
Beverly Hills, California 90212
Telecopy: (310) 281-4942
SSI ATLANTIC CROSSING LLC
By:_________________________________
Title:
Signed in:
Address:
<PAGE>
GT U.K. LTD
By: /s/ [SIGNATURE ILLEGIBLE]
-------------------------------
Title: Director
Signed in:
Address: c/o Wiggin & Co.
The Quadrangle,, Imperial Square
Cheltenham
Gloucestershire GL50 1YX England
Telecopy: (44) 1242 224223
GLOBAL TELESYSTEMS GMBH
By: ________________________________
Title:
Signed in:
Address:
AFFIDAVIT OF EXECUTION BY CORPORATION
-------------------------------------
I, JANICE BERTHIAUME, of the City of Windsor, in the County of Essex, Province
of Ontario, Canada, make oath and say:
1. I am the subscribing witness to the signature and I was present ???? it
executed at Windsor, Ontario, on the 27th day of June, 1997, ????? behalf
of GT U.K. Ltd. by Clint Walker, Director.
2. I know the said Clint Walker and know him to be the Director of ???? said
Corporation.
SWORN before me at the City of )
Windsor, in the County of Essex, ) /s/ Janice Berthiaume
-------------------------------
this 27th day of June, 1997. ) JANICE BERTHIAUME
/s/ [SIGNATURE ILLEGIBLE]
A Commissioner, etc.
<PAGE>
ANNEX A
DEFINITIONS
"Affiliate": of any designated Person, each Person which, directly or
---------
indirectly, controls or is controlled by or is under common control with such
designated Person. For the purposes of this definition, "control" (including,
-------
with correlative meanings, the terms "controlled by" and "under common control
------------ --------------------
with"), as used with respect to any Person, shall mean the possession, directly
- ----
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities
or by contract or otherwise.
"Applicable Law" or "Law": with respect to any Governmental Authority,
-----------------------
any constitutional provision, law, statute, rule, regulation, ordinance, treaty,
order, decree, judgment, decision, certificate, holding, injunction,
Governmental Action or requirement of such Governmental Authority along with the
interpretation and administration thereof by any Governmental Authority charged
with the interpretation or administration thereof. Unless the context clearly
requires otherwise, the term "Applicable Law" or "Law" shall include each of the
foregoing (and each provision thereof) as in effect at the time in question,
including any amendments, supplements, replacements, or other modifications,
thereto or thereof, and whether or not in effect as of the date hereof.
"Business Day": a day other than a Saturday, a Sunday or any other
------------
day on which commercial banks in New York City, are required or authorized by
Law to be closed and which is also a day on which dealings in Dollar deposits
are carried out in the London interbank market.
"Credit Agreement" shall mean the Credit Agreement, dated as of June
----------------
27, 1997, among GT Ltd., the financial institutions from time to time parties
thereto as lenders, Deutsche Bank AG, New York Branch, and Canadian Imperial
Bank of Commerce, as lead agents, Deutsche Bank AG, New York Branch, as
administrative agent, and Canadian Imperial Bank of Commerce, as syndication
agent, documentation agent and issuing bank (as the same may be amended,
supplemented or otherwise modified from time to time).
"Governmental Action": all permits, authorizations, registrations,
-------------------
consents, approvals, waivers, exceptions, variances, claims, orders, judgments
and decrees, licenses, exemptions, publications to the extent legally binding
upon the parties),filings (other than filings of a purely ministerial nature),
notices to and declarations of or with any Governmental Authority and shall
include, without limitation, all siting, environmental, construction and
operating permits and licenses that are required for the construction, use and
operation of the System.
<PAGE>
2
"Governmental Authority": any nation or government, any state or other
----------------------
political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"IRU and Option Agreement": the Indefeasible Right of Use and Option
------------------------
Agreement, dated as of June 27, 1997, between and among Site Lessee, as
Grantor and Site Lessor, as Purchaser (as the same may be amended,
supplemented or otherwise modified from time to time).
"Lien": any mortgage, security interest, pledge, hypothecation,
----
encumbrance or lien (statutory or other) of any kind or nature whatsoever
(including, without limitation, any agreement to give any of the foregoing,
any conditional sale or other title retention agreement, any construction
lien or any financing lease having substantially the same economic effect
as any such agreement and the filing of any statement under the Uniform
Commercial Code or comparable law of any jurisdiction).
"Person": an individual, partnership, corporation, business trust,
------
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Subordinated Security Agreement" shall mean the Subordinated Security
-------------------------------
Agreement, dated as of June 27, 1997, made by Site Lessee in favor of Site
Lessor, as the same may be amended, supplemented or otherwise modified from
time to time.
"Tax" or "Taxes": any and all fees (including, without limitation,
--- -----
documentation, recording, license and registration fees), taxes (including,
without limitation, net income, franchise, value added, ad valorem, gross
income, gross receipts, sales, use, rental, property (personal and real,
tangible and intangible) and stamp taxes), levies, imposts, duties,
charges, assessments or withholdings of any nature whatsoever, general or
special, ordinary or extraordinary, together with any and all penalties,
fines, additions to tax and interest thereon.
"U.S. Landing Assets and Rights": shall have the meaning given such
------------------------------
term in the Supply Contract.
"U.S. Personal Property Landing Assets and Rights and Rights": shall
-----------------------------------------------------------
have the meaning given such term in the Supply Contract.
"U.S. Real Property Landing Assets and Rights": shall have the meaning
--------------------------------------------
given such term in the Supply Contract.
<PAGE>
10.2 (CONT.)
SUPPLEMENT NO. 2
Supplement No. 2, dated as of December 1, 1997 (this "Supplement No.
2") to the Project Development and Construction Contract described below, among
Tyco Submarine Systems Ltd. formerly AT&T Submarine Systems, Inc. (the
"Contractor"), Global Telesystems Ltd. ("GTL"), GT Landing Corp. (the "U.S.
Subsidiary") GT U.K. Ltd (the U.K. Subsidiary"), Global Telesystems GmbH The
"German Subsidiary") and SSI Atlantic Crossing LLC (the "SSI Subsidiary"). (The
U.S Subsidiary, U.K. Subsidiary, German Subsidiary and the SSI subsidiary will
hereinafter be collectively referred to as the "Subsidiaries").
WITNESSETH
WHEREAS, unless otherwise defined herein, capitalized terms used
herein shall have the meanings given to them in the Contract and Supplement No.
1 described below;
WHEREAS, the Contractor and GTL have entered into the Project
Development and Construction Contract dated March 18, 1997 (as the same has been
and may from time to time be further amended, modified or supplemented, the
"Contracts), pursuant to which the Contractor has agreed to design, manufacture,
construct, install and deliver a fiber optic cable system connecting (a) the
United States to the United Kingdom, (b) the United Kingdom to Germany and (c)
Germany to the United States, all as more fully described in the Contract;
WHEREAS, the Contractor and GTL and the Subsidiaries entered into
Supplement No. 1, dated as of June 27, 1997 ("Supplement No. 1") pursuant to
which GTL transferred all rights under the Contract (i) with respect to the U.S.
Real Property Landing Assets and Rights to the U.S. Subsidiary, (ii) with
respect to the U.S. Personal Property Landing Assets and Rights to the SSI
Subsidiary, (iii) with respect to the U.K. Landing Assets and Rights to the U.K.
Subsidiary and (iv) with respect to the German Landing Assets and Rights to the
German Subsidiary;
WHEREAS, the Contractor and GTL have also entered into the Operations,
Administration and Maintenance Agreement dated as of March 25, 1997, pursuant to
which the Contractor has agreed, in accordance with the terms thereof, to
operate, administer and maintain the System;
WHEREAS, the Contractor and GTL and the Subsidiaries have also entered
into Supplement No. 1, dated as of June 27, 1997 to the OA&M Agreement (the
"OA&M Supplement") pursuant to which GTL transferred all rights under the OA&M
Agreement (i) with respect to the U.S. Personal Property Landing Assets and
Rights to the SSI Subsidiary, (ii) with respect to the U.K. Landing Assets and
Rights to the U.K. Subsidiary and (iii) with respect to the German Landing
Assets and Rights to the German Subsidiary.
WHEREAS, the Contractor and GTL have also entered into the Sales
Agency Agreement, dated as of March 25, 1997;
<PAGE>
2
WHEREAS, the Contractor and GTL and the Subsidiaries have also entered
into Supplement No. 1, dated as of June 27, 1997 to the Sales Agency Agreement
(the "Sales Agency Supplement") pursuant to which Contractor, GTL, the U.S.
Subsidiary, the U.K. Subsidiary and the German Subsidiary supplemented the
provisions of the Sales Agency Agreement to reflect their agreement with respect
to the Landing Assets;
WHEREAS, Article 6 of the Contract contemplates that either Party may
propose a Contract Variation;
WHEREAS, Sub-Article 6(B) of the Contract requires that, a Contract
Variation shall not become effective unless and until the Parties execute a
supplement to the Contract describing their respective rights and obligations,
WHEREAS, Sub-Paragraph 9(C) of Supplement No. 1 provides that GTL and
its direct and indirect assignees and transferees shall act collectively under
the Contract and through GTL as its agent with respect to Contract Variations;
WHEREAS, GTL intends to form a wholly owned subsidiary in the
Netherlands (the "Netherlands Subsidiary") for the purpose of owning and
providing capacity the Netherlands Landing Assets and Rights;
WHEREAS, as soon as the Netherlands Subsidiary is formed, GTL will
assign and transfer all of its right, title and interest in, to and under the
Contract with respect to Netherlands Landing Assets and Rights to the
Netherlands Subsidiary;
WHEREAS, GTL for itself and on behalf of the Netherlands Subsidiary
and the Subsidiaries desires to add an additional landing site to the System at
The Netherlands (the "Netherlands Landings") so that it may provide service
between and among the United States mainland, United Kingdom, Germany and The
Netherlands;
WHEREAS, GTL for itself and on behalf of the Netherlands Subsidiary
and the Subsidiaries desires to modify Segment 3 of the System by splitting it
into two parts to include the Netherlands Landing as follows:
Segment 3a: from Germany to The Netherlands; and
Segment 3b: from The Netherlands to the United Kingdom;
WHEREAS, GTL seeks to purchase and own, as set forth herein, the
Netherlands Landing and wishes to engage Contractor to perform the Work related
thereto;
WHEREAS, the Netherlands Landing Assets and Rights will eventually be
owned by the Netherlands Subsidiary;
WHEREAS, Contractor is willing to perform the Work with respect to
Segment 3a and Segment 3b in accordance with and subject to the terms hereof;
<PAGE>
3
NOW THEREFORE, in consideration of the premises, the Parties hereto
hereby agree as follows:
1. DOCUMENTS FORMING THE ENTIRE SUPPLEMENT
---------------------------------------
The Contract is hereby amended by adding section 7.0 to the Provisioning
Schedule at Appendix 1, and the Netherlands Landing Section of the Billing
Schedule at Appendix 2 and by deleting the portion of the Technical Volume,
Appendix 5 at Tab 1 (System Description), Tab 2 (System Performance
Availability), Tab 3, section 3.1.2 only (Submersible Equipment), Tab 7 (System
Commissioning and Acceptance) and Tab 11 (Straight Line Diagram), the Plan of
Work (Appendix 3), the Upgrade Plan of Work (Appendix 3A), and by inserting the
respective document set forth below in this Paragraph. This Supplement consists
of these terms and conditions and the following documents (in the form of
attachments, including appendices, attached hereto), which shall be read and
construed as part of the Supplement:
. Technical Volume, (Appendix 5) System Description (Tab 1), System
Performance Availability (Tab 2), Submersible Equipment, (Tab 3 section
3.1.2 only), System Commissioning and Acceptance (Tab 7) and Straight Line
Diagram (Tab 11)
. Plan of Work, (Appendix 3); Upgrade Plan of Work, (Appendix 3A)
. Provisioning Schedule section 7.0 (Appendix 1)
. Billing Schedule, Netherlands Landing Section (Appendix 2),
In the event of any inconsistency between the terms and conditions of the
Supplement and the above listed documents, the terms and conditions of the
Supplement shall prevail. The Appendices listed above have no order of
precedence.
2. DEFINED TERMS (a) Unless otherwise defined herein, capitalized
-------------
terms which are defined in the Contract or Supplement No. 1 are used herein as
therein defined.
(b) The Contract is hereby amended by deleting the definition of
"Billing Schedule", "Contract Price", "Phase 2 Segment", "Provisioning
Schedule", "Ready for Commercial Service", "Ready for Provisional Acceptance",
"Segment", "Segment 3", "System", "Technical Volume", "Upgrade Billing
Schedule", "Upgrade Plan of Work" and "Upgrade Provisioning Schedule" appearing
in Article 3 (Definitions) of the Contract, and by inserting the respective
definition as follows:
Billing Schedule means a billing schedule attached to the Contract as
----------------
Appendix 2 as supplemented by Supplement No. 2.
Contract Price means the Initial Contract Price, plus the Netherlands
--------------
Landing Price, plus any variations pursuant to Article 6 (Contract Variations),
Taxes as set forth in Sub-Article 4(B) and other adjustments to the Contract
Price provided for in this Contract.
Phase 2 Segment means Segment 2 at * per fiber pair on * fiber
---------------
pairs and Segment 1 at * per fiber pair on 4 fiber pairs.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
4
Provisioning Schedule means the price schedule attached to the
---------------------
Contract as Appendix 1 as supplemented by the Supplement No. 2.
Ready for Commercial Service means (i) for any Segment, that (a) such
----------------------------
Segment has the ability to carry commercial traffic between the two landing
points of such Segment (at * per fiber pair on * fiber pairs in the case
of a Phase 1 Segment or a Phase 3 Segment and at * per fiber pair on *
fiber pairs for Segment 1 and * fiber pairs for Segment 2 in the case of a Phase
2 Segment and at * per fiber pair on * fiber pairs in the case of a Phase
4 Segment) meeting performance criteria of ITU-T G.826 as defined in the System
Performance section of the Technical Volume and has line monitoring and
protection switching capability, (b) Contractor has tested and provided for STM-
1 interconnectivity capability to the Segment terminal equipment according to
ITUT G.826, (c) Contractor has substantially performed its obligations under
Article 18 (Intellectual Property) then required to be performed by it, (d) all
Permits are obtained for such Segment, (ii) for the System, that the System has
the ability to carry commercial traffic throughout the System (at * per
fiber pair) meeting performance criteria of ITU-T G.826 as defined in the System
Performance section of the Technical Volume with self healing ring protection
capability and per Segment protection capability, has line monitoring and per
Segment protection switching capability and has network management capability,
(b) Contractor has tested and provided for STM-1 interconnectivity capability to
the System terminal equipment according to ITU-T G.826, (c) Contractor has
substantially performed its obligations under Article 18 (Intellectual Property)
then required to be performed by it, (d) an interconnect agreement is in place
with a bona fide carrier at each landing point, and (e) all Permits are obtained
for the System and (iii) for any System Upgrade, the System is Ready for
Commercial Service at the capacity specified for such System Upgrade.
Ready for Provisional Acceptance means (i) with respect to any
--------------------------------
Segment, (a) such Segment is complete in all material respects (and in any event
is Ready for Commercial Service), (b) the results of Acceptance Testing of such
Segment demonstrate that such Segment has satisfied the System Performance
Requirements, (c) Contractor has substantially performed its obligations under
Article 18 (Intellectual Property) then required to be performed by it, and (d)
all Permits are obtained for such Segment, (ii) with respect to the System, the
System is complete in all material respects (and in any event is Ready for
Commercial Service), all four Segments are Ready for Provisional Acceptance with
self-healing ring protection capability and per Segment protection capability
and line monitoring and network management capability and (iii) with respect to
any System Upgrade, the results of Acceptance Testing of such System Upgrade
demonstrate that such System Upgrade is complete in all material respects and is
sufficient to realize the Performance Requirements.
Segment means Segment 1, Segment 2, Segment 3a or Segment 3b as the
-------
case may be.
System means the four fiber pair submarine cable system consisting of
------
Segments 1, 2, 3a and 3b (at a per fiber pair capacity of * at the Date of
Commercial Service or the Date of Provisional Acceptance, as the case may be of
the System, with each
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
5
Segment upgradeable to * per fiber pair at the Date of Provisional
Acceptance) as more fully described in the System Description section of the
Technical Volume.
Technical Volume means the Technical Volume attached to the Contract
----------------
as Appendix 5, as modified by the Supplement No. 2.
Upgrade Plan of Work means the plan of work attached to this
--------------------
Supplement No. 2 as Appendix 3A.
Upgrade Provisioning Schedule means the provisioning schedule attached
-----------------------------
to the Contract as Appendix 1A, as supplemented by the Supplement No. 2.
(c) Article 3 of the Contract is hereby amended to add the following
definitions:
Netherlands Landing Assets and Rights means all Landing Assets and
-------------------------------------
Rights in the Netherlands.
Netherlands Landing Price has the meaning set forth in Paragraph 3 to
-------------------------
this Supplement No. 2.
Phase 3 Segment means Segment 2 or Segment 3a.
---------------
Phase 4 Segment means Segment 1, 2, 3a and 3b at 10 Gb/s per fiber
---------------
pair on 4 fiber pairs.
Segment 3a means Segment B2 as defined in the Technical Volume from
----------
Germany to the Netherlands and landing in locations capable of interconnecting
with major telecommunications carriers.
Segment 3b means Segment B1 as defined in the Technical Volume from
----------
the Netherlands to the United Kingdom and landing in locations capable of
interconnecting with major telecommunications carrier.
Supplement No. 2 means this supplement to the Contract (as the same
may from time to time be amended, modified or supplemented).
(d) Paragraph 1 of Supplement No. 1 is hereby amended by deleting the
definition of "Landing Countries", and by inserting the following:
Landing Countries means the United States of America, the United
-----------------
Kingdom, The Netherlands and Germany.
3. NETHERLANDS LANDING PRICE (a) the Price for the Netherlands
-------------------------
Landing in United States Dollars (US) is a fixed fee of * dollars (the
"Netherlands Landing Price"). The Netherlands Landing Price does not include the
cost of optional upgrades which
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
6
are described in Article 6A (Optional Upgrades) of the Contract, any contract
variations as provided for in Article 6 (Contract Variations) except the
contract variation provided for in this Supplement, any Taxes, services
performed pursuant to the Operations, Administration and Maintenance Agreement,
or services performed pursuant to the Sales Agency Agreement.
(b) The Netherlands Landing Price excludes any Tax.
4. TERMS OF PAYMENT The Contractor will send separate invoices to
----------------
the Netherlands Subsidiary once it has been formed, and GTL has assigned and
transferred all of its right, title and interest in, to and under the Contract
with respect to the Netherlands Landing Assets and Rights, for payment for the
Netherlands Landing Assets and Rights.
5. ACCEPTANCE Article 8 Sub-Article (A)(7) of the Contract is hereby
----------
deleted and the following is inserted in its place: "The Contractor agrees that
the Date of Provisional Acceptance or Commercial Service of the System will
occur by February 22, 1999 (as such date may be extended under Article 6
(Contract Variations), Article 17 (Force Majeure) or otherwise under this
Contract or by agreement of the Parties, the "Scheduled RFS Date"). The
Contractor shall use reasonable efforts to be Ready for Provisional Acceptance
or Commercial Service with respect to Segment 1 with a capacity of * per fiber
pair on * by November 30, 1998 and with respect to Segment 3a with a capacity of
* per fiber pair on * by January 12, 1999."
6. NOTICES Any notice, consent, approval, or other communication
-------
pursuant to this Supplement shall be in writing, in the English language, and
shall be effected in the manner provided in Sub-Article 35(A) of the Contract
and Paragraph 17 of Supplement No. 1, and in the case of the Netherlands
Subsidiary, at the address specified below its signature hereto or to GTL as its
agent for notices.
7. REPRESENTATIONS BY GTL GTL represents and warrants that the
----------------------
Netherlands Subsidiary will be a direct, wholly-owned subsidiary and
acknowledges and agrees that any transfer of any interest in the Netherlands
Subsidiary (or any other person or entity with any Landing Assets and Rights)
will be subject to the Transfer Restrictions to the same extent as a transfer of
any Landing Assets and Rights and further agrees that it will cause each direct
or indirect transferee of any such interest to acknowledge and agree that such
transferee is also subject to the Transfer Restrictions with respect to such
interest.
8. JOINT AND SEVERAL LIABILITY (a) Paragraph 3(b) of Supplement No.
---------------------------
1 is hereby amended to provide: The U.S. Subsidiary, the U.K. Subsidiary and the
Netherlands Subsidiary shall be jointly and severally liable, together with GTL,
for all of GTL's obligations under the Contract, including without limitation,
GTL's obligations under paragraph (a) above."
(b) Paragraph 3(d) of Supplement No. 1 is hereby amended to provide: "GTL, the
U.K. Subsidiary and the Netherlands Subsidiary shall be jointly and severally
liable with the U.S. Subsidiary to pay the IRU Price."
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
7
9. GOVERNING LAW This Supplement shall be governed by, and construed
-------------
and interpreted in accordance with, the laws of the State of New York, United
States.
10. ASSIGNMENT TO NETHERLANDS SUBSIDIARY When the Netherlands
------------------------------------
Subsidiary is formed, the Parties hereto will execute and deliver a Supplement
to the Contract to assign and transfer the contract rights in the Netherlands
Landing Assets and Rights to the Netherlands Subsidiary containing provisions
similar to the provisions of Supplement No.1 to the Contract.
11. ARRANGEMENT WITH DEUTSCHE TELEKOM AG The Parties hereby
------------------------------------
acknowledge and agree that the lease agreement between De Te Immobilien ("De
Te") and the German Subsidiary (the "Lease") for the lease of floor space in the
Cable Station located in Westerland, Germany shall be for a minimum square
meters of 735 square meters on two floors. Nothing contained in the Lease or any
other contract between GTL and/or the German Subsidiary and De Te and/or
Deutsche Telekom AG shall change, limit or otherwise alter the minimum amount of
floor space stated in this Paragraph.
12. MISCELLANEOUS Except as expressly amended or supplemented herein,
-------------
the Contract and Supplement No. 1 shall continue to be, and shall remain, in
full force and effect in accordance with its terms. This Supplement may be
executed by the parties in any number of separate counterparts (including
facsimile transmission) and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, each of the undersigned has caused this Supplement
to be duly executed and delivered in _______________ by its proper and duly
authorized officer as of the date hereof.
<PAGE>
8
TYCO SUBMARINE SYSTEMS LTD.
By: /s/ Neil Garvey
-----------------------
Title: President
Signed in: USA
<PAGE>
9
GLOBAL TELESYSTEMS LTD.
By: /s/ K. Eugene Shutler
-----------------------------------
Title: Executive Director
Signed in: Bermuda
<PAGE>
10
GT LANDING CORP.
By: /s/ K. Eugene Shutler
-----------------------------------
Title: Director
Signed in: Bermuda
<PAGE>
11
GT U.K. LTD.
By: /s/ K. Eugene Shutler
-----------------------------------
Title: Director
Signed in: Bermuda
<PAGE>
12
GLOBAL TELESYSTEMS GmbH
By: /s/ K. Eugene Shutler
----------------------------------
Title: Director
Signed in: Bermuda
<PAGE>
13
SSI ATLANTIC CROSSING LLC
By: /s/
-----------------------------------
Title: Vice President
Signed in: USA
<PAGE>
EXHIBIT 10.3
EXECUTION COPY
_____________________________________
PC-1
_____________________________________
PROJECT DEVELOPMENT
AND
CONSTRUCTION CONTRACT
BETWEEN
TYCO SUBMARINE SYSTEMS LTD.
AND
PACIFIC CROSSING LTD.
_____________________________________
DATED AS OF APRIL 21, 1998
_____________________________________
<PAGE>
TABLE OF CONTENTS
GENERAL TERMS AND CONDITIONS
Article PAGE
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1 Provision of System...................................... 1
2 Documents Forming the Entire Contract.................... 2
3 Definitions.............................................. 2
4 Contract Price........................................... 12
5 Terms of Payment by Purchaser............................ 16
6 Contract Variations...................................... 18
6A. Optional Upgrades........................................ 19
7 Responsibilities for Permits............................. 22
8 Route Survey............................................. 23
9 Acceptance............................................... 24
10 Warranty................................................. 28
11 Contractor Support....................................... 32
12 Purchaser's Obligations.................................. 32
13 Termination for Default.................................. 33
14 Termination for Convenience.............................. 35
15 Suspension............................................... 37
16 Title and Risk of Loss................................... 38
17 Force Majeure............................................ 38
18 Intellectual Property.................................... 39
19 Infringement............................................. 45
20 Safeguarding of Information and Technology............... 46
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Article PAGE
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21 Export Control........................................... 47
22 Liquidated Damages....................................... 47
23 Limitation of Liability/Indemnification.................. 48
24 Counterparts............................................. 50
25 Design and Performance Responsibility.................... 50
26 Product Changes.......................................... 50
27 Risk and Insurance....................................... 50
28 Plant and Work Rules..................................... 54
29 Right of Access.......................................... 54
30 Quality Assurance........................................ 55
31 Documentation............................................ 55
32 Training................................................. 55
33 Settlement of Disputes/Arbitration....................... 56
34 Applicable Law........................................... 58
35 Notices.................................................. 58
36 Publicity and Confidentiality............................ 59
37 Assignment; Subcontractors............................... 59
38 Relationship of the Parties.............................. 61
39 Successors Bound......................................... 61
40 Article Captions......................................... 61
41 Severability............................................. 61
42 *........................................................ 61
43 Survival of Obligations.................................. 61
44 Non-Waiver............................................... 62
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
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Article PAGE
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45 Language................................................. 62
46 Entire Agreement......................................... 62
EXHIBITS
Exhibit A..................................................*
Exhibit B..............................Consent and Agreement
Exhibit C.................................Opinion of Counsel
Exhibit D...................................Escrow Agreement
Exhibit E............................Approved Subcontractors
Exhibit F..............................Intellectual Property
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
iii
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PROJECT DEVELOPMENT AND
CONSTRUCTION CONTRACT
BETWEEN
TYCO SUBMARINE SYSTEMS LTD. AND
PACIFIC CROSSING LTD.
This Project Development and Construction Contract ("Contract") is
made as of this 21st day of April 1998 between Tyco Submarine Systems Ltd., a
corporation organized and existing under the laws of the State of Delaware,
United States, ("TSSL" or "Contractor") and Pacific Crossing Ltd., a company
organized and existing under the laws of Bermuda (hereinafter referred to as
"Purchaser").
WHEREAS, Purchaser desires to establish a fiber optic submarine cable
system, to be known as the Pacific Crossing 1 Submarine Cable System
(hereinafter, and as more fully defined herein, the "System"), which will be
used to provide service between the United States mainland and Japan; and
WHEREAS, the System will consist of the following Segments:
Segment N: From Norma Beach, Washington, United States to Ajigaura,
Japan;
Segment W: From Ajigaura, Japan to Shima, Japan;
Segment S: From Shima, Japan to Toro Creek, California, United
States; and
Segment E: From Toro Creek, California, United States to Norma Beach,
Washington, United States; and
WHEREAS, Contractor is in the business of designing, constructing,
installing, supplying, delivering and manufacturing fiber optic submarine cable
systems and is familiar with the general business of the fiber optic submarine
cable system industry; and
WHEREAS, Purchaser seeks to purchase and own the System and wishes to
engage Contractor to perform the Work and Upgrade Work; and
WHEREAS, Contractor is willing to perform the Work and the Upgrade
Work on a turn-key, fixed-price basis in accordance with and subject to the
terms hereof.
NOW THEREFORE, IT HAS BEEN AGREED AS FOLLOWS
ARTICLE 1 PROVISION OF SYSTEM
- -----------------------------
In consideration of the Contract Price and the Upgrade Prices, the
Contractor agrees to undertake the Work and the Upgrade Work and to provide the
Purchaser with the
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System meeting the System Performance Requirements on or before the Scheduled
System RFS Date and the System Upgrades meeting the requirements of Article 6A,
all in accordance with the terms hereof.
ARTICLE 2 DOCUMENTS FORMING THE ENTIRE CONTRACT
- -----------------------------------------------
This Contract consists of these commercial Terms and Conditions,
Exhibits E and F hereto, and the following documents (in the form of
attachments, including appendices, attached hereto), which shall be read and
construed as part of the Contract:
. Technical Volume (includes Route Information), Appendix 6
. Plan of Work, Appendix 3, Upgrade Plan of Work, Appendix 3A
. Provisioning Schedule, Appendix 1, Upgrade Provisioning Schedule,
Appendix 1A
. Billing Schedule, Appendix 2, Upgrade Billing Schedule, Appendix 2A
. Invoice Format, Appendix 4, Form of Contractor's Certificate, Appendix
4A
. Progress Schedule, Appendix 5
In the event of any inconsistency between the Terms and Conditions and
the above listed documents, the Terms and Conditions shall prevail. The
Appendices listed above have no order of precedence.
ARTICLE 3 DEFINITIONS
- ---------------------
Definitions are as described in the specific Articles. Except as
otherwise defined the following definitions shall apply throughout the Contract:
AAA has the meaning set forth in Sub-Article 33(B).
ACCEPTANCE TESTING means (i) with respect to a Segment or the System,
the tests described in the Commissioning and Acceptance section of the
Technical Volume or developed pursuant to such section by mutual agreement
of the Parties (with 15 days prior notice to the Independent Engineer) and
reasonably designed to verify that such Segment or the System meets the
applicable Performance Requirements and (ii) with respect to any System
Upgrade, the tests described in the Commissioning and Acceptance section of
the Technical Volume or developed pursuant to such section by mutual
agreement of the Parties (with 15 days notice to the Independent Engineer)
and reasonably designed to verify that the System Upgrade meets the
applicable Performance Requirements.
ACCESS RIGHTS means all ownership, easement and/or other property
rights, from both private and governmental entities, both on land and below
the surface of the water (including, without limitation, agreements to use
conduits, install manholes and to lease space in cable stations) necessary
to access, use and occupy cable stations and the sites for cable stations
(including, without limitation, to land and install the
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submarine cable and related equipment and to bring such cable from the
ocean to the cable stations) in order for the Purchaser to own, operate and
maintain the System.
ACTUAL KNOWLEDGE means the actual knowledge of any executives with
management responsibility for the Contract.
ASSIGNMENT has the meaning set forth in Sub-Article 37(A).
BANKRUPTCY EVENT means an event specified in Sub-Article 13(A)(3) or
13(A)(4) with Contractor as the "other Party".
BILLING SCHEDULE means a billing schedule attached hereto as Appendix
2.
CERTIFICATE OF COMMERCIAL ACCEPTANCE means a certificate issued by
Purchaser in accordance with Sub-Article 9(D) to Contractor certifying that
a Segment, the System or a System Upgrade is Ready for Commercial
Acceptance.
CERTIFICATE OF FINAL ACCEPTANCE means a certificate issued by
Purchaser in accordance with Sub-Article 9(E) to Contractor certifying that
the System or a System Upgrade is Ready for Final Acceptance.
CERTIFICATE OF PROVISIONAL ACCEPTANCE means a certificate issued by
Purchaser in accordance with Sub-Article 9(C) to Contractor certifying that
a Segment, the System or a System Upgrade is Ready for Provisional
Acceptance.
CIF means cost, insurance and freight as defined in the International
Chamber of Commerce, Guide to Incoterms (1990).
COMMISSIONING REPORT has the meaning set forth in the Commissioning
and Acceptance section of the Technical Volume.
CONFIDENTIAL INFORMATION has the meaning set forth in Sub-Article
36(B).
CONSENT means a Consent and Agreement to be entered into among
Contractor, Purchaser and the financing parties described in Sub-Article
37(C) and substantially in the form of Exhibit B hereto, with such changes
therein as made pursuant to Sub-Article 37(C) hereto.
CONTRACT means this agreement, specifically consisting of the
documents described in Article 2, and shall be deemed to include any
amendments thereto or Contract Variations pursuant to Article 6 (Contract
Variations).
CONTRACTOR means the entity that has executed this Contract as
Contractor (TSSL) and that will be responsible for the performance of the
Work (and if applicable, Upgrade Work) under this Contract and shall
include its permitted successors and/or assigns.
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CONTRACT PRICE means the Initial Contract Price, plus any variations
pursuant to Article 6 (Contract Variations), Taxes as set forth in Sub-
Article 4(B) and other adjustments to the Contract Price provided for in
this Contract.
CONTRACT TAXES has the meaning set forth in Sub-Article 4(B)(1).
CONTRACT VARIATION has the meaning set forth in Sub-Article 6(A).
DATE OF COMMERCIAL ACCEPTANCE, PROVISIONAL ACCEPTANCE OR FINAL
ACCEPTANCE means the date that Purchaser receives a Commissioning Report or
an Upgrade Commissioning Report, as the case may be, demonstrating that a
Segment or the System or a System Upgrade, as the case may be, is Ready for
Commercial Acceptance, Ready for Provisional Acceptance or Ready for Final
Acceptance in accordance with Article 9 (Acceptance).
DDP means delivered duty paid as defined in the International Chamber
of Commerce, Guide to Incoterms (1990).
DEFAULT means an Event of Default or any event, condition or
occurrence which with the giving of notice or passage of time or both would
be an Event of Default.
DELIVERABLE SOFTWARE has the meaning set forth in Sub-Article 18(C).
DELIVERABLE TECHNICAL MATERIAL has the meaning set forth in Sub-
Article 18(B).
DISPUTE ACCOUNT means the Dispute Account to be created under the
Escrow Agreement.
ESCROW AGENT means Citibank, N.A., in its capacity as escrow agent
under the Escrow Agreement, and its successors in such capacity.
ESCROW AGREEMENT means that Escrow Agreement to be entered into, in
the event of a dispute as described in Sub-Article 5(C)(5), by and among
the Contractor, the Purchaser and the Escrow Agent, substantially in the
form of Exhibit D hereto, with such changes therein as are reasonably
requested by the Escrow Agent, as amended modified or supplemented from
time to time.
EVENT OF DEFAULT has the meaning set forth in Sub-Article 13(A).
EXCLUDED TAX means (i) any franchise, excess profits, net worth,
capital or capital gains Tax, as well as any Tax on doing business or
imposed on net or gross income or receipts (including minimum and
alternative minimum Taxes measured by any items of Tax preference), but in
each case excluding Taxes that are or are in the nature of sales, use,
excise, license, stamp, rental, ad valorem, value added or property
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Taxes; (ii) any Taxes imposed by a jurisdiction other than one in which (a)
the Contractor is or is treated as engaged in activities contemplated by or
in fulfillment of the Contract or (b) the Purchaser or its affiliates has a
nexus to such jurisdiction and the Tax imposed is attributable to that
nexus, (iii) Taxes imposed on the Contractor as a result of Contractor's
gross negligence or willful misconduct and (iv) any import duty, other
import related charges, sales or use tax, VAT or property tax imposed by
the United States or any political subdivision thereof or Taxing authority
therein in respect of Supplies brought into the United States for testing,
modification or other similar purposes prior to being installed or used
outside the United States.
EXPEDITED UPGRADE has the meaning set forth in Sub-Article 6A(L).
FINAL COMMISSIONING REPORT has the meaning set forth in Section 7,
Commissioning and Acceptance section of the Technical Volume.
FINAL SURVEY REPORT means the final survey report described in Section
5 of the Marine Installation section of the Technical Volume.
FOB means free on board as defined in the International Chamber of
Commerce, Guide to Incoterms (1990).
FORCE MAJEURE has the meaning set forth in Sub-Article 17(A).
*
*
INDEPENDENT ENGINEER means Conexart Technologies, Inc. or a similarly
qualified successor in the capacity as the engineer to the financing
sources specified in Sub-Article 37(C) who has agreed to be bound by the
confidentiality provisions of this Contract and who is not affiliated with
a competitor of Contractor.
INFORMATION has the meaning set forth in Sub-Article 20(A).
INITIAL CONTRACT PRICE has the meaning set forth in Sub-Article
4(A)(1).
INITIAL UPGRADE PRICE has the meaning set forth in Sub-Article
4(A)(2).
INTELLECTUAL PROPERTY has the meaning set forth in Sub-Article 18(A).
LAWS means any laws, ordinances, regulations, rules, orders,
proclamations, requirements of governmental authorities or treaties.
MANUFACTURING MATERIALS has the meaning set forth in Sub-Article
13(B).
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
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MILESTONES means the milestones set forth in the Progress Schedule
attached as Appendix 5 to this Contract.
NEXUS TAX means any Tax imposed by way of withholding in respect of or
in lieu of an Excluded Tax, but only to the extent such Tax would not have
been imposed but for the nexus (other than as a consequence of the
activities of the Contractor) of the Purchaser or its affiliate to the
jurisdiction imposing the Tax.
NON-SHIP COSTS has the meaning set forth in Sub-Article 10(A)(2).
NOTICE OF TERMINATION has the meaning set forth in Sub-Article 14(A).
OPTION PERIOD has the meaning set forth in Sub-Article 6A(B).
PARTY(IES) means either of the Purchaser and/or the Contractor, as
appropriate.
PERFORMANCE REQUIREMENTS means (i) with respect to a Segment or the
System, the applicable System Performance Requirements set forth or to be
developed by mutual agreement pursuant to the System Performance and
Availability section of the Technical Volume, (ii) with respect to any
System Upgrade, the applicable System Performance Requirements set forth in
or to be developed by mutual agreement pursuant to the Technical Volume or
(iii) in each case, such other Segment, System or System Upgrade
performance levels as mutually agreed by the Parties.
PERMITS means all Access Rights, permits, pipeline and cable crossing
agreements, approvals, "no objections", permissions-in-principle,
authorizations, consents, customs clearances, registrations, certificates,
rights-of-way, certificates of occupancy, licenses, including without
limitation, landing licenses, orders, vessel and crew authorizations/visas,
permission for the operation of navigational aids and radio systems and
similar authorizations necessary to complete the Work and operate and
maintain the System (other than any of the foregoing (i) relating to the
ownership, operation and maintenance of the System and not necessary until
after the System is Ready for Final Acceptance, (ii) which is or would be
needed by Purchaser to engage in any business outside the business of
developing, owning and operating a submarine cable system or (iii) which is
or would be needed at any time by any purchaser or lessee of capacity on
the System).
PROVISIONING SCHEDULE means the price schedule attached hereto in
Appendix 1.
PURCHASER means Pacific Crossing Ltd. and shall include its permitted
successors and assigns.
READY FOR COMMERCIAL ACCEPTANCE means
(i) for any Segment, that
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(a) if the System is not at the same time also Ready for
Commercial Acceptance, the Purchaser has consented, in its sole
discretion, to accept such Segment as Ready for Commercial
Acceptance,
(b) such Segment has the ability to carry commercial traffic
between the two landing points of such Segment meeting
performance criteria of ITU-T G.826 as defined in the System
Performance section of the Technical Volume and has line
monitoring and protection switching capability,
(c) Contractor has tested and provided for STM-1
interconnectivity capability (or such other interconnectivity
capability as may be mutually agreed) to the Segment terminal
equipment according to ITU-T G.826,
(d) Contractor has substantially performed its obligations
under Article 18 (Intellectual Property) then required to be
performed by it, and
(e) all Permits are obtained for such Segment, and
(ii) for the System,
(a) that the System has the ability to carry commercial
traffic throughout the System (operating at 20 Gb/s per fiber
pair) meeting performance criteria of ITU-T G.826 as defined in
the System Performance section of the Technical Volume with self
healing ring protection capability and per Segment protection
capability, has line monitoring and per Segment protection
switching capability and has network management capability,
(b) Contractor has tested and provided for STM-1
interconnectivity capability (or such other interconnectivity
capability as may be mutually agreed) to the System terminal
equipment according to ITU-T G.826,
(c) Contractor has substantially performed its obligations
under Article 18 (Intellectual Property) then required to be
performed by it and
(d) all Permits are obtained for the System and
(iii) for any System Upgrade, the System is Ready for Commercial
Acceptance at the capacity specified for such System Upgrade.
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READY FOR FINAL ACCEPTANCE means
(i) for the System, that
(a) (I) the System has successfully and continuously
(other than by reason of Force Majeure in which case the test
period shall be extended for a time period equal to the time
period of such Force Majeure) functioned in compliance with the
System Performance Requirements during the period of ninety (90)
consecutive days after the Date of Provisional Acceptance or
(II) if the System shall have failed to meet the System
Performance Requirements at any time during such period (other
than by reason of Force Majeure), the Contractor has corrected
such failure and the System has successfully and continuously
(other than by reason of Force Majeure in which case the test
period shall be extended for a time period equal to the time
period of such Force Majeure) functioned in compliance with the
System Performance Requirements for such additional period of
time not to exceed ninety (90) days (and not to end prior to the
date 90 days after the Date of Provisional Acceptance) as
reasonably determined by the Independent Engineer as being
sufficient to confirm that such failure has been corrected and
that no other failures are likely to appear and
(b) all deficiencies noted in the Certificate of Provisional
Acceptance have been corrected (other than minor deficiencies
which will not affect the operation of the System, in respect of
which an equitable adjustment to the Contract Price will be made)
and
(c) Contractor has complied in all material respects with
Article 18 (Intellectual Property) and
(ii) for any System Upgrade, that
(a) (I) the System Upgrade has successfully functioned in
compliance with the System Performance Requirements during the
period of ninety (90) days after the Date of Provisional
Acceptance of the System Upgrade or (II) if the System Upgrade
shall have failed to meet the System Performance Requirements
during such period, the Contractor has corrected such failure and
the System Upgrade has successfully functioned in compliance with
the System Performance Requirements for such additional period of
time not to exceed ninety (90) days as reasonably determined by
the Independent Engineer as sufficient to confirm that such
failure has been corrected and
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9
(b) all deficiencies noted in the Certificate of Provisional
Acceptance have been corrected (other than minor deficiencies
which will not affect the operation of the System, in respect of
which an equitable adjustment of the Contract Price will be made)
and
(c) Contractor has complied in all material respects with
Article 18 (Intellectual Property).
READY FOR PROVISIONAL ACCEPTANCE means
(i) with respect to any Segment,
(a) in the case of all Segments other than Segment S, if the
System is not, at the same time, also Ready for Provisional
Acceptance, the Purchaser has consented, in its sole discretion,
to accept such segment as Ready for Provisional Acceptance,
(b) such Segment is complete in all material respects (and
in any event is Ready for Commercial Acceptance),
(c) the results of Acceptance Testing of such Segment
demonstrate that such Segment has satisfied the System
Performance Requirements,
(d) Contractor has substantially performed its obligations
under Article 18 (Intellectual Property) then required to be
performed by it,
(e) all Permits are obtained for such Segment, and
(ii) with respect to the System, the System is complete in all
material respects (and in any event is Ready for Commercial
Acceptance), all Segments are Ready for Provisional Acceptance with
self-healing ring protection capability and per Segment protection
capability and line monitoring and network management capability and
(iii) with respect to any System Upgrade, the results of
Acceptance Testing of such System Upgrade demonstrate that such System
Upgrade is complete in all material respects and is sufficient to
realize the Performance Requirements.
REPRESENTATIVES has the meaning set forth in Article 36(B).
RETAINAGE means an amount equal to *% of the Initial Contract Price.
RETESTING has the meaning set forth in Sub-Article 9(B)(3).
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
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ROUTE SURVEY means the route survey described in the Marine section of the
Technical Volume.
SCHEDULED SEGMENT S RFS DATE has the meaning set forth in Sub-Article
9(A).
SCHEDULED SYSTEM RFS DATE has the meaning set forth in Sub-Article
9(A).
SCHEDULED UPGRADE DATE means for any System Upgrade, the date by which
the Contractor agrees such System Upgrade will be Ready for Provisional
Acceptance pursuant to Sub-Article 6A(K) hereof.
SEGMENT means Segment N, Segment S, Segment E or Segment W, as the
case may be.
SEGMENT E means the Segment of the System from Toro Creek, California,
United States to Norma Beach, Washington, United States and landing in
locations capable of interconnecting with major telecommunications
carriers.
SEGMENT N means the Segment of the System from Norma Beach,
Washington, United States to Ajigaura, Japan and landing in locations
capable of interconnecting with major telecommunications carriers.
SEGMENT S means the Segment of the System from Shima, Japan to Toro
Creek, California, United States and landing in locations capable of
interconnecting with major telecommunications carriers.
SEGMENT W means the Segment of the System from Ajigaura, Japan to
Shima, Japan and landing in locations capable of interconnecting with major
telecommunications carriers.
SHIP COSTS has the meaning set forth in Sub-Article 10(A)(2).
SHIP PERIOD has the meaning set forth in Sub-Article 10(A).
SUPPLIES means any and all materials, plant, machinery, equipment,
hardware and items supplied by the Contractor under this Contract.
SUSPENSION means a suspension in pursuant to Sub-Article 15(A) or
15(B).
SYSTEM means the four fiber pair submarine cable system consisting of
Segments N, S, E and W (at a per fiber pair capacity of * at the Date
of Commercial Acceptance or the Date of Provisional Acceptance, as the case
may be, of the System, with each Segment having the capability of being
upgraded to * per fiber pair at the Date of Provisional Acceptance),
including the cable stations, as more fully described in the System
Description section of the Technical Volume.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
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SYSTEM PERFORMANCE REQUIREMENTS has the meaning set forth in the
System Description section of the Technical Volume.
SYSTEM UPGRADE has the meaning set forth in Sub-Article 6A(A).
TAX means any tax, duty, levy, charge or custom (including, without
limitation, any sales or use tax, VAT or octroi duty relating to the
Contract items and fiscal stamps connected with Contract legalization)
imposed or collected by any taxing authority or agency (domestic or
foreign).
TECHNICAL VOLUME means the Technical Volume attached hereto as
Appendix 6.
TRANSFEREE means any entity to which purchaser assigns rights
hereunder pursuant to Sub-Article 37(D) hereof.
UPGRADE BILLING SCHEDULE means the billing schedule attached hereto as
Appendix 2A.
UPGRADE COMMISSIONING REPORT has the meaning set forth in the
Commissioning and Acceptance section of the Technical Volume.
UPGRADE PERIOD has the meaning set forth in Sub-Article 6A(E).
UPGRADE PLAN OF WORK means the plan of work attached hereto as
Appendix 3A.
UPGRADE PRICE means, for any System Upgrade, the Initial Upgrade Price
for such System Upgrade, plus any variations pursuant to Article 6
(Contract Variations), Taxes as set forth in Sub-Article 4(B) and other
adjustments to such Upgrade Price provided for in this Contract.
UPGRADE PROVISIONING SCHEDULE means the provisioning schedule attached
hereto as Appendix 1A.
UPGRADE WARRANTY PERIOD has the meaning set forth in Sub-Article
10(A).
UPGRADE WORK means the activities and services to be performed or
provided by Contractor under Article 6A (Optional Upgrades).
*
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
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WARRANTY PERIOD has the meaning set forth in Sub-Article 10(A).
WORK means all activities and services (other than the activities and
services specified in this Contract to be provided by Purchaser) necessary
to be performed or provided in developing, planning, designing,
manufacturing, constructing, delivering, installing and testing the System,
until the System is Ready for Final Acceptance, including without
limitation, designating, coordinating, obtaining and paying for on behalf
of Purchaser the Access Rights and obtaining all Permits except landing
licenses. Whether or not used in conjunction with the term "Supplies", the
term "Work" shall always be deemed to include the provision of the relevant
Supplies, unless the context requires otherwise.
YEAR 2000 COMPLIANT means, when used with respect to any software or
materials, that such software or materials will operate accurately and,
without interruption, accept, possess and in all manner retain full
functionality when referring to, or involving, any year or date in the
twentieth or twenty-first centuries.
ARTICLE 4 CONTRACT PRICE
- ------------------------
A. Contract Price
1. The initial Contract Price for the Work, in United States Dollars
(US$) is a fee of * (the "Initial Contract Price") which includes
a fixed component of * (the "Fixed Component") and a variable
component of * (which is subject to adjustment to correspond to
the actual cost (including out-of-pocket fees and expenses)
incurred by Contractor in obtaining land in Japan on which two
cable stations, and any parking lots thereto, are built pursuant
to Sub-Article 6(D) (the "Variable Component"). The Initial
Contract Price does not include the cost of optional upgrades
which are described in Article 6A (Optional Upgrades), any
contract variations as provided for in Article 6 (Contract
Variations), or any Taxes. The Fixed Component of the Initial
Contract Price includes all costs and expenses incurred in
obtaining all Permits (including Access Rights) including those
incurred with respect to cable stations (excluding the cost of
acquiring land in Japan on which the two cable stations, and any
parking lots thereto, are built pursuant to Sub-Article 6(D)).
The Fixed Component of the Initial Contract Price includes all
the Work except for the Work described in the Variable Component.
The Fixed Component includes all charges for CIF.
2. The Initial Upgrade Price for any Upgrade Work, in United States
Dollars (US$) is the fixed fee set forth in Appendix 2A (the
"Initial Upgrade Price"). No Initial Upgrade Price includes the
cost of any contract variations as provided for in Article 6
(Contract Variations) or any Taxes.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
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3. The Provisioning Schedule sets forth the Contractor's estimate of
the breakdown of the Initial Contract Price among various aspects
of the Work. If the actual cost of any aspect of the Work is
greater or less than that set forth in the Provisioning Schedule,
such fact shall not cause any change in the Initial Contract
Price, except for the Variable Component.
4. Without the prior written consent of the Purchaser, which consent
shall not be unreasonably withheld or delayed, the Contractor
shall not arrange for any
(a) Access Right which requires payments to be made by the
Purchaser or made after the System is Ready for Provisional
Acceptance or
(b) Permit which requires aggregate payments in excess of
* to be made by Purchaser or made after the System is Ready
for Provisional Acceptance.
B. Taxes, Levies and Duties
1. The Initial Contract Price and each Initial Upgrade Price, as
stated in Sub-Article 4(A) above, excludes any Tax. The Contract
Price and each Upgrade Price shall without duplication be
adjusted for any Tax imposed on or in connection with this
Contract (including, without limitation, the execution and
delivery of this Contract, the Work, the Upgrade Work and the
Supplies, but excluding any Excluded Taxes) (any such Taxes,
other than Excluded Taxes, are hereinafter referred to as
"Contract Taxes"). Contractor has provided a good faith estimate
of the Contract Taxes payable by the Purchaser; it being
understood that the Contractor shall have no liability under this
Contract or otherwise to the Purchaser for any errors or
omissions in such estimate or any losses arising therefrom. The
Contractor shall be responsible for any Excluded Tax that might
be incurred by the Contractor as well as any Tax described in
clause (iv) of the definition of Excluded Tax.
2. The Purchaser will be ultimately responsible for the payment of
all Contract Taxes (including, without limitation, Contract Taxes
that are VAT, octroi duties relating to Contract items and fiscal
stamps, etc. connected with Contract legalizations to the
authorities in their countries). In the case of any Contract
Taxes paid by the Contractor, the Contractor shall submit payment
on the Purchaser's behalf and Contractor will be reimbursed by
the Purchaser in accordance with Article 5 (Terms of Payment by
Purchaser).
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
14
3. The Contractor agrees to use reasonable efforts including,
without limitation, by registering for VAT and any applicable
sales Taxes in any country, state or other jurisdiction where
legally required, to cooperate with and assist Purchaser in its
efforts (i) to have Supplies which are the subject of this
Contract made exempt from Contract Taxes, whether in the
manufacture of the Supplies or related to the importation or
location or installation of the Supplies, (ii) to request
revisions, drawbacks, remissions, reclassifications or the like
to the jurisdictions identified by the Purchaser; or (iii) to
reduce or eliminate Contract Taxes (including the provision of
applicable certifications and forms) and to obtain any available
refunds of Contract Taxes, provided that the Contractor shall not
--------
be required to act other than in accordance with the relevant
Laws then in force. The Purchaser shall reimburse the Contractor,
in accordance with Article 5, for any reasonable costs (including
the reasonable fees and expenses of legal counsel, accountants
and other advisors) incurred by the Contractor under this Sub-
Article 4(B)(3) provided that Purchaser was notified and has
--------
consented to the incurrence of such costs, fees and expenses.
Contractor shall not be required to cooperate with and assist
Purchaser in its efforts under this Sub-Article 4(B)(3) or to
take any action hereunder which in the Contractor's good faith
judgment would incur any costs or if in Contractor's good faith
judgment it would be advisable to obtain the advice of counsel,
accountants or other advisors prior to cooperating with or
assisting purchaser or taking any action, unless in each case,
Purchaser has agreed to reimburse Contractor under the foregoing
proviso.
4. Prior to the Date of Provisional Acceptance with respect to the
System or any System Upgrade, the Contractor shall provide
evidence of having made all payments for Taxes included in the
Contract Price or Upgrade Price or described in clause (iv) of
the definition of Excluded Taxes, other than VAT due on payments
of the Contract Price or Upgrade Price made on or after the Date
of Provisional Acceptance of the System or System Upgrade, which
evidence shall be provided within sixty (60) days of the date of
each such payment.
5. As part of Work or any Upgrade Work, the Contractor shall obtain
at its expense, on Purchaser's behalf, any import license or
other official authorization and carry out all customs
formalities necessary for the importation or exportation of goods
in connection with such Work or Upgrade Work. The Purchaser
agrees to be the Importer or Exporter of Record or designate an
Importer or Exporter of Record/Consignee on its behalf. Purchaser
must provide a Letter of Authorization from any third party
designate stating it agrees to be the Importer or Exporter of
Record on Purchaser's behalf and identify the name and address of
the designated Importer or Exporter of Record.
<PAGE>
15
6. The Supplies to be installed or held on land shall be delivered
to the agreed point at the named place of destination and shall
be consigned to the Purchaser.
C. Withholding Tax
1. If withholding for any Tax is required in respect of any payment
to the Contractor, the Purchaser shall (i) withhold the
appropriate amount from such payment, (ii) pay such amount to the
relevant authorities in accordance with the applicable Laws and
(iii) in the case of any such withholding in respect of a
Contract Tax or a Nexus Tax and subject to the Contractor's
satisfying the obligations set forth in the last sentence of this
Sub-Article 4(C)(1), pay the Contractor an additional amount such
that the net amount received by the Contractor is the amount the
Contractor would have received in the absence of such
withholding. In such a case, the Purchaser shall provide to the
Contractor, as soon as reasonably practicable, a certified copy
of an official tax receipt for any Tax which is retained from any
payment due to the Contractor or for any Tax which is paid on
behalf of the Contractor. All such receipts shall be in the name
of the Contractor. The Contractor agrees to complete accurately
and timely provide to the Purchaser or, if required, to the
applicable Taxing authority, such forms, certifications or other
documents as may be requested in timely manner by Purchaser, in
order to allow it to make payments to the Contractor without any
deduction or withholding on account of withholding Taxes (or at a
reduced rate thereof) or to receive a refund of any amounts
deducted or withheld on account of withholding Taxes.
2. If the Contractor shall become aware that it is entitled to
receive a refund or credit from a relevant taxing or governmental
authority in respect of a Contract Tax or Nexus Tax as to which
the Purchaser has paid an additional amount pursuant to Sub-
Article 4(C)(1) above, the Contractor shall promptly notify the
Purchaser of the availability of such refund or credit and shall,
within 30 days after receipt of a request by the Purchaser
(whether as a result of notification that it has made to the
Purchaser or otherwise), make a claim to such taxing or
governmental authority for such refund or credit at the
Purchaser's expense. If the Contractor receives a refund or
credit in respect of a Contract or Nexus Tax as to which the
Purchaser has paid an additional amount pursuant to Sub-Article
4(C)(1) above, or if, as a result of the Purchaser's payment of
such additional amounts, the Contractor or any other member of an
affiliated group, as defined in section 1504(a) of the Code, of
which the Contractor is a member, receives a credit against Taxes
imposed on its income or franchise taxes imposed on it by the
country under the laws of which it is organized or any political
subdivision thereof, the Contractor shall promptly notify the
Purchaser
<PAGE>
16
of such refund or credit and shall within 30 days from the date
of receipt of such refund or benefit of such credit pay over the
amount of such refund or benefit of such credit (including any
interest paid or credited by the relevant taxing or governmental
authority with respect to such refund or credit) to the Purchaser
(but only to the extent of the additional payments made by the
Purchaser under Sub-Article 4(C)(1) above with respect to the
Contract or Nexus Tax giving rise to such refund or credit), net
of all out-of-pocket expenses of the Contractor; provided,
--------
however, that the Purchaser, upon the request of the Contractor
-------
agrees to repay the amount paid over to the Purchaser (plus
penalties, interest or other charges due to the appropriate
authorities in connection therewith) to the Contractor in the
event the Contractor is required to repay such refund or credit
to such relevant authority.
ARTICLE 5 TERMS OF PAYMENT BY PURCHASER
- ---------------------------------------
A. General Conditions of Payment
1. All payments shall be made and all invoices shall be rendered in
US Dollars (US$). The Purchaser shall be responsible for and
shall pay all costs and fees for payment, as well as the banking
and wiring costs. All banking documents and correspondence must
be in English.
B. Invoice Procedures
1. All invoices for Work shall be submitted according to the Billing
Schedule, provided, that at the time of any such Invoice the
--------
relevant Milestones have been achieved. All invoices for Work
shall have a certificate addressed to Purchaser in the form of
Appendix 4A attached.
2. Any Contract Variations shall be invoiced and paid in accordance
with the terms of the Contract Variation as specified in Article
6 (Contract Variations).
3. Invoices for Upgrade Work shall be submitted according to the
Upgrade Billing Schedule and shall be paid in accordance with
this Article 5.
4. Invoices for amounts not described in Sub-Sections 1-3 above,
which may become payable hereunder shall be submitted after
applicable costs have been incurred or such other time as may be
specified in this Contract. Such invoices shall be accompanied by
a certificate of the Contractor explaining such amount and
certifying that it is payable.
5. The Contractor shall render all invoices to the following address
or facsimile number:
<PAGE>
17
Pacific Crossing Ltd.
Wessex House
45 Reid Street
Hamilton HM12
Bermuda
Facsimile: 441-296-6749/8606
Attn: Cameron Adderly
with a copy to
Conexart Technologies, Inc.
124 de Charante
Saint Lambert
Quebec, Canada
J4S 1K3
Facsimile: 514-466-1093
Attn: Mr. Martin Fournier
C. Payment Procedures
1. The Purchaser shall pay the Contractor, and the Contractor shall
accept payment, in accordance with this Article 5 (Terms of
Payment by Purchaser).
2. Purchaser agrees to pay an initial payment to Contractor in the
amount of *. Within three business days of the time this Contract
is signed, the first portion of the initial payment, in the
amount of *, shall be paid by Purchaser to Contractor. Failure to
receive this payment shall entitle Contractor to immediately
suspend Work hereunder. The second portion of the initial
payment, in the amount of *, shall be paid by Purchaser to
Contractor on June 30, 1998.
3. Invoices given to the Purchaser (and the Independent Engineer) on
or before the last day of any month shall, subject to Sub-Article
5(C)(5) below, be due and payable on the last day of the next
month or such other time as may be specified in this Contract;
provided that invoices given to Purchaser on or before April 30,
--------
1998 shall be due and payable no earlier than June 30, 1998.
4. Invoices not paid when due shall accrue late payment charges from
the day, following the day, on which payment was due until the
day on which it is paid. Invoices for such extended payment
charges shall not be issued for an amount less than U.S. $1,000.
Extended payment charges shall be computed at the rate of one
percent (1%) per month.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
18
5. In the event that the Purchaser has an objection to any invoice
or other payment obligation or any amount owing by Contractor to
Purchaser shall not have been paid when due, the Purchaser shall
promptly notify the Contractor of such objection and such amount,
and the Purchaser and Contractor shall make every reasonable
effort to settle promptly the dispute concerning the payment(s)
in question. In the event such dispute cannot be settled, the
Purchaser will have the right to withhold payment of the disputed
amount(s) (or withhold from the invoice amount a sum equal to the
amount purportedly owing by Contractor) so long as it deposits,
in full, such disputed amount(s) into the Dispute Account.
(a) Provided such disputed amount is placed into the Dispute
Account in a timely manner, the Purchaser shall not be
deemed to be in breach of or in default for failing to pay
Contractor.
(b) The Escrow Agent will distribute the disputed amount in
accordance with the terms of the Escrow Agreement.
(c) In addition, the prevailing Party shall be entitled to
receive from the Dispute Account an amount equal to the
interest earned by the Escrow Agent on the distributed,
disputed amount, which shall be distributed by the Escrow
Agent under clause (b) above.
The Contractor and the Purchaser will share equally the costs and
expenses of the Escrow Agent.
The Contractor and the Purchaser will execute and deliver an
Escrow Agreement substantially in the form of Exhibit D hereto,
with such changes therein as the Escrow Agreement may reasonably
request.
6. The Purchaser shall make timely payments for that portion of the
invoice not in dispute in accordance with Sub-Article 5(C) or
such payments will be assessed extended payment charges as set
forth in Sub-Article 5(C)(4). Pending resolution of the dispute,
the Purchaser may not withhold payment (unless also subject to
dispute) on any other invoice concerning different goods and/or
services submitted by Contractor.
ARTICLE 6 CONTRACT VARIATIONS
- -----------------------------
A. Either Party may request, during construction of the System or any
System Upgrade, by written order, a contract variation requiring additions or
alterations to, deviations or deductions from the System or System Upgrade
("Contract Variation"). If the other Party consents, in its sole discretion,
this change will be formalized as an amendment to this Contract by a Contract
Variation; provided, that the Contractor will not unreasonably withhold
--------
<PAGE>
19
its consent to a Contract Variation requested by the Purchaser; and provided
--------
further, that Purchaser will not unreasonably withhold its consent to a Contract
- -------
Variation requested by the Contractor so long as such Contract Variation does
not affect the Contract Price, any Upgrade Price, the Scheduled System RFS Date,
the Scheduled Segment S RFS Date, any Scheduled Upgrade Date, any warranties or
the Performance Standards.
B. A Contract Variation shall not become effective unless and until the
price adjustment, the terms and schedule of payment and the extension of time
and all other terms have been mutually agreed upon by the Parties (and the
Parties shall act reasonably and in good faith in connection with all such
terms) and such Contract Variation is signed by an authorized representative of
each Party. Each Contract Variation shall be incorporated as an amendment to the
Contract.
C. Contractor may seek a Contract Variation for any change, after the
date hereof, of any Law (except, and to the extent, affecting Taxes or wages)
which requires a change in the Work or the Upgrade Work or affects the costs
(other than wages) incurred or to be incurred by the Contractor or any
combination of the foregoing and Purchaser shall agree to any such change in
Work or Upgrade Work as may be required and to an equitable adjustment to the
Contract Price or the applicable Upgrade Price. As of the date hereof, neither
Party has Actual Knowledge of any proposed change in any Law that would require
a change in the Work or the Upgrade Work.
D. The Parties will execute a Contract Variation to confirm the actual
amount of the Variable Component, after final adjustment, if any, pursuant to
Sub-Article 4(A)(1) hereof.
E. The Initial Contract Price is based on the assumption that Contractor
will acquire ownership of land and build, on such land, two cable stations in
Japan and two cable stations in the United States. To the extent that such
assumption is incorrect (if, for example, the Contractor shall lease space in
one or more existing cable stations) both Parties will agree to an equitable
adjustment, up or down, to the Contract Price and the terms and schedule of
payments. The Contractor will consult with, and obtain the consent of the
Purchaser (not to be unreasonably withheld or delayed) regarding the location of
cable stations and whether to acquire, build, or lease such cable stations. Any
lease for space in a cable station shall be reasonably satisfactory in form and
substance to the Purchaser.
ARTICLE 6A. OPTIONAL UPGRADES
- --------------------------------
A. This Article includes the terms and conditions governing an option for
future upgrades to the System (each a "System Upgrade") that may be exercised by
Purchaser during the Option Period.
B. *
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
20
C. *
D. *
E. *
F. *
G. *
*
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
21
*
H. *
I. *
J. *
K. *
L. *
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
22
*
ARTICLE 7 RESPONSIBILITIES FOR PERMITS; COMPLIANCE WITH LAWS
- -------------------------------------------------------------
A. The Purchaser shall reasonably cooperate with and assist the Contractor
to obtain all Permits (except those specified in paragraph C below), to the
extent that Purchaser's cooperation and assistance are necessary for Contractor
to expeditiously and cost-efficiently obtain such Permits. The Purchaser agrees
to respond promptly to any such request from Contractor. Further, the Purchaser
agrees that it will not impede or interfere with Contractor's activities or
Contractor's abilities to perform its obligations. Upon notice from Contractor
with respect to a Permit or receipt by Purchaser of a copy of a Permit,
Purchaser shall fulfill all conditions of such Permit and perform all
responsibilities thereunder, except to the extent that such conditions or
responsibilities are those of the Contractor under Work. Contractor will inform
Purchaser as to any such conditions or responsibilities that, in the
Contractor's reasonable judgment, are not ordinary and routine and obtain
Purchaser's consent, which consent shall not be unreasonably withheld, thereto
prior to arranging for any such Permit.
B. Subject to paragraph C below, the Contractor shall have the
responsibility for obtaining, at Contractor's sole cost and expense, all Permits
on Purchaser's behalf. The Contractor will cause all Permits not issued in the
name of Purchaser to be assignable to Purchaser, and to be assigned to Purchaser
at the time title to the System is transferred to Purchaser pursuant to this
Contract. Subject to Sub-Article 4(A)(4), Purchaser shall be
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
23
responsible for payment of all Permit fees and other costs and expenses due with
respect to any Permit after the Date of Provisional Acceptance of the System.
C. The Purchaser shall be responsible for obtaining, at its expense,
landing licenses in the United States and Japan. The Contractor will cooperate
with the Purchaser in connection therewith. Purchaser shall reimburse
reasonable outside counsel fees, reasonable independent consultant fees and
other reasonable out-of-pocket expenses incurred by Contractor in connection
with such cooperation.
D. Any delay in obtaining or failure to obtain any Permit shall constitute
a Force Majeure and be treated as described in Article 17 (Force Majeure),
except to the extent such delay is a result of Contractor's negligence or
willful misconduct.
E. Except with respect to variations necessitated by complying with any
changes, enacted after the date hereof, in any Laws (the costs with respect to
which shall be borne by the Purchaser), the Contractor shall be responsible for
the payment of any and all costs incurred as a result of the need to vary
design, drawings, plans or procedures to comply with any of the circumstances
set forth in this Article. The Contractor shall, before making any variations
from the designs, drawings, plans or procedures that may be necessitated by so
complying with any Laws and that would represent a material change to the
overall design of the System, give to the Purchaser written notice, specifying
the variations proposed to be made, and the reasons for making them. As of the
date hereof, neither Party has Actual Knowledge of any proposed changes in the
Laws which would necessitate any such variation.
F. The Contractor shall (i) give all notices required by any Laws to be
given to any authority and (ii) perform or permit the performance by authorized
persons of any inspection required by the said Laws, subject to Sub-Article
6(C).
G. Within 30 days after the date of execution of this Contract, the
Contractor will prepare and deliver to the Purchaser a detailed list of Permits
that to its knowledge are required to be obtained under current law in order to
complete the Work and shall update such list from time to time if it becomes
aware of changes in Permit requirements. Such list, as updated from time to
time, shall set forth the projected dates of filing for such Permits and an
estimate of when such Permits are expected to be obtained. Without limiting
Contractor's liabilities in respect of Sub-Articles 7(B), Contractor shall have
no liability in respect of the accuracy of the information furnished under this
Sub-Article, except in the case of gross negligence or willful misconduct.
ARTICLE 8 ROUTE SURVEY
- -----------------------
A. The Contractor shall conduct the Route Survey and select the cable
route for the System in accordance with the information in the Final Survey
Report. Contractor shall be permitted to make changes, at its discretion, to
the route selection, if necessary for operational reasons without additional
cost to Purchaser.
<PAGE>
24
B. Any changes to the route selection requested by Purchaser (such as a
change of location for, or an addition of, a cable station) shall be treated as
a Contract Variation in accordance with Article 6 (Contract Variations).
ARTICLE 9 ACCEPTANCE
- ---------------------
A. General
1. The Acceptance Testing shall be performed by the Contractor. The
Purchaser and its designated representatives (including the
Independent Engineer) may observe, at their own expense, the
Contractor's tests and review the test results. Purchaser may
request and conduct any additional tests, at its own expense, but
any delay caused by such process shall be a Force Majeure event.
2. Until the Date of Final Acceptance of the System or if a System
Upgrade is requested by Purchaser, the Date of Final Acceptance
of such System Upgrade, the Purchaser agrees to allow Contractor
access to all Segments of the System.
3. The Purchaser shall issue a Certificate of Commercial Acceptance
in accordance with the provisions of Sub-Article 9(D)(1).
4. Once a Segment of the System, the System, or a System Upgrade is
Ready for Provisional Acceptance, the Purchaser shall issue a
Certificate of Provisional Acceptance; provided, that it is
--------
within the Purchaser's sole discretion as to whether to accept a
Segment (other than Segment S) instead of the System.
5. Once the System or a System Upgrade is Ready for Final
Acceptance, the Purchaser shall issue a Certificate of Final
Acceptance.
6. The Purchaser shall not unreasonably withhold or delay issuance
of a Certificate of Commercial Acceptance, a Certificate of
Provisional Acceptance or a Certificate of Final Acceptance.
7. The Contractor agrees that the Date of Provisional Acceptance or
Commercial Acceptance of Segment S will occur by March 31, 2000
(as such date may be extended under Article 6 (Contract
Variations) Article 17 (Force Majeure) or otherwise under this
Contract or by agreement of the Parties, the "Scheduled Segment S
RFS Date").
8. The Contractor agrees that the Date of Provisional Acceptance or
Commercial Acceptance of the System will occur by July 31, 2000
(as such date may be extended under Article 6 (Contract
Variations),
<PAGE>
25
Article 17 (Force Majeure) or otherwise under this Contract or by
agreement of the Parties, the "Scheduled System RFS Date").
9. The Date of Commercial Acceptance, Provisional Acceptance and
Final Acceptance, as the case may be, shall be deemed to have
occurred with respect to a Segment, the System or a System
Upgrade if a Certificate of Commercial Acceptance, a Certificate
of Provisional Acceptance or a Certificate of Final Acceptance is
issued with respect thereto.
B. Notice of Acceptance or Rejection
1. Within thirty (30) days of receipt by Purchaser and Independent
Engineer of the Commissioning Report or Upgrade Commissioning
Report, as the case may be, the Purchaser must issue notification
to the Contractor of the following:
(a) issuance of a Certificate of Provisional Acceptance in
accordance with Sub-Article 9(C); or
(b) rejection of a Certificate of Provisional Acceptance, but
instead issuance of a Certificate of Commercial Acceptance
in accordance with Sub-Article 9(D) below; or
(c) rejection of the Segment, the System or System Upgrade in
its existing condition and issuance of neither a Certificate
of Provisional Acceptance nor a Certificate of Commercial
Acceptance, with in the case of the System or System Upgrade
a written explanation of reasons for rejection (it being
understood that acceptance of a Segment instead of the
System (other than Provisional Acceptance of Segment S) is
at the sole discretion of the Purchaser).
If the Purchaser (or the Independent Engineer on its behalf)
fails to respond with such notification within thirty (30) days,
then the Date of Provisional Acceptance of the Segment (subject
to Purchaser's consent), the System or System Upgrade shall be
deemed to be the date such Commissioning Report or Upgrade
Commissioning Report, as the case may be, was received by the
Purchaser.
2. On receipt of a notice from the Purchaser pursuant to Sub-
Articles 9(B)(1)(b) or (c) above, the Contractor shall be
entitled to address any disputes and explain any discrepancies to
the Purchaser regarding the results of the Acceptance Testing.
Unless Purchaser, for good cause, rejects such explanation, it
shall issue a new notice pursuant to Sub-Article 9(B)(1) above,
which shall be deemed to have been issued on the date of the
original notice.
<PAGE>
26
3. In case of rejection, and if the explanation by the Contractor as
in Sub-Article 9(B)(2) above is not accepted, for good cause, by
the Purchaser, the Contractor shall carry out the necessary
corrective actions and will effect a new series of Acceptance
Testing ("Retesting"). After receipt by Purchaser and Independent
Engineer of the new Commissioning Report or Upgrade Commissioning
Report, as the case may be, describing the results of Retesting,
the Purchaser will be granted a new period of thirty (30) days to
analyze the new Report according to the provisions of Sub-Article
9(B)(1) and any new notice of the Purchaser shall apply from the
date the Purchaser receives such new Commissioning Report or
Upgrade Commissioning Report, as the case may be.
C. Provisional Acceptance
1. The Certificate of Provisional Acceptance may have annexed to it
a list of any outstanding deficiencies to be corrected by the
Contractor.
2. The Contractor shall, as soon as reasonably practicable, correct
such deficiencies and complete the Work or Upgrade Work indicated
on all such listed items so as to comply in all material respects
with the requirements of this Contract, provided that the
Purchaser allows Contractor the necessary access to the
Segment(s) as the Contractor needs to correct such deficiencies
and complete the Work or Upgrade Work. The Contractor shall give
the Purchaser reasonable notice of its requirement for such
access.
D. Commercial Acceptance
1. A Certificate of Commercial Acceptance shall be issued by
Purchaser with respect to a Segment, the System or System Upgrade
if the results of the Acceptance Testing demonstrate that such
Segment, the System or such System Upgrade does not justify the
issuance of a Certificate of Provisional Acceptance, but
nevertheless, such Segment, the System or such System Upgrade is
Ready for Commercial Acceptance; provided, that such acceptance
--------
of a Segment instead of the System shall be in the sole
discretion of the Purchaser.
2. Each Certificate of Commercial Acceptance shall have annexed to
it a mutually agreed list of all outstanding items to be
completed by the Contractor.
3. The Contractor shall, as soon as reasonably practicable, remedy
the outstanding items, provided that the Purchaser allows
Contractor the necessary access to the Segment(s) as the
Contractor needs to remedy such outstanding items. The Contractor
shall give the Purchaser
<PAGE>
27
reasonable notice of its requirement for such access.
Notwithstanding the above, provided that Contractor has been
allowed access to the Segment(s) as required in Sub-Article
9(A)(2), the Contractor shall continue to carry the risk of loss
for any outstanding item until such item is no longer
outstanding.
4. When the outstanding items referenced in Sub-Article 9(D)(3)
above have been remedied, and the Segment(s) or System Upgrade is
otherwise Ready for Provisional Acceptance, the Purchaser will
promptly issue a Certificate of Provisional Acceptance; provided,
--------
that acceptance of a Segment instead of the System shall be in
the sole discretion of the Purchaser.
5. The issuance of a Certificate of Commercial Acceptance with
respect to a Segment or System Upgrade shall in no way relieve
the Contractor from its obligation to provide a Segment or System
Upgrade conforming with the Performance Requirements at the time
of the issuance of a Certificate of Commercial Acceptance.
E. Final Acceptance
1. Within thirty (30) days of the date of receipt by Purchaser and
Independent Engineer of the Final Commissioning Report, the
Purchaser shall issue a Certificate of Final Acceptance or reject
such Report. If the Purchaser neither issues a Certificate of
Final Acceptance nor rejects such Report within such thirty (30)
day period, then the Date of Final Acceptance of the System shall
be deemed to be the date such Final Commissioning Report was
received by the Purchaser.
F. Title and Risk of Loss
1. If the Purchaser, in its sole discretion, chooses to accept a
Segment prior to accepting the System, then upon payment of all
amounts listed in the Billing Schedule with respect to a Segment
(other than the Retainage with respect thereto) and the issuance
of a Certificate of Commercial Acceptance or a Certificate of
Provisional Acceptance with respect to such Segment by the
Purchaser in accordance with this Contract, title (free and clear
of all liens other than those deriving through or from the
Purchaser) to such Segment shall vest in the Purchaser.
2. Upon (i) payment of all amounts listed in the Billing Schedule
with respect to the System (other than the Retainage) and (ii)
the issuance of a Certificate of Commercial Acceptance or a
Certificate of Provisional Acceptance with respect to the System
by the Purchaser in accordance with this Contract, title (free
and clear of all liens other than those
<PAGE>
28
deriving through or from the Purchaser) to the System shall vest
in the Purchaser.
3. Upon payment of the Upgrade Price with respect to a System
Upgrade and the issuance of a Certificate of Commercial
Acceptance or a Certificate of Provisional Acceptance with
respect to such System Upgrade by the Purchaser in accordance
with this Contract, title to such System Upgrade shall vest in
the Purchaser.
4. As from the date of vesting of title in a Segment, the System or
a System Upgrade, the Purchaser shall, except as set forth in the
following sentence, assume the risk of loss in respect of all
parts of such Segment, the System or System Upgrade and
responsibility for its maintenance. As stated in Sub-Article
9(A)(2), the Contractor will be allowed access to such Segment,
and, so long as the Contractor has been allowed access to such
Segment as may be required, the Contractor shall continue to
carry the risk of loss with respect of each item outstanding
under Sub-Article 9(C)(1) and 9(D)(2) until such item is no
longer outstanding.
ARTICLE 10 WARRANTY
- --------------------
A. The Contractor warrants that the System and each System Upgrade,
including its spares, shall be free from defects in supplies, workmanship and
design for a period of * commencing from the Date of Provisional Acceptance of
the System or such System Upgrade, as the case may be, (hereinafter "Warranty
Period" and "Upgrade Warranty Period"), with Ship Costs being covered for the
first * of the Warranty Period (the "Ship Period") and the Purchaser being
responsible for all Ship Costs thereafter.
1. During the Warranty Period for the System or the Upgrade Warranty
Period for a System Upgrade, the Contractor shall make good, by
repair or replacement, at its sole option, any defects in the
System or such System Upgrade, as the case may be, including any
spares, which may become apparent or be discovered due to
imperfect workmanship, faulty design or faulty material supplied
by the Contractor, or any act, neglect or omission on the
Contractors part.
(a) If at any time within the Warranty Period or the Upgrade
Warranty Period for a System Upgrade any defect occurs which
causes the System or such System Upgrade, as the case may
be, to fail to meet its overall Performance Requirements,
the Contractor shall repair or replace such part or parts.
In making such repairs, Contractor may make changes to the
System or such System Upgrade, as the case may be, or
substitute equipment of later or comparable design, provided
the changes, modifications, or substitutions under normal
and proper use do
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
29
not cause the System or such System Upgrade as the case may
be to fail to meet the Performance Requirements.
(b) The Contractor shall use reasonable efforts to minimize the
period of time that any Segment or the System is out of
service for testing and repair. The Purchaser agrees to
cooperate with the Contractor to facilitate the Contractor's
repair activity.
(c) It is understood that if there is a problem on the System,
the Purchaser may immediately dispatch the maintenance
authority to effect repairs. If and to the extent that such
problem is determined to be caused by a defect in the System
covered by this warranty, the Contractor shall reimburse the
Purchaser for its actual Non-Ship Costs incurred and, with
respect to any such repair relating to a defect identified
in good faith by Purchaser in writing prior to the end of
the Ship Period, actual Ship Costs incurred.
(i) The Contractor shall be given advance notice and be
entitled to have a representative on board ship to
observe at sea repairs and shall be given the earliest
possible notice of any such repair.
(ii) Subject to the foregoing and to Sub-Article 10(D), any
repair by the Purchaser shall not in any way diminish
the Contractor's obligation under the warranty. Any
equipment discovered to be defective or faulty and
recovered during a warranty repair shall be returned to
the Contractor at its request.
(d) In the event that the Contractor fails to make the repair or
to make reasonable efforts to minimize the period of time
that the System is out of service for repair, the Purchaser
may repair the System or the System Upgrade and the
Contractor shall reimburse the Purchaser for Non-Ship Costs
and, with respect to any such repair relating to a defect
identified in good faith by Purchaser in writing prior to
the end of the Ship Period, Ship Costs.
(i) The Contractor shall be given advance notice and be
entitled to have a representative on board ship to
observe at sea repairs and shall be given the earliest
possible notice of any such repair.
(ii) Subject to the foregoing, any repair by the Purchaser
shall not in any way diminish the Contractor's
obligation
<PAGE>
30
under the warranty. Any equipment discovered to be
defective or faulty and recovered during a warranty
repair shall be returned to the Contractor at its
request.
2. Contractor shall bear the Ship Costs of only those repairs of the
defects identified in good faith by Purchaser in writing prior to
the end of the Ship Period. However, the Contractor shall bear
the Non-Ship Costs of each repair, replacement or improvement
required during the Warranty Period.
As used herein, "Ship Cost" means the costs of operating a
vessel, including but not limited to running and standing charges
for the vessel (including but not limited to labor charges for
the vessel's crew, at sea insurance, port charges, fuel and lube
oils, consumables, cable loading, cable unloading, navigation and
maritime communications) as well as the costs associated with the
use and operation of a remotely operated vehicle and the tracked
self-propelled burial tool, and "Non-Ship Costs" means the costs
of making a repair, including the cost of components, equipment
or materials requiring replacement, the cost of any additional
equipment necessary to effect the repair, the cost of making the
repair, including the cost of reburying any previously buried
portion, the cost of labor and engineering assistance or
development required to make the repair and all necessary
associated costs, such as, but not limited to, shipping and
customs and services that may be required to make the repair, but
excluding any of the foregoing which are Ship Costs.
3. The Contractor shall effect all warranty repairs of the System
and shall supply all necessary repair materials. However, the
Contractor may use, with the consent of the Purchaser, which
shall not be unreasonably withheld, the materials needed to
effect a repair from the Purchaser's available spare materials.
The Contractor shall promptly replace in kind such materials
supplied from the Purchaser's spare materials, or at the option
of the Purchaser, reimburse the Purchaser for such materials at
its original purchase price. The replacement of or reimbursement
for such materials shall be made at a time mutually agreed to by
the Purchaser and the Contractor.
4. The Contractor warrants that services furnished hereunder will be
performed in a workmanlike manner using materials free from
defects except when such materials are provided by the Purchaser
(it being understood that all materials arranged for directly by
Contractor, whether or not purchased in the name of Purchaser,
are not materials provided by the Purchaser). If such services
prove to be not so performed and Purchaser notifies the
Contractor within six (6) months from the completion of the
service, the Contractor will promptly correct the defect.
<PAGE>
31
5. Any part which replaces a defective part during the applicable
Warranty Period or Upgrade Warranty Period, shall be subject to the remaining
Warranty Period and Ship Period, if any, or Upgrade Warranty Period, as the case
may be, of the part which was replaced. However, the Warranty Period shall never
exceed * from the Date of Provisional Acceptance of the System and the Upgrade
Warranty Period for any System Upgrade shall never exceed * from the Date of
Provisional Acceptance of such System Upgrade. Further, Ship Costs shall be
included only with respect to defects identified in good faith by Purchaser in
writing during the * from the Date of Provisional Acceptance of the System.
B. *
C. The Contractor warrants that all Deliverable Software and Deliverable
Technical Materials are Year 2000 Compliant.
D. The warranties provided above in Sub-Articles 10(A) and (B) by the
Contractor shall not apply to defects or failures of performance, which result
from damage caused by acts or omissions of the Purchaser or its agents,
employees or representatives or third parties (other than the Contractor), or
which result from modifications, misuse, neglect, accident or abuse, repair,
storage or maintenance by other than the Contractor or its agents or use in a
manner not in accordance with the System Description or other causes set forth
in Article 12 (Purchaser's Obligations) or Article 17 (Force Majeure).
E. THE FOREGOING WARRANTY IS EXCLUSIVE AND IS IN LIEU OF ALL OTHER
EXPRESS AND IMPLIED WARRANTIES INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WHICH ARE SPECIFICALLY
DISCLAIMED. THE PURCHASER'S SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO DEFECTS
COVERED BY THE FOREGOING WARRANTY SHALL (EXCEPT AS SET FORTH IN SUB-ARTICLE B
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
32
ABOVE) BE THE CONTRACTOR'S OBLIGATION TO MAKE REPAIRS OR REPLACEMENTS AS SET
FORTH IN THIS ARTICLE; PROVIDED, THAT CONTRACTOR'S FAILURE TO SO PERFORM SHALL
--------
BE SUBJECT TO ARTICLE 13 HEREOF.
F. The Contractor shall, in accordance with its normal operating
practices, investigate any defective part or parts repaired or replaced pursuant
to this Article 10 to determine the type of defect and the cause of failure of
the part or parts. The Contractor shall provide a written report to the
Purchaser on the results of the investigation, if any.
ARTICLE 11 CONTRACTOR SUPPORT
- ------------------------------
A. For a period of ten (10) years from the applicable Date of Provisional
Acceptance or Date of Commercial Acceptance of the System whichever is earlier,
the Contractor will make available to the Purchaser replacement parts and repair
service for the System as may be reasonably necessary for its operation,
maintenance or repair. Where identical parts cannot be supplied, the Contractor
shall provide fully compatible parts with characteristics equal or superior to
those originally provided by the Contractor. Such parts and services shall be
provided under commercially reasonable conditions of price and delivery.
B. Notwithstanding Sub-Article 11(A), if for any reason the Contractor or
Contractor's suppliers intend to cease or ceases manufacturing or having
manufactured identical or fully compatible replacement parts, the Contractor
shall use reasonable efforts to give one year's prior written notice to the
Purchaser to allow the Purchaser to order from the Contractor any required
replacement parts and shall provide full details of the arrangements to provide
equivalents.
ARTICLE 12 PURCHASER'S OBLIGATIONS
- -----------------------------------
A. Purchaser agrees to pay all amounts payable by it when due under this
Contract and to perform all of its other obligations under this Contract.
B. In the event the Purchaser establishes a branch office in any of the
relevant jurisdictions, the Purchaser shall be solely responsible to perform all
activities necessary to establish such branch office.
C. If any loss, damage, delay or failure of performance of the System or
a System Upgrade results from the Purchaser's failure to perform its obligations
under this Contract and results in an increase in the costs of performance or
the time required for performance of any of the Contractor's duties or
obligations under this Contract, the Contractor shall be entitled, as
appropriate, to (i) an equitable adjustment in the Contract Price or applicable
Upgrade Price, (ii) an equitable extension of time for completion of its Work or
the Upgrade Work, (iii) reimbursement for all such additional costs incurred,
and (iv) to the extent necessary in light of Purchaser's failure and the
adjustments made in accordance with clauses (i), (ii) and (iii) above, an
equitable adjustment of the Work and/or Upgrade Work.
<PAGE>
33
1. The Contractor shall inform the Purchaser promptly of any
occurrence covered under this Sub-Article 12(C), and shall use
reasonable efforts to minimize any such additional costs or
delay.
2. The Contractor shall promptly provide to the Purchaser an
estimate of the anticipated additional costs and time required to
complete the Work or Upgrade Work and request relief from
contractual obligations or duties, as appropriate. Purchaser
shall, upon notification, make advance payment to Contractor for
the estimated amount of anticipated additional costs; provided
--------
that Purchaser may deposit such amount into the Dispute Account
and Sub-Article 5(C)(5) shall apply. Contractor shall without
limiting Purchaser's obligations in the foregoing sentence,
discuss such costs with Purchaser upon Purchaser's request.
3. As soon as reasonably practicable after the actual costs become
known to the Contractor, the Contractor shall provide a statement
of such actual costs to the Purchaser.
4. If the estimated amount is greater than the amount of actual
costs, then the Contractor shall reimburse the Purchaser. If the
amount of actual costs incurred is greater than the estimated
amount, then the Purchaser shall reimburse the Contractor for any
shortfall in accordance with Article 5 (Terms of Payment of
Purchaser).
ARTICLE 13 TERMINATION FOR DEFAULT
- -----------------------------------
A. Either Party may, by written Notice of Termination for Default,
immediately upon receipt or such later date as specified in the notice,
terminate the whole or any part of this Contract in any one of the following
circumstances (each an "Event of Default"):
1. In the case of the Purchaser, (a) if Contractor materially fails
to comply with the terms and conditions of this Contract and, if
such failure occurs prior to the Date of Commercial Acceptance or
the Date of Provisional Acceptance, it would not be reasonable to
believe that the Contractor will be able to provide the System
which is Ready for Provisional Acceptance, within 200 days after
the Scheduled System RFS Date or (b) the Contractor fails to
cause the System to be Ready for Commercial Acceptance or
Provisional Acceptance within 200 days after the Schedule RFS
Date;
2. If the other Party defaults on any of its payment obligations and
does not cure such default within a period of thirty (30) days
(or such longer period as the non-breaching Party may authorize
in writing) after receipt of written notice demanding cure
(subject to dispute provisions);
<PAGE>
34
3. If the other Party shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part
of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or
shall take any corporate action to authorize any of the
foregoing;
4. If an involuntary case or other proceeding shall be commenced
against the other Party seeking liquidation, reorganization or
other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or
other proceeding shall remain undismissed and unstayed for a
period of 60 days; or an order for relief shall be entered
against the other Party.
B. If this Contract is terminated by the Purchaser as provided in Sub-
Article 13(A), the Purchaser, in addition to any other rights provided in this
Article and upon payment to Contractor of all monies due and owing as set forth
in clauses 1 and 2 of Sub-Article 13(C) below, may require the Contractor to
transfer title and deliver to the Purchaser in the manner and to the extent
directed by the Purchaser any completed equipment, material or supplies, and
such partially completed cable and materials, parts, tools, dies, jigs,
fixtures, plans, drawings, information, and contract rights (hereinafter
collectively "Manufacturing Materials") as the Contractor has had specifically
produced or specifically acquired for the performance of such part of this
Contract as has been terminated and which, if this Contract had been completed,
would have been required to be furnished to the Purchaser; and the Contractor
shall, upon the direction of the Purchaser, protect and preserve property in the
Contractor's possession in which the Purchaser has an interest.
C. If the Contract is terminated by Contractor as provided in Sub-Article
13(A), the Purchaser shall pay, in addition to any other damages payable
pursuant to Sub-Article 13(E) below, the total of:
1. the cost of settling and paying claims rising out of the
termination of Work under the contracts in orders, as provided in
Sub-Article 13(C)(2) below which are properly chargeable to the
terminated portion of this Contract; and
2. the reasonable costs of settlement including accounting, legal,
clerical and other expenses necessary for the preparation of
settlement claims and supporting data with respect to the
terminated portion of this
<PAGE>
35
Contract and for termination and settlement of contracts
thereunder, together with reasonable storage, transportation and
other costs incurred in connection with the protection,
preservation and disposition of property proper to this Contract.
D. Force Majeure events pursuant to Article 17 (Force Majeure) shall not
constitute a default or provide a basis for termination under this Article.
E. Regardless of any termination of this Contract as provided in Sub-
Article 13(A), neither Party shall be relieved from any liability for damages or
otherwise which may have been incurred by reason of any breach of this Contract.
F. Without limitation to the foregoing, in the event that Purchaser
terminates this Contract pursuant to Sub-Article 13(A), the Contractor shall be
liable to Purchaser (without duplication) for the total of all costs and
expenses reasonably incurred by Purchaser in completing the Work or in
correcting deficiencies in the Work to the extent that the payments made to
Contractor pursuant to this Contract, together with such costs and expenses,
exceed the Contract Price.
ARTICLE 14 TERMINATION FOR CONVENIENCE
- ---------------------------------------
A. The performance of Work under this Contract may be terminated by the
Purchaser in whole, or in part, at its discretion. The Purchaser shall deliver
to the Contractor a written notice specifying the extent to which performance of
Work under this Contract is terminated, and the date upon which such termination
becomes effective (a "Notice of Termination"). Upon termination, the Purchaser
will make payment to Contractor of all monies due and owing as set forth in Sub-
Article 14(D) below.
B. After receipt of such Notice of Termination, and except as otherwise
directed by the Purchaser, the Contractor shall:
1. Stop Work under this Contract on the date and to the extent
specified in the Notice of Termination;
2. Place no further orders or contracts for materials, services or
facilities except as may be necessary for completion of such
portion of Work under this Contract as is not terminated;
3. Use reasonable efforts to terminate all orders and contracts to
the extent that they relate to the performance of Work terminated
by the Notice of Termination;
4. Assign to the Purchaser, in the manner, at the time, and to the
extent directed by the Purchaser, all of the Contractor's rights,
title and interest under the orders and contracts so terminated;
<PAGE>
36
5. Use reasonable efforts to settle all outstanding liabilities and
all claims arising out of such termination of orders and
contracts, with the Purchaser's approval or ratification to the
extent required;
6. Transfer title and deliver to the Purchaser in the manner, at the
time and to the extent (if any) directed for the fabricated or
unfabricated parts, work in process, completed work, supplies and
other material produced as a part of, or acquired in connection
with, the performance of the Work terminated by the Notice of
Termination;
7. Use reasonable efforts to sell, in the manner, at the time, to
the extent and at the price or prices directed or authorized by
the Purchaser, any property of the types referred to in Sub-
Article 13(B)(6) above provided, however, that the Contractor:
-------- -------
(a) shall not be required to extend credit to any buyer; and
(b) may acquire any such property under the conditions
prescribed by and at a price approved by the Purchaser;
and provided further that the net proceeds of any such transfer
-------- -------
or disposition shall be applied in reduction of any payments to
be made by the Purchaser to the Contractor under this Contract
or, if no such payments are due, paid in such other manner as the
Purchaser may direct;
8. Complete performance of such part of the Work which was not
terminated by the Notice of Termination; and
9. Take such action as may be necessary, or as the Purchaser may
reasonably direct, for the protection and preservation of the
property related to this Contract which is in the Contractor's
possession and in which the Purchaser has acquired or may acquire
an interest.
C. After such Notice of Termination, the Contractor shall submit to the
Purchaser a written termination claim. Such claim shall be submitted promptly,
but, unless otherwise extended, in no event later than six months from the
effective date of termination.
D. In the settlement of any such partial or total termination claim, the
Purchaser shall pay to the Contractor the total of:
1. (i) all amounts invoiced in accordance with the Contract plus,
for Work or Supplies which have been done or provided but which
have not been invoiced, an amount calculated by reference to the
prices set forth in the Provisioning Schedule and to the amount
of such Work or Supplies done or provided;
<PAGE>
37
2. the cost of settling and paying claims arising out of the
termination of Work under the contracts in orders, as provided in
Sub-Article 14(D)(4) below which are properly chargeable to the
terminated portion of this Contract; and
3. the reasonable costs of settlement including accounting, legal,
clerical and other expenses necessary for the preparation of
settlement claims and supporting data with respect to the
terminated portion of this Contract and for termination and
settlement of contracts thereunder, together with reasonable
storage, transportation and other costs incurred in connection
with the protection and disposition of property proper to this
Contract.
E. In arriving at the amount due to the Contractor under this Article 14,
all unliquidated payments made to the Contractor, any liability which the
Contractor may have to the Purchaser, and the agreed price for, or the proceeds
of sale of any materials, supplies or other things acquired by the Contractor or
sold, pursuant to the provisions of this Article 14, and not otherwise recovered
by or credited to the Purchaser shall be deducted.
F. The Purchaser may, from time to time, under such terms and conditions
as they prescribe approve partial payments and payments on account against costs
incurred by the Contractor in connection with the terminated portion of this
Contract. If such payments total in excess of the amount finally agreed or
determined to be due under this Article 14, such excess shall be refunded, upon
demand, by the Contractor to the Purchaser.
G. For a period of one year after final settlement under this Contract,
the Contractor shall preserve and make available to the Purchaser at reasonable
times at the Contractor's office, but without direct charge to the Purchaser,
all supporting books, records and documents required to be kept relating to the
terminated Work.
ARTICLE 15 SUSPENSION
- ----------------------
A. The Purchaser may, at its convenience, order the Contractor to suspend
all or part of the Work for such period of time as the Purchaser determines to
be appropriate. If, as a result of such Suspension, the Contractor incurs
additional costs or losses in the discharge of its responsibilities under this
Contract, and where such suspension, losses or costs are not caused by the
Contractor's act or omission and could not have been reasonably prevented by the
Contractor, the Contractor shall be allowed an equitable adjustment to the
Contract Price or the Provisioning Schedule in Appendix 1 and an equitable
extension in the time required for performance.
B. Upon the occurrence of:
(i) an Event of Default by the Purchaser;
<PAGE>
38
(ii) any transfer prior to the Date of Final Acceptance of any
portion of the System except in accordance with Article 37; or
(iii) any supplement executed by a Transferee shall not be in full
force and effect;
the Contractor, in addition to any other rights provided in Article 13, may
suspend performance of its obligations and all Work and (in the case of clause
(i)) Upgrade Work.
C. Every forty-five (45) days, during the period of Suspension, the
Parties shall meet formally and review the circumstances surrounding the
Suspension including without limitation, the anticipated date of re-commencing
Work.
D. Thereafter, if the Suspension continues for a total of one hundred and
eighty (180) days, the Contractor may terminate the Contract by notice to the
Purchaser and the Contract shall be deemed to have been terminated by Purchaser,
effective on the date of Contractor's notice, in accordance with Sub-Article
13(A) and the remaining provisions of Article 13 shall apply.
ARTICLE 16 TITLE AND RISK OF LOSS
- ----------------------------------
A. Except as provided in Article 18 (Intellectual Property), Article 20
(Safeguarding of Information and Technology) and Article 21 (Export Control),
title to all Supplies provided by the Contractor hereunder for incorporation in
or attachment to a Segment shall pass to and vest in the Purchaser in accordance
with Article 9 (Acceptance). Risk of loss or damage to all Supplies provided by
the Contractor for incorporation in or attachment to such Segment shall pass to
and vest in the Purchaser in accordance with Article 9. Upon termination of this
Contract pursuant to Article 13 (Termination for Default) or 14 (Termination for
Convenience), the Purchaser may require, upon full payment of all amounts due
thereunder (provided that, without limiting Purchaser's obligation to make any
--------
such payment, if this Contract is terminated by Purchaser because of a
Bankruptcy Event full payment shall not be required prior to the transfer of
title), that title to the equipment, materials and supplies, which has not
previously passed to the Purchaser, pass to the Purchaser, free and clear of all
liens, claims, charges and other encumbrances other than those deriving through
Purchaser.
B. Upon the passage of title in accordance with the terms of Article 13
(except a transfer described in the proviso of the last sentence of Sub-Article
16(A)), the Contractor warrants that all parts, materials, and equipment to
which title has passed will be free and clear of all liens, claims, charges and
other encumbrances other than those deriving through the Purchaser.
ARTICLE 17 FORCE MAJEURE
- -------------------------
A. The Contractor shall not be responsible for any loss, damage, delay or
failure of performance resulting directly or indirectly from any cause which is
beyond its reasonable control ("Force Majeure"), including but not limited to:
delay in obtaining or failure to obtain
<PAGE>
39
any Permits (subject to the provisions of Sub-Article 7(D)); acts of God or of
the public enemy; acts or failure to act of any governmental authority; war or
warlike operations, civil war or commotion, mobilizations or military call-up,
and acts of similar nature; revolution, rebellions, sabotage, and insurrections
or riots; fires, floods, epidemics, quarantine restrictions; strikes, and other
labor actions; freight embargoes; unworkable weather; trawler or anchor damage;
damage caused by other marine activity such as fishing, marine research and
marine development; acts or omissions of transporters; or the acts or failure to
act of any of the Purchaser, of its representatives or agents, provided that (i)
--------
a loss by Contractor of employees (other than by reasons of Force Majeure), (ii)
strikes and other labor actions involving the Contractor's own work force, (iii)
the first 5 days of unworkable weather (unless any such day occurs during the 30
days immediately preceding the then Scheduled System RFS Date or Scheduled
Segment S RFS Date), (iv) the failure (other than by reason of force majeure) of
any subcontractor, supplier or transporter to perform its obligations to
Contractor (including on account of insolvency) unless such supplies or
transportation or other services are generally unavailable in the marketplace,
(v) the unavailability of any raw materials or components, unless such raw
materials or components are generally unavailable in the marketplace or are
unavailable by reason of force majeure or (vi) any increase in Contractor's
costs, shall not in and of itself constitute Force Majeure.
B. If any such Force Majeure causes an increase in the time required for
performance of any of its duties or obligations, the Contractor shall be
entitled to an equitable extension of time for completion of the Work or the
Upgrade Work, as the case may be.
C. Increase in cost due to Purchaser will be as provided for in Article
12, Purchaser's Obligations.
D. The Contractor shall inform the Purchaser promptly with written
notification, and in all cases within fourteen (14) days of discovery and
knowledge, of any occurrence covered under this Article and shall use its
reasonable efforts to minimize such additional delays. The Contractor shall
promptly provide an estimate of the anticipated time required to complete the
Work or the Upgrade Work. Contractor shall be entitled to an extension of time
equal to at least one day for each day of delay resulting from the Force Majeure
condition.
E. Within thirty (30) days of receipt of such a notice from Contractor,
the Purchaser and the Independent Engineer may provide a written response. The
absence of a response shall be deemed as acceptance of Contractor's notice and
request for additional time.
F. If a Force Majeure continues for a total of two hundred (200) days,
either Party may terminate the Contract by notice to the other and the Contract
shall be deemed to have been terminated by Purchaser, effective on the date of
the terminating Party's notice, in accordance with Sub-Article 14(A) and the
remaining provisions of Article 14 shall apply to such termination.
ARTICLE 18 INTELLECTUAL PROPERTY
- ---------------------------------
A. Ownership
<PAGE>
40
All right, title, and interest in and to all Intellectual Property
(excluding Project Patent Rights) created or developed by Contractor in the
course of its performance under this Contract that is (a) specifically and
exclusively applicable to the System or a System Upgrade; and (b) either (i)
embodied in Deliverable Technical Material (as that term is defined in Sub-
Article 18(B) below) or (ii) embodied in the System or a System Upgrade (the
"Project Intellectual Property"), is and shall remain the sole property of
Purchaser. All right, title and interest in and to all Intellectual Property
created or developed by Contractor before commencing its performance under this
Contract, or created or developed by Contractor exclusively in connection with
activities other than its performance under this Contract, or created or
developed by Contractor in the course of its performance under this Contract
that is not Project Intellectual Property, and all Project Patent Rights
(collectively, the "Contractor Intellectual Property"), is and shall remain the
sole property of Contractor. Unless otherwise expressed in this Contract, no
license is implied or granted herein to Purchaser to any Contractor Intellectual
Property by virtue of this Contract, nor by the transmittal or disclosure of any
such Contractor Intellectual Property to Purchaser. Any Contractor Intellectual
Property disclosed, furnished, or conveyed to Purchaser that is marked as
"Proprietary" or "Confidential" (or if transmitted orally is identified as being
proprietary or confidential in a subsequent writing) shall be treated in
accordance with the provisions of Article 20 (Safeguarding of Information and
Technology). As used herein, "Intellectual Property" means any information,
computer or other apparatus programs, software, specifications, drawings,
designs, sketches, tools, market research or operating data, prototypes,
records, documentation, works of authorship or other creative works, ideas,
concepts, methods, inventions, discoveries, improvements, or other business,
financial and/or technical information (whether or not protectable or
registrable under any applicable intellectual property law). As used herein,
"Project Patent Rights" means all inventions, discoveries, methods and
improvements of a patentable nature created or developed by Contractor in the
course of its performance under this Contract. Project Intellectual Property
will include the materials to be listed in a Schedule to be created mutually by
the Parties within thirty (30) days of execution of this Contract, as it may be
amended from time to time by mutual agreement of the Parties.
B. Licenses
Contractor shall furnish to Purchaser, upon the transfer of title to any
portion of the System or a System Upgrade pursuant to Article 9, copies of all
technical information, specifications, drawings, designs, sketches, tools,
operating data, records, documentation and/or other types of engineering or
technical data or information reasonably relating to the operation, maintenance
or repair of each component of such portion of the System or System Upgrade as
delivered by Contractor (the "Deliverable Technical Material"). Contractor
grants to Purchaser a perpetual, royalty-free, non-transferable (except under
the circumstances specified in Sub-Article 18(F) below) license to use and
reproduce those Deliverable Technical Materials owned, controlled, or developed
by Contractor and all Contractor Intellectual Property included in or necessary
to use all the Deliverable Technical Materials for purposes of fulfilling
Purchaser's obligations under this Contract and using and operating the System
(as upgraded by any System Upgrades) supplied by Contractor with the right to
employ third parties (under appropriate written obligations respecting
confidentiality) to assist Purchaser in fulfilling its obligations under this
Contract and in using and operating the
<PAGE>
41
System (as upgraded by any System Upgrades), but with no right to sublicense.
Contractor grants to Purchaser a perpetual, royalty-free, non-transferable
(except under the circumstances specified in Sub-Article 18(F) below) license to
use and reproduce those portions of Deliverable Technical Materials owned or
controlled by third parties (but only to the extent of any rights which may have
been granted to Contractor by such third parties) for the purpose of fulfilling
Purchaser's obligations under this Contract and using and operating the System
supplied by Contractor with the right to employ third parties (under appropriate
written obligations respecting confidentiality) to assist Purchaser in
fulfilling its obligations under this Contract and in using and operating the
System (as upgraded by any System Upgrades), but with no right to sublicense.
Except as set forth in this provision, no license under Contractor's patents,
copyrights, trade or service marks, trade secrets or other intellectual property
rights protectable under law in the United States or any foreign country is
granted to Purchaser. It is expressly understood that it shall not be a
violation of this license for Purchaser, on its own behalf or through third
parties (under appropriate written obligations respecting confidentiality)
specifically employed for the purpose, to use and reproduce Deliverable
Technical Material that is not Project Intellectual Property to modify the
System (as upgraded by any System Upgrades) or connect the System (as upgraded
by any System Upgrades) to other systems, provided that Purchaser may not use
the Deliverable Technical Materials that is not Project Intellectual Property in
achieving such modification or interconnection for any purpose other than
determining the technical configuration, systems interface and/or
interoperability requirements of the System (as upgraded by any System Upgrades)
as delivered by Contractor (subject to the rights of third parties therein and
thereto), and subject to the limitations on Contractor's obligations as set
forth in Articles 10(D) and 19(A) concerning any such modification or
interconnection.
C. Deliverable Software
Contractor shall furnish to the Purchaser, upon transfer of title to any
portion of the System or System Upgrade pursuant to Article 9, copies of all
computer or other apparatus programs and software, in executable form, and
related documentation relating to the operation, maintenance, or repair of the
computer systems of such portion of the System or System Upgrade, as the case
may be, as delivered by Contractor (the "Deliverable Software"). In the case of
Contractor Intellectual Property, such copies of programs and software shall
consist solely of executable code provided in offline media (e.g., tapes, or
diskettes) for restoration purposes, sufficient to operate, maintain or repair
the computer systems of such portion of the System or System Upgrade, as the
case may be, as delivered by Contractor, and in the case of Project Intellectual
Property, such programs and software shall be delivered in both source and
object code forms. Contractor shall furnish to Purchaser, from time to time
during the Warranty Period or any Upgrade Warranty Period, copies of all
computer or other apparatus programs and software, in executable form (and in
the case of Project Intellectual Property, in source code form), and related
documentation that Contractor may develop to correct errors or to maintain
Deliverable Software previously furnished to Purchaser, which shall also be
treated as Deliverable Software for purposes of this Contract upon delivery
thereof to Purchaser. Contractor grants to Purchaser a perpetual, royalty-free,
non-transferable (except under the circumstances specified in Sub-Article 18(F)
below) license to use and reproduce the Deliverable Software Materials owned,
controlled, or
<PAGE>
42
developed by Contractor for the purpose of fulfilling Purchaser's obligations
under this Contract and using and operating the System (as upgraded by any
System Upgrades) supplied by Contractor with the right to employ third parties
(under appropriate written obligations respecting confidentiality) to assist
Purchaser in fulfilling its obligations under this Contract and in using and
operating the System (as upgraded by any System Upgrades), but with no right to
sublicense. Contractor grants to Purchaser a perpetual, royalty-free, non-
transferable (except under the circumstances specified in Sub-Article 18(F)
below) license to use and reproduce those portions of Deliverable Software owned
or controlled by third parties (but only to the extent of any rights which may
have been granted to Contractor by such third parties) for the purpose of
fulfilling Purchaser's obligations under this Contract and using and operating
the System (as upgraded by any System Upgrades) supplied by Contractor with the
right to employ third parties (under appropriate written obligations respecting
confidentiality) to assist Purchaser in fulfilling its obligations under this
Contract and in using and operating the System (as upgraded by any System
Upgrades), but with no right to sublicense. These licenses shall be limited to
the right to use Deliverable Software that is not Project Intellectual Property
only with the particular type of computer equipment or substantially similar
replacement equipment for which such Deliverable Software was provided in the
System (as upgraded by any System Upgrades) as supplied by Contractor.
1. Confidentiality
Purchaser shall keep the Deliverable Software that is not Project
Intellectual Property confidential in accordance with Article 20
(Safeguarding of Information and Technology) and Article 21
(Export Control) to the extent that such Deliverable Software is
designated as Confidential Information by its owner and agrees to
use its best efforts to see that its employees, consultants, and
agents, and other users of such software, comply with the
provisions of this Contract. Purchaser also agrees to refrain
from taking any steps, such as reverse assembly or decompilation,
to derive a source code equivalent of any object code that is
furnished by Contractor, provided that Contractor continues to
maintain the Deliverable Software that is not Project
Intellectual Property in accordance with the terms of a support
and maintenance agreement to be entered into on such terms to be
agreed upon by the Parties, which terms shall in all events
contain assurances of support and maintenance at least as
favorable to Purchaser as those contained in the Operating,
Administration and Maintenance Agreement concerning AC-1 or is
willing and able to enter into an agreement to maintain the
Deliverable Software upon terms reasonably comparable to the
pertinent terms of the initial agreement to be entered into by
the Parties with regard to support and maintenance after the
expiration or termination thereof or does not go insolvent or
bankrupt to thereby *. In the case of insolvency or bankruptcy of
Contractor, Purchaser shall limit any derivation of a source code
equivalent to that portion of the Deliverable Software that is
Contractor Intellectual Property. Purchaser shall not under any
circumstances take any steps to derive a source code
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
43
equivalent from that portion of the Deliverable Software
comprising commercial, off-the-shelf software developed or
provided by third parties.
2. Backup Copies
Purchaser may make and retain two archive copies in executable
form of the Deliverable Software that is not Project Intellectual
Property. Any copy will contain the same copyright notice and
proprietary markings as are on the original software and shall be
subject to the same restrictions as the originals.
3. Termination of Software Licenses
In the event of (i) use by the Purchaser of Deliverable Software
that is not Project Intellectual Property in a manner other than
that permitted in Sub-Article 18(C) or (ii) any other material
breach of this Article 18 by Purchaser that in either event is
not cured within sixty (60) days from receipt by Purchaser of
written notice of such impermissible use or breach, Contractor,
at its option, may terminate the rights granted to Purchaser
pursuant to this Article, upon written notice to Purchaser, which
termination shall take effect no sooner than sixty (60) days
following receipt by Purchaser of a subsequent written notice of
termination. Upon termination, Purchaser shall either return or
destroy, at Contractor's option, all copies of Deliverable
Software that is not Project Intellectual Property furnished
under this Contract.
4. Indemnification
In the event of (i) use by Purchaser of Deliverable Software that
is not Project Intellectual Property furnished hereunder other
than that permitted in Sub-Article 18(C) or (ii) any other
material breach of this Article 18 by Purchaser, the Purchaser
shall indemnify and hold Contractor harmless from any and all
third party claims resulting therefrom whether arising from a
defect in the software or otherwise.
D. Trademarks, Tradenames, etc.
No rights are granted herein to either Party to use any identification
(such as, but not limited to tradenames, trademarks, service marks or symbols,
and abbreviations, contractions, or simulations thereof) owned or used by the
other Party or its parent company or its affiliates to identify itself or its
affiliates or any of its products or services. Each Party agrees that it will
not, without the prior written permission of the other Party, use such
identification in advertising, publicity, packaging, labeling, or in any other
manner to identify itself or any of its products, services, or organizations, or
represent directly or indirectly that any product, service, or organization of
it is a product, service, or organization of the other Party or its affiliates,
or that any product or service of a Party is made in accordance with or utilizes
any intellectual property of the other Party or its affiliates.
<PAGE>
44
E. DISCLAIMER, LIMITATION OF LIABILITY
CONTRACTOR REPRESENTS THAT ANY INFORMATION OR INTELLECTUAL PROPERTY
FURNISHED IN CONNECTION WITH THIS CONTRACT SHALL BE TRUE AND ACCURATE TO THE
BEST OF ITS KNOWLEDGE AND BELIEF, BUT CONTRACTOR SHALL NOT BE HELD TO ANY
LIABILITY FOR UNINTENTIONAL ERRORS OR OMISSIONS THEREIN. EXCEPT AS EXPRESSLY
PROVIDED, CONTRACTOR MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESSLY OR
IMPLIEDLY. BY WAY OF EXAMPLE, BUT NOT OF LIMITATION, CONTRACTOR AND ITS PARENT
COMPANY AND AFFILIATES MAKES NO REPRESENTATIONS OR WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE OF INFORMATION OR
INTELLECTUAL PROPERTY DISCLOSED OR PROVIDED HEREUNDER WILL NOT INFRINGE ANY
PATENT OR OTHER INTELLECTUAL PROPERTY RIGHT OF A THIRD PARTY. EXCEPT AS
OTHERWISE PROVIDED IN THIS CONTRACT, CONTRACTOR AND ITS PARENT AND AFFILIATES
SHALL NOT BE HELD TO ANY LIABILITY WITH RESPECT TO ANY CLAIM BY PURCHASER OR ANY
THIRD PARTY CLAIM AGAINST PURCHASER ON ACCOUNT OF, OR ARISING FROM, PURCHASER'S
USE OF INFORMATION OR INTELLECTUAL PROPERTY DISCLOSED OR PROVIDED BY CONTRACTOR.
F. Transferability
The licenses granted to Purchaser by Contractor in the Deliverable
Technical Materials and Deliverable Software are personal and non-transferable,
except that Purchaser may assign or transfer such licenses to an affiliated
entity under common control with the Purchaser or to any entity succeeding to
Purchaser's entire interest in the System (as upgraded by any System Upgrades)
as a result of reorganization or restructuring of the Purchaser or in the event
of a change of control of the Purchaser.
G. *
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
45
*
*
ARTICLE 19 INFRINGEMENT
- ------------------------
A. The Contractor agrees to defend or settle at its own expense all suits
for infringement of any patent, copyright, trademark or other form of
intellectual property right in any country of the world, for the use and
operation of the System (as upgraded by any System Upgrades) as supplied by
Contractor and for any component part thereof or material or equipment used
therein (or the manufacture of any material or the normal use thereof) provided
by the Contractor or on its behalf pursuant to this Contract and will hold the
Purchaser harmless from all expense of defending any such suit and all payments
for final judgment assessed on account of such infringement, except such
infringement or claim arising from:
1. The Contractor's adherence to the Purchaser's directions in the
design and configuration of the System (as upgraded by any System
Upgrades) or to use materials, parts or equipment of the
Purchaser's selection; or
2. Such material, parts or equipment furnished to the Contractor by
the Purchaser, other than in each case, items of the Contractor's
design or selection or the same as any of the Contractor's
commercial merchandise or in processes or machines of the
Contractor's design or selection used in the manufacture of such
standard products or parts; or
3. Use of the System (as upgraded by any System Upgrades) or the
materials, parts or equipment furnished by Contractor other than
for the purposes indicated in, or reasonably to be inferred from,
this Contract or in conjunction with other products; or
4. Modification of the System (as upgraded by any System Upgrades)
or the materials, parts or equipment furnished by the Contractor,
or connection of the System to another system by any person or
entity other than Contractor, without prior expressed written
approval by Contractor.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
46
B. The Purchaser will, at its own expense, defend all suits against the
Contractor for such excepted infringement and hold the Contractor harmless from
all expense of defending any such suit and from all payments by final judgment
assessed against the Contractor on account of such excepted infringement.
C. The Contractor and the Purchaser agree to give each other prompt
written notice of claims and suits for infringement, full opportunity and
authority to assume the sole defense, including appeals and, upon request and at
its own expense, the other agrees to furnish all information and assistance
available to it for such defense.
D. If all or any portion of the System (as upgraded by any System
Upgrades) or any material, part or equipment provided by the Contractor or on
its behalf is held to constitute an infringement (excluding such excepted
infringements specified in Sub-Article 19(A)) and is subject to an injunction
restraining its use or any order providing for its delivery up to or
destruction, or if in respect of any such claim of infringement the Contractor
deems it advisable to do so, the Contractor shall at its own expense either:
1. Procure for the Purchaser the right to retain and continue to use
the System, the affected portion thereof, or any such material,
part or equipment without interruption for the Purchaser;
2. Replace or modify the System, the affected portion thereof, or
any material, part or equipment so that it becomes noninfringing
while continuing to meet the Performance Requirements or
3. If the remedies specified in Sub-Articles 19(D)(1) an 19(D)(2)
are not feasible, refund to the Purchaser the full purchase price
paid for the System, the affected portion thereof, or any
material, part or equipment found to be infringing.
E. In no event shall the Purchaser make any admission or settle any claim
in relation with any claim for infringement without Contractor's consent.
ARTICLE 20 SAFEGUARDING OF INFORMATION AND TECHNOLOGY
- ------------------------------------------------------
A. In performance of this Contract, it may be mutually advantageous to the
Parties hereto to share certain specifications, designs, plans, drawings,
software, market research or operating data, prototypes, or other business,
financial, and or/technical information related to products, services, or
systems which are proprietary to the disclosing Party or its affiliates (and in
the case of Contractor, Contractor's parent company) (together with this
Contract and related documents, "Information"). The Parties recognize and agree
that Information includes information that was supplied in contemplation hereof
prior to execution of this Contract, and further agree that Information includes
information in both tangible and intangible form.
B. Unless such Information was previously known to the Party receiving
such Information free of any obligation to keep it confidential, or such
Information has been or is
<PAGE>
47
subsequently made public through other than unauthorized disclosure by the
receiving Party or is independently developed by the receiving Party (as
documented by the records of the receiving Party), it shall be kept confidential
by the Party receiving such Information, shall be used only in the performance
of this Contract, and may not be used for any other purposes except upon such
terms as may be agreed upon in writing by the Party owning such Information. The
receiving Party may disclose such Information to other persons, upon the
furnishing Party's prior written authorization, but solely to perform acts which
this Article expressly authorizes the receiving Party to perform itself and
further provided such other person agrees in writing (a copy of which writing
will be provided to the furnishing Party at its request) to the same conditions
respecting disclosure and use of Information contained in this Article and to
any other reasonable conditions requested by the furnishing Party. Nothing
herein shall prevent a Party from disclosing Information (a) upon the order of
any court or administrative agency, (b) upon the request or demand of, or
pursuant to any regulation of, any regulatory agency or authority, (c) to the
extent reasonably required in connection with the exercise of any remedy
hereunder and (d) to a Party's legal counsel or independent auditors.
C. The Purchaser may disclose Information to its lenders and their
representatives in connection with obtaining financing for the System, provided
that each such lender or third party enters into a confidentiality agreement
containing terms and conditions similar to those in this Contract. Any such
disclosure of Information shall be subject to the restrictions in Sub-Article
20(B).
ARTICLE 21 EXPORT CONTROL
- --------------------------
The Parties acknowledge that any products, software, and technical
information (including, but not limited to, services and training) provided by
either Party under this Contract are or may be subject to export laws and
regulations of the United States and destination countries and any use or
transfer of such products, software and technical information must be authorized
under those Laws. The Parties agree that they will not use, distribute, transfer
or transmit the products, software or technical information (even if
incorporated into other products) except in compliance with export Laws. If
requested by either Party, the other Party agrees to sign all necessary export-
related documents as may be required to comply with export Laws.
ARTICLE 22 LIQUIDATED DAMAGES
- ------------------------------
A. If the System is not Ready for Commercial Acceptance or Provisional
Acceptance by the Scheduled System RFS Date, as it may have been extended under:
1. Article 6 (Contract Variations);
2. Article 17 (Force Majeure); or
3. Other arrangements as agreed between the Purchaser and the Contractor;
<PAGE>
48
then Contractor shall pay to Purchaser for each day of delay, for up to 200
days, by way of pre-estimated and liquidated damages for the delay and not as a
penalty, an amount equal to 0.05% of the Initial Contract Price for the System
less that portion of the Initial Contract Price allocable to Segment S, provided
that prior to the Scheduled System RFS Date, the Date of Provisional Acceptance
for Segment S has occurred.
B. If Segment S is not Ready for Commercial Acceptance or Provisional
Acceptance within fifteen (15) days (the "Grace Period") following the Scheduled
Segment S RFS Date, as it may have been extended under:
1. Article 6 (Contract Variations)
2. Article 17 (Force Majeure); or
3. Other Arrangements as agreed between the Purchaser and Contractor;
then Contractor shall pay to Purchaser for each day of delay following the
expiration of the Grace Period, for up to 200 days, by way of pre-estimated and
liquidated damages for the delay and not as penalty, an amount equal to * of
that portion of the Initial Contract Price of the System allocable to Segment S.
C. If a System Upgrade is not Ready for Commercial Acceptance or
Provisional Acceptance by the Scheduled Upgrade Date, as it may have been
extended under:
1. Article 6 (Contract Variations);
2. Article 17 (Force Majeure); or
3. Other arrangements as agreed between the Purchaser and the Contractor;
then Contractor shall pay to Purchaser for each day of delay, for up to 90 days,
by way of pre-estimated and liquidated damages for the delay and not as a
penalty, an amount equal to * of the Initial Upgrade Price for such System
Upgrade.
ARTICLE 23 LIMITATION OF LIABILITY/INDEMNIFICATION
- ---------------------------------------------------
A. NOTWITHSTANDING ANY OTHER PROVISION IN THIS CONTRACT, AND IRRESPECTIVE
OF ANY FAULT, NEGLIGENCE OR GROSS NEGLIGENCE OF ANY KIND, IN NO EVENT SHALL
EITHER PARTY OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS BE LIABLE
FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, RELIANCE OR SPECIAL (INCLUDING
PUNITIVE) DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS OF REVENUE, LOSS OF
BUSINESS OPPORTUNITY OR THE COSTS ASSOCIATED WITH THE USE OF RESTORATION
FACILITIES RESULTING FROM ITS FAILURE TO PERFORM PURSUANT TO THE TERMS AND
CONDITIONS OF THIS CONTRACT.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
49
B. EXCEPT AS SET FORTH BELOW IN THE LAST TWO SENTENCES OF THIS SUB-ARTICLE
23(B), THE CONTRACTOR'S MAXIMUM AGGREGATE LIABILITY, WHETHER IN TORT, CONTRACT
OR OTHERWISE, EXCEPT FOR CLAIMS RELATING TO SYSTEM UPGRADES, SHALL NOT EXCEED
* OF THE CONTRACT PRICE. THE CONTRACTOR'S MAXIMUM AGGREGATE LIABILITY FOR CLAIMS
RELATING TO SYSTEM UPGRADES (IF CONTRACTOR CAN PROVE THAT THE SYSTEM WAS
DESIGNED WITH SUFFICIENT TRANSMISSION MARGIN AND THUS SUCH CLAIMS DO NOT ARISE
UNDER CLAUSE (ii) OF SUB-ARTICLE 10(B)) SHALL NOT EXCEED * OF THE APPLICABLE
UPGRADE PRICE. THE FOREGOING LIMITATION SHALL NOT APPLY TO CLAIMS UNDER SUB-
ARTICLES 19(A) AND 23(C). IF CONTRACTOR CANNOT PROVE THAT THE SYSTEM WAS
DESIGNED WITH SUFFICIENT TRANSMISSION MARGIN FOR A SYSTEM UPGRADE, THE
CONTRACTOR'S MAXIMUM AGGREGATE LIABILITY FOR CLAIMS ARISING UNDER CLAUSE (ii) OF
SUB-ARTICLE 10(B) SHALL NOT EXCEED *.
C. Contractor, at its expense, shall defend, indemnify and hold harmless
Purchaser, its agents, subcontractors and employees against any and all claims,
demands, and judgments for losses due to any act or omission, arising out of, or
in connection with this Contract or, prior to risk of loss passing to Purchaser,
the operation and maintenance of the System, to the extent such losses were
caused by the negligence or willful misconduct of the Contractor, its
subcontractors, employees or agents. The defense, indemnification and save
harmless obligation is specifically conditioned on the following: (i) Purchaser
providing prompt notification in writing of any such claim or demand when it
obtains Actual Knowledge thereof, unless such failure shall not have materially
impaired Contractor's ability to defend against such claim; (ii) Contractor
having control of the defense of any such action, claim or demand and of all
negotiations for its settlement or compromise; and (iii) Purchaser cooperating,
at Contractor's expense, in a reasonable way to facilitate the defense of such
claim or demand or the negotiations for its settlement.
D. Purchaser, at its expense, shall defend, indemnify and hold harmless
Contractor, its agents, subcontractors and employees against any and all claims,
demands, and judgments for losses due to any act or omission, arising out of, or
in connection with this Contract or, after risk of loss passes to Purchaser, the
operation or maintenance of the System, to the extent such losses were caused by
the negligence or willful misconduct of the Purchaser, its subcontractors,
employees or agents (other than Contractor). The defense, indemnification and
save harmless obligation is specifically conditioned on the following (i)
Contractor providing prompt notification in writing of any such claim or demand
when it obtains Actual Knowledge thereof, unless such failure shall not have
materially impaired Purchaser's ability to defend against such claim; (ii)
Purchaser having control of the defense of any such action, claim or demand and
of all negotiations for its settlement or compromise; and (iii) Contractor
cooperating, at Purchaser's expense, in a reasonable way to facilitate the
defense of such claim or demand or the negotiations for its settlement.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
50
ARTICLE 24 COUNTERPARTS
- ------------------------
This Contract may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
ARTICLE 25 DESIGN AND PERFORMANCE RESPONSIBILITY
- -------------------------------------------------
A. The Contractor shall be solely responsible for the design of and for
all details of the System and the System Upgrades and for the adequacy thereof.
B. The Contractor's responsibility for design of the System and the System
Upgrades shall not in any way be diminished nor shall the Contractor's design
approach be restricted or limited by the Purchaser's acceptance of the
Contractor's guidance or recommendations as to engineering standards and design
specifications, or by the Purchaser's suggestions or recommendations on any
aspect of the design.
C. Purchaser shall use reasonable efforts in assisting the Contractor to
obtain in a timely manner accurate information required for the Contractor to
perform the Work and the Upgrade Work, which Contractor cannot expeditiously and
cost-effectively obtain from any source other than the Purchaser.
ARTICLE 26 PRODUCT CHANGES
- ---------------------------
The Contractor may at any time make changes to the System or System
Upgrades furnished pursuant to this Contract, or modify the drawings and
published specifications relating thereto, or substitute equipment of later
design, provided the changes, modifications, or substitutions under normal and
proper use do not impact upon the form, fit, expected life or function of the
System as provided in the System Performance Requirements.
ARTICLE 27 RISK AND INSURANCE
- ------------------------------
A. The Contractor shall at all times maintain, after the date which is 30
days from the date hereof, and upon request, the Contractor shall furnish the
Purchaser with certificates, or other reasonable evidence, that Contractor
maintains, the following insurance or has adequate self-insurance (other than as
required to comply with any statutory insurance requirements); provided, that
--------
the following insurance coverages may be combined or in different form so long
as Contractor maintains insurance consistent with the following requirements:
1. Workmen's Compensation and Employers Liability Insurance (with a
limit of not less than * for any one incident or series of
incidents arising from one event or such higher limit as may be
required by the laws of any jurisdiction) covering the officers
and employees of the Contractor for all compensation or other
benefits required of the Contractor by the laws of any nation or
political sub-division thereof to
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
51
which the Contractor and its operations under this Contract are
subject in respect of injury of death of any such employee.
2. Comprehensive General Public Liability Insurance, covering
personal injury and/or property damage, with combined single
limits of not less than * for claims of injury or death of any
persons or loss of or damage to property resulting from any one
accident. This insurance to be extended to provide Marine
Comprehensive General Liability including liabilities arising out
of the operation of subsea equipment.
3. Comprehensive Automobile Liability insurance covering all
vehicles and automotive equipment owned, hired, or in the custody
and control of Contractor and complying with all applicable
legislation with limits not less than * combined single limit for
the death or injury of any person per accident and not less than
* for the loss or damage to property resulting from any one
accident.
4. All Risk Insurance in respect of all property of Contractor, its
respective officers, agents and employees connected with the
performance of the Work against all loss or damage from whatever
cause.
5. Conventional Marine Hull and Machinery Insurance including War
Risks or any vessel(s) owned, operated or chartered by the
Contractor, in an amount equal to the full value thereof. In the
event of damage to or loss of such vessel(s), the Contractor
agrees to look to its insurance carrier for payment of such loss
or damage and hereby releases the Purchaser and waives any claims
against the Purchaser for the loss of such vessel(s) unless due
to the negligence of Purchaser, its agent or representatives
(other than Contractor).
6. All vessels are to be entered in a Mutual Protection and
Indemnity Association with a full and unlimited entry or to have
Marine Protection and Indemnity Insurance with a limit of not
less than * including coverage far illness, injury or death of
crew members (unless covered under Workmen's Compensation
Insurance), Contractual Liability Coverage, Collision and Tower's
Liability, Removal of Wreck and Debris and Third Party Liability.
7. Excess Liability Coverage over that required in Sub-Articles
27(A)(1), (2) and (3) with minimum limits of * for any one
accident or occurrence.
8. Specialist Operations Insurance with a limit of not less than
* as per London Wording 1993 or equivalent.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
52
9. Transit Insurance including inland, air, and Marine Cargo
coverage including War (other than on land) in an amount
sufficient to cover the expected highest value of any one
shipment. Coverage to include Institute Cargo Clauses, all risks
1.1.63, Institute War Clauses, London Malicious Damage Clause,
and Institute Strikes Riots and Civil Commotion Clauses or their
equivalent.
10. Marine Cargo or equivalent is required to protect, for full cost,
against all risks of physical loss or damage to the plant,
equipment and supplies to be included in the System (other than
War Risks) beginning with when each such item is ready for
shipping and ending when the submersible plant and equipment are
placed overside the cable laying vessel and when the equipment
and supplies are delivered to the cable stations, central
offices, or network operation center. The coverage continues to
cover cable lying on the seabed.
11. Sea Bed or equivalent coverage (including an Old Mines and
Torpedoes Clause, including other derelict weapons of War) is
required to protect, for full cost, against all risks of physical
loss or damage to the submersible plant and equipment described
in Sub-Article 27(A)(10) above. See last paragraph.
12. War Risks or equivalent coverage is required to protect against
damage to, seizure by and/or destruction of the System by means
of war, piracy, takings at sea and other warlike operations until
discharge of the submersible plant and equipment. For the
purposes of this Article "discharge of the submersible plant and
equipment" shall be deemed to take place when the plant and
equipment reaches the sea bottom, as far as the submersible plant
and equipment is concerned, and when the plant is off-loaded in
the respective terminal country, as far as non-submersible plant
is concerned.
13. Pollution Liability (EIL) insurance for installation operations
and as arising from the use of vessels in an amount not less than
* or such higher sum as may be required to meet any legal
requirement in area of operations.
The Comprehensive General Liability Insurance required pursuant to Sub-
Article 27(A)(2) above, shall include Contractual Liability Coverage which shall
specifically apply to the obligations assumed by the Contractor under the Terms
and Conditions of this Contract.
B. 1. All the foregoing insurances shall be effected with a
creditworthy insurer and shall be endorsed to provide Purchaser
with at least thirty (30) days prior written notice of
cancellation or material change.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
53
2. All the foregoing insurances shall name Purchaser as an
additional insured as to operations hereunder, in which event the
Contractor's insurance shall be primary to any insurance carried
by Purchaser.
3. The limits specified herein are minimum requirements and shall
not be construed in any way as limits of liability or as
constituting acceptance by Purchaser of such responsibility for
financial liabilities in excess of such limits. The Contractor
shall bear all deductibles applicable to any insurance.
4. If it is judicially determined that the monetary limits of
insurance required hereunder or of any indemnity voluntarily
assumed under the Terms and Conditions of this Contact which the
Contractor agrees will be supported either by available liability
insurance or voluntarily self-insured, in part or whole, exceeds
the maximum limits permitted under applicable law, it is agreed
that said insurance requirements or indemnity shall automatically
be amended to conform to the maximum monetary limits permitted
under such law.
5. Contractor shall take reasonable steps to provide that any sub-
contractor engaged by it has in effect or will effect Employer's
Liability, Workmen's Compensation, Hull and Machinery and
Protection and Indemnity insurances and any other insurances
required by law, together with such other insurances as the
Contractor may consider necessary.
6. If the Contractor fails to effect or keep in force any of the
insurances required under this Contract, Purchaser may effect and
keep in force any such insurances and pay such premiums as may be
necessary for that purpose and from time to time deduct the
amount so paid by Purchaser from any money due or which may
become due to the Contractor hereunder or recover the same as a
debt due from the Contractor, provided that Purchaser is not in
Default.
7. Each Party shall give the other prompt notification of any claim
with respect to any of the insurances to be provided hereunder,
accompanied by full details giving rise to such claim. Each Party
shall afford the other all such assistance as may be required for
the preparation and negotiation of insurance claims.
8. Contractor shall report to Purchaser as soon as practicable all
accidents or occurrences resulting in injuries to Contractor's
employees or third parties, or damage to property of third
parties, arising out of our during the course of services for
Purchaser by Contractor.
C. The Contractor may organize such levels of deductibles, excesses and
self-insurance as it considers appropriate and which are within prudent industry
standards.
<PAGE>
54
D. The insurance requirements of this Article 27 will remain in place with
respect to each Segment, the System or System Upgrade, as the case may be, and
will not in any way be diminished or reduced until the transfer of title and
risk of loss shall have passed to Purchaser of such Segment, System or System
Upgrade, as the case may be, even in the event of the sale of substantially all
the assets of the Contractor by way of a merger, consolidation or sale of
assets.
ARTICLE 28 PLANT AND WORK RULES
- --------------------------------
Employees and agents of each Party shall, while on the premises of the
other or its subcontractors, comply with all plant rules and governmental
regulations.
ARTICLE 29 RIGHT OF ACCESS
- ---------------------------
A. The Contractor shall, upon reasonable notice of not less than ten (10)
working days, during normal business hours and in a manner to avoid any
disruption of the work on the premises including performance of other contracts,
permit access by the Purchaser or its Quality Assurance (QA) Representative
(other than a competitor of the Contractor or any affiliate of a competitor) to
the Contractor's premises where the work will be performed, and will use its
best endeavors to secure rights of access to premises of its subcontractors
where the work will be performed, having subcontracts or orders in the amount
of, or equivalent to * or more, in accordance with the Contractor's contractual
arrangements with its subcontractors, and allow the Purchaser or its QA
Representative to:
1. audit the Contractor's quality assurance system and its
application to the Work and Upgrade Work, including manufacture,
development and raw materials and components provision;
2. inspect all parts of the Work and Upgrade Work to the extent
reasonably practicable to ensure that their quality meets the
Technical Specification.
This right of access shall allow for the Purchaser and/or its QA representative
(up to a total of three (3) persons). The Purchaser shall provide the name(s),
nationality and title of each such visitor prior to the visit. The Contractor
shall not be responsible for any costs, including travel and accommodation
costs, of the Purchaser or its representatives.
B. The right of access shall also allow for the Purchaser and/or
representatives (up to a total of three (3) persons) to be aboard the vessel(s)
during installation and the route survey, provided accommodations are available.
The Contractor shall not be responsible for any costs of the Purchaser or its
representatives, except for living expenses on board the vessel which includes
one (1) daily telex or fax, all other travel and accommodation costs for the
Purchaser or its QA Representatives shall be for the account of the Purchaser.
C. Any right of access shall not be construed as creating any obligation
requiring the Contractor or its subcontractors to disclose trade secrets or
proprietary information.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
55
Further, such right of access may be conditioned on the execution of a
confidentiality and non-disclosure agreement and/or subject to routine building
or security rules, regulations or procedures.
D. Any exercise of any right of the Purchaser hereunder to inspect, audit,
visit or to serve any part of the Work or System Upgrades shall not be construed
as limiting any obligation of Contractor hereunder, including without
limitation, under Articles 1 and 10 hereof.
E. Contractor will have access to the System as necessary to accomplish
its responsibilities under this Contract and in order to make repairs and to
make System Upgrades. Contractor will provide reasonable notice of its need for
access and will take reasonable steps to minimize disruptions to the operation
of the System.
F. Contractor shall give the Purchaser reasonable prior written notice of
each monthly project management review meeting with respect to the status of the
construction and/or installation of the System, and Purchaser's representatives
(up to three such representatives) and the Independent Engineer shall at their
cost be permitted to attend and participate in such meetings.
ARTICLE 30 QUALITY ASSURANCE
- -----------------------------
All equipment, material and supplies provided under this Contract shall be
inspected and tested by representatives designated by the Contractor to the
extent reasonably practical to assure that the quality of the equipment,
materials and supplies being incorporated is sufficient to realize the System
Performance Requirements. The inspection and test program established for such
equipment, materials and supplies shall be consistent with commercial practices
normally employed by the Contractor in the construction of submarine cable
systems. The foregoing shall not be construed as limiting any of the
Contractor's obligations under this Contract.
ARTICLE 31 DOCUMENTATION
- -------------------------
The Contractor shall furnish to the Purchaser one copy of the standard
documentation in the English language for the System provided hereunder. Such
documentation shall be provided prior to the Acceptance testing. Additional
copies of the documentation are available at additional cost.
ARTICLE 32 TRAINING
- --------------------
The Contractor will provide, as part of the Initial Contract Price, until
the Date of Final Acceptance, any and all training, as more particularly
described in the training section of Appendix 6, necessary for the operation and
maintenance of the System.
<PAGE>
56
ARTICLE 33 SETTLEMENT OF DISPUTES/ARBITRATION/LITIGATION
- ---------------------------------------------------------
A. The Parties shall endeavor to settle amicably by mutual discussions any
disputes, differences, or claims whatsoever related to this Contract.
B. Failing such amicable settlement, any controversy, claim or dispute
arising under or relating to this Contract, including the existence, validity,
interpretation, performance, termination or breach thereof, shall, if both
Parties agree in writing thereto, finally be settled by arbitration in
accordance with the International Arbitration Rules of the American Arbitration
Association ("AAA"). Unless the Parties agree to a sole arbitrator, there shall
be three (3) arbitrators, with each Party appointing one arbitrator, who
collectively will select a third. The language of the arbitration shall be
English. The Arbitrator will not have authority to award punitive damages to
either Party. Each Party shall bear its own expenses, but the Parties shall
share equally the fees and expenses of the Arbitration Tribunal and the AAA.
This Contract shall be enforceable, and any arbitration award shall be final,
and judgment thereon may be entered in any court of competent jurisdiction. In
any such arbitration, the decision in any prior arbitration under this Contract
shall not be deemed conclusive of the rights as among themselves of the Parties
hereunder. The arbitration shall be held in New York, New York, U.S.A.
C. 1. If both Parties do not agree to arbitration pursuant to paragraph
(B) above, then either Party may institute suit in the Supreme
Court of the State of New York sitting in New York County or the
United States District Court of the Southern District of New
York, or any appellate court from any thereof.
2. Each Party hereby irrevocably and unconditionally submits to the
non-exclusive jurisdiction of any New York State or Federal court
sitting in The City of New York, and any appellate court from any
thereof, in any action or proceeding arising out of or relating
to this Contract, and each Party hereby irrevocably and
unconditionally agrees that all claims in respect of such action
or proceeding may be heard and determined in such New York State
court or, to the extent permitted by law, in such Federal court.
Each Party hereby irrevocably and unconditionally waives, to the
fullest extent it may effectively do so, any defense of an
inconvenient forum to the maintenance of such action or
proceeding in any such court and any right of jurisdiction on
account of the place of residence or domicile of either Party.
The Contractor hereby irrevocably and unconditionally appoints CT
Corporation System (the "New York Process Agent"), with an office
----------------------
on the date hereof at 1633 Broadway, New York, New York, as its
agent to receive on behalf of the Contractor and its respective
property service of copies of the summons and complaint and any
other process which may be served in any such action or
proceeding in any such New York State or Federal court and agrees
promptly to appoint a successor New York Process Agent in The
City of New York (which successor Process Agent shall accept such
<PAGE>
57
appointment in a writing prior to the termination for any reason
of the appointment of the initial New York Process Agent). In
any such action or proceeding in such New York State or Federal
court sitting in The City of New York, such service may be made
on the Contractor by delivering a copy of such process to the
Contractor in care of the appropriate Process Agent at such
Process Agent's above address and by depositing a copy of such
process in the mails by certified or registered air mail,
addressed to the Contractor at its address referred to in Article
35 of this Contract (such service to be effective upon such
receipt by the appropriate Process Agent and the depositing of
such process in the mails as aforesaid). The Contractor hereby
irrevocably and unconditionally authorizes and directs such
Process Agent to accept such service on its behalf. As an
alternate method of service, the Contractor also irrevocably and
unconditionally consents to the service of any and all process in
any such action or proceeding in such New York State or Federal
court sitting in The City of New York by mailing of copies of
such process to the Contractor, as the case may be, by certified
or registered air mail at its address referred to in Article 35
of this Contract. The Contractor agrees that, to the fullest
extent permitted by applicable law, a final judgment in any such
action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other
manner provided by law.
3. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
--------------------
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE,
AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREE MENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS PARAGRAPH.
D. THE OBLIGATIONS OF EACH PARTY IN RESPECT OF THIS CONTRACT DUE TO ANY
PARTY SHALL, NOTWITHSTANDING ANY JUDGMENT IN A CURRENCY (THE "JUDGMENT
--------
CURRENCY") OTHER THAN DOLLARS, BE DISCHARGED ONLY TO THE EXTENT THAT ON THE
BUSINESS DAY FOLLOWING RECEIPT BY SUCH PARTY OF ANY SUM ADJUDGED TO BE SO DUE IN
THE JUDGMENT CURRENCY SUCH PARTY MAY IN ACCORDANCE WITH NORMAL
<PAGE>
58
BANKING PROCEDURES PURCHASE DOLLARS WITH THE JUDGMENT CURRENCY; IF THE AMOUNT OF
DOLLARS SO PURCHASED IS LESS THAN THE SUM ORIGINALLY DUE TO SUCH PARTY IN
DOLLARS, EACH PARTY AGREES, AS A SEPARATE OBLIGATION AND NOTWITHSTANDING ANY
SUCH JUDGMENT, TO INDEMNIFY SUCH PARTY AGAINST SUCH LOSS, AND IF THE AMOUNT OF
DOLLARS SO PURCHASED EXCEEDS THE SUM ORIGINALLY DUE TO ANY PARTY TO THIS
CONTRACT, EACH PARTY AGREES TO REMIT TO SUCH PARTY, SUCH EXCESS.
ARTICLE 34 APPLICABLE LAW
- --------------------------
THIS CONTRACT SHALL BE CONSTRUED AND GOVERNED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK, UNITED STATES, EXCLUDING ITS CONFLICTS OF LAW
PROVISIONS AND EXCLUDING THE CONVENTION FOR THE INTERNATIONAL SALE OF GOODS.
ARTICLE 35 NOTICES
- -------------------
A. Any notices, consent, approval, or other communication pursuant to this
Contract shall be in writing, in the English language, and shall be deemed to be
duly given or served on a Party if sent to the Party at the address stipulated
in Sub-Article 35(B) and if sent by any one of the following means only:
1. Sent by hand: Such communication shall be deemed to have been
received on the day of delivery provided receipt of delivery is
obtained.
2. Sent by facsimile: Such communication shall be deemed to have
been received, under normal service conditions, twenty-four (24)
hours following the time of dispatch or on confirmation by the
receiving Party, whichever is earlier.
3. Sent by registered or certified mail: Such communication shall be
deemed to have been received, under normal service conditions, on
the day it was received or on the tenth day after it was
dispatched, whichever is earlier.
B. For purposes of this Article, the names, addresses and fax numbers of
the Parties are as detailed below. Any change to the name, address, and
facsimile numbers may be made at any time by giving thirty (30) days prior
written notice.
Tyco Submarine Systems Ltd.
340 Mt. Kemble Avenue
Morristown, New Jersey 07960
Tel: 973-326-3500
Fax: 973-326-2711
<PAGE>
59
Pacific Crossing Ltd.
Wessex House
45 Reid Street
Hamilton HM12
Bermuda
Fax: 441-296-6749/8606
Attn: Cameron Adderly
C. All provisions in this Contract regarding notices, consents, approvals
and other communications to and from, and other actions taken on behalf of, the
Contractor are subject to the provisions of Article 42 hereof.
ARTICLE 36 PUBLICITY AND CONFIDENTIALITY
- -----------------------------------------
A. No information relating to this Contract shall be released by either
Party to any newspaper, magazine, journal or other written, oral or visual
medium without the prior written approval of an authorized representative of the
other Party; provided that, subject to Article 20 (Safeguarding of Information
--------
and Technology) and the following Sub-Article, this Article shall not restrict
either Party from (i) responding to customary press inquiries or otherwise
making public or private statements in the normal course of business, so long as
consistent with a mutually agreed press-release and (ii) assisting in the
obtaining of financing in accordance with Sub-Article 37(C), including the
publication of a financial tombstone.
B. This Contract and any non-public information, written or oral, with
respect to this Contract, "Confidential Information", will be kept confidential
and shall not be disclosed, in whole or in part, to any person other than
affiliates, officers, directors, employees, agents or representatives of a Party
(collectively, "Representatives") who need to know such Confidential Information
for the purpose of negotiating and executing this Contract. Each Party agrees to
inform each of its Representatives of the non-public nature of the Confidential
Information and to direct such persons to treat such Confidential Information in
accordance with the terms of this Article. Nothing herein shall prevent a Party
from disclosing Confidential Information (a) upon the order of any court or
administrative agency, (b) upon the request or demand of, or pursuant to any
regulation of, any regulatory agency or authority, (c) to the extent reasonably
required in connection with the exercise of any remedy hereunder, (d) to a
Party's legal counsel or independent auditors, (e) prospective lenders to the
Purchaser or Holding Company, and (f) to any actual or proposed assignee of all
or part of its rights hereunder provided that such actual or proposed assignee
agrees in writing to be bound by the provisions of this Article.
ARTICLE 37 ASSIGNMENT; SUBCONTRACTORS
- --------------------------------------
A. Except as provided in this Article, neither Party shall assign this
Contract or any right or interest under this Contract, nor delegate any work or
obligation to be performed under this Contract ("Assignment"), without the other
Party's prior written consent which shall not be unreasonably withheld (it being
understood that it shall be deemed to be reasonable to withhold consent to the
assignment of this Contract or any rights, interest or
<PAGE>
60
obligations hereunder to a competitor of Contractor or an affiliate of a
competitor or uncreditworthy party). Nothing herein shall preclude a Party from
employing a subcontractor in carrying out its obligations under this Contract. A
Party's use of such subcontractor shall not release the Party from its
obligations or liability (including warranties) under this Contract. If a
proposed subcontractor of major equipment (i.e., equipment listed on Exhibit E)
is not listed on Exhibit E hereto, Contractor shall obtain approval thereof from
Purchaser, which approval shall not be unreasonably withheld. Purchaser and
Contractor shall agree on the form and substance of Exhibit E by May 1, 1998.
B. The Contractor has the right to assign all of its rights under this
Contract or to delegate all of its duties hereunder at any time without the
Purchaser's consent to any successor to substantially all the assets of the
Contractor by way of a merger, consolidation or sale of assets provided that in
the case of any assignment or delegation pursuant to this Sub-Article 37(B) such
assignee shall assume in writing all warranties, representations and obligations
of Contractor under this Contract. The Contractor shall give the Purchaser
written notice 30 days prior to the assignment.
C. The Parties acknowledge that Purchaser may finance construction of the
System on a "project finance" basis and that in connection therewith the
financing parties will require that such financing be secured by certain assets
of Purchaser (including but not limited to this Contract). The Purchaser may, in
connection with any such project financing grant a collateral assignment of the
System and/or its rights and obligations under this Contract to any such
financing parties, and in connection therewith, the Contractor will execute and
deliver a Consent, substantially in the form of Exhibit B hereto; provided that
Contractor agrees to make such changes or additions to such form as may be
reasonably requested by such financing parties, and Purchaser, and such
financing parties, may transfer in accordance with such Consent. Contractor
will also deliver an Opinion in the form of Exhibit C hereto, and a similar
opinion of Guarantor's counsel with respect to the Guaranty, to Purchaser and
such financing parties and such other documents as are reasonably requested by
such financing parties. Furthermore, Contractor agrees, for the benefit of any
such financing parties, that (i) prior to the closing of the financing and the
execution and delivery of the Consent the Contractor shall have no recourse to
such financing parties for any of Purchaser's obligations hereunder and (ii)
thereafter, the Contractor shall have recourse in accordance with the Consent.
D. The Purchaser has the right to assign all of its rights and delegate
all of its duties under this Contract to any other entity to whom all of
Purchaser's rights and interests in the System have been transferred. Purchaser
also has the right (i) to assign all of its rights hereunder with respect to any
particular Landing Assets to any Transferee, (ii) to assign Permits with respect
to such Landing Assets, or have Permits with respect to such Landing Assets
issued in the name of, such Transferee and (iii) to transfer such Landing Assets
or have such Landing Assets transferred directly to, such Transferee; provided
--------
that such Transferee shall execute a supplement to this Contract whereby it
becomes jointly and severally liable, together with Purchaser, for all of
Purchaser's obligations under this Contract. "Landing Assets" means, with
respect to each jurisdiction where a portion of the System is located, all or
part of such portion of the System located therein. It is understood that the
<PAGE>
61
Purchaser, at its option, may assign and transfer rights with respect to Landing
Assets in different jurisdictions to different Transferees. Purchaser shall not
transfer any of its rights under this Contract or the System except in
accordance with the foregoing. Any assignment or transfer not expressly
permitted by Sub-Articles 37(D) shall be of no force and effect. Any assignment
or transfer which results in any increase in costs or any loss, damage, delay or
failure of performance shall constitute a Force Majeure, and, without limiting
the applicability of Article 17 (Force Majeure), Purchaser shall be responsible
for any increase in costs resulting therefrom.
ARTICLE 38 RELATIONSHIP OF THE PARTIES
- ---------------------------------------
All work performed by a Party under this Contract shall be performed as an
independent contractor and not as an agent of the other and no persons furnished
by a Party shall be considered the employees or agents of the other. Each Party
shall be responsible for its employees' compliance with all Laws while
performing under this Contract. This Contract shall not form a joint venture or
partnership between the Parties.
ARTICLE 39 SUCCESSORS BOUND
- ----------------------------
This Contract shall be binding on the Contractor and the Purchaser and
their respective successors and permitted assigns.
ARTICLE 40 ARTICLE CAPTIONS
- ----------------------------
The captions of the Articles do not form part of this Contract and shall
not have any effect on the interpretation thereof.
ARTICLE 41 SEVERABILITY
- ------------------------
If any of the provisions of this Contract shall be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate or
render unenforceable the entire Contract, but rather the entire Contract shall
be construed as if not containing the particular invalid or unenforceable
provision or provisions and the rights and obligations of the Contractor and the
Purchaser shall be construed and enforced accordingly. In the event such invalid
or unenforceable provision is an essential and material element of this
Contract, the Parties shall promptly negotiate a replacement provision.
ARTICLE 42 *
- --------------
*
ARTICLE 43 SURVIVAL OF OBLIGATIONS
- -----------------------------------
The Parties' rights and obligations, which, by their nature would continue
beyond the termination, cancellation or expiration of this Contract, including,
but not limited
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN APPLICATION
FOR CONFIDENTIAL TREATMENT.
<PAGE>
62
to, those contained in Sub-Article 4(B) (Taxes, Levies and Duties) and Sub-
Article 4(C) (Withholding Tax), Article 18 (Intellectual Property), Article 20
(Safeguarding of Information and Technology), Article 21 (Export Control) and
Article 23 (Limitation of Liability/Indemnification) shall survive termination,
cancellation or expiration hereof. Article 10 (Warranty) and Article 11
(Contractor Support), shall survive termination, cancellation or expiration
hereof, if and only if, this Contract is terminated by Purchaser pursuant to
Sub-Article 13(A).
ARTICLE 44 NON-WAIVER
- ----------------------
A waiver of any of the terms and conditions of this Contract, or the
failure of either Party strictly to enforce any such term or condition, on one
or more occasions shall not be construed as a waiver of the same or of any other
term or condition of this Contract on any other occasion.
ARTICLE 45 LANGUAGE
- --------------------
This Contract has been executed in the English language and English will be
the controlling language for interpretation of this Contract.
ARTICLE 46 ENTIRE AGREEMENT
- ----------------------------
This Contract supersedes all prior oral or written understanding between
the Parties and constitutes the entire agreement with respect to the subject
matter herein. Any modification, amendment, waiver, approval or consent given
hereunder must be evidenced by a writing signed by authorized representatives of
all Parties.
<PAGE>
63
This Contract is executed in Bonn, Germany by a duly authorized
representative of the Purchaser and in Bonn, Germany by a duly authorized
representative of Contractor as set forth below.
TYCO SUBMARINE SYSTEMS LTD.
By: /s/ Martin T. Leone
-------------------------
Name: Martin T. Leone
Title: Managing Director
Date: May 6, 1998
PACIFIC CROSSING LTD.
By: /s/ David Lee
------------------------------
Name: David Lee
Title: Director
Date: May 6, 1998
<PAGE>
EXHIBIT 10.4
EXECUTION COPY
_____________________________________
MAC
_____________________________________
PROJECT DEVELOPMENT
AND
CONSTRUCTION CONTRACT
BETWEEN
ALCATEL SUBMARINE NETWORKS
AND
ALCATEL SUBMARINE NETWORKS, INC.
AND
MID-ATLANTIC CROSSING LTD.
_____________________________________
DATED AS OF JUNE 2, 1998
_____________________________________
<PAGE>
TABLE OF CONTENTS
GENERAL TERMS AND CONDITIONS
<TABLE>
<CAPTION>
Article PAGE
- ------- ----
<S> <C>
1 Provision of System............................................... 1
2 Documents Forming the Entire Contract............................. 2
3 Definitions....................................................... 2
4 Contract Price.................................................... 13
5 Terms of Payment by Purchaser..................................... 17
6 Contract Variations............................................... 20
6A Optional Upgrades................................................. 20
6B *................................................................. 24
7 Responsibilities for Permits; Compliance with Laws................ 24
8 Route Survey...................................................... 26
9 Acceptance........................................................ 27
10 Warranty.......................................................... 31
11 Contractor Support................................................ 35
12 Purchaser's Obligations........................................... 35
13 Termination for Default........................................... 36
14 Termination for Convenience....................................... 38
15 Suspension........................................................ 40
16 Title and Risk of Loss............................................ 41
17 Force Majeure..................................................... 41
18 Intellectual Property............................................. 42
19 Infringement...................................................... 47
</TABLE>
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
i
<PAGE>
<TABLE>
<CAPTION>
Article PAGE
- ------- ----
<S> <C>
20 Safeguarding of Information and Technology....................... 48
21 Export Control................................................... 49
22 Liquidated Damages............................................... 50
23 Limitation of Liability/Indemnification.......................... 50
24 Counterparts..................................................... 51
25 Design and Performance Responsibility............................ 52
26 Product Changes.................................................. 52
27 Risk and Insurance............................................... 52
28 Plant and Work Rules............................................. 55
29 Right of Access.................................................. 56
30 Quality Assurance................................................ 57
31 Documentation.................................................... 57
32 Training......................................................... 57
33 Settlement of Disputes/Arbitration............................... 57
34 Applicable Law................................................... 59
35 Notices.......................................................... 60
36 Publicity and Confidentiality.................................... 61
37 Assignment; Subcontractors....................................... 61
38 Relationship of the Parties...................................... 63
39 Successors Bound................................................. 63
40 Article Captions................................................. 63
41 Severability..................................................... 63
42 * ............................................................... 63
43 Survival of Obligations.......................................... 64
</TABLE>
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
ii
<PAGE>
<TABLE>
<CAPTION>
Article PAGE
- ------- ----
<S> <C>
44 Non-Waiver....................................................... 64
45 Language......................................................... 64
46 Entire Agreement................................................. 64
</TABLE>
Exhibit A Form of *
Exhibit B Form of Consent and Agreement
Exhibit C-1 Form of Opinion for Contractor
Exhibit C-2 Form of Opinion for Guarantor
Exhibit D Form of Payment Escrow Agreement
Exhibit E Form of Supplement No. 1
Exhibit F Form of Contractor's Invoice Certificate
Exhibit G Examples of Contractor Permits
Exhibit H Examples of Owner Permits
Exhibit I Subcontractors
Exhibit J Optional Long Lead Items
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
iii
<PAGE>
PROJECT DEVELOPMENT AND
CONSTRUCTION CONTRACT
This Project Development and Construction Contract ("Contract") is
made as of this 2nd day of June, 1998 between (i) ALCATEL SUBMARINE NETWORKS
(together with its permitted successors and assigns, "ASN"), a societe anonyme
---
organized and existing under the laws of France, and having its principal office
in Paris, France, and ALCATEL SUBMARINE NETWORKS, INC. (together with its
permitted successors and assigns, "ASNI"), a corporation organized and existing
----
under the laws of the State of Delaware, United States, and having its principal
office in Portland, Oregon, United States (ASN and ASNI are hereinafter
collectively referred to as "Contractor" and are jointly and severally liable
----------
for all obligations and liabilities of Contractor hereunder as more fully set
forth in Article 42 hereof) and (ii) MID-ATLANTIC CROSSING LTD., a corporation
organized and existing under the laws of Bermuda, and having its principal
office in Hamilton, Bermuda (hereinafter "Purchaser").
---------
WHEREAS, Purchaser desires to establish a fiber optic submarine cable
system, to be known as the Mid-Atlantic Crossing Submarine Cable System
(hereinafter, and as more fully defined herein, the "System"), which will be
used to provide service between and among the United States mainland, Bermuda
and St. Croix; and
WHEREAS, subject to the provisions of Article 6B hereof, the System
will consist of the following Segments:
Segment 1: From Brookhaven, New York to Hollywood, Florida;
Segment 2: From Hollywood, Florida to St. Croix;
Segment 3: From St. Croix to Bermuda.
WHEREAS, Contractor is in the business of designing, constructing,
installing, supplying, delivering and manufacturing fiber optic submarine cable
systems and is familiar with the general business of the fiber optic submarine
cable system industry;
WHEREAS, Purchaser seeks to purchase and own the System and wishes to
engage Contractor to perform the Work and Upgrade Work; and
WHEREAS, Contractor is willing to perform the Work and Upgrade Work on
a turn-key, fixed-price basis in accordance with and subject to the terms
hereof.
NOW THEREFORE, IT HAS BEEN AGREED AS FOLLOWS
ARTICLE 1 PROVISION OF SYSTEM
- ------------------------------
In consideration of the Contract Price and the Upgrade Prices, the
Contractor agrees to undertake the Work and the Upgrade Work and to provide the
Purchaser with the System meeting the System Performance Requirements on or
before the Scheduled RFS Date
<PAGE>
2
and the System Upgrades meeting the requirements of Article 6A, all in
accordance with the terms hereof.
ARTICLE 2 DOCUMENTS FORMING THE ENTIRE CONTRACT
- ------------------------------------------------
This Contract consists of these commercial Terms and Conditions and
the following documents (in the form of attachments, including appendices,
attached hereto), which shall be read and construed as part of the Contract:
. Provisioning Schedule, Appendix 1, Upgrade Provisioning Schedule,
Appendix 1A
. Billing Schedule, Appendix 2, Upgrade Billing Schedule, Appendix 2A
. Plan of Work, Appendix 3, Upgrade Plan of Work, Appendix 3A
. Invoice Format, Appendix 4
. Technical Volume (includes Route Information), Appendix 5
In the event of any inconsistency between the Terms and Conditions and
the above listed documents, the Terms and Conditions shall prevail. The
Appendices listed above have no order of precedence.
ARTICLE 3 DEFINITIONS
- ----------------------
Definitions are as described in the specific Articles. Except as
otherwise defined the following definitions shall apply throughout the Contract:
AAA has the meaning set forth in Sub-Article 33(B).
ACCEPTANCE TESTING means (i) with respect to a Segment or the System,
the tests described in the System Commissioning and Acceptance section of
the Technical Volume or developed pursuant to such section by mutual
agreement of the Parties (with 15 days prior notice to the Independent
Engineer) and designed to verify that such Segment or the System meets the
applicable Performance Requirements and (ii) with respect to any System
Upgrade, the tests described in the System Commissioning and Acceptance
section of the Technical Volume or developed pursuant to such section by
mutual agreement of the Parties (with 15 days prior notice to the
Independent Engineer) and designed to verify that the System Upgrade meets
the applicable Performance Requirements.
ACCESS RIGHTS means all ownership, easement, wayleaves and/or other
property rights, from both private and governmental entities, both on land
and below the surface of the water (including, without limitation,
agreements to use conduits and ducts, install manholes and to lease space
in cable stations) necessary to access, use and occupy cable stations and
the sites for cable stations (including, without limitation, to land and
install the submarine cable and related equipment and to bring such cable
from the ocean to the cable stations) in order for the Purchaser to own,
operate and maintain the System.
<PAGE>
3
ACTUAL KNOWLEDGE means the actual knowledge of any executives with
management responsibility for the Contract.
ASSIGNMENT has the meaning set forth in Sub-Article 37(A).
BANK ESCROW AGENT means Citibank, N.A., in its capacity as escrow
agent under the Payment Escrow Agreement, and its successors in such
capacity.
BANKRUPTCY EVENT means an event specified in Sub-Article 13(A)(3) or
13(A)(4) with Contractor as the "other Party".
BASE SYSTEM means the two fiber pair submarine cable system consisting
of Segments 1, 2 and 3, as described in the second WHEREAS clause of this
Agreement, (at a per fiber pair capacity of 10 Gb/s at the Date of
Commercial Acceptance or the Date of Provisional Acceptance, as the case
may be, of the System, with each fiber pair upgradeable to 80 Gb/s per
fiber pair at the Date of Provisional Acceptance) as more fully described
in the System Description section of the Technical Volume.
BILLING MILESTONES means the billing milestones set forth in Appendix
2.
BILLING SCHEDULE means a billing schedule attached hereto as Appendix
2.
BUS-1 means the fiber optic cable system known as "BUS-1" connecting
Bermuda and Tuckerton, New Jersey.
CABLE STATION AND BEACH ACCESS RIGHTS means, with respect to each of
the cable stations in the System (i) a right to use space in such cable
station sufficient for the Supplies to be installed therein; (ii) the right
of access to such space so that the Contractor may install such Supplies;
(iii) duct space or other right so that Contractor may install the cable
from the beach manhole to such cable station; (iv) access to the beach
manhole(s); and (v) except with respect to the Bermuda cable station, the
right to use any directionally drilled conduit space seaward from the beach
manhole so that the Contractor may install the cable from the sea to such
beach manhole without undertaking directional drilling or other separate
shore-end marine operations.
CERTIFICATE OF COMMERCIAL ACCEPTANCE means a certificate issued by
Purchaser in accordance with Sub-Article 9(D) to Contractor certifying that
a Segment, the System or a System Upgrade is Ready for Commercial
Acceptance.
CERTIFICATE OF FINAL ACCEPTANCE means a certificate issued by
Purchaser in accordance with Sub-Article 9(E) to Contractor certifying that
the System or a System Upgrade is Ready for Final Acceptance.
CERTIFICATE OF PROVISIONAL ACCEPTANCE means a certificate issued by
Purchaser in accordance with Sub-Article 9(C) to Contractor certifying that
a Segment, the System or a System Upgrade is Ready for Provisional
Acceptance.
<PAGE>
4
CIF means cost, insurance and freight, as defined in Incoterms.
COMMISSIONING REPORT has the meaning set forth in the System
Commissioning and Acceptance section of the Technical Volume.
CONFIDENTIAL INFORMATION has the meaning set forth in Sub-Article
36(B).
CONSENT means a Consent and Agreement to be entered into among
Contractor, Purchaser and the financing parties described in Sub-Article
37(C) and substantially in the form of Exhibit B hereto, with such changes
therein as made pursuant to Sub-Article 37(C) hereto.
CONTRACT means this agreement, specifically consisting of the
documents described in Article 2, and shall be deemed to include any
amendments thereto or Contract Variations pursuant to Article 6 (Contract
Variations).
CONTRACT PRICE means the Initial Contract Price, plus any variations
pursuant to Article 6 (Contract Variations), Article 6B (Optional Systems;
BUS-1 Option) or Article 8 (Route Survey), Taxes as set forth in Sub-
Article 4(B) and other adjustments to the Contract Price provided for in
this Contract.
CONTRACT TAXES has the meaning set forth in Sub-Article 4(B)(1).
CONTRACT VARIATION has the meaning set forth in Sub-Article 6(A).
CONTRACTOR means the entities that have collectively executed this
Contract as the Contractor, jointly and severally, and that will be
responsible for the performance of the Work (and if applicable, Upgrade
Work) under this Contract and shall include their permitted successors
and/or assigns.
CONTRACTOR PERMITS means all Permits that the Contractor needs to
conduct its business and all Permits which the Contractor must acquire in
order to carry out its operations to perform the work. Exhibit G hereto
contains a list of sample Contractor Permits; provided that such list is
not meant to be complete or exclusive.
DATE OF COMMERCIAL ACCEPTANCE, PROVISIONAL ACCEPTANCE OR FINAL
ACCEPTANCE means the date that Purchaser receives a Commissioning Report or
an Upgrade Commissioning Report, as the case may be, demonstrating that a
Segment or the System or a System Upgrade, as the case may be, is Ready for
Commercial Acceptance, Ready for Provisional Acceptance or Ready for Final
Acceptance in accordance with Article 9 (Acceptance).
DEFAULT means an Event of Default or any event, condition or
occurrence which with the giving of notice or passage of time or both would
be an Event of Default.
<PAGE>
5
DELIVERABLE SOFTWARE has the meaning set forth in Sub-Article 18(C).
DELIVERABLE SOFTWARE ESCROW has the meaning set forth in Sub-Article
18(H).
DELIVERABLE TECHNICAL MATERIAL has the meaning set forth in Sub-
Article 18(B).
DISPUTE ACCOUNT means the Dispute Account to be created under the
Payment Escrow Agreement.
EVENT OF DEFAULT has the meaning set forth in Sub-Article 13(A).
EXCLUDED TAX means:
(i) any franchise, excess profits, net worth, capital or capital
gains Tax, as well as any Tax on doing business or imposed on net or gross
income or receipts (including minimum and alternative minimum Taxes
measured by any items of Tax preference), but in each case excluding Taxes
that are or are in the nature of sales, use, excise, license, stamp,
rental, ad valorem, value added or property Taxes (other than property
taxes on property owned by the Contractor and not intended to be
incorporated into the System);
(ii) any Taxes imposed by a jurisdiction other than one in which (a)
the Contractor is or is treated as engaged in activities contemplated by or
in fulfillment of the Contract or (b) the Purchaser or its affiliates has a
nexus to such jurisdiction and the Tax imposed is attributable to that
nexus;
(iii) Taxes imposed on the Contractor as a result of Contractor's
gross negligence or willful misconduct; and
(iv) any import duty, other import related charges, sales or use
tax, VAT or property tax imposed by the United States or any political
subdivision thereof or Taxing authority therein in respect of Supplies
brought into the United States for testing, modification or other similar
purposes prior to being installed or used outside the United States.
FINAL COMMISSIONING REPORT has the meaning set forth in the System
Commissioning and Acceptance section of the Technical Volume.
FINAL SURVEY REPORT means the final survey report described in the
Route Survey, Cable Loading and Marine Operations section of the Technical
Volume.
FORCE MAJEURE has the meaning set forth in Sub-Article 17(A).
*
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
6
*
INCOTERMS means the International Chamber of Commerce, Guide to
Incoterms (1990).
INDEPENDENT ENGINEER means Conexart Technologies, Inc. or a similarly
qualified successor in the capacity as the engineer to the financing
sources specified in Sub-Article 37(C) who has agreed to be bound by the
confidentiality provisions of this Contract and who is not affiliated with
a competitor of Contractor.
INFORMATION has the meaning set forth in Sub-Article 20(A).
INITIAL CONTRACT PRICE has the meaning set forth in Sub-Article
4(A)(1).
INITIAL UPGRADE PRICE has the meaning set forth in Sub-Article
4(A)(2).
INTELLECTUAL PROPERTY has the meaning set forth in Sub-Article 18(A).
LANDING LICENSES means, in the United States, a License to Land and
Operate a Submarine Cable System pursuant to the Submarine Cable Landing
Act, 47 U.S.C. 34-39 and, in Bermuda, the comparable license which is
required under Bermuda law.
LAWS means any laws, ordinances, regulations, rules, orders,
proclamations, requirements of governmental authorities or treaties.
MANUFACTURING MATERIALS has the meaning set forth in Sub-Article
13(B).
NEXUS TAX means any Tax imposed by way of withholding in respect of or
in lieu of an Excluded Tax, but only to the extent such Tax would not have
been imposed but for the nexus (other than as a consequence of the
activities of the Contractor) of the Purchaser or its affiliate to the
jurisdiction imposing the Tax.
NON-SHIP COSTS has the meaning set forth in Sub-Article 10(A)(2).
NOTICE OF TERMINATION has the meaning set forth in Sub-Article 14(A).
OPTION PERIOD has the meaning set forth in Sub-Article 6A(B).
OPTIONAL LONG LEAD ITEMS means those items of the Supplies, set forth
in Exhibit J, that would be used in the Optional System but not the Base
System and which the Contractor must irrevocably commit to pay for in order
to maintain the Scheduled RFS Date if Purchaser shall elect the Optional
System on or prior to the Optional System Date.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
7
OPTIONAL LONG LEAD ITEMS PRICE means the amount up to * of which * is
payable on the date which is three business days after this Contract is
executed and delivered by all Parties and * is payable on June 30, 1998,
unless prior to such date Purchaser shall notify Contractor that it will
not elect the Optional System.
OPTIONAL ROUTE SURVEY means a marine route survey of the portion of
the Optional System from St. Croix to Brookhaven, New York.
OPTIONAL ROUTE SURVEY PRICE has the meaning set forth in Article 8C.
OPTIONAL SYSTEM means the System; provided that Segment 3 of the Base
System shall be replaced by a Segment 3 which bypasses Bermuda and directly
connects St. Croix with Brookhaven, New York.
OPTIONAL SYSTEM PRICE has the meaning set forth in Article 6B.
OWNER PERMITS means all Permits that the Owner needs to own and
operate the System. Exhibit H hereto contains a sample list of Owner
Permits; provided that such list is not meant to be complete or exclusive.
PARTY(IES) means either of the Purchaser and/or the Contractor, as
appropriate.
PAYMENT ESCROW AGREEMENT means that Escrow Agreement to be entered
into among the Prime Contractor, Purchaser, and the Bank Escrow Agent,
substantially in the form of Exhibit D hereto, with such changes therein as
are reasonably requested by the Bank Escrow Agent, as amended modified or
supplemented from time to time.
PERFORMANCE REQUIREMENTS means (i) with respect to a Segment or the
System, the applicable System Performance Requirements set forth or to be
developed by mutual agreement pursuant to the Transmission Performance
section of the System Description section of the Technical Volume, (ii)
with respect to any System Upgrade, the System Performance Requirements set
forth in or to be developed by mutual agreement pursuant to the Technical
Volume or (iii) in each case, such other Segment, System or System Upgrade
performance levels as mutually agreed by the Parties, including impairment
budgets.
PERMITS means all Access Rights, permits, pipeline and cable crossing
agreements, approvals, "no objections", permissions-in-principle,
authorizations, consents, customs clearances, registrations, certificates,
rights-of-way, certificates of occupancy, licenses, including without
limitation, landing licenses, orders, vessel and crew authorizations/visas,
permission for the operation of navigational aids and radio systems and
similar authorizations necessary to complete the Work and operate and
maintain the System (other than any of the foregoing (i) relating to the
ownership, operation and maintenance of the System and not necessary until
after the System is Ready for Final Acceptance, (ii) which is or would be
needed by Purchaser to engage
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
8
in any business outside the business of developing, owning and operating a
submarine cable system or (iii) which is or would be needed at any time by
any purchaser or lessee of capacity on the System).
PRIME CONTRACTOR has the meaning set forth in Article 42 hereof.
PROVISIONING SCHEDULE means the price schedule attached hereto in
Appendix 1.
PURCHASER means Mid-Atlantic Crossing Ltd. and shall include its
permitted successors and assigns.
READY FOR COMMERCIAL ACCEPTANCE means
(i) for any Segment, that
(a) if the System is not at the same time also Ready for
Commercial Acceptance, the Purchaser has consented, in its
sole discretion, to accept such Segment as Ready for
Commercial Acceptance,
(b) such Segment has the ability to carry commercial traffic
between the two landing points of such Segment meeting
performance criteria of ITU-T G.826 as defined in the
System Performance section of the Technical Volume and has
line monitoring and protection switching capability,
(c) Contractor has tested and provided for STM-1
interconnectivity capability to the Segment terminal
equipment according to ITU-T G.826,
(d) Contractor has substantially performed its obligations
under Article 18 (Intellectual Property) then required to
be performed by it, and
(e) all Permits are obtained for such Segment, and
(ii) for the System, that
(a) the System has the ability to carry commercial traffic
throughout the System (operating at 10 Gb/s per fiber
pair) meeting performance criteria of ITU-T G.826 as
defined in the System Performance section of the Technical
Volume, has line monitoring and per Segment protection
switching capability and has network management
capability,
<PAGE>
9
(b) Contractor has tested and provided for STM-1
interconnectivity capability to the System terminal
equipment according to ITU-T G.826,
(c) Contractor has substantially performed its obligations
under Article 18 (Intellectual Property) then required
to be performed by it,
(d) if the Optional System is chosen, the System has self-
healing ring protection capability, and
(e) all Permits are obtained for the System and
(iii) for any System Upgrade, the System is Ready for Commercial
Acceptance at the capacity specified for such System Upgrade.
READY FOR FINAL ACCEPTANCE means
(i) for the System, that
(a)(I) the System has successfully and continuously (other than
by reason of Force Majeure in which case the test period
shall be extended for a time period agreed between the
Parties) functioned in compliance with the System
Performance Requirements during the period of ninety
(90) consecutive days after the Date of Provisional
Acceptance or
(II) if the System shall have failed to meet the System
Performance Requirements at any time during such period
(other than by reason of Force Majeure), the Contractor
has corrected such failure and the System has
successfully and continuously (other than by reason of
Force Majeure in which case the test period shall be
extended for a time period agreed between the Parties)
functioned in compliance with the System Performance
Requirements for such additional period of time not to
exceed ninety (90) days (and not to end prior to the
date 90 days after the Date of Provisional Acceptance)
as reasonably determined by the Independent Engineer as
being sufficient to confirm that such failure has been
corrected and that no other failures are likely to
appear and
(b) all deficiencies noted in the Certificate of Provisional
Acceptance have been corrected (other than minor
deficiencies which will not affect the operation of the
System, in respect of which an equitable adjustment to
the Contract Price will be made) and
<PAGE>
10
(c) Contractor has complied in all material respects with
Article 18 (Intellectual Property) and
(ii) for any System Upgrade, that
(a)(I) the System Upgrade has successfully functioned in
compliance with the System Performance Requirements
during the period of ninety (90) days after the Date of
Provisional Acceptance of the System Upgrade or
(II) if the System Upgrade shall have failed to meet the
System Performance Requirements during such period, the
Contractor has corrected such failure and the System
Upgrade has successfully functioned in compliance with
the System Performance Requirements for such additional
period of time not to exceed ninety (90) days as
reasonably determined by the Independent Engineer as
sufficient to confirm that such failure has been
corrected and
(b) all deficiencies noted in the Certificate of Provisional
Acceptance have been corrected (other than minor
deficiencies which will not affect the operation of the
System, in respect of which an equitable adjustment of
the Contract Price will be made) and
(c) Contractor has complied in all material respects with
Article 18 (Intellectual Property).
READY FOR PROVISIONAL ACCEPTANCE means
(i) with respect to any Segment,
(a) if the System is not, at the same time, also Ready for
Provisional Acceptance, the Purchaser has consented, in
its sole discretion, to accept such Segment as Ready for
Provisional Acceptance,
(b) such Segment is complete in all material respects (and
in any event is Ready for Commercial Acceptance),
(c) the results of Acceptance Testing of such Segment
demonstrate that such Segment has satisfied the System
Performance Requirements,
(d) Contractor has substantially performed its obligations
under Article 18 (Intellectual Property) then required
to be performed by it,
<PAGE>
11
(e) all Permits are obtained for such Segment, and
(ii) with respect to the System, the System is complete in all
material respects (and in any event is Ready for Commercial
Acceptance), all Segments are Ready for Provisional Acceptance
with per Segment protection capability and line monitoring and
network management capability and, if the Optional System has
been chosen, all Segments have self-healing ring protection
capability, and
(iii) with respect to any System Upgrade, the results of Acceptance
Testing of such System Upgrade demonstrate that such System
Upgrade is complete in all material respects and is sufficient
to realize the Performance Requirements.
REPRESENTATIVES has the meaning set forth in Article 36(B).
RETAINAGE means an amount equal to * of the Initial Contract Price,
or in the case of a Segment, the contract value of such Segment.
RETESTING has the meaning set forth in Sub-Article 9(B)(3).
ROUTE SURVEY means the route survey described in the Route Survey,
Cable Loading and Marine Operations section of the Technical Volume.
SCHEDULED RFS DATE has the meaning set forth in Sub-Article 9(A).
SCHEDULED UPGRADE DATE means for any System Upgrade, the date by which
the Contractor agrees such System Upgrade will be Ready for Provisional
Acceptance or Commercial Acceptance.
SEGMENT means Segment 1, Segment 2 or Segment 3, as the case may be.
SEGMENT 1 means the Segment of the System from Brookhaven, New York to
Hollywood, Florida, and landing in locations capable of interconnecting
with major telecommunications carriers.
SEGMENT 2 means the Segment of the System from Hollywood, Florida to
St. Croix, and landing in locations capable of interconnecting with major
telecommunications carriers.
SEGMENT 3, subject to Article 6B, means the Segment of the System from
St. Croix to Bermuda and landing in locations capable of interconnecting
with major telecommunications carriers.
SHIP COSTS has the meaning set forth in Sub-Article 10(A)(2).
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
12
SHIP PERIOD has the meaning set forth in Sub-Article 10(A).
SOFTWARE ESCROW AGREEMENT has the meaning set forth in Sub-Article
18(H).
SUPPLIES means any and all materials, plant, machinery, equipment,
hardware and items supplied by the Contractor under this Contract.
SUSPENSION means a suspension in pursuant to Sub-Article 15(A) or
15(B).
SYSTEM means the Base System, unless the Purchaser has elected the
Optional System, in which case, the System shall mean the Optional System.
SYSTEM PERFORMANCE REQUIREMENTS has the meaning set forth in the
System Description section of the Technical Volume.
SYSTEM UPGRADE has the meaning set forth in Sub-Article 6A(A).
TAX means any tax, duty, levy, charge or custom (including, without
limitation, any sales or use tax, VAT or octroi duty relating to the
Contract items and fiscal stamps connected with Contract legalization)
imposed or collected by any taxing authority or agency (domestic or
foreign).
TECHNICAL VOLUME means the Technical Volume attached hereto as
Appendix 5.
TRANSFEREE means any entity to which purchaser assigns rights
hereunder pursuant to Sub-Article 37(D) hereof.
TRANSFEREE SUPPLEMENT means a supplement to this Contract to reflect
assignments to Transferees, to be in substantially the form of Exhibit E
attached hereto, with such changes as the parties may mutually agree upon.
UPGRADE BILLING SCHEDULE means the billing schedule attached hereto as
Appendix 2A.
UPGRADE COMMISSIONING REPORT has the meaning set forth in the System
Commissioning and Acceptance section of the Technical Volume.
UPGRADE PERIOD has the meaning set forth in Sub-Article 6A(E).
UPGRADE PLAN OF WORK means the plan of work attached hereto as
Appendix 3A.
UPGRADE PRICE means, for any System Upgrade, the Initial Upgrade Price
for such System Upgrade, plus any variations pursuant to Article 6
(Contract Variations),
<PAGE>
13
Taxes as set forth in Sub-Article 4(B) and other adjustments to such
Upgrade Price provided for in this Contract.
UPGRADE PROVISIONING SCHEDULE means the provisioning schedule attached
hereto as Appendix 1A.
UPGRADE WARRANTY PERIOD has the meaning set forth in Sub-Article
10(A).
UPGRADE WORK means the activities and services to be performed or
provided by Contractor under Article 6A (Optional Upgrades).
*
WARRANTY PERIOD has the meaning set forth in Sub-Article 10(A).
WORK means all activities and services (other than the activities and
services specified in this Contract to be provided by Purchaser) necessary
to be performed or provided in developing, planning, designing,
manufacturing, constructing, delivering, installing and testing the System,
until the System is Ready for Final Acceptance, including without
limitation, designating, coordinating and obtaining all Permits, except for
the Landing Licenses and the Cable Station and Beach Access Rights. Whether
or not used in conjunction with the term "Supplies", the term "Work" shall
always be deemed to include the provision of the relevant Supplies, unless
the context requires otherwise.
YEAR 2000 COMPLIANT means, when used with respect to any software or
materials, that such software or materials will operate accurately and,
without interruption, accept, possess and in all manner retain full
functionality when referring to, or involving, any year or date in the
twentieth or twenty first centuries.
ARTICLE 4 CONTRACT PRICE
- --------------------------
A. Contract Price
1. The initial Contract Price for the Work, in United States Dollars
(US$) is a fixed fee of * dollars (the "Initial Contract Price").
The Initial Contract Price does not include the cost of optional
upgrades which are described in Article 6A (Optional Upgrades),
any contract variations as provided for in Article 6 (Contract
Variations), any Taxes, the increased cost of the Optional
System, the increased cost, if any, of the Optional Route Survey
and the external costs and expenses of obtaining Owner Permits,
as described in Article 7. The Initial Contract Price includes
all charges for CIF, all costs and expenses incurred in obtaining
all Contractor Permits and all internal costs of obtaining
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
14
Owner Permits and all costs and expenses incurred with respect to
preparation of cable stations.
2. The initial Upgrade Price for any Upgrade Work, in United States
Dollars (US$) is the fixed fee set forth in Sub-Article 6A(G),
payable as set forth in Appendix 2A (the "Initial Upgrade
Price"). No Initial Upgrade Price includes the cost of any
contract variations as provided for in Article 6 (Contract
Variations) or any Taxes.
3. The Provisioning Schedule sets forth the Contractor's breakdown
of the Initial Contract Price among various aspects of the Work.
If the actual cost of any aspect of the Work is greater or less
than that set forth in the Provisioning Schedule, such fact shall
not cause any change in the Initial Contract Price. At its
discretion, the Purchaser may direct the Contractor to deliver
either universal joints or Alcatel proprietary joints as spares,
in such quantities as provided in the Provisioning Schedule; such
direction may be given during the course of the Work, but not
later than such date as the Parties shall mutually agree, and
such direction, whichever spare joint type is selected, shall not
cause any change in the Initial Contract Price.
4. The Contractor and the Purchaser will share equally the costs and
expenses of the Payment Escrow Agent.
5. The Contractor will not arrange for any Permit which requires
payments to be made by the Purchaser or made after the System is
Ready for Provisional Acceptance, without the prior written
consent of the Purchaser.
B. Taxes, Levies and Duties
1. The Initial Contract Price and each Initial Upgrade Price, as
stated in Sub-Article 4(A) above, excludes any Tax. The Contract
Price and each Upgrade Price shall without duplication be
adjusted for any Tax imposed on or in connection with this
Contract (including, without limitation, the execution and
delivery of this Contract, the Work, the Upgrade Work and the
Supplies, but excluding any Excluded Taxes) (any such Taxes,
other than Excluded Taxes, are hereinafter referred to as
"Contract Taxes"). Contractor has provided a good faith estimate
of the Contract Taxes payable by the Purchaser; it being
understood that the Contractor shall have no liability under this
Contract or otherwise to the Purchaser for any errors or
omissions in such estimate or any losses arising therefrom. The
Contractor shall be responsible for any Excluded Tax that might
be incurred by the Contractor as well as any Tax described in
clause (iv) of the definition of Excluded Tax.
<PAGE>
15
2. The Purchaser will be ultimately responsible for the payment of
all Contract Taxes (including, without limitation, Contract Taxes
that are VAT, octroi duties relating to Contract items and fiscal
stamps, etc. connected with Contract legalizations to the
authorities in their countries). In the case of any Contract
Taxes paid by the Contractor, the Contractor shall submit payment
on the Purchaser's behalf and Contractor will be reimbursed by
the Purchaser in accordance with Article 5 (Terms of Payment by
Purchaser).
3. The Contractor agrees to use reasonable efforts, including,
without limitation, by registering for VAT and any applicable
sales Taxes in any country, state or other jurisdiction where
legally required, to cooperate with and assist Purchaser in its
efforts (i) to have Supplies which are the subject of this
Contract made exempt from Contract Taxes, whether in the
manufacture of the Supplies or related to the importation or
location or installation of the Supplies, (ii) to request
revisions, drawbacks, remissions, reclassifications or the like
to the jurisdictions identified by the Purchaser; or (iii) to
reduce or eliminate Contract Taxes (including the provision of
applicable certifications and forms) and to obtain any available
refunds of Contract Taxes, provided that the Contractor shall not
---------
be required to act other than in accordance with the relevant
Laws then in force. The Purchaser shall reimburse the Contractor,
in accordance with Article 5, for any reasonable costs (including
the reasonable fees and expenses of legal counsel, accountants
and other advisors) incurred by the Contractor under this Sub-
Article 4(B)(3) provided that Purchaser was notified and has
--------
consented to the incurrence of such costs, fees and expenses.
Contractor shall not be required to cooperate with and assist
Purchaser in its efforts under this Sub-Article 4(B)(3) or to
take any action hereunder which in the Contractor's good faith
judgment would incur any costs or if in Contractor's good faith
judgment it would be advisable to obtain the advice of counsel,
accountants or other advisors prior to cooperating with or
assisting purchaser or taking any action, unless in each case,
Purchaser has agreed to reimburse Contractor under the foregoing
proviso.
4. Prior to the Date of Provisional Acceptance with respect to the
System or any System Upgrade, the Contractor shall provide
evidence of having made all payments for Taxes included in the
Contract Price or Upgrade Price or described in clause (iv) of
the definition of Excluded Taxes, other than VAT due on payments
of the Contract Price or Upgrade Price made on or after the Date
of Provisional Acceptance of the System or System Upgrade, which
evidence shall be provided within sixty (60) days of the date of
each such payment.
<PAGE>
16
5. As part of Work or any Upgrade Work, the Contractor shall obtain
at its expense, on Purchaser's behalf, any import license or
other official authorization and carry out all customs
formalities necessary for the importation or exportation of goods
in connection with such Work or Upgrade Work. The Purchaser
agrees to be the Importer or Exporter of Record or designate an
Importer or Exporter of Record/Consignee on its behalf. Purchaser
must provide a Letter of Authorization from any third party
designate stating it agrees to be the Importer or Exporter of
Record on Purchaser's behalf and identify the name and address of
the designated Importer or Exporter of Record.
6. The Supplies to be installed or held on land shall be delivered
to the agreed point at the named place of destination and shall
be consigned to the Purchaser.
C. Withholding Tax
1. If withholding for any Tax is required in respect of any payment
to the Contractor, the Purchaser shall (i) withhold the
appropriate amount from such payment, (ii) pay such amount to the
relevant authorities in accordance with the applicable Laws and
(iii) in the case of any such withholding in respect of a
Contract Tax or a Nexus Tax and subject to the Contractor's
satisfying the obligations set forth in the last sentence of this
Sub-Article 4(C)(1), pay the Contractor an additional amount such
that the net amount received by the Contractor is the amount the
Contractor would have received in the absence of such
withholding. In such a case, the Purchaser shall provide to the
Contractor, as soon as reasonably practicable, a certified copy
of an official tax receipt for any Tax which is retained from any
payment due to the Contractor or for any Tax which is paid on
behalf of the Contractor. All such receipts shall be in the name
of the Contractor. The Contractor agrees to complete accurately
and timely provide to the Purchaser or, if required, to the
applicable Taxing authority, such forms, certifications or other
documents as may be requested in timely manner by Purchaser, in
order to allow it to make payments to the Contractor without any
deduction or withholding on account of withholding Taxes (or at a
reduced rate thereof) or to receive a refund of any amounts
deducted or withheld on account of withholding Taxes.
2. If the Contractor shall become aware that it is entitled to
receive a refund or credit from a relevant taxing or governmental
authority in respect of a Contract Tax or Nexus Tax as to which
the Purchaser has paid an additional amount pursuant to Sub-
Article 4(C)(1) above, the Contractor shall promptly notify the
Purchaser of the availability of such refund or credit and shall,
within 30 days after receipt of a request by the Purchaser
(whether as a result of notification that it has made to
<PAGE>
17
the Purchaser or otherwise), make a claim to such taxing or
governmental authority for such refund or credit at the
Purchaser's expense. If the Contractor receives a refund or
credit in respect of a Contract or Nexus Tax as to which the
Purchaser has paid an additional amount pursuant to Sub-Article
4(C)(1) above, or if, as a result of the Purchaser's payment of
such additional amounts, the Contractor or any other member of an
affiliated group, as defined in section 1504(a) of the Code, of
which the Contractor is a member, receives a credit against Taxes
imposed on its income or franchise taxes imposed on it by the
country under the laws of which it is organized or any political
subdivision thereof, the Contractor shall promptly notify the
Purchaser of such refund or credit and shall within 30 days from
the date of receipt of such refund or benefit of such credit pay
over the amount of such refund or benefit of such credit
(including any interest paid or credited by the relevant taxing
or governmental authority with respect to such refund or credit)
to the Purchaser (but only to the extent of the additional
payments made by the Purchaser under Sub-Article 4(C)(1) above
with respect to the Contract or Nexus Tax giving rise to such
refund or credit), net of all out-of-pocket expenses of the
Contractor; provided, however, that the Purchaser, upon the
-------- -------
request of the Contractor agrees to repay the amount paid over to
the Purchaser (plus penalties, interest or other charges due to
the appropriate authorities in connection therewith) to the
Contractor in the event the Contractor is required to repay such
refund or credit to such relevant authority.
ARTICLE 5 TERMS OF PAYMENT BY PURCHASER
- -----------------------------------------
A. General Conditions of Payment
1. All payments shall be made and all invoices shall be rendered in
US Dollars (US$). The Purchaser shall be responsible for and
shall pay all costs and fees for payment, as well as the banking
and wiring costs. All banking documents and correspondence must
be in English.
B. Invoice Procedures
1. All invoices for Work shall be submitted according to the Billing
Schedule, provided, that the appropriate Billing Milestones have
--------
been achieved. All invoices for Work shall have a certificate in
the form of Appendix 4A attached.
2. Any Contract Variations shall be invoiced and paid in accordance
with the terms of the Contract Variation as specified in Article
6 (Contract Variations).
<PAGE>
18
3. Invoices for Upgrade Work shall be submitted according to the
Upgrade Billing Schedule and shall be paid in accordance with
this Article 5.
4. Invoices for amounts not described in Sub-Sections 1-3 above,
which may become payable hereunder shall be submitted after
applicable costs have been incurred or such other time as may be
specified in this Contract. Such invoices shall be payable at a
reasonable bank rate of exchange applicable at the time such
costs were paid by the Contractor, and shall be accompanied by a
certificate of the Contractor explaining such amount and
certifying that it is payable.
5. The Contractor shall render all invoices to the following address
or facsimile number:
Mid-Atlantic Crossing Ltd.
Wessex House
45 Reid Street
Hamilton HM12
Bermuda
Facsimile: 441-296-6749/8606
Attn: Cameron Adderley
with a copy to
Conexart Technologies, Inc.
124 Rue de Charante
Saint Lambert
Quebec, Canada J4S 1K3
Facsimile: 514-466-1093
Attn: Mr. Martin Fournier
C. Payment Procedures
1. The Purchaser shall pay the Contractor, and the Contractor shall
accept payment, in accordance with this Article 5 (Terms of
Payment by Purchaser). All payments due and owing to the
Contractor shall be paid to the Prime Contractor (and each
invoice shall so provide) and payment to the Prime Contractor
shall be deemed payment to the Contractor. Any amounts received
by the Prime Contractor shall be deemed to have been received by
the Prime Contractor in its capacity as agent of the Contractor.
The Prime Contractor shall pay such amounts to the Contractor net
of any applicable taxes or levies that may be imposed on the
Contractor.
2. Purchaser agrees to pay an initial payment to Contractor in the
amount of *. Within three business days of the time this Contract
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
19
is executed and delivered by all Parties, the first portion of
the initial payment, in the amount of * shall be paid by
Purchaser to Contractor. Failure to receive this payment shall
entitle Contractor to immediately suspend Work hereunder. The
second portion of the initial payment, in the amount of * shall
be paid by Purchaser to Contractor on July 14, 1998.
3. Invoices given to the Purchaser (and the Independent Engineer) on
or before the last day of any month shall, subject to Sub-Article
5(C)(5) below, be due and payable on the last day of the next
month or such other time as may be specified in this Contract.
4. Invoices not paid when due shall accrue late payment charges from
the day, following the day, on which payment was due until the
day on which it is paid. Invoices for such extended payment
charges shall not be issued for an amount less than U.S. $1,000.
Extended payment charges shall be computed at the rate of one
percent (1%) per month.
5. In the event that the Purchaser has an objection to any invoice
or other payment obligation or any amount owing by Contractor to
Purchaser shall not have been paid when due, the Purchaser shall
promptly notify the Contractor of such objection and such amount,
and the Purchaser and Contractor shall make every reasonable
effort to settle promptly the dispute concerning the payment(s)
in question. In the event such dispute cannot be settled, the
Prime Contractor and the Purchaser will execute and deliver a
Payment Escrow Agreement substantially in the form of Exhibit D
hereto, with such changes therein as the Payment Escrow Agent may
reasonably request, and the Purchaser will have the right to
withhold payment of the disputed amount(s) (or withhold from the
invoice amount a sum equal to the amount purportedly owing by
Contractor) so long as it deposits, in full, such disputed
amount(s) into the Dispute Account.
(a) Provided such disputed amount is placed into the Dispute
Account in a timely manner, the Purchaser shall not be
deemed to be in breach of or in default for failing to pay
Contractor.
(b) The Payment Escrow Agent will distribute the disputed amount
in accordance with the terms of the Escrow Agreement.
(c) In addition, the prevailing Party shall be entitled to
receive from the Dispute Account an amount equal to the
interest earned by the Payment Escrow Agent on the
distributed, disputed amount, which shall be distributed by
the Escrow Agent under clause (b) above.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
20
6. The Purchaser shall make timely payments for that portion of the
invoice not in dispute in accordance with Sub-Article 5(C) or
such payments will be assessed extended payment charges as set
forth in Sub-Article 5(C)(4). Pending resolution of the dispute,
the Purchaser may not withhold payment (unless also subject to
dispute) on any other invoice concerning different goods and/or
services submitted by Contractor.
ARTICLE 6 CONTRACT VARIATIONS
- -------------------------------
A. Either Party may request, during construction of the System or any
System Upgrade, by written order, a contract variation ("Contract Variation")
requiring additions or alterations to, deviations or deductions from the System
or System Upgrade. If the other Party consents, in its sole discretion, this
change will be formalized as an amendment to this Contract by a Contract
Variation; provided, that the Contractor will not unreasonably withhold its
--------
consent to a Contract Variation requested by the Purchaser.
B. A Contract Variation shall not become effective unless and until the
price adjustment, the terms and schedule of payment and the extension of time
and all other terms have been mutually agreed upon by the Parties (and the
Parties shall act reasonably and in good faith in connection with all such
terms) and such Contract Variation is signed by an authorized representative of
each Party. Each Contract Variation shall be incorporated as an amendment to the
Contract.
C. Contractor may seek a Contract Variation for any change, after the
date hereof, of any Law (except those, and to the extent, affecting only Taxes
or wages) which requires a change in the Work or the Upgrade Work or affects the
costs (other than wages) incurred or to be incurred by the Contractor or any
combination of the foregoing and Purchaser shall agree to any such change in
Work or Upgrade Work as may be required and to an equitable adjustment to the
Contract Price or the applicable Upgrade Price. As of the date hereof, neither
Party has Actual Knowledge of any proposed change in any Law that would require
a change in the Work or the Upgrade Work.
ARTICLE 6A OPTIONAL UPGRADES
- -----------------------------
A. This Article includes the terms and conditions governing an option for
future upgrades to the System (each a "System Upgrade") that may be exercised by
Purchaser during the Option Period.
B. *
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
21
C. *
D. *
E. *
F. *
G. *
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
22
*
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
23
*
H. *
I. *
J. *
K. *
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
24
*
ARTICLE 6B *
- -------------
A. *
B. *
C. *
D. *
ARTICLE 7 RESPONSIBILITIES FOR PERMITS; COMPLIANCE WITH LAWS
- --------------------------------------------------------------
A. The Purchaser shall reasonably cooperate with and assist the
Contractor to obtain all Permits (except those specified in paragraph C below),
to the extent that Purchaser's cooperation and assistance are necessary for
Contractor to expeditiously and cost-efficiently obtain such Permits. The
Purchaser agrees to respond promptly to any such request from Contractor.
Further, the Purchaser agrees that it will not impede or interfere with
Contractor's activities or Contractor's abilities to perform its obligations.
Upon notice from Contractor with respect to a Permit or receipt by Purchaser of
a copy of a Permit, Purchaser shall fulfill all conditions of such Permit and
perform all responsibilities thereunder, except to the extent that such
conditions or responsibilities are those of the Contractor under the Work.
Contractor will inform Purchaser as to any such conditions or responsibilities
that are not
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
25
ordinary and routine and obtain Purchaser's consent thereto prior to arranging
for any such Permit.
B. Subject to paragraph C below, the Contractor shall have the
responsibility for obtaining all Permits, at the Contractor's sole cost and
expense in the case of Contractor Permits. In the case of Owner Permits,
Purchaser shall reimburse Contractor for all "external" costs and expenses
incurred by Contractor in connection with obtaining on behalf of Purchaser all
Owner Permits, such as any application fees, fees of independent engineers or
consultants needed to provide environmental or other required reports and fees
of independent counsel required to obtain such Permits. Such "external" costs
shall not include any overhead changes or costs and expenses of employees of
Contractor, including travel costs. To the extent that Contractor's engineers,
lawyers or other employees have the ability to perform work in obtaining Owner
Permits, Contractor shall not charge for use of independent parties to perform
such work. The Initial Contract Price includes a fee for Contractor to
generally manage obtaining Owner Permits, including to identify Permits, prepare
and file for them, and follow-up on obtaining them, and such activities shall
not be billed to Purchaser. The Contractor will cause all Owner Permits not
issued in the name of Purchaser to be assignable to Purchaser, and to be
assigned to Purchaser at the time title to the System is transferred to
Purchaser pursuant to this Contract. Contractor will cause all Contractor
Permits to provide that any payments thereunder are the obligation of Contractor
and not of Purchaser.
C. The Purchaser shall be responsible for obtaining, at its expense,
Landing Licenses and Cable Station and Beach Access Rights. The Contractor will
cooperate with the Purchaser in connection therewith. If the Purchaser is
having difficulty obtaining any Cable Station and Beach Access Rights,
Contractor agrees to accept a Contract Variation(s) to construct the necessary
replacements therefor. In connection therewith, provided Purchaser notifies
Contractor on or prior to November 1, 1998 that directional drilling is
necessary at any cable station site, Contractor will be responsible for
directional drilling conduit space seaward from the beach manhole at a cost
which will be negotiated in good faith by the Parties, and, in any such case,
there will be no change in the Scheduled RFS Date. If Purchaser notifies
Contractor of the need for any directional drilling after November 1, 1998, the
Contractor will perform such service at a cost which will be negotiated in good
faith by the Parties but the Contractor shall be entitled to an equitable
adjustment in the Scheduled RFS Date.
D. Any delay in obtaining or failure to obtain any Owner Permit shall
constitute a Force Majeure and be treated as described in Article 17 (Force
Majeure), except to the extent such delay is a result of Contractor's negligence
or willful misconduct.
E. Except with respect to variations necessitated by complying with any
changes, enacted after the date hereof, in any Laws (the costs with respect to
which shall be borne by the Purchaser), the Contractor shall be responsible for
the payment of any and all costs incurred as a result of the need to vary
design, drawings, plans or procedures to comply with any of the circumstances
set forth in this Article. The Contractor shall, before making any variations
from the designs, drawings, plans or procedures that may be necessitated by so
complying with any Laws and that would represent a material change to the
overall design of
<PAGE>
26
the System, give to the Purchaser written notice, specifying the variations
proposed to be made, and the reasons for making them. As of the date hereof,
neither Party has Actual Knowledge of any proposed changes in the Laws which
would necessitate any such variation.
F. The Contractor shall (i) give all notices required by any Laws to be
given to any authority and (ii) perform or permit the performance by authorized
persons of any inspection required by the said Laws.
G. As part of the Initial Contract Price, the Contractor shall obtain, at
its own risk and expense, any export and import license and other official
authorization and carry out all customs formalities for the exportation and
importation of goods and, where necessary, for their transit through another
country.
H. Within 30 days after the date of execution of this Contract, the
Contractor will prepare and deliver to the Purchaser a detailed list of Permits
that to its knowledge are required to be obtained under current law in order to
complete the Work and shall update such list from time to time if it becomes
aware of changes in Permit requirements. Such list, as updated from time to
time, shall set forth the projected dates of filing for such Permits and an
estimate of when such Permits are expected to be obtained. Without limiting
Contractor's liabilities in respect of Sub-Articles 7(B) and (G), Contractor
shall have no liability in respect of the accuracy of the information furnished
under this Sub-Article, except in the case of gross negligence or willful
misconduct.
ARTICLE 8 ROUTE SURVEY
- ------------------------
A. The Contractor shall conduct the Route Survey and the Optional Route
Survey, if requested by the Purchaser, and select the cable route for the Base
System and the Optional System, if applicable, in accordance with the
information in the Final Survey Report. Contractor shall be permitted to make
changes, at its discretion, to the route selection, if necessary for operational
reasons without additional cost to Purchaser.
B. Except as provided in paragraph C of this Article 8, any changes to
the route selection requested by Purchaser shall be treated as a Contract
Variation in accordance with Article 6 (Contract Variations).
C. Purchaser shall have the option to cause Contractor to conduct the
Optional Route Survey. If Purchaser shall elect such option on or prior to June
8, 1998, the Initial Contract Price will be increased by the amount of $875,144
(the "Optional Route Survey Price") and the Scheduled RFS Date shall remain
unchanged. If Purchaser shall elect such option after June 8, 1998, Contractor
shall be entitled to an equitable adjustment in cost and the Scheduled RFS Date.
If Purchaser shall elect the Optional System on or prior to June 8, 1998, then
Contractor will conduct the Optional Route Survey without any increase to the
Initial Contract Price or change to the Scheduled RFS Date.
<PAGE>
27
D. If there are any changes to any aspect of the Work due to the Final
Route Survey, Contractor shall bear any resulting increase in costs up to and
including $2,500,000. Purchaser and Contractor shall share equally any such
costs exceeding $2,500,000 but below $5,000,000. Contractor shall bear any such
costs exceeding $5,000,000.
ARTICLE 9 ACCEPTANCE
- ----------------------
A. General
1. The Acceptance Testing shall be performed by the Contractor. The
Purchaser and its designated representatives (including the
Independent Engineer) may observe, at their own expense, the
Contractor's tests and review the test results. Purchaser may
request and conduct any additional tests, at its own expense, but
any delay caused by such process shall be a Force Majeure event.
2. Until the Date of Final Acceptance of the System or if a System
Upgrade is requested by Purchaser, the Date of Final Acceptance
of such System Upgrade, the Purchaser agrees to allow Contractor
access to all Segments of the System.
3. The Purchaser shall issue a Certificate of Commercial Acceptance
in accordance with the provisions of Sub-Article 9(D)(1).
4. Once a Segment of the System, the System, or a System Upgrade is
Ready for Provisional Acceptance, the Purchaser shall issue a
Certificate of Provisional Acceptance, provided, that it is
within the Purchaser's sole discretion as to whether to accept a
Segment instead of the System.
5. Once the System or a System Upgrade is Ready for Final
Acceptance, the Purchaser shall issue a Certificate of Final
Acceptance.
6. The Purchaser shall not unreasonably withhold or delay issuance
of a Certificate of Commercial Acceptance, a Certificate of
Provisional Acceptance or a Certificate of Final Acceptance.
7. The Contractor agrees that the Date of Provisional Acceptance or
Commercial Acceptance of the System will occur by December 30,
1999 (as such date may be extended under Article 6 (Contract
Variations), Article 17 (Force Majeure) or otherwise under this
Contract or by agreement of the Parties, the "Scheduled RFS
Date").
8. The Date of Commercial Acceptance, Provisional Acceptance and
Final Acceptance, as the case may be, shall be deemed to have
occurred with respect to a Segment, the System or a System
Upgrade if a Certificate
<PAGE>
28
of Commercial Acceptance, a Certificate of Provisional Acceptance
or a Certificate of Final Acceptance is issued with respect
thereto.
B. Notice of Acceptance or Rejection
1. Within thirty (30) days of receipt by Purchaser and Independent
Engineer of the Commissioning Report or Upgrade Commissioning
Report, as the case may be, the Purchaser must issue notification
to the Contractor of the following:
(a) issuance of a Certificate of Provisional Acceptance in
accordance with Sub-Article 9(C); or
(b) rejection of a Certificate of Provisional Acceptance, but
instead issuance of a Certificate of Commercial Acceptance
in accordance with Sub-Article 9(D) below; or
(c) rejection of the Segment, the System or System Upgrade in
its existing condition and issuance of neither a Certificate
of Provisional Acceptance nor a Certificate of Commercial
Acceptance, with in the case of the System or System Upgrade
a written explanation of reasons for rejection (it being
understood that acceptance of a Segment instead of the
System is at the sole discretion of the Purchaser).
If the Purchaser (or the Independent Engineer on its behalf)
fails to respond with such notification within thirty (30) days,
then the Date of Provisional Acceptance of the Segment (subject
to Purchaser's consent), the System or System Upgrade shall be
deemed to be the date such Commissioning Report or Upgrade
Commissioning Report, as the case may be, was received by the
Purchaser.
2. On receipt of a notice from the Purchaser pursuant to Sub-
Articles 9(B)(1)(b) or (c) above, the Contractor shall be
entitled to address any disputes and explain any discrepancies to
the Purchaser regarding the results of the Acceptance Testing.
Unless Purchaser, for good cause, rejects such explanation, it
shall issue a new notice pursuant to Sub-Article 9(B)(1) above,
which shall be deemed to have been issued on the date of the
original notice.
3. In case of rejection, and if the explanation by the Contractor as
in Sub-Article 9(B)(2) above is not accepted, for good cause, by
the Purchaser, the Contractor shall carry out the necessary
corrective actions and will effect a new series of Acceptance
Testing ("Retesting"). After receipt by Purchaser and Independent
Engineer of the new Commissioning Report or Upgrade Commissioning
Report, as the case
<PAGE>
29
may be, describing the results of Retesting, the Purchaser will
be granted a new period of thirty (30) days to analyze the new
Report according to the provisions of Sub-Article 9(B)(1) and any
new notice of the Purchaser shall apply from the date the
Purchaser receives such new Commissioning Report or Upgrade
Commissioning Report, as the case may be.
C. Provisional Acceptance
1. The Certificate of Provisional Acceptance may have annexed to it
a list of any outstanding deficiencies to be corrected by the
Contractor.
2. The Contractor shall, as soon as reasonably practicable, correct
such deficiencies and complete the Work or Upgrade Work indicated
on all such listed items so as to comply in all material respects
with the requirements of this Contract, provided that the
Purchaser allows Contractor the necessary access to the
Segment(s) as the Contractor needs to correct such deficiencies
and complete the Work or Upgrade Work. The Contractor shall give
the Purchaser reasonable notice of its requirement for such
access.
D. Commercial Acceptance
1. A Certificate of Commercial Acceptance shall be issued by
Purchaser with respect to a Segment, the System or System Upgrade
if the results of the Acceptance Testing demonstrate that such
Segment, the System or such System Upgrade does not justify the
issuance of a Certificate of Provisional Acceptance, but
nevertheless, such Segment, the System or such System Upgrade is
Ready for Commercial Acceptance; provided, that acceptance of a
--------
Segment instead of the System shall be in the sole discretion of
the Purchaser.
2. Each Certificate of Commercial Acceptance shall have annexed to
it a mutually agreed list of all outstanding items to be
completed by the Contractor.
3. The Contractor shall, as soon as reasonably practicable, remedy
the outstanding items, provided that the Purchaser allows
Contractor the necessary access to the Segment(s) as the
Contractor needs to remedy such outstanding items. The Contractor
shall give the Purchaser reasonable notice of its requirement for
such access. Notwithstanding the above, provided that Contractor
has been allowed access to the Segment(s) as required in Sub-
Article 9(A)(2), the Contractor shall continue to carry the risk
of loss for any outstanding item until such item is no longer
outstanding.
<PAGE>
30
4. When the outstanding items referenced in Sub-Article 9(D)(3)
above have been remedied, and the Segment(s) or System Upgrade is
otherwise Ready for Provisional Acceptance, the Purchaser will
promptly issue a Certificate of Provisional Acceptance; provided,
--------
that acceptance of a Segment instead of the System shall be in
the sole discretion of the Purchaser.
5. The issuance of a Certificate of Commercial Acceptance with
respect to a Segment or System Upgrade shall in no way relieve
the Contractor from its obligation to provide a Segment or System
Upgrade conforming with the Performance Requirements at the time
of the issuance of a Certificate of Commercial Acceptance.
E. Final Acceptance
1. Within thirty (30) days of the date of receipt by Purchaser and
Independent Engineer of the Final Commissioning Report, the
Purchaser shall issue a Certificate of Final Acceptance or reject
such Report. If the Purchaser neither issues a Certificate of
Final Acceptance nor rejects such Report within such thirty (30)
day period, then the Date of Final Acceptance of the System shall
be deemed to be the date such Final Commissioning Report was
received by the Purchaser.
F. Title and Risk of Loss
1. If the Purchaser, in its sole discretion, chooses to accept a
Segment prior to accepting the System, then upon payment of all
amounts listed in the Billing Schedule with respect to a Segment
(other than the Retainage applicable to such Segment) and the
issuance of a Certificate of Commercial Acceptance or a
Certificate of Provisional Acceptance with respect to such
Segment by the Purchaser in accordance with this Contract, title
(free and clear of all liens other than those deriving through or
from the Purchaser) to such Segment shall vest in the Purchaser.
2. Upon (i) payment of all amounts listed in the Billing Schedule
with respect to the System (other than the Retainage) and (ii)
the issuance of a Certificate of Commercial Acceptance or a
Certificate of Provisional Acceptance with respect to the System
by the Purchaser in accordance with this Contract, title (free
and clear of all liens other than those deriving through or from
the Purchaser) to the System shall vest in the Purchaser.
3. Upon payment of the Upgrade Price with respect to a System
Upgrade and the issuance of a Certificate of Commercial
Acceptance or a Certificate of Provisional Acceptance with
respect to such System
<PAGE>
31
Upgrade by the Purchaser in accordance with this Contract, title
to such System Upgrade shall vest in the Purchaser.
4. As from the date of vesting of title in a Segment, the System or
a System Upgrade, the Purchaser shall, except as set forth in the
following sentence, assume the risk of loss in respect of all
parts of such Segment, the System or System Upgrade and
responsibility for its maintenance. As stated in Sub-Article
9(A)(2), the Contractor will be allowed access to such Segment,
and, so long as the Contractor has been allowed access to such
Segment as may be required, the Contractor shall continue to
carry the risk of loss with respect of each item outstanding
under Sub-Article 9(C)(1) and 9(D)(2) until such item is no
longer outstanding.
ARTICLE 10 WARRANTY
- --------------------
A. The Contractor warrants that the System and each System Upgrade,
including its spares, shall be free from defects in supplies, workmanship and
design for a period of * years commencing from the Date of Provisional
Acceptance of the System or such System Upgrade, as the case may be,
(hereinafter Warranty Period" and "Upgrade Warranty Period"), with Ship Costs
being covered for the first * years of the Warranty Period (the "Ship Period")
and the Purchaser being responsible for all Ship Costs thereafter.
1. During the Warranty Period for the System or the Upgrade Warranty
Period for a System Upgrade, the Contractor shall make good, by
repair or replacement, at its sole option, any defects in the
System or such System Upgrade, as the case may be, including any
spares, which may become apparent or be discovered due to
imperfect workmanship, faulty design or faulty material supplied
by the Contractor, or any act, neglect or omission on the
Contractors part.
(a) If at any time within the Warranty Period or the Upgrade
Warranty Period for a System Upgrade any defect occurs which
causes the System or such System Upgrade, as the case may
be, to fail to meet its overall Performance Requirements,
the Contractor shall repair or replace such part or parts.
In making such repairs, Contractor may make changes to the
System or such System Upgrade, as the case may be, or
substitute equipment of later or comparable design, provided
the changes, modifications, or substitutions under normal
and proper use do not cause the System or such System
Upgrade as the case may be to fail to meet the Performance
Requirements.
(b) The Contractor shall use reasonable efforts to minimize the
period of time that any Segment or the System is out of
service
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
32
for testing and repair. The Purchaser agrees to cooperate
with the Contractor to facilitate the Contractor's repair
activity.
(c) It is understood that if there is a problem on the System,
the Purchaser may immediately dispatch the maintenance
authority to effect repairs. If and to the extent that such
problem is determined to be caused by a defect in the System
covered by this warranty, the Contractor shall reimburse the
Purchaser for its actual Non-Ship Costs incurred and, with
respect to any such repair relating to a defect identified
in good faith by Purchaser in writing prior to the end of
the Ship Period, actual Ship Costs incurred.
(i) The Contractor shall be given advance notice and be
entitled to have a representative on board ship to
observe at sea repairs and shall be given the earliest
possible notice of any such repair.
(ii) Subject to the foregoing and to Sub-Article 10(D), any
repair by the Purchaser shall not in any way diminish
the Contractor's obligation under the warranty. Any
equipment discovered to be defective or faulty and
recovered during a warranty repair shall be returned to
the Contractor at its request.
(d) In the event that the Contractor fails to make the repair or
to make reasonable efforts to minimize the period of time
that the System is out of service for repair, the Purchaser
may repair the System or the System Upgrade and the
Contractor shall reimburse the Purchaser for Non-Ship Costs
and, with respect to any such repair relating to a defect
identified in good faith by Purchaser in writing prior to
the end of the Ship Period, Ship Costs.
(i) The Contractor shall be given advance notice and be
entitled to have a representative on board ship to
observe at sea repairs and shall be given the earliest
possible notice of any such repair.
(ii) Subject to the foregoing, any repair by the Purchaser
shall not in any way diminish the Contractor's
obligation under the warranty. Any equipment discovered
to be defective or faulty and recovered during a
warranty repair shall be returned to the Contractor at
its request.
<PAGE>
33
2. Contractor shall bear the Ship Costs of only those repairs of the
defects identified in good faith by Purchaser in writing prior to
the end of the Ship Period. However, the Contractor shall bear
the Non-Ship Costs of each repair, replacement or improvement
required during the Warranty Period.
As used herein, "Ship Cost" means the costs of operating a
vessel, including but not limited to running and standing charges
for the vessel (including but not limited to labor charges for
the vessel's crew, at sea insurance, port charges, fuel and lube
oils, consumables, cable loading, cable unloading, navigation and
maritime communications) as well as the costs associated with the
use and operation of a remotely operated vehicle and the tracked
self propelled burial tool and "Non-Ship Costs" means the costs
of making a repair, including the cost of components, equipment
or materials requiring replacement, the cost of any additional
equipment necessary to effect the repair, the cost of making the
repair, including the cost of reburying any previously buried
portion, the cost of labor and engineering assistance or
development required to make the repair and all necessary
associated costs, such as, but not limited to, shipping and
customs and services that may be required to make the repair, but
excluding any of the foregoing which are Ship Costs.
3. The Contractor shall effect all warranty repairs of the System
and shall supply all necessary repair materials. However, the
Contractor may use, with the consent of the Purchaser, which
shall not be unreasonably withheld, the materials needed to
effect a repair from the Purchaser's available spare materials.
The Contractor shall promptly replace in kind such materials
supplied from the Purchaser's spare materials. The replacement
of or reimbursement for such materials shall be made at a time
mutually agreed to by the Purchaser and the Contractor.
4. The Contractor warrants that services furnished hereunder will be
performed in a workmanlike manner using materials free from
defects except when such materials are provided by the Purchaser
(it being understood that all materials arranged for directly by
Contractor, whether or not purchased in the name of Purchaser,
are not materials provided by the Purchaser). If such services
prove to be not so performed and Purchaser notifies the
Contractor within six (6) months from the completion of the
service, the Contractor will promptly correct the defect.
5. Any part which replaces a defective part during the applicable
Warranty Period or Upgrade Warranty Period, shall be subject to
the remaining Warranty Period and Ship Period, if any, or Upgrade
Warranty Period, as the case may be, of the part which was
replaced. However, the Warranty Period shall never exceed *
from the Date of
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
34
Provisional Acceptance of the System and the Upgrade Warranty
Period for any System Upgrade shall never exceed * years
from the Date of Provisional Acceptance of such System Upgrade.
Further, Ship Costs shall be included only with respect to
defects identified in good faith by Purchaser in writing during
the first * from the Date of Provisional Acceptance of the
System.
B. *
C. The warranties provided above in Sub-Articles 10(A) and (B) by the
Contractor shall not apply to defects or failures of performance, which result
from damage caused by acts or omissions of the Purchaser or its agents,
employees or representatives or third parties (other than the Contractor), or
which result from modifications, misuse, neglect, accident or abuse, repair,
storage or maintenance by other than the Contractor or its agents or, use in a
manner not in accordance with the System Description or other causes set forth
in Article 12 (Purchaser's Obligations) or Article 17 (Force Majeure).
D. THE FOREGOING WARRANTY IS EXCLUSIVE AND IS IN LIEU OF ALL OTHER
EXPRESS AND IMPLIED WARRANTIES INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WHICH ARE SPECIFICALLY
DISCLAIMED.
E. The Contractor shall, in accordance with its normal operating
practices, investigate any defective part or parts repaired or replaced pursuant
to this Article 10 to determine the type of defect and the cause of failure of
the part or parts. The Contractor shall provide a written report to the
Purchaser on the results of the investigation, if any.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
35
ARTICLE 11 CONTRACTOR SUPPORT
- ------------------------------
A. For a period of ten (10) years from the applicable Date of Provisional
Acceptance or Date of Commercial Acceptance of the System whichever is earlier,
the Contractor will make available to the Purchaser replacement parts and repair
service for the System as may be reasonably necessary for its operation,
maintenance or repair. Where identical parts cannot be supplied, the Contractor
shall provide fully compatible parts with characteristics equal or superior to
those originally provided by the Contractor. Such parts and services shall be
provided under commercially reasonable conditions of price and delivery.
B. Notwithstanding Sub-Article 11(A), if for any reason the Contractor or
Contractor's suppliers intend to cease or ceases manufacturing or having
manufactured identical or fully compatible replacement parts, the Contractor
shall use reasonable efforts to give one year's prior written notice to the
Purchaser to allow the Purchaser to order from the Contractor any required
replacement parts and shall provide full details of the arrangements to provide
equivalents.
ARTICLE 12 PURCHASER'S OBLIGATIONS
- -----------------------------------
A. Purchaser agrees to pay all amounts payable by it when due under this
Contract and to perform all of its other obligations under this Contract.
B. In the event the Purchaser establishes a branch office in any of the
relevant jurisdictions, the Purchaser shall be solely responsible to perform all
activities necessary to establish such branch office.
C. If any loss, damage, delay or failure of performance of the System or
a System Upgrade results from the Purchaser's failure to perform its obligations
under this Contract and results in an increase in the costs of performance or
the time required for performance of any of the Contractor's duties or
obligations under this Contract, the Contractor shall be entitled, as
appropriate, to (i) an equitable adjustment in the Contract Price or applicable
Upgrade Price, (ii) an equitable extension of time for completion of its Work or
the Upgrade Work, (iii) reimbursement for all such additional costs incurred,
and (iv) to the extent necessary in light of Purchaser's failure and the
adjustments made in accordance with clauses (i), (ii) and (iii) above, an
equitable adjustment of the Work and/or Upgrade Work.
1. The Contractor shall inform the Purchaser promptly of any
occurrence covered under this Sub-Article 12(C), and shall use
reasonable efforts to minimize any such additional costs or
delay.
2. The Contractor shall promptly provide to the Purchaser an
estimate of the anticipated additional costs and time required to
complete the Work or Upgrade Work and request relief from
contractual obligations or duties, as appropriate. Purchaser
shall, upon notification, make advance payment to Contractor for
the estimated amount of anticipated additional costs; provided
--------
that Purchaser may deposit such amount into
<PAGE>
36
the Dispute Account and Sub-Article 5(C)(5) shall apply.
Contractor shall without limiting Purchaser's obligations in the
foregoing sentence, discuss such costs with Purchaser upon
Purchaser's request.
3. As soon as reasonably practicable after the actual costs become
known to the Contractor, the Contractor shall provide a statement
of such actual costs to the Purchaser.
4. If the estimated amount is greater than the amount of actual
costs, then the Contractor shall reimburse the Purchaser. If the
amount of actual costs incurred is greater than the estimated
amount, then the Purchaser shall reimburse the Contractor for any
shortfall in accordance with Article 5 (Terms of Payment of
Purchaser).
ARTICLE 13 TERMINATION FOR DEFAULT
- -----------------------------------
A. Either Party may, by written Notice of Termination for Default,
immediately upon receipt or such later date as specified in the notice,
terminate the whole or any part of this Contract in any one of the following
circumstances (each an "Event of Default"):
1. In the case of the Purchaser, (a) if Contractor materially fails
to comply with the terms and conditions of this Contract and, if
such failure occurs prior to the Date of Commercial Acceptance or
the Date of Provisional Acceptance, it would not be reasonable to
believe that the Contractor will be able to provide the System
which is Ready for Provisional Acceptance, within 200 days after
the Scheduled RFS Date or (b) the Contractor fails to cause the
System to be Ready for Provisional Acceptance within 200 days
after the Schedule RFS Date;
2. If the other Party defaults on any of its payment obligations and
does not cure such default within a period of thirty (30) days
(or such longer period as the non-breaching Party may authorize
in writing) after receipt of written notice demanding cure
(subject to dispute provisions);
3. If the other Party shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part
of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or
shall take any corporate action to authorize any of the
foregoing;
<PAGE>
37
4. If an involuntary case or other proceeding shall be commenced
against the other Party seeking liquidation, reorganization or
other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or
other proceeding shall remain undismissed and unstayed for a
period of 60 days; or an order for relief shall be entered
against the other Party.
B. If this Contract is terminated by the Purchaser as provided in Sub-
Article 13(A), the Purchaser, in addition to any other rights provided in this
Article and upon payment to Contractor of all monies due and owing as set forth
in Sub-Article 13(C) below, may require the Contractor to transfer title and
deliver to the Purchaser in the manner and to the extent directed by the
Purchaser any completed equipment, material or supplies, and such partially
completed cable and materials, parts, tools, dies, jigs, fixtures, plans,
drawings, information, and contract rights (hereinafter collectively
"Manufacturing Materials") as the Contractor has had specifically produced or
specifically acquired for the performance of such part of this Contract as has
been terminated and which, if this Contract had been completed, would have been
required to be furnished to the Purchaser; and the Contractor shall, upon the
direction of the Purchaser, protect and preserve property in the Contractor's
possession in which the Purchaser has an interest.
C. If the Contract is terminated by Contractor as provided in Sub-Article
13(A), the Purchaser shall pay the total of:
1. the cost of settling and paying claims arising out of the
termination of Work under the contracts and orders, as provided
in Sub-Article 14(B)(3) below which are properly chargeable to
the terminated portion of this Contract; and
2. the reasonable costs of settlement including accounting, legal,
clerical and other expenses necessary for the preparation of
settlement claims and supporting data with respect to the
terminated portion of this Contract and for termination and
settlement of contracts thereunder, together with reasonable
storage, transportation and other costs incurred in connection
with the protection, preservation and disposition of property
proper to this Contract.
D. Force Majeure events pursuant to Article 17 (Force Majeure) shall not
constitute a default or provide a basis for termination under this Article.
E. Regardless of any termination of this Contract as provided in Sub-
Article 13(A), neither Party shall be relieved from any liability for damages or
otherwise which may have been incurred by reason of any breach of this Contract.
<PAGE>
38
F. Without limitation to the foregoing, in the event that Purchaser
terminates this Contract pursuant to Sub-Article 13(A), the Contractor shall be
liable to Purchaser (without duplication) for the total of all costs and
expenses incurred by Purchaser in completing the Work or in correcting
deficiencies in the Work to the extent that the payments made to Contractor
pursuant to this Contract, together with such costs and expenses, exceed the
Contract Price.
ARTICLE 14 TERMINATION FOR CONVENIENCE
- ---------------------------------------
A. The performance of Work under this Contract may be terminated by the
Purchaser in whole, or in part, at its discretion. The Purchaser shall deliver
to the Contractor a written notice specifying the extent to which performance of
Work under this Contract is terminated, and the date upon which such termination
becomes effective (a "Notice of Termination"). Upon termination, the Purchaser
will make payment to Contractor of all monies due and owing as set forth in Sub-
Article 14(D) below.
B. After receipt of such Notice of Termination, and except as otherwise
directed by the Purchaser, the Contractor shall:
1. Stop Work under this Contract on the date and to the extent
specified in the Notice of Termination;
2. Place no further orders or contracts for materials, services or
facilities except as may be necessary for completion of such
portion of Work under this Contract as is not terminated;
3. Use reasonable efforts to terminate all orders and contracts to
the extent that they relate to the performance of Work terminated
by the Notice of Termination;
4. Assign to the Purchaser, in the manner, at the time, and to the
extent directed by the Purchaser, all of the Contractor's rights,
title and interest under the orders and contracts so terminated;
5. Use reasonable efforts to settle all outstanding liabilities and
all claims arising out of such termination of orders and
contracts, with the Purchaser's approval or ratification to the
extent required;
6. Transfer title and deliver to the Purchaser in the manner, at the
time and to the extent (if any) directed for the fabricated or
unfabricated parts, work in process, completed work, supplies and
other material produced as a part of, or acquired in connection
with, the performance of the Work terminated by the Notice of
Termination;
7. Use reasonable efforts to sell, in the manner, at the time, to
the extent and at the price or prices directed or authorized by
the Purchaser, any
<PAGE>
39
property of the types referred to in Sub-Article 14(B)(6) above
provided, however, that the Contractor:
-------- -------
(a) shall not be required to extend credit to any buyer; and
(b) may acquire any such property under the conditions
prescribed by and at a price approved by the Purchaser;
and provided further that the net proceeds of any such transfer
-------- -------
or disposition shall be applied in reduction of any payments to
be made by the Purchaser to the Contractor under this Contract
or, if no such payments are due, paid in such other manner as the
Purchaser may direct;
8. Complete performance of such part of the Work which was not
terminated by the Notice of Termination; and
9. Take such action as may be necessary, or as the Purchaser may
reasonably direct, for the protection and preservation of the
property related to this Contract which is in the Contractor's
possession and in which the Purchaser has acquired or may acquire
an interest.
C. After such Notice of Termination, the Contractor shall submit to the
Purchaser a written termination claim. Such claim shall be submitted promptly,
but, unless otherwise extended, in no event later than six months from the
effective date of termination.
D. In the settlement of any such partial or total termination claim, the
Purchaser shall pay to the Contractor the total of:
1. all amounts invoiced in accordance with the Contract plus, for
Work or Supplies which have been done or provided but which have
not been invoiced, an amount calculated by reference to the
prices set forth in the Provisioning Schedule and to the amount
of such Work or Supplies done or provided;
2. the cost of settling and paying claims arising out of the
termination of Work under the contracts in orders, as provided in
Sub-Article 14(D)(4) below which are properly chargeable to the
terminated portion of this Contract; and
3. the reasonable costs of settlement including accounting, legal,
clerical and other expenses necessary for the preparation of
settlement claims and supporting data with respect to the
terminated portion of this Contract and for termination and
settlement of contracts thereunder, together with reasonable
storage, transportation and other costs incurred
<PAGE>
40
in connection with the protection and disposition of property
proper to this Contract.
E. In arriving at the amount due to the Contractor under this Article 14,
all unliquidated payments made to the Contractor, any liability which the
Contractor may have to the Purchaser, and the agreed price for, or the proceeds
of sale of any materials, supplies or other things acquired by the Contractor or
sold, pursuant to the provisions of this Article 14, and not otherwise recovered
by or credited to the Purchaser shall be deducted.
F. The Purchaser may, from time to time, under such terms and conditions
as they prescribe approve partial payments and payments on account against costs
incurred by the Contractor in connection with the terminated portion of this
Contract. If such payments total in excess of the amount finally agreed or
determined to be due under this Article 14, such excess shall be refunded, upon
demand, by the Contractor to the Purchaser.
G. For a period of one year after final settlement under this Contract,
the Contractor shall preserve and make available to the Purchaser at reasonable
times at the Contractor's office, but without direct charge to the Purchaser,
all supporting books, records and documents required to be kept relating to the
terminated Work.
ARTICLE 15 SUSPENSION
- ----------------------
A. The Purchaser may, at its convenience, order the Contractor to suspend
all or part of the Work for such period of time as the Purchaser determines to
be appropriate. If, as a result of such Suspension, the Contractor incurs
additional costs or losses in the discharge of its responsibilities under this
Contract, and where such suspension, losses or costs are not caused by the
Contractor's act or omission and could not have been reasonably prevented by the
Contractor, the Contractor shall be allowed an equitable adjustment to the
Contract Price or the Provisioning Schedule in Appendix 1 and an equitable
extension in the time required for performance.
B. Upon the occurrence of:
(i) an Event of Default by the Purchaser;
(ii) any transfer prior to the Date of Final Acceptance of any portion
of the System except in accordance with Article 37; or
(iii) any supplement executed by a Transferee shall not be in full
force and effect;
the Contractor, in addition to any other rights provided in Article 13, may
suspend performance of its obligations and all Work and (in the case of clause
(i)) Upgrade Work.
C. Every forty-five (45) days, during the period of Suspension, the
Parties shall meet formally and review the circumstances surrounding the
Suspension including without limitation, the anticipated date of re-commencing
Work.
<PAGE>
41
D. Thereafter, if the Suspension continues for a total of one hundred and
eighty (180) days, the Contractor may terminate the Contract by notice to the
Purchaser and the Contract shall be deemed to have been terminated by Purchaser,
effective on the date of Contractor's notice, in accordance with Sub-Article
13(A) and the remaining provisions of Article 13 shall apply.
ARTICLE 16 TITLE AND RISK OF LOSS
- ----------------------------------
A. Except as provided in Article 18 (Intellectual Property), Article 20
(Safeguarding of Information and Technology) and Article 21 (Export Control),
title to all Supplies provided by the Contractor hereunder for incorporation in
or attachment to a Segment shall pass to and vest in the Purchaser in accordance
with Article 9 (Acceptance). Risk of loss or damage to all Supplies provided by
the Contractor for incorporation in or attachment to such Segment shall pass to
and vest in the Purchaser in accordance with Article 9. Upon termination of this
Contract pursuant to Article 13 (Termination for Default) or 14 (Termination for
Convenience), the Purchaser may require, upon full payment of all amounts due
thereunder (provided that, without limiting Purchaser's obligation to make any
--------
such payment, if this Contract is terminated by Purchaser because of a
Bankruptcy Event full payment shall not be required prior to the transfer of
title), that title to the equipment, materials and supplies, which has not
previously passed to the Purchaser, pass to the Purchaser, free and clear of all
liens, claims, charges and other encumbrances other than those deriving through
Purchaser.
B. Upon the passage of title in accordance with the terms of Article 13
(except a transfer described in the proviso of the last sentence of Sub-Article
16(A)), the Contractor warrants that all parts, materials, and equipment to
which title has passed will be free and clear of all liens, claims, charges and
other encumbrances other than those deriving through the Purchaser.
ARTICLE 17 FORCE MAJEURE
- -------------------------
A. The Contractor shall not be responsible for any loss, damage, delay or
failure of performance resulting directly or indirectly from any cause which is
beyond its reasonable control ("Force Majeure"), including but not limited to:
delay in obtaining or failure to obtain any Permits (subject to the provisions
of Sub-Article 7(D)); acts of God or of the public enemy; acts or failure to act
of any governmental authority; war or warlike operations, civil war or
commotion, mobilizations or military call-up, and acts of similar nature;
revolution, rebellions, sabotage, and insurrections or riots; fires, floods,
epidemics, quarantine restrictions; strikes, and other labor actions; freight
embargoes; unworkable weather; trawler or anchor damage; damage caused by other
marine activity such as fishing, marine research and marine development; acts or
omissions of transporters; or the acts or failure to act of any of the
Purchaser, of its representatives or agents, provided that (i) a loss by
--------
Contractor of employees (other than by reasons of Force Majeure), (ii) strikes
and other labor actions involving the Contractor's own work force, (iii) the
first 5 days of unworkable weather (unless any such day occurs during the 30
days immediately preceding the then Scheduled RFS Date), (iv) the failure (other
than by reason of force majeure) of any subcontractor, supplier or transporter
to
<PAGE>
42
perform its obligations to Contractor (including on account of insolvency)
unless such supplies or transportation or other services are generally
unavailable in the marketplace, (v) the unavailability of any raw materials or
components, unless such raw materials or components are generally unavailable in
the marketplace or are unavailable by reason of force majeure or (vi) any
increase in Contractor's costs, shall not in and of itself constitute Force
Majeure.
B. If any such Force Majeure causes an increase in the time or costs
required for performance of any of its duties or obligations, the Contractor
shall be entitled to an equitable extension of time for completion of the Work
or the Upgrade Work, as the case may be, but not any adjustment in the Contract
Price nor any reimbursement for any such additional costs incurred unless such
additional costs are a direct consequence of Purchaser's acts.
C. Increase in cost due to Purchaser will be as provided for in Article
12, Purchaser's Obligations.
D. The Contractor shall inform the Purchaser promptly with written
notification, and in all cases within fourteen (14) days of discovery and
knowledge, of any occurrence covered under this Article and shall use its
reasonable efforts to minimize such additional delays. The Contractor shall
promptly provide an estimate of the anticipated time required to complete the
Work or the Upgrade Work. Contractor shall be entitled to an equitable
extension of time resulting from the Force Majeure condition.
E. Within thirty (30) days of receipt of such a notice from Contractor,
the Purchaser and the Independent Engineer may provide a written response. The
absence of a response shall be deemed as acceptance of Contractor's notice and
request for additional time.
F. If a Force Majeure continues for a total of two hundred (200) days,
either Party may terminate the Contract by notice to the other and the Contract
shall be deemed to have been terminated by Purchaser, effective on the date of
the terminating Party's notice, in accordance with Sub-Article 14(A) and the
remaining provisions of Article 14 shall apply to such termination.
G. Every 45 days during the period of Force Majeure, the Parties shall
meet and review the circumstances surrounding the Force Majeure, including,
without limitation, the anticipated date of recommencing work.
ARTICLE 18 INTELLECTUAL PROPERTY
- ------------------------------------
A. Ownership
All right, title, and interest in and to all Intellectual Property
created or developed specifically for this Contract by Contractor in the course
of its performance under this Contract (the "Project Intellectual Property") is
and shall remain the sole property of Purchaser. All right, title and interest
in and to all Intellectual Property created or developed
<PAGE>
43
by Contractor before commencing its performance under this Contract, or created
or developed by Contractor exclusively in connection with activities other than
its performance under this Contract or in the course of the Work but is not
Project Intellectual Property (collectively, the "Contractor Intellectual
Property"), is and shall remain the sole property of Contractor. Unless
otherwise expressed in this Contract, no license is implied or granted herein to
Purchaser to any Contractor Intellectual Property by virtue of this Contract,
nor by the transmittal or disclosure of any such Contractor Intellectual
Property to Purchaser. Any Contractor Intellectual Property disclosed,
furnished, or conveyed to Purchaser that is marked as "Proprietary" or
"Confidential" (or if transmitted orally is identified as being proprietary or
confidential in a subsequent writing) shall be treated in accordance with the
provisions of Article 20 (Safeguarding of Information and Technology). As used
herein, "Intellectual Property" means any information, computer or other
apparatus programs, software, specifications, drawings, designs, sketches,
tools, market research or operating data, prototypes, records, documentation,
works of authorship or other creative works, ideas, concepts, methods,
inventions, discoveries, improvements, or other business, financial and/or
technical information (whether or not protectable or registrable under any
applicable intellectual property law).
B. Licenses
Contractor shall furnish to Purchaser, upon the transfer of title to
any portion of the System or a System Upgrade pursuant to Article 9, copies of
all technical information, specifications, drawings, designs, sketches, tools,
operating data, records, documentation and/or other types of engineering or
technical data or information relating to the operation, maintenance or repair
of each item of such portion of the System or System Upgrade as delivered by
Contractor (the "Deliverable Technical Material"). Contractor grants to
Purchaser a perpetual, royalty-free, non-transferable (except under the
circumstances specified in Sub-Article 18(G) below) license to use and reproduce
all Contractor Intellectual Property included in or necessary to use the
Deliverable Technical Materials, for the purposes of fulfilling Purchaser's
obligations under this Contract and using, operating or maintaining the System
(as upgraded by any System Upgrades) supplied by Contractor, with the right to
employ third parties (under appropriate written obligations respecting
confidentiality) to assist Purchaser in fulfilling its obligations under this
Contract and in using, operating or maintaining the System (as upgraded by any
System Upgrades). Contractor grants to Purchaser a perpetual, royalty-free,
nontransferable (except under the circumstances specified in Sub-Article 18(G)
below) license to use and reproduce those portions of Deliverable Technical
Materials owned or controlled by third parties (but only to the extent of any
rights which may have been granted to Contractor by such third parties), for the
purpose of fulfilling Purchaser's obligations under this Contract and using,
operating or maintaining the System supplied by Contractor, with the right to
employ third parties (under appropriate written obligations respecting
confidentiality) to assist Purchaser in fulfilling its obligations under this
Contract and in using, operating or maintaining the System (as upgraded by any
System Upgrades), but with no right to sublicense. It is expressly understood
that it shall not be a violation of this license for Purchaser, on its own
behalf or through third parties (under appropriate written obligations
respecting confidentiality) specifically employed for the purpose, to use and
reproduce the Deliverable Technical Material to modify the System (as
<PAGE>
44
upgraded by any System Upgrades) or connect the System (as upgraded by any
System Upgrades) to other systems, subject to the rights of third parties
therein and thereto, and subject to the limitations on Contractor's obligations
as set forth in Articles 10(C) and 19(A) concerning any such modification or
interconnection.
C. Deliverable Software
Contractor shall furnish to the Purchaser, upon transfer of title to
any portion of the System or System Upgrade pursuant to Article 9, copies of all
computer or other apparatus programs and software and related documentation
relating to the operation, maintenance or repair of the computer systems of such
portion of the System or System Upgrade, as the case may be, as delivered by
Contractor (the "Deliverable Software"). All Deliverable Software that is
Project Intellectual Property shall be delivered in both source code and object
code (i.e., executable) form. All Deliverable Software that is Contractor
Intellectual Property shall be delivered in executable form. Contractor shall
also furnish to Purchaser, from time to time during the Warranty Period or any
Upgrade Warranty Period, copies of all computer or other apparatus programs and
software and related documentation that Contractor may develop to correct errors
or to maintain Deliverable Software previously furnished to Purchaser, which
shall also be treated as Deliverable Software in accordance with the terms of
this provision and subject to this Contract upon delivery thereof to Purchaser.
Contractor grants to Purchaser a perpetual, royalty-free, non-transferable
(except under the circumstances specified in Sub-Article 18(G) below) license to
use and reproduce the Deliverable Software that is Contractor Intellectual
Property, for the purposes of fulfilling Purchaser's obligations under this
Contract and using, operating or maintaining the System (as upgraded by any
System Upgrades) supplied by Contractor, with the right to employ third parties
(under appropriate written obligations respecting confidentiality) to assist
Purchaser in fulfilling its obligations under this Contract and in using,
operating or maintaining the System (as upgraded by any System Upgrades).
Contractor grants to Purchaser a perpetual, royalty-free, nontransferable
(except under the circumstances specified in Sub-Article 18(G) below) license to
use and reproduce those portions of Deliverable Software owned or controlled by
third parties (but only to the extent of any rights which may have been granted
to Contractor by such third parties), for the purposes of fulfilling Purchaser's
obligations under this Contract and using, operating or maintaining the System
(as upgraded by any System Upgrades) supplied by Contractor, with the right to
employ third parties (under appropriate written obligations respecting
confidentiality) to assist Purchaser in fulfilling its obligations under this
Contract and in using, operating or maintaining the System (as upgraded by any
System Upgrades), but with no right to sub-license. The license granted to
Purchaser by Contractor in Deliverable Software that is Contractor Intellectual
Property or that is owned or controlled by third parties shall be limited to use
with the particular type of computer equipment or substantially similar
replacement equipment for which such Deliverable Software was provided in the
System (as upgraded by any System Upgrades) as supplied by Contractor.
1. Confidentiality
Purchaser shall keep Deliverable Software that is Contractor
Intellectual Property or that is owned or controlled by third
parties confidential in
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45
accordance with Article 20 (Safeguarding of Information and
Technology) and Article 21 (Export Control), to the extent that
such Deliverable Software is designated as Confidential
Information by its owner, and agrees to use its best efforts to
see that its employees, consultants, and agents, and other users
of such software, comply with the provisions of this Contract.
Purchaser also agrees to refrain from taking any steps, such as
reverse assembly or decompilation, to derive a source code
equivalent of any Deliverable Software that is not Project
Intellectual Property, provided that Contractor does not go
insolvent or bankrupt to thereby trigger *. In the case of
insolvency or bankruptcy of Contractor, Purchaser shall limit any
derivation of a source code equivalent to that portion of the
Deliverable Software that is Contractor Intellectual Property.
Purchaser shall not under any circumstances take any steps to
derive a source code equivalent from that portion of the
Deliverable Software comprising commercial, off-the-shelf
software developed or provided by third parties.
2. Backup Copies
Purchaser may make and retain two archive copies in executable
form of Deliverable Software that is not Project Intellectual
Property. Any copy thereof will contain the same copyright
notice and proprietary markings as are on the original software
and shall be subject to the same restrictions as the originals.
3. Termination of Software Licenses
In the event of (i) use by Purchaser of Deliverable Software that
is not Project Intellectual Property in a manner other than as
permitted in Sub-Article 18(C) or (ii) any other material breach
of this Article 18 by Purchaser that, in either event, is not
cured within sixty (60) days from receipt by Purchaser of written
notice of such impermissible use or breach, Contractor, at its
option, may terminate the rights granted to Purchaser pursuant to
this Article, which termination shall take effect no sooner than
sixty (60) days following receipt by Purchaser of a subsequent
written notice of termination. Upon termination, Purchaser shall
either return or destroy, at Contractor's option, all copies of
Deliverable Software that is not Project Intellectual Property
furnished to Purchaser under this Contract.
4. Indemnification
In the event of (i) use by Purchaser of Deliverable Software that
is not Project Intellectual Property furnished hereunder other
than as permitted in Sub-Article 18(C) or (ii) any other material
breach of this Article 18 by Purchaser, the Purchaser shall
indemnify and hold Contractor harmless from any and all third
party claims resulting therefrom, whether arising from a defect
in the software or otherwise.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
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46
D. Trademarks, Tradenames, etc.
No rights are granted herein to either Party to use any identification
(such as, but not limited to tradenames, trademarks, service marks or symbols,
and abbreviations, contractions, or simulations thereof) owned or used by the
other Party or its affiliates to identify itself, its affiliates or any of its
products or services. Each Party agrees that it will not, without the prior
written permission of the other Party, use such identification in advertising,
publicity, packaging, labeling, or in any other manner to identify itself or any
of its products, services, or organizations, or represent directly or indirectly
that any product, service, or organization of it is a product, service, or
organization of the other Party or its affiliates, or that any product or
service of a Party is made in accordance with or utilizes any Intellectual
Property belonging to the other Party or its affiliates.
E. DISCLAIMER, LIMITATION OF LIABILITY
CONTRACTOR REPRESENTS THAT ANY INFORMATION OR INTELLECTUAL PROPERTY
FURNISHED IN CONNECTION WITH THIS CONTRACT SHALL BE TRUE AND ACCURATE TO THE
BEST OF ITS KNOWLEDGE AND BELIEF, BUT CONTRACTOR SHALL NOT BE HELD TO ANY
LIABILITY FOR UNINTENTIONAL ERRORS OR OMISSIONS THEREIN.
F. Representations and Warranties
Contractor represents and warrants, to the best of its knowledge at
the time of delivery, (i) that the Deliverable Technical Materials and
Deliverable Software to be furnished by Contractor under this Contract will not
infringe any rights in Intellectual Property belonging to any third party, (ii)
that Contractor has all necessary rights to furnish such Deliverable Technical
Materials and Deliverable Software to Purchaser for use by Purchaser in
accordance with the terms of this Contract, and (iii) that Purchaser's use of
such Deliverable Technical Materials and Deliverable Software for the purposes
contemplated in this Contract will not, by itself, cause Purchaser to incur any
liability to any third party with respect to Purchaser's use thereof in
accordance with the provisions of this Contract.
G. Transferability
The licenses granted to Purchaser by Contractor in the Deliverable
Technical Materials and Deliverable Software are personal and non-transferable,
except that Purchaser may assign or transfer such licenses to an affiliated
entity under common control with the Purchaser or to any entity succeeding to
Purchaser's entire interest in the System (as upgraded by any System Upgrades)
as a result of reorganization or restructuring of the Purchaser or in the event
of a change of control of the Purchaser.
H. *
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
47
*
ARTICLE 19 INFRINGEMENT
- ---------------------------
A. The Contractor agrees to defend or settle at its own expense all suits
for infringement of any patent, copyright, trademark or other form of
intellectual property right in any country of the world, for the use and
operation of the System (as upgraded by any System Upgrades) as supplied by
Contractor and for any component part thereof or material or equipment used
therein (or the manufacture of any material or the normal use thereof) provided
by the Contractor or on its behalf pursuant to this Contract and will hold the
Purchaser harmless from all expense of defending any such suit and all payments
for final judgment assessed on account of such infringement, except such
infringement or claim arising from:
1. The Contractor's adherence to the Purchaser's directions in the
design and configuration of the System (as upgraded by any System
Upgrades) or to use materials, parts or equipment of the
Purchaser's selection; or
2. Such material, parts or equipment furnished to the Contractor by
the Purchaser, other than in each case, items of the Contractor's
design or selection or the same as any of the Contractor's
commercial merchandise or in processes or machines of the
Contractor's design or selection used in the manufacture of such
standard products or parts; or
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
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48
3. Use of the System (as upgraded by any System Upgrades) or the
materials, parts or equipment furnished by Contractor other than
for the purposes indicated in, or reasonably to be inferred from,
this Contract or in conjunction with other products; or
4. Modification of the System (as upgraded by any System Upgrades)
or the materials, parts or equipment furnished by the Contractor,
or connection of the System to another system by any person or
entity other than Contractor, without prior expressed written
approval by Contractor.
B. The Purchaser will, at its own expense, defend all suits against the
Contractor for such excepted infringement and hold the Contractor harmless from
all expense of defending any such suit and from all payments by final judgment
assessed against the Contractor on account of such excepted infringement.
C. The Contractor and the Purchaser agree to give each other prompt
written notice of claims and suits for infringement, full opportunity and
authority to assume the sole defense, including appeals and, upon request and at
its own expense, the other agrees to furnish all information and assistance
available to it for such defense.
D. If all or any portion of the System (as upgraded by any System
Upgrades) or any material, part or equipment provided by the Contractor or on
its behalf is held to constitute an infringement (excluding such excepted
infringements specified in Sub-Article 19(A)) and is subject to an injunction
restraining its use or any order providing for its delivery up to or
destruction, or if in respect of any such claim of infringement the Contractor
deems it advisable to do so, the Contractor shall at its own expense either:
1. Procure for the Purchaser the right to retain and continue to use
the System, the affected portion thereof, or any such material,
part or equipment without interruption for the Purchaser;
2. Replace or modify the System, the affected portion thereof, or
any material, part or equipment so that it becomes noninfringing
while continuing to meet the Performance Requirements or
3. If the remedies specified in Sub-Articles 19(D)(1) an 19(D)(2)
are not feasible, refund to the Purchaser the full purchase price
paid for the System, the affected portion thereof, or any
material, part or equipment found to be infringing.
E. In no event shall the Purchaser make any admission or settle any claim
in relation with any claim for infringement without Contractor's consent.
ARTICLE 20 SAFEGUARDING OF INFORMATION AND TECHNOLOGY
- ---------------------------------------------------------
<PAGE>
49
A. In performance of this Contract, it may be mutually advantageous to
the Parties hereto to share certain specifications, designs, plans, drawings,
software, market research or operating data, prototypes, or other business,
financial, and or/technical information related to products, services, or
systems which are proprietary to the disclosing Party or its affiliates (and in
the case of Contractor, Contractor's parent company) (together with this
Contract and related documents, "Information"). The Parties recognize and agree
that Information includes information that was supplied in contemplation hereof
prior to execution of this Contract, and further agree that Information includes
information in both tangible and intangible form.
B. Unless such Information was previously known to the Party receiving
such Information free of any obligation to keep it confidential, or such
Information has been or is subsequently made public through other than
unauthorized disclosure by the receiving Party or is independently developed by
the receiving Party (as documented by the records of the receiving Party), it
shall be kept confidential by the Party receiving such Information, shall be
used only in the performance of this Contract, and may not be used for any other
purposes except upon such terms as may be agreed upon in writing by the Party
owning such Information. The receiving Party may disclose such Information to
other persons, upon the furnishing Party's prior written authorization, but
solely to perform acts which this Article expressly authorizes the receiving
Party to perform itself and further provided such other person agrees in writing
(a copy of which writing will be provided to the furnishing Party at its
request) to the same conditions respecting disclosure and use of Information
contained in this Article and to any other reasonable conditions requested by
the furnishing Party. Nothing herein shall prevent a Party from disclosing
Information (a) upon the order of any court or administrative agency, (b) upon
the request or demand of, or pursuant to any regulation of, any regulatory
agency or authority, (c) to the extent reasonably required in connection with
the exercise of any remedy hereunder and (d) to a Party's legal counsel or
independent auditors.
C. The Purchaser may disclose Information to its lenders and their
representatives in connection with obtaining financing for the System, provided
that each such lender or their representative enters into a confidentiality
agreement containing terms and conditions similar to those in this Contract. Any
such disclosure of Information shall be subject to the restrictions in Sub-
Article 20(B).
ARTICLE 21 EXPORT CONTROL
- -----------------------------
The Parties acknowledge that any products, software, and technical
information (including, but not limited to, services and training) provided by
either Party under this Contract are or may be subject to export laws and
regulations of the United States and the destination country(ies) and any use or
transfer of such products, software and technical information must be authorized
under those Laws. The Parties agree that they will not use, distribute, transfer
or transmit the products, software or technical information (even if
incorporated into other products) except in compliance with export Laws. If
requested by either Party, the other Party agrees to sign all necessary export-
related documents as may be required to comply with export Laws.
<PAGE>
50
ARTICLE 22 LIQUIDATED DAMAGES
- ---------------------------------
A. If the System is not Ready for Commercial Acceptance or Provisional
Acceptance by the Scheduled RFS Date, as it may have been extended under:
1. Article 6 (Contract Variations);
2. Article 17 (Force Majeure); or
3. Article 15 (Suspension); or
4. Other arrangements as agreed between the Purchaser and the
Contractor;
then Contractor shall pay to Purchaser for each day of delay, for up to 200
days, by way of pre-estimated and liquidated damages for the delay and not as a
penalty, an amount equal to * of the Initial Contract Price for the System.
B. If a System Upgrade is not Ready for Commercial Acceptance or
Provisional Acceptance by the Scheduled Upgrade Date, as it may have been
extended under:
1. Article 6 (Contract Variations);
2. Article 17 (Force Majeure); or
3. Article 15 (Suspension); or
4. Other arrangements as agreed between the Purchaser and the
Contractor;
then Contractor shall pay to Purchaser for each day of delay, for up to 90 days,
by way of pre-estimated and liquidated damages for the delay and not as a
penalty, an amount equal to * of the Initial Upgrade Contract Price.
ARTICLE 23 LIMITATION OF LIABILITY/INDEMNIFICATION
- ------------------------------------------------------
A. NOTWITHSTANDING ANY OTHER PROVISION IN THIS CONTRACT, AND IRRESPECTIVE
OF ANY FAULT, NEGLIGENCE OR GROSS NEGLIGENCE OF ANY KIND, IN NO EVENT SHALL
EITHER PARTY OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS BE LIABLE
FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, RELIANCE OR SPECIAL (INCLUDING
PUNITIVE) DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS OF REVENUE, LOSS OF
BUSINESS OPPORTUNITY OR THE COSTS ASSOCIATED WITH THE USE OF RESTORATION
FACILITIES RESULTING FROM ITS FAILURE TO PERFORM PURSUANT TO THE TERMS AND
CONDITIONS OF THIS CONTRACT.
B. EXCEPT AS SET FORTH BELOW IN THE LAST TWO SENTENCES OF THIS SUB-
ARTICLE 23(B), THE CONTRACTOR'S MAXIMUM AGGREGATE LIABILITY, WHETHER IN TORT,
CONTRACT OR OTHERWISE, EXCEPT FOR
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
51
CLAIMS RELATING TO SYSTEM UPGRADES, SHALL NOT EXCEED * OF THE CONTRACT PRICE.
THE CONTRACTOR'S MAXIMUM AGGREGATE LIABILITY FOR CLAIMS RELATING TO SYSTEM
UPGRADES (IF CONTRACTOR CAN PROVE THAT THE SYSTEM WAS DESIGNED WITH SUFFICIENT
TRANSMISSION MARGIN AND THUS SUCH CLAIMS DO NOT ARISE UNDER CLAUSE (ii) OF SUB-
ARTICLE 10(B)) SHALL NOT EXCEED * OF THE APPLICABLE UPGRADE PRICE. THE FOREGOING
LIMITATION SHALL NOT APPLY TO CLAIMS UNDER SUB-ARTICLES 19(A) AND 23(C). IF
CONTRACTOR CANNOT PROVE THAT THE SYSTEM WAS DESIGNED WITH SUFFICIENT
TRANSMISSION MARGIN FOR A SYSTEM UPGRADE, THE CONTRACTOR'S MAXIMUM AGGREGATE
LIABILITY FOR CLAIMS ARISING UNDER CLAUSE (ii) OF SUB-ARTICLE 10(B) SHALL NOT
EXCEED *.
C. Contractor, at its expense, shall defend, indemnify and hold harmless
Purchaser, its agents, subcontractors and employees against any and all claims,
demands, and judgments for losses due to any act or omission, arising out of, or
in connection with this Contract or, prior to risk of loss passing to Purchaser,
the operation and maintenance of the System, to the extent such losses were
caused by the negligence or willful misconduct of the Contractor, its
subcontractors, employees or agents. The defense, indemnification and save
harmless obligation is specifically conditioned on the following: (i) Purchaser
providing prompt notification in writing of any such claim or demand when it
obtains Actual Knowledge thereof, unless such failure shall not have materially
impaired Contractor's ability to defend against such claim; (ii) Contractor
having control of the defense of any such action, claim or demand and of all
negotiations for its settlement or compromise; and (iii) Purchaser cooperating,
at Contractor's expense, in a reasonable way to facilitate the defense of such
claim or demand or the negotiations for its settlement.
D. Purchaser, at its expense, shall defend, indemnify and hold harmless
Contractor, its agents, subcontractors and employees against any and all claims,
demands, and judgments for losses due to any act or omission, arising out of, or
in connection with this Contract or, after risk of loss passes to Purchaser, the
operation or maintenance of the System, to the extent such losses were caused by
the negligence or willful misconduct of the Purchaser, its subcontractors,
employees or agents (other than Contractor). The defense, indemnification and
save harmless obligation is specifically conditioned on the following (i)
Contractor providing prompt notification in writing of any such claim or demand
when it obtains Actual Knowledge thereof, unless such failure shall not have
materially impaired Purchaser's ability to defend against such claim; (ii)
Purchaser having control of the defense of any such action, claim or demand and
of all negotiations for its settlement or compromise; and (iii) Contractor
cooperating, at Purchaser's expense, in a reasonable way to facilitate the
defense of such claim or demand or the negotiations for its settlement.
ARTICLE 24 COUNTERPARTS
- ---------------------------
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
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52
This Contract may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
ARTICLE 25 DESIGN AND PERFORMANCE RESPONSIBILITY
- -----------------------------------------------------
A. The Contractor shall be solely responsible for the design of and for
all details of the System and the System Upgrades and for the adequacy thereof.
B. The Contractor's responsibility for design of the System and the
System Upgrades shall not in any way be diminished nor shall the Contractor's
design approach be restricted or limited by the Purchaser's acceptance of the
Contractor's guidance or recommendations as to engineering standards and design
specifications, or by the Purchaser's suggestions or recommendations on any
aspect of the design.
C. Purchaser shall use reasonable efforts in assisting the Contractor to
obtain in a timely manner accurate information required for the Contractor to
perform the Work and the Upgrade Work, which Contractor cannot expeditiously and
cost-effectively obtain from any source other than the Purchaser.
ARTICLE 26 PRODUCT CHANGES
- ------------------------------
The Contractor may at any time make changes to the System or System
Upgrades furnished pursuant to this Contract, or modify the drawings and
published specifications relating thereto, or substitute equipment of later
design, provided the changes, modifications, or substitutions under normal and
proper use do not impact upon the form, fit, expected life or function of the
System as provided in the System Performance Requirements.
ARTICLE 27 RISK AND INSURANCE
- ---------------------------------
A. The Contractor shall at all times maintain, and upon request, the
Contractor shall furnish the Purchaser with certificates, or other reasonable
evidence, that Contractor maintains, the following insurance or has adequate
self-insurance (other than as required to comply with any statutory insurance
requirements):
1. Workmen's Compensation and Employers Liability Insurance (with a
limit of not less than * for any one incident or series of
incidents arising from one event or such higher limit as may be
required by the laws of any jurisdiction) covering the officers
and employees of the Contractor for all compensation or other
benefits required of the Contractor by the laws of any nation or
political sub-division thereof to which the Contractor and its
operations under this Contract are subject in respect of injury
of death of any such employee.
2. Comprehensive General Public Liability Insurance, covering
personal injury and/or property damage, with combined single
limits of not less
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
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53
than * for claims of injury or death of any persons or loss of or
damage to property resulting from any one accident. This
insurance to be extended to provide Marine Comprehensive General
Liability including liabilities arising out of the operation of
subsea equipment.
3. All Risk Insurance in respect of all property of Contractor, its
respective officers, agents and employees connected with the
performance of the Work against all loss or damage from whatever
cause.
4. Conventional Marine Hull and Machinery Insurance including War
Risks or any vessel(s) owned, operated or chartered by the
Contractor, in an amount equal to the full value thereof. In the
event of damage to or loss of such vessel(s), the Contractor
agrees to look to its insurance carrier for payment of such loss
or damage and hereby releases the Purchaser and waives any claims
against the Purchaser for the loss of such vessel(s) unless due
to the negligence of Purchaser, its agent or representatives
(other than Contractor).
5. All vessels are to be entered in a Mutual Protection and
Indemnity Association with a full and unlimited entry or to have
Marine Protection and Indemnity Insurance with a limit of not
less than * including coverage far illness, injury or death of
crew members (unless covered under Workmen's Compensation
Insurance), Contractual Liability Coverage, Collision and Tower's
Liability, Removal of Wreck and Debris and Third Party Liability.
6. Specialist Operations Insurance with a limit of not less than
* as per London Wording 1993 or equivalent.
7. Transit Insurance including inland, air, and Marine Cargo
coverage including War (other than on land) in an amount
sufficient to cover the expected highest value of any one
shipment. Coverage to include Institute Cargo Clauses, all risks
1.1.63, Institute War Clauses, London Malicious Damage Clause,
and Institute Strikes Riots and Civil Commotion Clauses or their
equivalent.
8. Marine Cargo or equivalent is required to protect, for full cost,
against all risks of physical loss or damage to the plant,
equipment and supplies to be included in the System (other than
War Risks) beginning with when each such item is ready for
shipping and ending when the submersible plant and equipment are
placed overside the cable laying vessel and when the equipment
and supplies are delivered to the cable stations, central
offices, or network operation center. The coverage continues to
cover cable lying on the seabed.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
54
9. Sea Bed or equivalent coverage (including an Old Mines and
Torpedoes Clause, including other derelict weapons of War) is
required to protect, for full cost, against all risks of physical
loss or damage to the submersible plant and equipment described
in Sub-Article 27(A)(10) above. See last paragraph.
10. War Risks or equivalent coverage is required to protect against
damage to, seizure by and/or destruction of the System by means
of war, piracy, takings at sea and other warlike operations until
discharge of the submersible plant and equipment. For the
purposes of this Article "discharge of the submersible plant and
equipment" shall be deemed to take place when the plant and
equipment reaches the sea bottom, as far as the submersible plant
and equipment is concerned, and when the plant is off-loaded in
the respective terminal country, as far as non-submersible plant
is concerned.
11. Pollution Liability (EIL) insurance for installation operations
and as arising from the use of vessels in an amount not less than
* or such higher sum as may be required to meet any legal
requirement in area of operations.
The Comprehensive General Liability Insurance required pursuant to
Sub-Article 27(A)(2) above, shall include Contractual Liability Coverage which
shall specifically apply to the obligations assumed by the Contractor under the
Terms and Conditions of this Contract.
B. 1. All the foregoing insurances shall be effected with a
creditworthy insurer and shall be endorsed to provide Purchaser
with at least thirty (30) days prior written notice of
cancellation or material change.
2. All the foregoing insurances shall name Purchaser and its lenders
as an additional insured as to operations hereunder, in which
event the Contractor's insurance shall be primary to any
insurance carried by Purchaser.
3. The limits specified herein are minimum requirements and shall
not be construed in any way as limits of liability or as
constituting acceptance by Purchaser of such responsibility for
financial liabilities in excess of such limits. The Contractor
shall bear all deductibles applicable to any insurance.
4. If it is judicially determined that the monetary limits of
insurance required hereunder or of any indemnity voluntarily
assumed under the Terms and Conditions of this Contact which the
Contractor agrees will be supported either by available liability
insurance or voluntarily self-insured, in part or whole, exceeds
the maximum limits permitted
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
55
under applicable law, it is agreed that said insurance
requirements or indemnity shall automatically be amended to
conform to the maximum monetary limits permitted under such law.
5. Contractor shall take reasonable steps to provide that any sub-
contractor engaged by it has in effect or will effect Employer's
Liability, Workmen's Compensation, Hull and Machinery and
Protection and Indemnity insurances and any other insurances
required by law, together with such other insurances as the
Contractor may consider necessary.
6. If the Contractor fails to effect or keep in force any of the
insurances required under this Contract, Purchaser may effect and
keep in force any such insurances and pay such premiums as may be
necessary for that purpose and from time to time deduct the
amount so paid by Purchaser from any money due or which may
become due to the Contractor hereunder or recover the same as a
debt due from the Contractor, provided that Purchaser is not in
Default.
7. Each Party shall give the other prompt notification of any claim
with respect to any of the insurances to be provided hereunder,
accompanied by full details giving rise to such claim. Each Party
shall afford the other all such assistance as may be required for
the preparation and negotiation of insurance claims.
8. Contractor shall report to Purchaser as soon as practicable all
accidents or occurrences resulting in injuries to Contractor's
employees or third parties, or damage to property of third
parties, arising out of our during the course of services for
Purchaser by Contractor.
C. The Contractor may organize such levels of deductibles, excesses and
self-insurance as it considers appropriate and which are within prudent industry
standards.
D. The insurance requirements of this Article 27 will remain in place
with respect to each Segment, the System or System Upgrade, as the case may be,
and will not in any way be diminished or reduced until the transfer of title and
risk of loss shall have passed to Purchaser of such Segment, System or System
Upgrade, as the case may be, even in the event of the sale of substantially all
the assets of the Contractor by way of a merger, consolidation or sale of
assets.
ARTICLE 28 PLANT AND WORK RULES
- --------------------------------
Employees and agents of each Party shall, while on the premises of the
other or its subcontractors, comply with all plant rules and governmental
regulations.
<PAGE>
56
ARTICLE 29 RIGHT OF ACCESS
- ---------------------------
A. The Contractor shall, upon reasonable notice of not less than ten (10)
working days, during normal business hours and in a manner to avoid any
disruption of the work on the premises including performance of other contracts,
permit access by the Purchaser or its Quality Assurance (QA) Representative
(other than a competitor of the Contractor or any affiliate of a competitor) to
the Contractor's premises where the work will be performed, and will use its
best endeavors to secure rights of access to premises of its subcontractors
where the work will be performed, having subcontracts or orders in the amount
of, or equivalent to * or more, in accordance with the Contractor's
contractual arrangements with its subcontractors, and allow the Purchaser or its
QA Representative to:
1. audit the Contractor's quality assurance system and its
application to the Work and Upgrade Work, including manufacture,
development and raw materials and components provision;
2. inspect all parts of the Work and Upgrade Work to the extent
reasonably practicable to ensure that their quality meets the
Specification.
This right of access shall allow for the Purchaser and/or its QA representative
(up to a total of three (3) persons). The Purchaser shall provide the name(s),
nationality and title of each such visitor prior to the visit. The Contractor
shall not be responsible for any costs, including travel and accommodation
costs, of the Purchaser or its representatives.
B. The right of access shall also allow for the Purchaser and/or
representatives (up to a total of three (3) persons) to be aboard the vessel(s)
during installation and the route survey, provided accommodations are available.
The Contractor shall not be responsible for any costs of the Purchaser or its
representatives, except for living expenses on board the vessel which includes
one (1) daily telex or fax, all other travel and accommodation costs for the
Purchaser or its QA Representatives shall be for the account of the Purchaser.
C. Any right of access shall not be construed as creating any obligation
requiring the Contractor or its subcontractors to disclose trade secrets or
proprietary information. Further, such right of access may be conditioned on the
execution of a confidentiality and non-disclosure agreement and/or subject to
routine building or security rules, regulations or procedures.
D. Any exercise of any right of the Purchaser hereunder to inspect,
audit, visit or to serve any part of the Work or System Upgrades shall not be
construed as limiting any obligation of Contractor hereunder, including without
limitation, under Articles 1 and 10 hereof.
E. Contractor will have access to the System as necessary to accomplish
its responsibilities under this Contract and in order to make repairs and to
make System
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
57
Upgrades. Contractor will provide reasonable notice of its need for access and
will take reasonable steps to minimize disruptions to the operation of the
System.
F. Contractor shall give the Purchaser reasonable prior written notice of
each monthly project management review meeting with respect to the status of the
construction and/or installation of the System, and Purchaser's representatives
(up to three such representatives) and the Independent Engineer shall at their
cost be permitted to attend and participate in such meetings.
ARTICLE 30 QUALITY ASSURANCE
- -----------------------------
All equipment, material and supplies provided under this Contract
shall be inspected and tested by representatives designated by the Contractor to
the extent reasonably practical to assure that the quality of the equipment,
materials and supplies being incorporated is sufficient to realize the System
Performance Requirements. The inspection and test program established for such
equipment, materials and supplies shall be consistent with commercial practices
normally employed by the Contractor in the construction of submarine cable
systems. The foregoing shall not be construed as limiting any of the
Contractor's obligations under this Contract.
ARTICLE 31 DOCUMENTATION
- -------------------------
The Contractor shall furnish to the Purchaser one copy of the standard
documentation in the English language for the System provided hereunder. Such
documentation shall be provided prior to the Acceptance testing. Additional
copies of the documentation are available at additional cost.
ARTICLE 32 TRAINING
- --------------------
The Contractor will provide, as part of the Initial Contract Price,
until the Date of Final Acceptance, any and all training necessary for the
operation and maintenance of the System.
ARTICLE 33 SETTLEMENT OF DISPUTES/ARBITRATION/LITIGATION
- ---------------------------------------------------------
A. The Parties shall endeavor to settle amicably by mutual discussions
any disputes, differences, or claims whatsoever related to this Contract.
B. Failing such amicable settlement, any controversy, claim or dispute
arising under or relating to this Contract, including the existence, validity,
interpretation, performance, termination or breach thereof, shall, if both
Parties agree in writing thereto, finally be settled by arbitration in
accordance with the International Arbitration Rules of the American Arbitration
Association ("AAA"). Unless the Parties agree to a sole arbitrator, there shall
be three (3) arbitrators, with each Party appointing one arbitrator, who
collectively will select a third. The language of the arbitration shall be
English. The Arbitrator will not have authority to award punitive damages to
either Party. Each Party shall bear its own expenses,
<PAGE>
58
but the Parties shall share equally the fees and expenses of the Arbitration
Tribunal and the AAA. This Contract shall be enforceable, and any arbitration
award shall be final, and judgment thereon may be entered in any court of
competent jurisdiction. In any such arbitration, the decision in any prior
arbitration under this Contract shall not be deemed conclusive of the rights as
among themselves of the Parties hereunder. The arbitration shall be held in New
York, New York, U.S.A.
C. 1. If both Parties do not agree to arbitration pursuant to paragraph
(B) above, then either Party may institute suit in the Supreme
Court of the State of New York sitting in New York County or the
United States District Court of the Southern District of New
York, or any appellate court from any thereof.
2. Each Party hereby irrevocably and unconditionally submits to the
non-exclusive jurisdiction of any New York State or Federal court
sitting in The City of New York, and any appellate court from any
thereof, in any action or proceeding arising out of or relating
to this Contract, and each Party hereby irrevocably and
unconditionally agrees that all claims in respect of such action
or proceeding may be heard and determined in such New York State
court or, to the extent permitted by law, in such Federal court.
Each Party hereby irrevocably and unconditionally waives, to the
fullest extent it may effectively do so, any defense of an
inconvenient forum to the maintenance of such action or
proceeding in any such court and any right of jurisdiction on
account of the place of residence or domicile of either Party.
The Contractor hereby irrevocably and unconditionally appoints CT
Corporation System (the "New York Process Agent"), with an office
----------------------
on the date hereof at 1633 Broadway, New York, New York, as its
agent to receive on behalf of the Contractor and its respective
property service of copies of the summons and complaint and any
other process which may be served in any such action or
proceeding in any such New York State or Federal court and agrees
promptly to appoint a successor New York Process Agent in The
City of New York (which successor Process Agent shall accept such
appointment in a writing prior to the termination for any reason
of the appointment of the initial New York Process Agent). In
any such action or proceeding in such New York State or Federal
court sitting in The City of New York, such service may be made
on the Contractor by delivering a copy of such process to the
Contractor in care of the appropriate Process Agent at such
Process Agent's above address and by depositing a copy of such
process in the mails by certified or registered air mail,
addressed to the Contractor at its address referred to in Article
35 of this Contract (such service to be effective upon such
receipt by the appropriate Process Agent and the depositing of
such process in the mails as aforesaid). The Contractor hereby
irrevocably and unconditionally authorizes and directs such
Process Agent to accept such service on its behalf. As an
alternate method of service, the
<PAGE>
59
Contractor also irrevocably and unconditionally consents to the
service of any and all process in any such action or proceeding
in such New York State or Federal court sitting in The City of
New York by mailing of copies of such process to the Contractor,
as the case may be, by certified or registered air mail at its
address referred to in Article 35 of this Contract. The
Contractor agrees that, to the fullest extent permitted by
applicable law, a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
3. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
--------------------
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE,
AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREE MENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS PARAGRAPH.
D. THE OBLIGATIONS OF EACH PARTY IN RESPECT OF THIS CONTRACT DUE TO ANY
PARTY SHALL, NOTWITHSTANDING ANY JUDGMENT IN A CURRENCY (THE "JUDGMENT
--------
CURRENCY") OTHER THAN DOLLARS, BE DISCHARGED ONLY TO THE EXTENT THAT ON THE
- ---------
BUSINESS DAY FOLLOWING RECEIPT BY SUCH PARTY OF ANY SUM ADJUDGED TO BE SO DUE IN
THE JUDGMENT CURRENCY SUCH PARTY MAY IN ACCORDANCE WITH NORMAL BANKING
PROCEDURES PURCHASE DOLLARS WITH THE JUDGMENT CURRENCY; IF THE AMOUNT OF DOLLARS
SO PURCHASED IS LESS THAN THE SUM ORIGINALLY DUE TO SUCH PARTY IN DOLLARS, EACH
PARTY AGREES, AS A SEPARATE OBLIGATION AND NOTWITHSTANDING ANY SUCH JUDGMENT, TO
INDEMNIFY SUCH PARTY AGAINST SUCH LOSS, AND IF THE AMOUNT OF DOLLARS SO
PURCHASED EXCEEDS THE SUM ORIGINALLY DUE TO ANY PARTY TO THIS CONTRACT, EACH
PARTY AGREES TO REMIT TO SUCH PARTY, SUCH EXCESS.
ARTICLE 34 APPLICABLE LAW
- --------------------------
THIS CONTRACT SHALL BE CONSTRUED AND GOVERNED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, UNITED STATES,
<PAGE>
60
EXCLUDING ITS CONFLICTS OF LAW PROVISIONS AND EXCLUDING THE CONVENTION FOR THE
INTERNATIONAL SALE OF GOODS.
ARTICLE 35 NOTICES
- -------------------
A. Any notices, consent, approval, or other communication pursuant to
this Contract shall be in writing, in the English language, and shall be deemed
to be duly given or served on a Party if sent to the Party at the address
stipulated in Sub-Article 35(B) and if sent by any one of the following means
only:
1. Sent by hand: Such communication shall be deemed to have been
received on the day of delivery provided receipt of delivery is
obtained.
2. Sent by facsimile: Such communication shall be deemed to have
been received, under normal service conditions, twenty-four (24)
hours following the time of dispatch or on confirmation by the
receiving Party, whichever is earlier.
3. Sent by registered or certified mail: Such communication shall be
deemed to have been received, under normal service conditions, on
the day it was received or on the tenth day after it was
dispatched, whichever is earlier.
B. For purposes of this Article, the names, addresses and fax numbers of
the Parties are as detailed below. Any change to the name, address, and
facsimile numbers may be made at any time by giving thirty (30) days prior
written notice.
Alcatel Submarine Networks
30 Rue Pierre Beregovoy
92111 Clichy Cedex
France
Facsimile: 011-33-01-4756-6920
Alcatel Submarine Networks, Inc.
15540 North Lombard Street
Portland, Oregon 97203-6428
Mid-Atlantic Crossing Ltd.
Wessex House
45 Reid Street
Hamilton HM12
Bermuda
Facsimile: 441-296-6749/8606
<PAGE>
61
ARTICLE 36 PUBLICITY AND CONFIDENTIALITY
- -----------------------------------------
A. No information relating to this Contract shall be released by either
Party to any newspaper, magazine, journal or other written, oral or visual
medium without the prior written approval of an authorized representative of the
other Party; provided that, subject to Article 20 (Safeguarding of Information
--------
and Technology) and the following Sub-Article, this Article shall not restrict
either Party from (i) responding to customary press inquiries or otherwise
making public or private statements in the normal course of business, so long as
consistent with a mutually agreed press-release and (ii) assisting in the
obtaining of financing in accordance with Sub-Article 37(C), including the
publication of a financial tombstone.
B. This Contract and any non-public information, written or oral, with
respect to this Contract, "Confidential Information", will be kept confidential
and shall not be disclosed, in whole or in part, to any person other than
affiliates, officers, directors, employees, agents or representatives of a Party
(collectively, "Representatives") who need to know such Confidential Information
for the purpose of negotiating and executing this Contract. Each Party agrees to
inform each of its Representatives of the non-public nature of the Confidential
Information and to direct such persons to treat such Confidential Information in
accordance with the terms of this Article. Nothing herein shall prevent a Party
from disclosing Confidential Information (a) upon the order of any court or
administrative agency, (b) upon the request or demand of, or pursuant to any
regulation of, any regulatory agency or authority, (c) to the extent reasonably
required in connection with the exercise of any remedy hereunder, (d) to a
Party's legal counsel or independent auditors, (e) prospective lenders to the
Purchaser or Purchaser's parent or affiliate companies, and (f) to any actual or
proposed assignee of all or part of its rights hereunder provided that such
actual or proposed assignee agrees in writing to be bound by the provisions of
this Article.
ARTICLE 37 ASSIGNMENT; SUBCONTRACTORS
- --------------------------------------
A. Except as provided in this Article, neither Party shall assign this
Contract or any right or interest under this Contract, nor delegate any work or
obligation to be performed under this Contract ("Assignment"), without the other
Party's prior written consent which shall not be unreasonably withheld (it being
understood that it shall be deemed to be reasonable to withhold consent to the
assignment of this Contract or any rights, interest or obligations hereunder to
a competitor of Contractor or an affiliate of a competitor or uncreditworthy
party). Nothing herein shall preclude a Party from employing a subcontractor in
carrying out its obligations under this Contract. A Party's use of such
subcontractor shall not release the Party from its obligations or liability
(including warranties) under this Contract. If a proposed subcontractor of
major Supplies (i.e. Supplies listed on Exhibit I) is not listed on Exhibit I
hereto, Contractor shall obtain approval thereof from Purchaser, which approval
shall not be unreasonably withheld.
B. The Contractor has the right to assign all of its rights under this
Contract or to delegate all of its duties hereunder at any time without the
Purchaser's consent to any successor to substantially all the assets of the
Contractor by way of a merger, consolidation or sale of assets provided that in
the case of any assignment or delegation pursuant to this
<PAGE>
62
Sub-Article 37(B) such assignee shall assume in writing all warranties,
representations and obligations of Contractor under this Contract. The
Contractor shall give the Purchaser written notice 30 days prior to the
assignment.
C. The Parties acknowledge that Purchaser may finance construction of the
System on a "project finance" basis and that in connection therewith the
financing parties will require that such financing be secured by certain assets
of Purchaser (including but not limited to this Contract). The Purchaser may, in
connection with any such project financing grant a collateral assignment of the
System and/or its rights and obligations under this Contract to any such
financing parties, and in connection therewith, the Contractor will execute and
deliver a Consent, substantially in the form of Exhibit B hereto; provided that
Contractor agrees to make such changes or additions to such form as may be
reasonably requested by such financing parties and Purchaser, and such financing
parties may transfer in accordance with such Consent. *
D. The Purchaser has the right to assign all of its rights and delegate
all of its duties under this Contract to any other entity to whom all of
Purchaser's rights and interests in the System have been transferred. Purchaser
also has the right (i) to assign all of its rights hereunder with respect to any
particular Landing Assets to any Transferee, (ii) to assign Permits with respect
to such Landing Assets, or have Permits with respect to such Landing Assets
issued in the name of, such Transferee and (iii) to transfer such Landing Assets
or have such Landing Assets transferred directly to, such Transferee; provided
--------
that such Transferee shall execute a supplement to this Contract whereby it
becomes jointly and severally liable, together with Purchaser, for all of
Purchaser's obligations under this Contract. "Landing Assets" means, with
respect to each jurisdiction where a portion of the System is located, all or
part of such portion of the System located therein. It is understood that the
Purchaser, at its option, may assign and transfer rights with respect to Landing
Assets in different jurisdictions to different Transferees. Purchaser
contemplates effecting the foregoing assignment pursuant to a Supplement hereto
substantially in the form of Exhibit E hereto, and the Contractor agrees to
execute and deliver such Supplement, with such changes as the Parties mutually
agree. Purchaser shall not transfer any of its rights under this Contract or
the System except in accordance with the foregoing. Any assignment or transfer
by Purchaser not expressly permitted by Sub-Article 37(C) or (D) shall be of no
force and effect. Any assignment or transfer by Purchaser which results in any
increase in costs or any loss, damage, delay or failure of performance shall
constitute a Force Majeure, and, without
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
63
limiting the applicability of Article 17 (Force Majeure), Purchaser shall be
responsible for any increase in costs resulting therefrom.
ARTICLE 38 RELATIONSHIP OF THE PARTIES
- ---------------------------------------
All work performed by a Party under this Contract shall be performed
as an independent contractor and not as an agent of the other and no persons
furnished by a Party shall be considered the employees or agents of the other.
Each Party shall be responsible for its employees' compliance with all Laws
while performing under this Contract. This Contract shall not form a joint
venture or partnership between the Parties.
ARTICLE 39 SUCCESSORS BOUND
- ----------------------------
This Contract shall be binding on the Contractor and the Purchaser and
their respective successors and permitted assigns.
ARTICLE 40 ARTICLE CAPTIONS
- ----------------------------
The captions of the Articles do not form part of this Contract and
shall not have any effect on the interpretation thereof.
ARTICLE 41 SEVERABILITY
- ------------------------
If any of the provisions of this Contract shall be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate or
render unenforceable the entire Contract, but rather the entire Contract shall
be construed as if not containing the particular invalid or unenforceable
provision or provisions and the rights and obligations of the Contractor and the
Purchaser shall be construed and enforced accordingly. In the event such invalid
or unenforceable provision is an essential and material element of this
Contract, the Parties shall promptly negotiate a replacement provision.
ARTICLE 42 *
- -------------
A. *
B. *
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
64
*
C. *
ARTICLE 43 SURVIVAL OF OBLIGATIONS
- -----------------------------------
The Parties' rights and obligations, which, by their nature would
continue beyond the termination, cancellation or expiration of this Contract,
including, but not limited to, those contained in Sub-Article 4(B) (Taxes,
Levies and Duties) and Sub-Article 4(C) (Withholding Tax), Article 18
(Intellectual Property), Article 20 (Safeguarding of Information and
Technology), Article 21 (Export Control) and Article 23 (Limitation of
Liability/Indemnification) shall survive termination, cancellation or expiration
hereof. Article 10 (Warranty) and Article 11 (Contractor Support), shall survive
termination, cancellation or expiration hereof, if and only if, this Contract is
terminated by Purchaser pursuant to Sub-Article 13(A).
ARTICLE 44 NON-WAIVER
- ----------------------
A waiver of any of the terms and conditions of this Contract, or the
failure of either Party strictly to enforce any such term or condition, on one
or more occasions shall not be construed as a waiver of the same or of any other
term or condition of this Contract on any other occasion.
ARTICLE 45 LANGUAGE
- --------------------
This Contract has been executed in the English language and English
will be the controlling language for interpretation of this Contract.
ARTICLE 46 ENTIRE AGREEMENT
- ----------------------------
This Contract supersedes all prior oral or written understanding
between the Parties and constitutes the entire agreement with respect to the
subject matter herein. Such terms and conditions shall not be modified or
amended except by a writing signed by authorized representatives of all Parties.
* MATERIAL OMITTED AND SEPARATELY FILED WITH THE COMMISSION UNDER AN
APPLICATION FOR CONFIDENTIAL TREATMENT.
<PAGE>
65
This Contract is executed as of the date first set forth above in
__________, ___________ by a duly authorized representative of ASN, in
___________, ___________ by a duly authorized representative of ASNI, and in
Bermuda by a duly authorized representative of Purchaser, as set forth below.
ALCATEL SUBMARINE NETWORKS
By: /s/ Patrick Realis
----------------------
Name: Patrick Realis
Title: Director - Americas
ALCATEL SUBMARINE NETWORKS, INC.
By: /s/ Warren E. Soloduk
----------------------
Name: Warren E. Soloduk
Title: Senior Commercial Manager
MID-ATLANTIC CROSSING LTD.
By: /s/ K. Eugene Shutler
---------------------
Name: K. Eugene Shutler
Title: President
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
Arthur Andersen LLP
Hamilton, Bermuda
July 23, 1998
